RAGHUNANDAN PRASAD SINGH Vs. COMMISSIONER OF INCOME-TAX, BIHAR AND ORISSA

JUDGEMENT

(1.) This appeal brings before their Lordships eight questions relating to the taxable income of the appellants for the year 1926-1927. The appellants carry on the business of moneylenders and are liable under S. 3, Income-tax Act, 1922, to pay income-tax for the year 1926-1927 in respect of the profits or gains of their business in the previous year, 1925-26, as computed in accordance with the provisions of S. 10 of the Act. Being dissatisfied with the assessment of the Income-tax Officer and with the result of an appeal to the Assistant Commissioner, the appellants under S. 66 (2) required the Commissioner to refer to the High Court of Judicature at Patna a series of questions purporting to be questions of law arising out of the Assistant Commissioner's order. The Commissioner accordingly, as directed by the Act, drew up a statement of the case and referred it to the High Court with his own opinion on the eight questions which he formulated.

(2.) The transactions which have given rise to the questions at issue relate to the lending of money by the appellants or their predecessor (hereinafter called "the assessees") in connexion with a property known as the Srinagar estate. It appears that on the death of the proprietor of this estate in 1880 a one-third share thereof was in a partition suit awarded to his son Nityanand and the other two-thirds jointly to Kamlanand and Kalikanand, his sons by another wife. In 1894 Nityanand mortgaged his one-third share to the assessees for two lacs of rupees. Five years later he borrowed on further mortgage of his share a sum of three and a halflacs from the Benaili Rajas. On this latter mortgage the Benaili Rajas obtained in 1902 a decree against Nityanand for Rs. 4,57,159, principal and interest. His half-brothers in 1903 bought this mortgage decree for five lacs and in security of the purchase price mortgaged their two-thirds of the Srinagar estate to the Benaili Rajas. In the same year they purchased Nityanand's equity of redemption.

(3.) In July 1904, there was due to the assessees under the mortgage of 1894 a sum of Rs. 4,33,135, being Rs. 2,00,000 of principal and Rs. 2,33,135 of interest, and to the Benaili Rajas under the mortgage of 1903 a sum of Rs. 5,25,815. The debtors, Kamlanand and Kalikanand, settled with the Benaili Rajas by paying them Rs. 815 from their own cash, and Rs. 3,00,000 borrowed from the assessees and by executing a fresh mortgage for the balance of Rs. 2,25,000 in favour of the Benaili Rajas. This left them indebted to the assessees to the extent of Rs. 4,33,135+ Rs. 3,00,000=Rs. 7,33,135, for which sum they, along with Kamlanand's two minor sons, through him as their guardian, executed on 18 July 1904, a mortgage on the Srinagar estate in favour of the assessees. In 1912 there was due on the mortgage for Rs. 2,25,000 to the Benaili Rajas a sum of Rs. 3,34,000, and this was met by Kalikanand as karta of the joint family, borrowing three lacs on mortgage from the assessees on 7 November 1912, and providing the balance of Rs. 34,000 in cash. The Benaili Rajas were thus finally paid off. The assessees subsequently brought suits on the mortgage for Rs. 7,33,135 of 18 July, 1904, and the mortgage for Rs. 3,00,000 of 7 November 1912 on which, taken together, a sum of Rupees 27,13,379 of principal and interest was due. Decrees were passed in favour of the assessees on 22-12-1917. The mortgaged property was put up for sale and was bought by the assessees at the price of Rs. 25,65,100 at Court sales on 19 November 1924, and 31 January 1925. The sales were confirmed on 18 and 21 December 1925.