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1. Taxability of unrealized decree in income tax assessment 2. Interpretation of accounting system for income tax purposes Analysis: The judgment pertains to a reference by the Income Tax Commissioner involving an assessee, a Hindu undivided family. The primary issues raised are whether an unrealized decree of a specific amount against certain individuals should be considered taxable income for income tax purposes, even if the amount has not been received, and whether the accounting system adopted by the assessee is appropriate for income tax assessment. The assessment was based on the income tax authorities' interpretation of the assessee's books, specifically focusing on a decree amounting to Rs. 23,012-6-0 related to a mortgage interest balance. The Department argued that the amount should be taxable based on Section 13 of the Indian Income Tax Act, as it was recorded in the assessee's books, despite not being realized during the relevant year. However, the Court disagreed with the Department's approach, stating that while the assessment should be based on the books, the Department's interpretation was incorrect. The Commissioner relied on a previous ruling to support the taxability of the decree amount, but the Court found that ruling inconclusive. Several contrary rulings were cited, emphasizing that income tax should be based on actual receipts rather than decreed amounts. The Commissioner argued that the decree amount falls under the Act's scope as income accruing or arising in British India. However, the Court interpreted the term "income" in its ordinary sense, i.e., what is actually received by the assessee. Since the Act does not define "income" explicitly, and the definition of "total income" does not encompass decreed but unreceived amounts, the Court concluded that the unrealized decree should not be considered taxable income for income tax purposes. Regarding the second issue, the Court determined that the assessee's accounting system was primarily for assessing the family's financial state and not for tax evasion purposes. Therefore, the Court directed the reference to be returned to the Commissioner, allowing costs for the assessee and a fee for the Crown's representative. The judgment clarifies the distinction between actual income received and decreed amounts for income tax assessment purposes, highlighting the importance of interpreting legal terms in their ordinary sense unless specified otherwise in the law.
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