TMI Blog1967 (4) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act to him. The Special Judge, Sultanpur, passed an order for payment of Rs. 5,00,992 to the appellant. Pursuant to the order the appellant received in 1946, Rs. 1,54,692 from the debtor and for the balance the Government of the United Provinces gave to the appellant Encumbered Estates Bonds of the face value of Rs. 3,46,300. The amount received in the year 1946 was appropriated by the appellant towards the principal due. The appellant split up the amount of the face value of the bonds into two sums of Rs. 2,22,097-9-11 and Rs. 1,24,202-6-1, and credited the first amount in the books of account towards the balance of principal and the second amount to an account styled " Interest Accrued ". In submitting the return of his taxable income for the assessment year 1948-49 the appellant did not disclose any receipt of income from interest due on the loans advanced to Nisar Ahmad Khan. The appellant was duly assessed to tax on the income disclosed by him. In October, 1948, the appellant sold the Encumbered Estates Bonds and realized a total sum of Rs. 3,21,600 and disclosed in the return for the assessment year 1949-50 as interest received during the year of account the difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial Government in instalments with future interest at a rate determined by the Provincial Government. If the Collector has proceeded under section 27 he has to give to each creditor a bond or bonds bearing interest at the prescribed rate for the amount due to him payable in instalments within a period not exceeding 20 years. The form of the bond is as follows : " The Governor of the United Provinces hereby promises to pay to ............ or order at any Treasury in the United Provinces or at the General Treasury at Fort William or at Bombay on the............ day of......... 19... on the application of the holder, or earlier at the entire option of the Government of the United Provinces, the sum of............... and in the meantime to pay at the said Treasury interest on such sum at the rate of three and one quarter per cent. per annum, such interest to be paid half yearly on the 20th day of February and the 20th day of August in every year, commencing from the 20th day of......... 19... on which date the whole interest due from the date hereof shall be paid." On February 26, 1948, the appellant received Encumbered Estates Bonds of the face value of Rs. 3,46,300. The appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the receipt is deemed to arise or accrue. Where the accounts are maintained on cash basis receipt of money or money's worth and not the accrual of the right to receive is the determining factor. Therefore, if commercial assets are received by a trader maintaining accounts on cash basis in satisfaction of an obligation, income which is embedded in the value of the assets is deemed to be received: the receipt of income is not deferred till the asset is realized in terms of cash or money. It makes no difference whether the receipt of assets is in pursuance of an agreement or that the trader is compelled by law to accept the assets from the debtor. Once title of the trader to an asset received is complete, whether by a consensual arrangement or by operation of law, be receives the income embedded in the value of the asset. In Californian Copper Syndicate v. Harris Lord Trayner in dealing with a case of assessment to income-tax of a company, formed for the purpose, inter alia, of acquiring and re-selling mining property, which resold the whole of its assets to a second company and received payment in fully paid shares of the purchasing company, observed : " A profit is realised w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from which is money, receives from the person liable to pay that money some thing of money's worth (e. g., goods) instead of the money, such goods are income arising from the security.... On the other hand, where there is a mere substitution of a promise to pay at a later date for the obligation to make an interest payment presently due, the owner of security cannot be said to have received income from it. In such a case, the payment has been postponed instead of being made on its due date. Nor do I see how it can make any difference if upon the true reading of the transaction the original obligation is extinguished and the promise to pay at a later date is accepted in its place." Mackinnon L. J. observed at page 721: " It is quite true that income may arise by the receipt of money's worth as well as by the receipt of money. And it is equally true that a debtor may pay his debt by giving the promise of a third party to pay. . . . But I am satisfied that there can never be payment of his debt by a debtor by giving his own promise to pay at a future date. And I am equally satisfied that, though income arises to a creditor from a debtor's paying his debt, income does not ari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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