Law: Income Tax Act, 1922

Section: 3

Section 4 of the Income-tax Act, 1961 [Corresponding to section 3 of the Indian Income-tax Act, 1922] - Income - Chargeable as - Assessment years 1949-50 and 1950-51 - Respondent assessee, who was a member of Jute Mills Association entered into agreement with Association restricting hours of work and was allotted loom-hours - Respondent being unable to work looms allotted transferred same for consideration - ITO included in total income of respondent amount received by sale of 'loom-hours' as revenue receipts liable to tax - Whether 'loom-hours' were asset of respondent but temporary user of 'loom-hours' could not be granted and, therefore, transaction involving transfer of 'loom-hours' was sale - Held, yes - Whether receipts from sale of 'loom-hours' were in nature of capital receipts and were not taxable - Held, yes FACTS The respondent carried on the business of manufacturing jute goods and was a member of the Jute Mills Association. To protect the members against loss resulting from over-production, members of the association entered into an agreement restricting hours of work. The number of hours for which the members were entitled to work their factories were called 'loom-hours'. Allotment of 'loom-hours' depended upon the number of looms installed in the factory of each member. In the account year corresponding to the assessment year 1949-50, the preparatory section of the factory of the respondent was unable to work the loom for the hours allotted to it and with the sanction of the association, the respondent sole unutilized 'loom-hours' and received certain amounts as consideration of the sale of surplus loom-hours. In proceedings for assessment for the relevant assessment years the ITO included in the total income of the respondent the amount received by sale of 'loom hours' as revenue receipts liable to tax. The order of the ITO was confirmed by the AAC and the Tribunal. On reference, the High Court held that the receipts of the assessee by the sale of loom-hours were not revenue receipts so as be liable to tax. On appeal : HELD It was not the case of the department that a business in 'loom-hours' was carried on by the respondent. It was also common…

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