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TMI Blog1949 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... hould pay ₹ 1,07,663-13-0 in cash while the sum of ₹ 5 lakhs should be paid to the assessee by Seth Mathuradas in ten equal annual instalments with interest thereon at ₹ 0-7-9 per cent. per mensem. If the interest was not paid punctually as provided in the deed, Seth Mathuradas was liable to pay compound interest and the entire outstanding amount was to become payable in default of three instalments. Seth Mathuradas was given the option to pay the instalments or the whole amount before due date and interest was to be charged on katmiti basis, i.e., on daily balances. Seth Mathuradas paid the first two instalments on due dates but did not make any further payment evidently on account of some dispute between the parties. The assessee instituted Civil Suit No. 8 of 1933 for partition of certain joint family property alleged to have been concealed by Seth Mathuradas. Evidently, as a counterblast the minor sons of Seth Mathuradas instituted Civil Suit No. 15-A of 1934 for reopening the partition. While these suits were pending the assessee instituted Civil Suit No. 1-B of 1939 for the recovery of the balance of ₹ 4 lakhs and interest thereon payable under the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital. He contended that the Income-tax authorities erroneously assumed that there were two agreements : one of partition and the other of an advance of loan, and wrongly held that the sum in dispute was income. At the time of the partition the parties determined the values of the movable and immovable properties and running businesses allotted to them. The properties were income yielding properties. As stated above, as a result of accounting and set-off Seth Mathuradas would have been required to pay a net amount of ₹ 3,92,336-3-0 to equalise the shares in partition but they arrived at an arrangement under which the assessee agreed to pay ₹ 1,07,663-13-0 immediately to Seth Mathuradas and the latter agreed to pay to the former ₹ 5 lakhs on terms and conditions above stated. If the assessee had received this sum of ₹ 5 lakhs he (to use the words of the arbitrator) "would not have allowed it to remain idle but would have taken advantage of the same by investing it in his business, money-lending or otherwise, and would have earned income, gain or profit therefrom." The reason for entering into this arrangement for payment, as given in Civil Suit No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red for assessment. The character of this periodical receipt or expected receipt does not change by the fact that the debtor did not carry out the agreement and make payments periodically. This interest payable to the assessee is thus a periodical monetary return coming in with some sort of regularity or expected regularity from a definite source. Amongst the assets received by the assessee at the partition there were several debtors of the money-lending business of the joint family. By the agreement Seth Mathuradas became one more debtor allotted to the assessee at the partition. The assessee continued the money- lending business even to the year of assessment. In this view the interest in dispute would be profits or gains of the money-lending business of the assessee, the fruit of the tree of money-lending, to use the picturesque phrase used by their Lordships of the Privy Council in Commissioner of Income-tax, Bengal v. Shaw Wallace & Co. [1932] I.L.R. 59 Cal. 1343 (P.C.) And we hold accordingly. It is true that the Income-tax authorities have not treated this receipt as income from money-lending or any other business in excess profits tax proceedings. They appear to have trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; As pointed out in Laird v. Commissioners of Inland Revenue [1929] 14 Tax Cas. 395, 403:-- "Whether a particular series of payments is income or not is prima facie a question of fact and not of law, for after all the whole distinction between capital and income is one of convenience and depends on the origin, nature and circumstances of the payment." As Sundaram in his well-known commentary on the Law of Income-tax in India says, "As to nature of income we have to seek guidance from judicial pronouncements which again are based largely on commercial usage. Commercial usage, unfortunately, is not altogether a reliable guide; and in practice there is no more baffling problem that faces a Commercial Accountant than the allocation of items as between Capital and Revenue. The concepts of Capital and Income have been the subject of close analysis by successive generations of economic thinkers from the time of Adam Smith, but the concepts have been elusive and have defied analysis." Their Lordships of the Privy Council have defined "income" in Commissioner of Income-tax, Bengal v. Shaw Wallace & Co. [1932] I.L.R. 59 Cal. 1343, 1350 (P.C.), which is a lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and income taxable under Section 12 of the Act, "as the source of the life annuity is the covenant. The life annuity is the product of one of the items (viz., the covenant) which the appellant has taken in exchange for the estate." They repelled the argument that "the words 'income, profits and gains' in Section 12(1) of the Act must be construed as including only such income as constitutes or provides a profit or gain to the recipient." They held that the word "income" is not limited by the words "profits and gains". Anything which can properly be described as income is taxable under the Act unless expressly exempted. In Kamakshya Narain Singh v. Commissioner of Income-tax [1943] 11 I.T.R. 513, 522, 523 (P.C.), the question was whether royalty on coal mines is a capital receipt or income. It was there contended for the assessee that it was a price of coal extracted by the lessees at their cost and that such price is by its nature and quality capital and not income. The leases in that case provided for payment of a minimum royalty every year which was payable even if no coal was extracted. Their Lordships held that "royalties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 5 lakhs kept or allowed to remain with Seth Mathuradas appreciated in value by the mere custody of Seth Mathuradas but it was the amount paid as return for the use by Seth Mathuradas of the money of the assessee. Therefore, the sum in dispute can in no sense be called an accretion to the sum of ₹ 5 lakhs and thus a capital receipt. In Commissioner of Income-tax, Bengal v. Mercantile Bank of India, Ltd. [1937] I.L.R. (1937) 1 Cal. 180; 4 I.T.R. 239 (P.C.), the Commissioner of Income-tax, Bengal, contended that the debentures issued to the trustees of the assessee Sir David Yule was income liable to tax. These debentures were issued in the "previous" year ending 31st March, 1931, and the amount secured by them were made repayable at the latest on the 31st December, 1940. These debentures were in fact all redeemed prior to the end of February, 1933. They were issued under the following circumstances:- "The companies in which the assessee had a controlling interest had very large accumulations of undistributed profits. The trustees of the estate of the assessee had to make very heavy outgoings both in United Kingdom and in India in relation to the estate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight that Seth Mathuradas had to pay this amount as a result of accounting at the partition. He could not conveniently pay it without affecting his business, and to use the words of the arbitrator, "no businessman would allow his funds to remain idle but would take advantage of the same." This is therefore a case in which M wanted to use moneys belonging to G to which the latter was immediately entitled, and G would not allow such use unless he gets suitable return for the use. Therefore the parties came to an agreement that M shall have the use of the moneys if he agrees to pay hire (return) for the use and such hire we call interest. Under the partition deed partition was complete when the property was divided and payments to be made by each party ascertained and made payable. Thus the partition was made in equal shares and each party was entitled to enforce the terms of the partition deed. The moneys payable under the partition deed would thus be debts due by one to the other. A debt is an ascertained sum of money due under an express or implied agreement and interest is the return for the use of money. Interest is payable under a contract express or implied or by a u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Bengal Nagpur Railway Co., Ltd. v. Ratanji Ramji [1938] I.L.R. (1938) 2 Cal. 72 (P.C.). In Commissioner of Income-tax, Bihar and Orissa v. Rani Prayag Kumari Debi [1939] I.L.R. 19 Pat. 186; 8 I.T.R. 25 (S.B.), the assessee sued Raja Sheoprasad Singh for possession of an impartible estate known as "Jharia Raj" together with certain movables and for damages for their wrongful detention. These movables were claimed in the alternative as the self-acquisitions of the late Raja to which she was solely entitled and which the defendant had wrongfully taken and retained. It was ultimately held that the defendant was the rightful successor to the Raja, that the assessee was entitled to maintenance, that the movables in dispute were inherited by the assessee on the death of the late Raja, and that they were wrongfully detained by the defendant. As a result a decree was passed for the return of the movables and in the alternative for their value and for damages for wrongful detention of the movables. The decree was compromised and it was agreed that the repayments made should be appropriated towards the value of the movables and damages in the proportion of 6 to 10. The question a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hettiar [1943] 11 I.T.R. 470. The case does not in any way help the assessee. In Bengal Nagpur Railway Co., Ltd. v. Ratanji Ramji [1938] I.L.R. (1938) 2 Cal. 72 (P.C.), it has been held that in the absence of any usage or contract, express or implied, or of any provision of law to justify awarding of interest on the decretal amount for the period before the institution of the suit, interest for that period cannot be allowed by way of damages. It would thus appear that the receipt in dispute of interest payable under contract could not in any sense be by way of damages. Following Schulze v. S.W. Bensted [1915] 7 Tax Cas. 30 a distinction is drawn between interest and damages in Commissioner of Income-tax, Madras v. Narayanan Chettiar [1943] 11 I.T.R. 470. In Commissioner of Income-tax, Madras v. Narayanan Chettiar [1943] 11 I.T.R. 470, the facts were that on the death of a partner, leaving two minor sons, the other partner continued the business with the assets of the firm. The share of the deceased partner in the assets was ascertained but was not paid. On the sons attaining majority a panchayat was held to decide what interest should be paid on the amount found due to the deceas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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