COMMISSIONER OF INCOME TAX BIHAR AND ORISSAKAMESHWAR SINGH Vs. KAMESHWAR SINGHCOMMISSIONER OF INCOME TAX BIHAR AND ORISSA

JUDGEMENT

(1.) THEIR Lordships have to dispose of two consolidated appeals from a judgment of the High Court of Judicature at Patna, dated November 25, 1929, dealing with certain questions referred to the Court by the Commissioner of Income-tax, Bihar and Orissa, under Section 66 of the Indian Income-tax Act, 1922. The questions all relate to the assessment for tax purposes of the income for the year 1926-27 of the Maharajadhiraj of Darbhanga, who died on July 3, 1929, and is now represented in these proceedings by his eldest son. As regards two of the questions, the Commissioner of Income-tax is appellant ; as regards the rest the assessee is appellant.

(2.) BY Section 3 of the Act of 1922, income tax is chargeable in India "in respect of all income, profits and gains of the previous year." The assessee's practice was to make up his accounts for the Fasli year which ends on September 30, and consequently, under Section 2(11)(a) of the Act, the "previous year" in the present case is the Fasli year 1332, which ended on September 30, 1925. The taxable income of the assessee for the year 1926-27 thus consists of his income, profits and gains for the year ending September 30, 1925, as computed in accordance with the provisions of the Act.

(3.) AS the questions which have arisen are in large measure due to the assessee's method or want of method in recording his moneylending transactions, it will be convenient to give a description of his practice in the matter as furnished in the case stated by the Commissioner. The assessees, it appears, kept "a deposit register in which payments made by debtors are ordinarily first of all recorded but without any allocation between principal and interest. Subsequently, if and when allocation is made, an entry in respect of the interest portion of these payments is made in the interest ledger as well as in the interest account of the general ledger. This allocation is not necessarily made in the year in which the money has actually been paid to the assessee. It may be made in the following year or, indeed, several years later.