Cash-basis assessment and Hindu family partition principles governed taxability and exemption of debtor receipts.

Cash-basis income must be assessed only in the year of actual receipt, so earlier debtor payments could not be shifted into the 1931-32 assessment merely because they had previously escaped assessment or were later traced. The evidence also established a private partition of the larger Hindu undivided family in 1921, with the award and decree treated as confirming that earlier disruption. Because the disputed sum was received after the family had ceased to exist as a joint family, it did not qualify for exemption under Section 14 of the Indian Income Tax Act and was taxable as the assessee's income or profit.

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Issues: (i) Whether receipts from a debtor made in earlier years could be brought into the assessment for the year 1931-32 on the footing that the transaction was closed only later and the amounts were in suspense; (ii) whether the bigger Hindu undivided family had been partitioned in 1921 or only on the later award or decree; and (iii) whether Rs. 44,611-9-9 realised from the debtor was exempt from tax under Section 14 of the Indian Income Tax Act.

Issue (i): Whether receipts from a debtor made in earlier years could be brought into the assessment for the year 1931-32 on the footing that the transaction was closed only later and the amounts were in suspense.

Analysis: The assessment under Section 3 had to be confined to the income of the previous year where the books were kept on a cash basis and the Revenue had accepted that basis. The Court held that the mere fact that some earlier receipts had escaped assessment did not permit their inclusion in a later year merely because the department subsequently discovered the device used to obscure them. The authorities could not reconstruct later-year income by aggregating receipts from anterior years when no fresh allocation in the later year had been made by the assessee.

Conclusion: The earlier payments from November 1923 to September 1927 could not be taken into account in making the assessment for 1931-32, and this issue was answered in favour of the assessee.

Issue (ii): Whether the bigger Hindu undivided family had been partitioned in 1921 or only on the later award or decree.

Analysis: The evidence showed a private partition in Sambat 1978 corresponding to 1921, after which the members started separate businesses and dealt with their affairs independently. The award and decree were treated as confirming an earlier disruption rather than creating the separation for the first time. The surrounding facts, including the assessee's separate conduct after 1921, supported the finding that the family had ceased to exist as a joint family from that earlier date.

Conclusion: The partition was effected in 1921, and this issue was decided against the assessee.

Issue (iii): Whether Rs. 44,611-9-9 realised from the debtor was exempt from tax under Section 14 of the Indian Income Tax Act.

Analysis: Section 14 exempted sums received by an assessee as a member of a Hindu undivided family. Since the partition had already taken place in 1921, the amount in question was received after the family had ceased to be joint. The amount was therefore not within the statutory exemption, even though it could not be brought into the 1931-32 assessment because of the answer to the first issue.

Conclusion: The sum was not exempt under Section 14 and was liable to income tax as the assessee's income or profit, and this issue was decided against the assessee.

Final Conclusion: The reference was answered by excluding the earlier-year receipts from the 1931-32 assessment, while affirming the finding of prior partition and denying the claimed exemption for the disputed sum.

Ratio Decidendi: Where an assessee maintains accounts on a cash basis, taxable income for a year must be confined to actual receipts of that year, and earlier receipts cannot be shifted into a later assessment year merely because they were previously undisclosed or obscured in the books.

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