TaxTMI 
TaxTMI 
1967 (4) TMI 7
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....of the face value of Rs. 3,46,300. The amount received in the year 1946 was appropriated by the appellant towards the principal due. The appellant split up the amount of the face value of the bonds into two sums of Rs. 2,22,097-9-11 and Rs. 1,24,202-6-1, and credited the first amount in the books of account towards the balance of principal and the second amount to an account styled " Interest Accrued ". In submitting the return of his taxable income for the assessment year 1948-49 the appellant did not disclose any receipt of income from interest due on the loans advanced to Nisar Ahmad Khan. The appellant was duly assessed to tax on the income disclosed by him. In October, 1948, the appellant sold the Encumbered Estates Bonds and realized a total sum of Rs. 3,21,600 and disclosed in the return for the assessment year 1949-50 as interest received during the year of account the difference between the amount realized by sale of the bonds and the amount due as principal. The Income-tax Officer issued a notice under section 34(1)(a) of the Indian Income-tax Act and brought to tax the difference between the face value of the bonds and the amount due as principal as escaped income of the....
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....riod not exceeding 20 years. The form of the bond is as follows : " The Governor of the United Provinces hereby promises to pay to ............ or order at any Treasury in the United Provinces or at the General Treasury at Fort William or at Bombay on the............ day of......... 19... on the application of the holder, or earlier at the entire option of the Government of the United Provinces, the sum of............... and in the meantime to pay at the said Treasury interest on such sum at the rate of three and one quarter per cent. per annum, such interest to be paid half yearly on the 20th day of February and the 20th day of August in every year, commencing from the 20th day of......... 19... on which date the whole interest due from the date hereof shall be paid." On February 26, 1948, the appellant received Encumbered Estates Bonds of the face value of Rs. 3,46,300. The appellant appropriated bonds of the face value of Rs. 2,22,097-9-11 towards the principal and costs due, and appropriated the remaining bonds of the value of Rs. 1,24,202-6-1 towards " interest accrued due " in the debtor's account. The departmental authorities and the Tribunal held that the receipt by t....
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....action of an obligation, income which is embedded in the value of the assets is deemed to be received: the receipt of income is not deferred till the asset is realized in terms of cash or money. It makes no difference whether the receipt of assets is in pursuance of an agreement or that the trader is compelled by law to accept the assets from the debtor. Once title of the trader to an asset received is complete, whether by a consensual arrangement or by operation of law, be receives the income embedded in the value of the asset. In Californian Copper Syndicate v. Harris Lord Trayner in dealing with a case of assessment to income-tax of a company, formed for the purpose, inter alia, of acquiring and re-selling mining property, which resold the whole of its assets to a second company and received payment in fully paid shares of the purchasing company, observed : " A profit is realised when the seller gets the price he has bargained for. No doubt here the price took the form of fully paid shares in another company, but, if there can be no realised profit, except when that is paid in cash, the shares were realisable and could have been turned into cash, if the appellants had been pl....
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.... to make an interest payment presently due, the owner of security cannot be said to have received income from it. In such a case, the payment has been postponed instead of being made on its due date. Nor do I see how it can make any difference if upon the true reading of the transaction the original obligation is extinguished and the promise to pay at a later date is accepted in its place." Mackinnon L. J. observed at page 721: " It is quite true that income may arise by the receipt of money's worth as well as by the receipt of money. And it is equally true that a debtor may pay his debt by giving the promise of a third party to pay. . . . But I am satisfied that there can never be payment of his debt by a debtor by giving his own promise to pay at a future date. And I am equally satisfied that, though income arises to a creditor from a debtor's paying his debt, income does not arise by the debtor's promising that he will pay his debt later on." But the Encumbered Estates Bonds were by operation of the statute received by the appellant in satisfaction pro tanto of the liability of the debtor. They were a fresh security. The liability of the original debtor was substituted ....