TaxTMI 
TaxTMI 
1951 (1) TMI 38
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ₹ 79,532 has been rightly assessed as the income for the assessment year 1939-40? (4) Whether the sum of ₹ 5,249 was rightly assessed in the hands of the assessee when although assessment proceedings were started against the Receiver but only the quantity of income was determined and no tax was either levied on it or recovered from the Receiver? The reference was made at the instance of the assessee. The assessee carried on the business of money-lending and also owned certain zamindary property. On 10th August, 1908, certain properties were mortgaged by an estate known as the Searsole Estate to Messrs. Laik Banerjee & Co. for ₹ 1,00,000; interest on the mortgage money was to be paid at the rate of 7 per cent, per annum. On the same date the mortgagors leased out the lands in question to the mortgagee and it was provided that as far possible the interest payable by the mortgagor on the mortgage was to be paid out of the rents and royalties payable by the mortgagee to the mortgagor under the lease. On 9th February, 1920, the mortgagee and lessee's interest was sold in execution of a decree which had been obtained against Messrs. Laik Banerjee & Co. by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Officer received information from the Searsole Estate and the assessee was served with a notice under Section 34 of the Indian Income-tax Act on 19th May, 1943, alleging that items of his income had escaped assessment. These items are set out at pages 2 and 3 of the paper book. The first three items are the items of ₹ 22,372, ₹ 11,133 and ₹ 65,027 to which I have already made reference. It will be seen that all these items are said to have been received in the years 1928, 1929 and 1930, the last receipt being the receipt of ₹ 40,632 being a part of the sum of ₹ 65,027 which was received on 18th January, 1930. Two items are then shown as having been received later, namely, an item of ₹ 59,000 received on 4th August, 1930, being the proceeds of the sale of the mortgaged property in execution, and an item of ₹ 50,000 received on 4th April, 1939, which was the value of property transferred to the assessee in satisfaction of his personal decree. All the receipts total ₹ 2,07,532. Against that amount is set off the cost of the loan as it is said, that is ₹ 1,10,000, which is what the assessee paid for the interest of the mortgagee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Gupta contends that no assessment could have been made because the income which it was sought to assess had been received by the assessee in the years 1928,1929 and 1930 that is, long beyond eight years of the proceedings. On the other hand, the taxing authorities contend that this income. was not received or did not become taxable until this mortgage transaction had been completed by the acceptance of property worth ₹ 50,000 on 4th January, 1939, in full discharge of all outstanding obligations. If of course the income could not be said to have been received before January, 1939, there would be no force whatsoever in Mr. Gupta's contention. But in our view the income sought to be assessed as having escaped assessment was income which had been paid and which had been received by the assessee in the year 1930 and earlier years. The first item of income, namely, ₹ 22,372 was shown by the assessee as having been received in the plaint which he filed in the mortgage suit. That is shown as interest received and this plaint is dated 31st March, 1922. It is quite clear that that plaint shows actual receipt of this sum of ₹ 22,372 as interest as far back as the year....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been disposed of. But there is at the moment an appeal from the decree of the High Court pending before the Supreme Court. The question involved is whether or not the provisions of the Bengal Money-lenders Act apply to this transaction. It seems that the assessee did not disclose in his returns the receipt of any of these sums. It is equally clear that the Income-tax authorities knew that the sums had been received. They certainly knew that the two sums making up the total of ₹ 65,027 had been received as interest because the assessment order actually recites that fact and refers to earlier assessment orders in which that fact is stated. It seems that the assessee when questioned, defended his attitude in not disclosing these amounts by saying that they were not yet taxable as the litigation had not concluded. The taxing authorities appear to have accepted that view and did not claim to tax these amounts until the year 1939 when it could be said that the transaction was concluded by reason of the acceptance of a property worth ₹ 50,000 in full satisfaction of the mortgage claim. Mr. Gupta's contention is that these amounts having been paid and received as interest ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cil case their Lordships laid down that if money is paid by a debtor to a creditor on account without any appropriation towards principal or interest, the creditor can appropriate and if he does appropriate in a particular year then he cannot complain that the amount so appropriated in that year as interest is assessable to income-tax in that year. Further their Lordships held that if there is no appropriation the Income-tax authorities can properly appropriate the amount paid if less than the amount due for interest. The facts of the present case are entirely different. The three payments of interest to which I have referred were payments of interest as such. In the plaint ₹ 22,000 odd is acknowledged as having been received as interest and received as interest before the year 1922. Where a creditor acknowledges the receipt of a payment as interest then he has received it, no matter how he attempts to show the receipt in his books. A creditor cannot deny the receipt of interest where he has actually been paid the interest as such by not showing in his books the receipt of the money as interest. If a person has been paid and he has accepted the payment as interest then no boo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; 65,000 odd to be credited in the decree, but it does not in terms state whether it was to be credited against principal or interest. Dr. Gupta suggested that this payment of ₹ 65,000 must therefore be regarded as an open payment made on account generally and as there had been no appropriation before the year 1939-40 the taxing authorities could appropriate this sum as against interest in that year and tax it as interest arising in that year. However, the orders of the Income-tax Officer and the Appellate Assistant Commissioner make it clear that the taxing authorities admitted that this payment of ₹ 65,000 was towards interest and in the orders it is expressly stated that the two payments making up ₹ 65,000 were payments of interest. It is therefore not open to Dr. Gupta now to suggest that these were payments on account generally. In any event it appears to me that if they could not be regarded as payments without any appropriation, the Court would be entitled to presume that they were payments towards interest. In Maharajadhiraja of Darbhanga's case (supra) Lord Macmillan who delivered the judgment of the Board observed at page 157 :- "Now, where i....