Tax treatment of revived debts turns on income-tax characterisation, while estoppel cannot override the charging provisions.

Amounts recovered after the statutory revival of pre-occupation debts were taxable only according to their character under the income-tax law; acceptance of the Malayan Ordinance scheme or reliance on estoppel could not override the charging provisions. The Ordinance merely regulated the existing debtor-creditor relationship and revived the unpaid balance, without creating a new liability or compensation. On deductions, payments made towards the revived debts were allowable only to the extent they represented interest, while the principal component remained capital in nature. Where payments were composite, appropriation had to follow the rules governing such payments under tax law.

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Issues: (i) Whether amounts recovered after revaluation and revival of pre-occupation debts under the Malayan Ordinance were taxable as income, and whether the assessee could rely on estoppel or the scheme to resist taxation; (ii) whether amounts paid by the debtor assessee towards the revived debts were allowable as deductions in computing income.

Issue (i): Whether amounts recovered after revaluation and revival of pre-occupation debts under the Malayan Ordinance were taxable as income, and whether the assessee could rely on estoppel or the scheme to resist taxation.

Analysis: The Ordinance did not create a new liability or provide compensation. It regulated the pre-existing debtor-creditor relationship by scaling down payments made in depreciated occupation currency and reviving the debt to the extent of the balance unpaid. Taxability could therefore arise only under the income-tax law, and not because the assessee had accepted a governmental scheme or because any equitable principle was invoked. The doctrine of approbate and reprobate, being a form of estoppel, cannot operate against the charging provisions of a taxing statute.

Conclusion: The recovered amounts were taxable only to the extent they constituted income under the Act, and estoppel could not make a non-taxable receipt taxable. The conclusion was in favour of the assessee.

Issue (ii): Whether amounts paid by the debtor assessee towards the revived debts were allowable as deductions in computing income.

Analysis: Payments made towards a debt are deductible only if the income-tax law permits deduction of the relevant component. On the High Court's approach, and accepted by the Court, only payments referable to interest could be claimed as revenue deductions, while payments referable to principal remained capital in nature. Where the payment comprised both components, the proper appropriation had to be made according to the law governing appropriation of payments.

Conclusion: Deductions were allowable only for the interest component, and not for the principal component. The conclusion was in favour of the Revenue on this issue.

Final Conclusion: The Ordinance revived the debts to the extent of the unpaid balance, but the tax consequences depended exclusively on the Income-tax Act. The appeals failed, and the High Court's directions regarding taxation of receipts and deduction of payments were upheld.

Ratio Decidendi: Where a debt discharged in depreciated occupation currency is revived by statute to the extent of the unpaid balance, the resulting receipts or payments are taxable or deductible only according to the character assigned to them by the income-tax law; estoppel or acceptance of a relief scheme cannot alter the statutory incidence of tax.

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