Transferable bonds as money's worth trigger income on receipt, and reassessment stands for failure to disclose material facts.

Transferable estate bonds accepted in full settlement of a debt were treated as real receipt of money's worth under the cash system, so the embedded interest income became taxable in the year the bonds were received, not when they were later sold. Reassessment under the Income-tax Act was upheld because the assessee had not disclosed the interest income fully and truly, the original assessment did not reflect any conscious view on taxability, and the reopening was within limitation.

---

---

Issues: (i) Whether the receipt of encumbered estate bonds constituted receipt of income and cash for the assessment year in which the bonds were received; (ii) whether reassessment under section 34 of the Income-tax Act was valid on the facts of the case.

Issue (i): Whether the receipt of encumbered estate bonds constituted receipt of income and cash for the assessment year in which the bonds were received.

Analysis: Income need not be received only in actual currency. On a cash basis of accounting, actual receipt may be in kind, by adjustment, or by settlement of accounts, provided there is a real receipt. The bonds were transferable, represented money's worth, and were accepted in full settlement of the debt. The assessee squared up the loan account on receipt of the bonds. The interest component embedded in the bonds was therefore received when the bonds were received, not when they were later sold.

Conclusion: The receipt of the bonds amounted to receipt of income in the year in which the bonds were received, and the later sale of the bonds did not postpone the taxability of that income.

Issue (ii): Whether reassessment under section 34 of the Income-tax Act was valid on the facts of the case.

Analysis: The assessee did not include the interest income in the return and the entry made in the interest accrued account was found to be wrong. The original assessment did not show that the Income-tax Officer had formed any conscious opinion on the taxability of the amount. In those circumstances there was failure to disclose fully and truly all material facts, and the case fell within the reopening provision. The reassessment was also within limitation.

Conclusion: The reassessment proceedings were valid and were properly sustained.

Final Conclusion: The reference was answered against the assessee on all material questions, and the reassessment made by the revenue authorities was upheld.

Ratio Decidendi: Where a transferable asset received in settlement of a debt represents money's worth, its receipt constitutes receipt of income even under the cash system, and reassessment is justified when the assessee fails to make full and true disclosure of material facts and no prior conscious opinion on taxability had been formed.

---