Patna High Court
Sidheshwar Prasad Narayan Singh & ... vs Commissioner Of Income-Tax Bihar And ... on 1 April, 1942
Equivalent citations: [1942]10ITR344(PATNA), AIR 1942 PATNA 467
JUDGMENT
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HARRIES, C. J.-This is a reference made by the Commissioner of Income-tax, Bihar and Orissa, under Section 66 (3), Indian Income-taz Act. By an order of this Court dated the 17th of April, 1941, the Commissioner was asked to state a case upon the following question, nemely, "Whether the sum of Rs. 13,977 out of Rs. 21,000 realised from Babu Srikant Lal can, in the circumstaces of the case, be regarded as payment towards interst? "
In the view of the Commissioner it should be so regarded. The facts of the case are as follows :-
The assessees had lent to two brothers, Babu Shamakant Lal and Babu Srikant Lal, the sum of Rs. 22,103 on the three handnotes which provide for the payment of interest. On the 26th of February, 1934, the assessees obtained a decree for Rs. 31,682 being the principal amount together with Rs. 6,579 interest and Rs. 3,000 costs. It was provided in the decree that future interest on the decretal amount should be payable at the rate od six per cent. per annum.
The decree was put in execution on the 12th of June, 1937, and during the pendency of this exeuction in the year 1938-39 the assessees entered into an agreement with one of the brothers Babu Srikant Lal in pursuance of which he was discharged from all furture liabilities in connection with the handnotes on payment of a sum of Rs. 21,000 in satisfaction of half of the decretal amount. I am in this paragraph quoting the acutla words of the Commissioner himself.
It follows, therefore, that during the accountimg period Babu Srikant Lal paid the assessees a sum Rs. 21,000, but the assessees did not appropriate this sum in their books in any particular manner. The Income-tax authorities, howeverm appropriated this payment in this manner :-(1)
Costs.
3,000-0-0 (2) Interest 13,977-0-0 (3) Principal 4,023-0-0 The assessees contended before the Income-tax authorities and have conternded agais before us now that the agreement entered into between the assessees and Babu Srikant Lal put an end once and for all Babu Srikant Lals liability. The payment made by him was not a payament on account but a payment in full discharge of his half share of the decretal amount. What we have to consider, therefore, is, what did Babu Srikant Lal pay? It appars to me quiet clearly that he paid half the costs, namely, Rs. 1,500, and half the pricipal sum, name; y Rs. 11,051-8-0 and half the interest due and owing at that time, namely Rs. 8,448-80. As I have said, he was not paying anything on account which the assessees could appropriate, but, on the contrary, he was paying finally something to discharge his liabilty and his liability was, as I have said, half the costs, half the principal and half the interest. In this view of the case on question of apporpriation by the Income-tax authorities can arise. The payment was actually made towards liability of three kinds which were fxied and the three liabilties were completely discharged The liability for interest when the agreement was entered into was Rs. 8,448-8-0 and that has been discharged. The other liabilities were in respect of principal and costs, and they were discharged, and in my view the Income-tax authorities cannot possibly claim any greater sum as paid towards interest than the sun actually paid, namely, Rs. 8,448-8-0.
That being so, the answer to the question submitted is that the sum of Rs. 13,977 out of Rs. 21,000 realised from Babu Srikant Lal cannot be regarded as payment towards interest bur only Rs, 8,448-8-0 can be so regarded. The assessees aree entitiled to a part of the costs of the proceedings, and we assess the hearing fee at three gold mohours. They are also entitled to a retrun of half the sum deposited with the Commissioner.
MANOHAR LALL, J.-I agree.