1964 (10) TMI 13 - SC - Income Tax

Whether the result of the Ordinance was to revive the old debts and the question of the exigibility of the said income to tax can only be decided on the provisions of the Income-tax Act and not by the terms of the scheme of the Ordinance?

Held that:- We hold, agreeing with the High Court, that under the Ordinance the discharged debts became enforceable to the extent of the balance of the amount due after the scaling down of the payments. If so, the Income-tax Officer could only impose tax on the income recovered by the assessees thereafter towards their debts if such income was taxable under the provisions of the Act.

The High Court correctly held that the assessees who had received repayments would not be liable to tax in respect of amounts they had received towards principal but they would be so liable in respect of moneys which they had received towards interest. It further held that those assessees who had made payments towards the debts would be entitled to deduct from their income and claim exemption from tax only such amounts as they had paid on account of interest but they would not be entitled to deduct any payment made on account of principal. The High Court also gave a direction that in the case of open payments the respective amounts paid towards principal or interest should be ascertained in accordance with the law of appropriation of payments. Neither the learned Solicitor-General, who appeared for the revenue, nor the learned counsel, who appeared for the assessees, questioned the correctness of the said directions if the construction we placed on the Ordinance was correct. The directions given by the High Court will, therefore, stand. Appeal dismissed.