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TMI Blog1962 (9) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... pendency of that suit, the estate was placed in custodia legis and two advocates practising at Devakottah were appointed as receivers. On the death of Arunachala (junior) the estate duty authorities of Ceylon levied duty on what was described as the deceased's half-share of the assets of the business carried on by the family in Ceylon. Estate duty was also levied on the death of Arunachala (senior) in 1938. The receivers of the estate of Arunachala called in question the levy of the estate duty. The Supreme Court of Ceylon upheld the contention of the receivers and held that no estate duty was leviable. The Attorney-General of Ceylon took the matter by way of an appeal to the Privy Council in Privy Council Appeals Nos. 16 and 17 of 1955 Attorney-General of Ceylon v. Arunachalam Chettiar [1958] 34 ITR (E.D. 42. Their Lordships of the Judicial Committee of the Privy Council by judgment dated the 10th July, 1957, affirmed the decision of the Supreme Court of Ceylon and dismissed the appeals. In consequence of this litigation the estate duty authorities of Ceylon had to refund to the estate of the deceased, Arunachala Chettiar (senior), a sum of ₹ 7,97,072, as interest paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. It is to the inclusion of this amount that the assessee objected, his contention being that it is not a revenue receipt assessable to income-tax, and that, in any event, the receipt is of a casual and non-recurring nature, falling within the exemption of section 4(3)(vii) of the Act. The Income-tax Officer overruled the said objection and as stated already included it as part of the assessable amount. The assessee's appeal to the Appellate Assistant Commissioner and a further appeal to the Income-tax Appellate Tribunal were unsuccessful. Before the Tribunal the assessee contended that the amount was not income, but was only damages received for the unlawful retention of the money belonging to the estate by the Ceylon estate duty authorities, and that it was of a casual and non-recurring nature exempt under the Act. These contentions were overruled by the Tribunal. On an application preferred by the assessee for reference of questions of law to this court the following questions have been referred: 1. Whether the aforesaid interest receipt constitutes income ? 2. If so, whether it is exempted under section 4(3)(vii) of the Income-tax Act as a receipt of a casual, non-r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in accordance with the provisions of the Code of Civil Procedure. It is plain that the procedure prescribed for a person assessed to estate duty to get rid of the assessment is just like a civil suit instituted for recovery of money. The provisions of the Civil Procedure Code have been made applicable and the court granting a decree in favour of the assessee for refund of the money can of course make provision for payment of interest from the date of institution of the suit till realisation. The relevant provision under the Ceylon Civil Procedure Code clothing the court with jurisdiction to award interest is contained in section 192 of Ordinance II of 1889. That reads : When the action is for a sum of money due to the plaintiff, the court may in the decree order interest according to the rate agreed on between the parties by the instrument sued on, or in the absence of any such agreement at the rate of nine per cent. per annum to be paid on the principal sum adjudged from the date of the action to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the action, with further interest at such rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings tried in any court of record for the recovery of any debt or damage the court may, if it. thinks fit, order that there shall be included in the sum for which the judgment is given interest at such a rate as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the judgment. This is substantially the provision now contained in section 34 of the Civil Procedure Code. When a plaintiff brought an action against his debtor for repayment of the debt, he claimed in addition to the debt the benefit which he lost by the non-payment, and it was computed by calculating what profits he could have made by lending the money with a stipulation fat the payment of a periodical sum for the use of it. Thus the damages for the wrongful detention of money became equivalent to the agreed payment for a loan (Earl Jowitt, Dictionary of English Law, page 974). The stipulation to pay interest at a fixed rate on the amount borrowed has its roots in the compensation due to the lender for the injury suffered by him by parting with the money. It can be stated that the quantum of interest is the liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive to the receipt, whether it is interest or damages, but that the endeavour should be to ascertain its true character, namely, whether it is capital or income. A reference to the decided cases in England shows that the court never attached any importance to the description of the amount in deciding the question of its taxability. In Commissioners of Inland Revenue v. Ballentine [1924] 8 Tax Cas. 595, there was a claim before the arbitrators for additional costs, loss and damages , and there was an award made by the arbitrators for an amount which included a sum described as interest. The Court of Session (Scotland) held that what was described as interest was in fact part of the total sum awarded by way of damages, and rejected the claim of the revenue to tax upon it. In Glenboig Union Fireclay Co. v. Commissioners of Inland Revenue [1922] 12 Tax Cas. 427certain sums were described as interest; yet in substance they were capital sum of compensation awarded. The claim to tax was rejected, the court being of the opinion that the element of interest was introduced in modem estimationis. Cases on the subject are numerous and in our opinion it will not be profitable to wade through t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest' or even 'damages'. But the real question is still what is its intrinsic character, and in the consideration of this question a description due to the authority under which it is paid may well mislead. At page 195, Simonds Lord Justice observes thus : My Lords, having discussed in a general way the nature of a sum of money awarded as interest under section 28 of the Civil Procedure Act, I turn to the cases decided under the Income Tax Acts to see whether they assist the appellant. I find in them just what I expected to find. The question in each case is whether the receipt is of an income or a capital nature : that is the test for income tax purposes, not whether it is called 'interest' or 'damages'. At page 198, Lord Normand stated the legal position thus : This matter of terminology is, however, of no great importance, for the liability of a payment to income tax does not depend on whether or not it is a payment of damages, but on whether or not it is received as income. We have no doubt that this is the correct principle which is to be adopted in determining the present question whether the disputed amount is taxable or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case the textile mills were sold by Gokulchand who retained the sale proceeds and did not make them over to the assessee. A suit was brought and ultimately the assessee was granted a decree for ₹ 25,530 which included the principal amount of ₹ 13,363 and interest calculated to be ₹ 10,497 and certain other expenses ..But the amount is nevertheless income for the reason that it constitutes interest on the sale proceeds which Gokulchand ought to have made over to the Maharajah This opinion is supported by the decision of the House of Lords in Westminster Bank v. Riches [1947] 28 Tax Cas. 159 . A wrongful collection of tax by the Crown or the State gives rise to an obligation or liability to refund on declaration that the levy is illegal. Alter such declaration the liability assumes the character of a debt, enforceable at law. An action for refund of the money collected under the guise of tax is essentially one for the money had and received, whether the cause of action can be deemed to rest on the implied contract, or on the principle of ex aequo et bono (in equity and good conscience). Interest awarded by the court and provided for in the decree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt of Ceylon, it was well within the contemplation and anticipation of the persons representing the estate that a successful termination of the cause would not merely bring in the tax illegally collected, but would also make the Crown liable to pay interest on that amount from the date of petition till the date of payment. In the Maharajadhiraj Sir Kameshwar Singh's case (supra)decided by the Patna High Court, already cited, the question whether receipt of interest awarded under a decree of court was of a casual and non-recurring nature was also considered. The High Court held that the provisions of section 4(3)(vii) of the Act were not applicable. At page 224, the learned judge observes thus : The expression 'casual' has not been defined in the Act and must, therefore, be construed in its plain and ordinary sense. According to the Oxford English Dictionary, the word 'casual' is defined to mean (a) subject to, depending on, or produced by, chance ; (b) occurring at uncertain times, not to be calculated on. A receipt of interest which is foreseen and anticipated cannot be regarded as casual even if it is not likely to recur again. With this observation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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