TMI Blog1964 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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. - Civil Appeals Nos. 55, 888 and 889 of 1962 and 518 to 520, 722, 724, 725, 727 to 729 & 732 to 735 of 1963 - - - Dated:- 26-10-1964 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SUBBA RAO J.---These 16 appeals are filed against the judgment of the High Court of Judicature at Madras and raise the question of the effect of the Debtor and Creditor (Occupation Period) Ordinance No. XLII of 1948 of Malaya, hereinafter called the Ordinance, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 is a firm carrying on business of money-lending in Kampar in Federated Malay States. It applied for relief under the special scheme. It incurred loss for the aforesaid four ears of Rs. 1,33,125. For the years 1941-42 and 1942-43 it had a profit of Rs. 53,010 and Rs. 35,753 respectively. The said profits were set off against the losses and the taxes paid by it for the years 1941-42 and 1942-43 were refunded to it. After the Ordinance was passed, in terms of that Ordinance the respondent recovered 6,437 dollars during the previous year ending April 12, 1952, corresponding to the assessment year 1952-53. Civil Appeals Nos. 518 to 520 of 1963 deal with the converse case. The appellant therein is a Hindu undivided family carrying on, inter alia, a money-lending business in its own vilasam in Kuala Kubbu Bharu and Parit Bundar in the Federated Malay States. In the course of its business it had moneys as deposits from various persons before April 12, 1949. During the period of occupation it discharged its liability to various creditors but after the publication of the Ordinance it had to pay again to the creditors 6,214.58 dollars in the previous year ending April 12, 1950 ; 28,586 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115 of 1956 " M/S. L. AR. Firm ---------------------------------------------------------------- 518 to 520 of 1963 43 of 1956 O.V.R.SV. AR. CIT Madras Arunachalam Chettiar ---------------------------------------------------------------- 888 889 of 1962 90 of 1956 CIT. Madras O.R.M.O.M.A.M., Chidambaram Chettiar ---------------------------------------------------------------- Contd....... ---------------------------------------------------------------- Assessment year Claim Issue for determination ---------------------------------------------------------------- 1951-52 57,395.69 Creditor claims that the receipt is capital and not revenue. ---------------------------------------------------------------- 1951-52 39,851 " ---------------------------------------------------------------- 1951-52 9,889 " ----------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreed with the view of the Income-tax Officer. On further appeal to the Tribunal, in the case of receipts it held that the assessee by claiming benefits under the scheme and in including all its cash and bank balances in the Malayan business as part of the losses incurred therein in effect indirectly wrote off the debts to them and, therefore, the recoveries under the Ordinance were only a subsequent realization of the written off bad debts and, therefore, assessable to income-tax. In those appeals relating to deductions, the Tribunal confirmed the orders of the Appellate Assistant Commissioner. The High Court answered the questions referred to it as follows : (1) Where an assessee has received repayments, he will not be liable to tax in respect of amounts he has received as or towards principal, but he will be so liable in respect of moneys which he has received as or towards interest. Where only part of the debt has been recovered, the assessee will be at liberty, subject to the law relating to appropriation of payments, to appropriate the money he has received either towards principal or interest. The assessment in respect of such receipts will proceed on this basis, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accept the scheme. If he desired to opt for the scheme he was required to give option within one month after he was informed of the scheme. (ii) An assessee was permitted to include in his expenses certain items which would be inadmissible under the Indian Income-tax Act. (iii) The losses suffered by an assessee during the five years relevant to the assessment years 1942-43 to 1946-47 were to be aggregated. (iv) An assessee was permitted to carry the aggregated loss backward and set it off against his profits for the assessment year 1942-43. (v) Any loss still unabsorbed could be carried backward to the year 1941-42. (vi) Any excess tax found to have been paid after recomputing the income of an assessee by carrying his loss backward could be refunded to him. (vii) The loss could not be carred forward. The Central Board of Revenue issued further instructions on the above scheme by its letter dated December 1, 1947. One of the instructions was that debts due to the assessee if paid in Japanese currency would be taken to have been satisfied to that extent and excluded from the assets side in the balance-sheet, provided that if any recovery was subsequently made, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the Ordinance read : SECTION 4.---Discharge during occupation period of pre-occupation debts.---(1) Subject to the provisions of sub-section (2) of this section, where any payment was made during the occupation period in Malayan currency or occupation currency by a debtor or by his agent or by the Custodian or a Liquidation Officer purporting to act on behalf of such debtor, to a creditor, or to his agent or to the Custodian or a Liquidation Officer purporting to act on behalf of such creditor, and such payment shall be a valid discharge of such pre-occupation debt to the extent of the face value of such payment. (2) In any case --- (a) where the acceptance of such payment in occupation currency war, caused by duress or coercion ; or (b) where such payment was made after the thirty-first day of December, 1943, in occupation currency in respect of a pre-occupation capital debt, exceeding two hundred and fifty dollars in amount, which --- (i) was not due at the time of such payment ; or (ii) if due, was not demanded by the creditor or by his agent on his behalf and was not payable within the occupation period under a time essence contract ; (iii) if due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be of any value. During that proceess of devaluation debts were paid off and received in Japanese currency which resulted in loss to the creditors. To regulate the relationship between creditors and debtors during that period the said Ordinance was passed by the Malayan legislature on December 16, 1948. Under the said Ordinance payments in Japanese currency were to be valued and scaled down in accordance with the Schedule appended to the Ordinance. If a debtor was paid his debt in depreciated Japanese currency, he was required to pay over again a certain amount to be ascertained by the application of the provisions of the Schedule. In terms sub-section (2) says that the payment in Japanese currency shall be a valid discharge of such debt only to the extent of such revaluation. When the payments made towards debts were scaled down, the debts were revived in regard to the balance of the debt. After the making of the Ordinance, the creditor could enforce his debt to the extent not discharged and the debtor had the obligation to discharge the same. On the express terms of the Ordinance it is impossible to accept the contention that the State provided for compensation for the losses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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