GOPALDAS MOHTA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under sub -s. (1) of s. 66 of the Indian IT Act, made by the Tribunal, Bombay, on the application of the assessee Diwan Bahadur Seth Gopaldas Bulakidas Mohta of Hinganghat. In order to have a clear idea of the facts of the case we allowed the assessee to produce for our perusal the original partition dt. the 26th May, 1930, which, we are told, was produced in the income -tax proceedings. In the partition Seth Mathuradas got assets of larger value than Seth Gopaldas. The result of the partition and accounts was that Seth Mathuradas had to pay Rs. 5,13,712 -3 -0 to Seth Gopaldas and the latter had to pay Rs. 1,21,376 to the former. It was agreed that Rs. 13,712 -3 -0 should be set off and Seth Gopaldas should pay Rs. 1,07,663 -13 -0 in cash while the sum of Rs. 5 lakhs should be paid to the assessee by Seth Mathuradas in ten equal annual instalments with interest thereon at Rs. 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 standing -out 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.

(2.) 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 Rs. 4 lakhs and interest thereon payable under the partition deed from 1st July, 1932, the whole amount having become payable on the 13th June, 1935, on default of three instalments. The total claim made was Rs. 5,73,137 -13 -0. On 18th July, 1940, there was a compromise of all these three suits according to which the first two suits were dismissed and in the last suit Seth Mathuradas paid Rs. 4 lakhs in cash. As regards interest the dispute was referred to arbitration with full authority to the arbitrator to decide the question of interest in any way he liked. The arbitrator gave the award in these terms : - -

(3.) THE learned counsel for the applicant urged that the transaction embodied in the partition deed dt. the 26th May, 1930, was one single and indivisible transaction and that whatever was payable there -under then or subsequently to a co - sharer would be capital. He contended that the IT 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.