TMI Blog1988 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ain Mulla Muhammad Ali ("the assessee "), for the four assessment years 1957-58 to 1960-61. In the original returns for the assessment year 1957-58 relevant to the valuation date March 31, 1957, the assessee filed a return of net wealth of Rs. 8,57,910 which included a sum of Rs. 4,00,000 representing the principal value of a loan advanced by the assessee to a certain Faizullabhai Mandlawala, Sidhpur. Both the assessee and the said Faizullabhai Mandlawala were partners of a firm carrying on the business under the name and style " Rising Sun Flour Oil Mills at Ujjain. The borrower had employed this sum as part of his capital in the firm. In the revised return filed by him, the assessee, however, sought to have the value of that loan excluded from his wealth, on the claim that this loan was what was known to Muslim law as Quaraza-e-Hasana, debt of good faith and goodwill carrying with it no legal obligation on the part of the debtor to repay and, correspondingly, no right on the part of the assessee to expect, much less enforce a repayment. The claim for the non-inclusion of this asset in the wealth of the assessee was sought to be supported by the declaration dated March 26, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, on the facts and circumstances of this case, the amount of Rs. 4 lakhs cannot be treated as a debt due to the assessee and the same cannot be included in the total assets of the assessee." Learned counsel submitted that the inference drawn does not only not flow from the premise but also would clearly be antithetical. If the concept of " Quaraza-e-Hasana " and the peculiar incidents attributed to it are not established, the plea that there is a debt but yet there is no obligation to repay become mutually contradictory. In regard to the subsidiary or supporting reasons for the acceptance by the Tribunal to hold that there was no debt which could be said to be due and owing to the assessee, learned counsel invited our attention to the following reasoning of the Tribunal : " ...Faizullabhai in a declaration dated March 26, 1965, has started that this amount was received by him without any obligation and without any rate of interest and without any consideration. Therefore, the question that arises for consideration is whether under this peculiar circumstance, it can be said that this sum of Rs. 4 lakhs which was given by the assessee to Faizullabhai prior to 1950 for which ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eh, Cambridge University Press, 1986) does not appear though we do not want to be understood to have pronounced on the subject finally to support the particular incidents of the non-existence of the element of repayability attributed to this kind of loan. Learned author says that Sharia distinguishes between two types of loans : one the " Ariya " the " loan for use " which transfers the usufruct of the property temporarily and gratuitously while ownership of the loaned-object remains with the lender ; and the second, the " qard ". In regard to this second type of loan, the " qard ", the author says (at pages 35 and 36): " The second type of loan recognised by Sharia is the qard, which 'involves the loan of fungible commodities' ; that is, goods which may be estimated and replaced according to weight, measure or number. In this case, the borrower undertakes to return the equivalent or likes of that he has received but without any premium on the Property, which would, of course, be construed as interest. The most likely object of a qard loan would be currency or other standard means of exchange. "(Emphasis supplied) On the question whether the lender of " qard " is entitled to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I, p. 158, excerpting from Fatawai Alamgiri, says: " Ewaz or consideration was of two kinds: one which was subsequent to the contract (of gift), the other which was conditioned in it. In the other kind, the consideration was expressly stipulated in the contract, and when once it was received, the transaction acquired the legal character of a sale. The modern hiba-ba-shart-ul-iwaz has unquestionably sprung from the above." Then, in the last analysis, what follows as a logical consequence is that the debt, though a " passive debt ", would require to be treated as due and payable to the assessee. It was not the assessee's case that the debt was a bad and irrecoverable debt. The declaration of the debtor itself establishes its existence. But, then, Shri Ramachandran, anticipating the inherent infirmity of the claim based on " Quaraza-e-Hasana " sought to treat us to resourceful argument that the conclusion of the High Court is, at all events, supportable on an independent ground that an agreement will not, by itself, yield legal obligations unless it is one which can reasonably be regarded as having been made between the parties in contemplation of legal consequences and that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction were excluded from contemplation by the parties. Here, one partner has lent a large sum to the other to be utilised as capital in the partnership venture. The transaction is in the context of a commercial venture. The presumption is that legal obligations are intended. The onus is on the parties asserting the absence of legal obligations and the test is not subjective to the parties; but is an objective one. Chitty says : "...The onus of proving that there was no such intention is on the party who asserts that no legal effect is intended, and the onus is heavy one. Where such evidence is adduced, the courts normally apply an objective test." (emphasis supplied) The observations of Atkin L.J. in the case cited by counsel are also worth recalling (at p. 293): "...Such an intention ordinarily will be inferred when parties enter into an agreement which in other respects conforms to the rules of law as to the formation of contracts. It may be negatived impliedly by the nature of the agreed promise or promises, as in the case of offer and acceptance of hospitality, or of some agreements made in the course of family life between members of a family as in Balfour v. Balfou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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