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TMI Blog1934 (7) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... therefrom, then the computation shall be made upon such basis and in such manner as the Income Tax Officer may determine." Now, as I understand the law upon this subject the intention of the legislature in enacting Section 13 was that for income tax purposes the assessee should be entitled to make use of any method of accounting that he chooses to adopt, but (a) he must follow the selected method "regularly," and is not to be allowed to change his system of book-keeping from year to year or so frequently as to prevent a fair estimate of his income, profits and gains de anno in annum from being ascertained; (b) "if the method employed is such that in the opinion of the Income Tax Officer, the income, profits and gains cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income Tax Officer may determine". (c) "what the officer is directed to compute is not the assessee's receipts, but the assessee's income, and in dubio what the assessee himself chooses to treat as income may well be taken to be income and to arise when he so chooses to treat it"; although book entries purporting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be remembered that the assessees are money-lenders, not land owners, and that their business is to lend money at interest and not to cultivate the soil. I assume for the purpose in hand that prior to the assessment for 1932-33 the assessees were content to have their income assessed in respect of transactions in which lands had been taken over in satisfaction of outstanding loans in the following manner; the value of the land was set out in their books of account at a certain figure which was allocated in part to the principal sum that had been lent and in part to interest. Upon the amount appropriated to interest income tax was claimed and paid in the year in which the lands were transferred but the question whether income tax was payable in respect of the receipt of the land to the extent to which the value thereof represented a repayment of the principal was held in suspense until the land was sold and it had been ascertained whether the sale proceeds exceeded or where less than the amount of the principal sum that had been lent. For the purpose of the assessment for the year 1932-33, however, the assessees in respect of lands transferred to them during the accounting year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uot;no settlement, but merely an open payment to account" differs toto caelo from: "an arrangement affecting the whole indebtedness whereby certain assets were accepted in part satisfaction and promissory notes were taken for the balance. The basis of the presumption, namely, that it is to the creditor's advantage to attribute payments to interest in the first place, leaving the interest bearing capital outstanding is gone. Moreover........there is authority for the proposition 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: Smith v. Law Guarantee and Trust Society Ltd." Now, in these circumstances the assessees contend that each transaction in which land is received in satisfaction of an outstanding debt must be considered on its own merits. It is urged on their behalf that the land which is received in repayment of a loan is the equivalent of cash, and should be treated as money's worth and as such not fixed capital, but working assets, and part of the stock in trade of their business as moneylenders. They contend that in cases where the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess in the accounting year and, as Lord Loreburn pointed out in Sun Insurance Office v. Clark: "A rule of thumb may be very desirable, but cannot be substituted for the only rule of law that I know of, namely, that the true gains are to be ascertained as nearly as it can be done." The error, if I may say so, into which as it seems to me the income-tax authorities have fallen in the present case is that they appear to think that whereas for the purpose of ascertaining as a matter of fact the actual profits and gains that accrued during the accounting year the income-tax authorities have a free hand, an assessee is precluded by his book entries from proving what the true position is, and that for the purpose of assessment the Income Tax Officer is entitled-applying as it were a rule of thumb-to take as the actual value of the lands, the figure at which the lands are entered in the assessees' books, notwithstanding that the value at which the lands stand in the assessees' books (in the circumstances in which it is well known that Chettyar money-lenders are compelled to take over lands from their debtors), may be merely an arbitrary and fictitious figure, and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accounting year in which the assessees sell the lands, when it will be possible finally to ascertain whether or not in respect of the transaction a profit chargeable to income tax has accrued to the assessees. As the assessment is made upon the footing that the transaction has been completed during the accounting year, I am of opinion that the assessees are not entitled to have the value of the lands assessed in any other accounting year except that in which the lands are sold by them, and until the sale takes place the final adjustment of the assessment must necessarily remain in suspense. I would answer the first part of the question propounded in the above sense, and the second part in the affirmative. The assessees are entitled to their costs, 10 gold mohurs, which includes the ₹ 100 deposited under Section 66(2). BAGULEY, J.--I agree and have very little to add. With regard to the fact that the assessee entered the land in his accounts at a certain figure, I would point out that the assessee merely put down in his cash account a certain figure as representing the land which he received as money's worth, but on the other side of the account he immediately wrote th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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