9911796707
TMI Blog1971 (1) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee up to July 6, 1932, amounted to Rs. 1,38,535. The interest on the same came to Rs. 1,34,965. On July 6, 1932, a further advance of Rs. 2,500 was made to the Pattayagar and for the amounts due from him, the Pattayagar executed a mortgage of some of his properties in favour of the assessee's father for a sum of Rs. 2,76,000. Till 1938, only a sum of Rs. 13,620 was paid by the mortgagor in part payment of the debt due from him. On December 14, 1940, the mortgagee instituted a suit on the foot of the mortgage bond claiming a sum of Rs. 5,50,573, inclusive of principal and interest. On September 19, 1943, the claim was compromised and on October 5, 1943, a compromise decree was passed for a sum of Rs. 3,50,500, in full satisfaction of the mortgagee's claim. The decree amount was made payable on or before October 1, 1944. The debt under the compromise decree was subsequently discharged. For the assessment year 1944-45, the assessee, Chidambaram Chettiar, as karta of his undivided Hindu family was assessed under section 23(3) of the Income-tax Act, 1922 (to be hereinafter referred to as " the Act "), on February 12, 1946, on a total income of Rs. 78,556 which, on appeal, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -examine the parties examined by the Income-tax Officer on the basis of whose statements he had come to the conclusion that a sum of Rs. 1,50,000 had been secretly paid to the mortgages by the mortgagor. Thereafter the Income-tax Officer further inquired into the matter ; Pattayagar's books of account were got produced to prove that an additional sum of Rs. 1,50,000 had been paid to the assessee. Some witnesses were also examined in the presence of the assessee to prove that fact. After doing so, a fresh order of assessment was made on the assessee under section 23(3) read with section 34. His order was affirmed by the Appellate Assistant Commissioner as well as by the Tribunal. At the instance of the assessee, the following three questions were submitted to the High Court under section 66(1) of the Act : " (1) Whether assessment under section 34 was valid and proper ? (2) Whether the Income-tax Officer rightly acted in giving effect to the order of the Appellate Assistant Commissioner setting aside the assessment to redo the same according to law after giving an opportunity to the appellant to place all his cards before the department ? (3) Whether Rs. 1,50,000 is taxable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the fact that the assessee had stoutly denied that fact and the court records did not support that information. It is true that the Income-tax Officer could have made further enquiry into the matter but the fact that he did not make any further enquiry does not take the case out of section 34(1)(a) particularly when the assessee had failed to place truly and fully all the material facts before him. The remark of the Income-tax Officer that " in any event this (the receipt of Rs. 1,50,000) should come up for consideration only in the assessment year 1944-45 as only the excess over Rs. 2,76,000 plus legal expenses can be treated as interest income in the hands of the assessee and so, the assessment for 1944-45 should not be held up pending further investigation " in the order sheet does not amount to a decision taken by him. It may be noted that those remarks were not made in the order assessing the income of the assesssee. It must also be remembered that the Income-tax Officer, at the time he made those remarks was not satisfied about the correctness of the information given by the Income-tax Officer, Erode. Hence, these remarks must be treated as casual observations and not a dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isadvantageous to him. In support of this conclusion reliance was placed by the High Court on the decision of the Judicial Committee in Commissioner of Income-tax v. Kameshwar Singh. In that case, the nature of several receipts by the assessee came up for consideration. For our present purpose we need only refer to two of them. One Damodar Das Burman owed to the assessee in the Fasli year 1332 Rs. 3,09,281. During the currency of the debt the debtor had made regular payments to the assessee over a number of years, the total of which payments was not stated. Those payments were entered in the deposit register maintained by the assessee but no allocations thereof were made as between principal and interest, and no part of those payments was carried to the interest register maintained by the assessee. Consequently, no part of these payments was subjected to tax until the Fasli year 1331, in which year for the first time the Income-tax Officer came to know about the deposit register maintained by the assessee. In that year, the deposit register showed a receipt of Rs. 38,091 and on this the officer claimed and was paid tax on the footing that it was attributable to interest and not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner stated, " the assessee took over from the debtor in satisfaction of this amount the following items of property movable or immovable : Rs. 1. The Kajora Colliery valued at 7,37,339 2. Shares in different companies valued at 94,125 3. Bills received by the above brokers (i.e., Ganesh Singh's firm) 48,809 4. Decree 1,42,594 5. Transfer of loan to the Agra United Co. 10,00,000 6. Pronotes and hand-notes (of third parties) 52,106 7. Hand-notes from Kumar Ganesh Singh 17,34,596 Rs. 38,09,569 " The question for decision was whether, as a result of the above settlement, it could be said that in the account year the assessee had received a sum of Rs. 6,09,571, due to him as interest. The Judicial Committee came to the conclusion that the first six items mentioned above amounting to Rs. 20,74,973 may perhaps reasonably enough be regarded as the equivalent of cash, but the seventh item of Rs. 17,34,596 consisting of the debtor's own promissory notes, was clearly not the equivalent of cash. A debtor who gives his creditor a promissory note for the sum he owes can in no sense be said to pay his creditor ; he merely gives him a document or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to appropriate the money value of the properties received towards the capital, otherwise there was a possibility of his having to pay income-tax on a receipt which ultimately may not prove to be an income. It is under those circumstances their Lordships observed : " that in a question with the revenue the taxpayer is entitled to appropriate payments as between capital and interest in the manner least disadvantageous to himself. " In our opinion the High Court was in error in thinking that the decision of the Judicial Committee in Kameshwar Singh's case has laid down a firm rule that whenever an assessee receives a payment and does not appropriate the same either towards the principal or interest, he must be deemed to have appropriated the same towards the principal. The decision in question, in our opinion, does not lay down the rule that, whenever any amount is received by a creditor which he has not specifically appropriated either towards the principal or the interest due to him, the taxing authorities should proceed on the basis of the presumption that it has been appropriated towards the principal. On the facts of that case it was clear that it was advantageous to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
