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TMI Blog1950 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... t at 3 per cent. per annum. In both the cases the Income-tax Officer, after deducting certain expenses incurred by the assessee, held that the amount, which covered the interest due under the decree, was assessable income. The Appellate Assistant Commissioner upheld the decision of the Income-tax Officer that the amount of interest included in a bond must be deemed to be income received by the assessee and was thus taxable. The Appellate Income-tax Tribunal, however, came to a different conclusion and on applications made by the Commissioner these references were made. In Miscellaneous Case No. 201 of 1948 the assessee was a Hindu undivided family of Shri Maheshwari Saran Singh of Anapur. His father had lent money to Rai Bajrang Bahadur Singh who applied under the Encumbered Estates Act. A decree for ₹ 60,280 was passed in favour of the Hindu undivided family against the landlord applicant, Rai Bajrang Bahadur Singh, and the amount carried interest at 4 per cent. per annum. On the 9th March, 1943, the final award was passed under which bonds worth ₹ 78,100 were given by the Collector to the assessee in satisfaction of the decree against the landlord applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Collector stating the amount of his private and public debts and requesting that the provisions of the Act be applied to him. The Collector then transfers the proceedings to the Special Judge. Before the Special Judge the landlord, who is called the landlord applicant, files a written statement giving the list of his creditors and the list of his assets. Notices are then published and the creditors have to put in written claims and if they do not do so within a certain time, their claims are deemed to have been discharged. After the claims are put in, no matter whether the claim is on the basis of a secured or an un-secured debt, simple money decrees are passed in favour of the creditors under Section 14 of the Act. Before considering the claims and passing decrees under Section 14 the Special Judge has to determine the properties belonging to the landlord applicant. After the Special Judge has prepared a list of the properties and a list of the debts he ranks the debts in order of priority in accordance with the provisions of Section 16 and then sends the decrees to the Collector for execution in accordance with the provisions of Chapter V of the Act. It is not necessary to deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, commencing from the 20th day of............19..., on which date the whole interest due from the date hereof shall be paid. It is signed for and on behalf of the Governor of the United Provinces by the Governor, Reserve Bank of India. On the back there are columns for half yearly payments of interest and another columns for recording the transfers. These bonds are for round figures of ten, hundred and so on. The result, therefore, is that the decree passed against the landlord applicant is satisfied by issue of the bonds by the Government which undertakes the liability to pay to the creditors in twenty years, or earlier, the amount mentioned in the bonds and in the meantime to pay interest at 3? per cent. per annum every half year. The bonds are transferable like any other Government Promissory notes. Under Sections 27 and 29 of the Encumbered Estates Act Government has in its turn the right to realise the money from the landlord debtor. The contention of the assessees was that the amount received was not payment of interest but was merely substitution of one security for another. It is now well settled that if instead of cash something equivalent to cash, that is, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbhanga [1933] 1 I.T.R. 94. the assessee had a sum of ₹ 38,09,569 due from Kumar Ganesh Singh. An arrangement was entered into between the assessee and his debtor and the assessee took over from the debtor in satisfaction of this amount a colliery, certain shares in different companies, unrealised bills, a decree, certain loans due to the debtor from others, promissory notes and hand notes of third parties and also fresh hand notes from the debtor himself. Their Lordships held that the fresh hand notes from the debtor himself were not payment but as for the rest they approved the opinion of the Commissioner that the transaction when rightly viewed amounted to the acceptance by the assessee from his debtor, in lieu and satisfaction of the capital and interest due to him, of assets and securities prima facie worth the valuation put upon them and that as the assessee had thus received payment in kind of the interest due to him in full, he should be assessed accordingly. Their Lordships went on to observe: that a liability to pay interest, like a liability to make any other payment, may be satisfied by a transference of assets other than cash and that a receipt in kind may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of security or payment, is the question whether the debtor is the same. In the two cases before us the liabilities of the debtors were wiped out and it was the State that took upon itself the liability. In Cross (Inspector of Taxes) v. London Provincial Trust, Ltd. [1939] 7 I.T.R. 109 Greene, M.R., said:- It is not open to question that income can be in the form of money's worth. Nor it is open to question that if the holder of a security, the contractual income from which is money, receives from the person liable to pay that money something of money's worth (for example, goods) instead of money, such goods are income arising from the security........... On the other hand, where there is a mere substitution of a promise to pay at a later date for the obligation to make an interest payment presently due, the owner of the security cannot be said to have received income from it. His Lordship quoted the following passage from the decision in Westminster Bank Ltd. v. Osler. [1933] 1 I.T.R. 65: From these cases it is plain that the essence of the matter is that there must be an actually realised or realisable profit or loss. The Master of the Rolls pointed out:-- It ..... 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