COMMISSIONER OF INCOME-TAX, BEHAR AND ORISSA Vs. KAMESHWAR SINGH OF DARBHANGA

JUDGEMENT

(1.) Their Lordships have to dispose of two consolidated appeals from a judgment of the High Court of Judicature at Patna, dated 25 November 1929, dealing with certain questions referred to the Court by the Commissioner of Income-tax, Bihar and Orissa, under S. 66, 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 3 July 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 S. 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 30th September and consequently, under S. 2 (11) (a) of the Act, the "previous year"in the present case is the Fasli year 1332, which ended on 30 September 1925. The taxable income of the assessee for the year 1926-27 thus consists of his income, profits and gains for the year ending 30 September 1925, as computed in accordance with the provisions of the Act. The Assistant Commissioner of Income-tax, acting as Income-tax Officer, having made an assessment of the assessee's taxable income for the year in question, the assessee appealed to the Commissioner of Income-tax, Bihar and Orissa, acting as Assistant Commissioner, who made an order reducing the assessment in respect of three particular items but otherwise affirming it. The assessee then required the Commissioner under S. 66 (2) to refer to the High Court certain questions purporting to be questions of law arising out of his order. The Commissioner, as required by the Act, drew up a statement of the case and referred it with his own opinion thereon to the High Court. It is against the answers rendered by the High Court to certain of the questions formulated in the case so stated that the present appeals have been taken.

(3.) With one exception, the points which were debated before their Lordships relate to money-lending transactions of the assessee. As the assessee was held not to be carrying on the business of money-lending he was assessed in respect of these transactions, not under S. 10 which provides for the computation of the "profits or gains"of a business, but under S. 12, which provides for the computation of "income, profits and gains "from other sources. In the one exception, which relates to the carrying on of a colliery taken over by the assessee from a debtor, the assessment was under S. 10. As the questions which have arisen are in large measure due to the assessee's method or want of method in recording his money-lending 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 assessee, 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."