VENKATADRI J.

In these two references, the common questions that arise for our determination are : (1) Whether the surplus realisations of 5, 150 and 7, 038 dollars on the sale of properties were revenue receipts assessable under the Indian Income tax Act; and (2) Whether the sums of Rs. 9, 778 and Rs. 9, 676 can be held to be interest receipts and as such part of the income of the assessee's headquarters' businesse ?

The assessee, in Tax Case No. 154/62, is a Hindu undivided family, and in Tax Case No. 3/62 is an individual member deriving income from property, money-lending business at headquarters at Devakottach. Up to the year April 13, 1957, the business at Kampar, Tappah and at other places in Malaya was run as a partnership firm with the assessee and five others as partners. This firm carried on business in money-lending and also in the purchase and sale of real properties. After April 13, 1957, this firm was dissolved and the assessee got one-sixth share in the assets of the firm, being lands, house properties and rubber estates. During the year under reference, viz., the year ending with April 13, 1957 (assessment year 1958-59), the money-lending transactions in the foreign places were entered in the books maintained at Kampar. The lands, house properties and rubber estates which the assessee got on dissolution of the firm were kept separately in the books maintained at Tappah. The assessee in each case sold three pieces of properties which had been taken over from the firm on its dissolution. The original cost price of these properties were not known. The assessee in Tax Case No. 3 of 1962 worked out a net surplus of 5, 150 dollars, and the assessee in Tax Case No. 154 of 1962 worked out a surplus of 7, 038 dollars, after deducting a certain sum as bonus relating to the sale of these properties.Similarly, in the adayam account at the headquarters of each of the assessee, a sum of Rs. 9, 778 and Rs. 9, 676, respectively, had been credited as interest in the profit and loss account. In the books at Tappah and Penang, the above sums were debited as interest in the profit and loss account. At the time of filing of the returns the entries in each case were reversed in the adjustment statement accompanying the profit and loss account. The assessees contended that the sums of 5, 150 and 7, 038 dollars, the surplus sale proceeds of immovable properties, were in the nature of capital receipt and the credit entries of interest of Rs. 9, 778 and Rs. 9, 676 were not income of the money-lending business at the headquarters. But the Income-tax Officer in computing the income for the assessment year in question, added the above-said sums treating it as revenue receipts and income for the year.

The assessees appealed to the Appellate Assistant Commissioner. On the question of capital receipts, he observed that the lands, house properties and rubber estates at Tappah were held by the assessees as investments and the Income tax Officer had not found that the assessees were dealers in these properties, that, in fact, the prioritize sold were those which came to the assessee's share from the firm and that though the profit on such sale was assessed in the hands of the firm in the preceding years, the Income-tax Officer overlooked the point that the firm was not carrying on business in properties at these places. In the end, the Appellate Assistant Commissioner held that the excess realisations were not revenue receipts. In regard to the sums of Rs. 9, 778 and Rs. 9676, he held that the substance of the transactions amounted to paying interest to oneself, and that there was no diversion of any borrowed money for investments abroad. He therefore deleted these sums as income.The department carried the matter in appeal. The Appellate Tribunal allowed the departmental appeal. Regarding the taxability of the inter-branch interest of Rs. 9, 778 and Rs. 9, 676, the Tribunal observed that while charging interest on the brances, the asse