RAMJI LAL RAIS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question of law referred for the opinion of this Court under s. 66(1) of the IT Act are :

(2.) THE assessee is an HUF which lent a sum of Rs. 1,50,000 to two brothers, Wahi -ud -din and Bashir -ud -din, on a mortgage of their properties on the 15th Dec., 1926. The money was repayable with compound interest at 9 per cent. per annum with six monthly rests. No payment was made and the assessee brought a suit in December, 1930, and obtained a decree in January, 1931, for Rs. 2,27,699 -5 -0 which amount included costs amounting to Rs. 3,057 -5 -0. Execution proceedings were taken and a sum of Rs. 58,266 was realised on the 25th April, 1935, by sale of a portion of the mortgaged property. Before further proceedings in execution could be taken the U. P. Encumbered Estates Act, 1934, came into force and the debtors who were landlords within the meaning of that Act applied under s. 4 of that Act with the result that the special judge passed simple money decrees in 1940 under s. 14(7) of the Act against each of the two debtors for Rs. 98,625 with future interest at 31 1/4 per cent. Bashir -ud -din's half of the original debt was satisfied by the local Government issuing to the creditor in accordance with s. 30 of the Act twenty year bonds carrying interest at 3 1/4 per cent. per annum for Rs. 1,19,200. This was done in November, I944. In respect of Wahi -ud -din's debt similarly Government bonds were issued one or two years later.

(3.) THIS assessee preferred an appeal to the AAC and appears to have contended that the mere receipt of U. P. Government bonds did not amount to any realisation of either the principal amount or the interest thereon particularly when the money of the bond was payable after twenty years and the market value of the bonds was said to be 70 per cent. of their face value. The assessee relied on a Privy Council decision where the execution of a promissory note was not considered to be payment of the original debt and interest for which the promissory note had been executed. This case was distinguished by the AAC on the ground that the bonds were not bonds executed by the debtors but they were bonds issued by the Government established by law and these bonds were transferable in the market and carried interest at 3 1/2 per cent. payable on the 20th day of August and 20th day of February, every year. Relating to the market value the Asstt. CIT said that this contention was not supported by cogent evidence and the question could only arise when the bonds were actually sold in the market. There was some dispute relating to the expenditure allowed but the assessee's contention did not find favour with the AAC who upheld the assessment order.