# COMMISSIONER OF INCOME-TAX, MADRAS v. V. MR. P. FJRM, MUAR

- **Citation:** [1965] 1 S.C.R. 815
- **Court:** Supreme Court of India
- **Decided:** 1964-10-26
- **Bench:** K. SUBBA RAo, J. C. Shah, S. M. Sikri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-madras-v-v-mr-p-fjrm-muar-3260
- **Pages:** 12

## Headnote

Income Tax-Debtor and Creditor (Occupation Period) Ordinance-
(Ma/aya Ord. No. XLII of 1948)-,-Scope of-Liability to tax on principleof eslPppel.
The Japanese currency introduced into Malaya! during the J apaneso
occupation began to depreciate after January 1963, so that debts paid off
and received in that currency resulted in loss to the creditors.
The Government of India, by a notification issued in 1947, propounded a scheme to
give relief to Indian natioo.als carrying on business in Malaya, and the
Central Board of Revenue issued further instructions on the scheme. One
of the instructions was that if any creditors opted to accept the scheme, a
recovery subsequently made by them, with respect to the debt due to them
was to be taken as their income. In 1948, the Debtor and Creditor
(Occupation Period) Ordinance No. XLII of 1948, of Malaya was passed
by the Malayan Legislature.
Under that Ordinance, payments made in
Japanese currency were to be valued and scaled down in accordance with
its Schedule, i.o that a payment in Japanese currency would be a valid
discharge of a debt only to the extent of such revaluation.
A creditor
could enforce his debt to the extent not discharged and the debtor was
under an obligation to discharge it to that extent.
On the questions as
to ( i) whether amounts, recovered by creditors who bad accepted the
scheme, from their debtors, in terms of the Ordinance, were liable to
income-tax; and (ii) whether the debtors could claim the payments madeby them as deductions, the High ColUt held, (i) that the assessees who
had received payments would not be liable to tax in respect of amounts
they had received towards principal, but they would be so liable in respect
of moneys which they had received towards interest; and (ii) th;tt those
assessees who had made payments towards the debts, would be entitled to
deduct from their income, and claim exemption from tax only such amounts
as they had paid on account of interest, but they would not 'be entitled'
to deduct any payment made on account of principal. The High Court
also gave directions that open payments should be . appropriated according to the law of appropriation of payments. The Commissioner and a.
debtor-assessee appealed to the Supreme Court.
HELD : The appeals should be dismissed.
(i) The creditor-assessees were not precluded on the principle of
"approbate and reprobate" from pleading that the income they derived·
subsequently, by realisation of the revived debts, was not taxable income.
The doctrine was only a· species of estor:iel and "l'nnot operate against
the statute. If -a particular income is not taxable under the Income-tax
Act, it cannot be taxed on the basis of estoppel or any other equitable
doctrine. [822 f-H]
(ii) Under the Ordinance, the discharged debts became enfo.ceable
to the extent ef the balance of the amount due after the scaling down of th<>
1116
SUPllEM! COUJ.T llEPORTS
[1965] I S.C.R.
payment.., and the contention of the Revenue that the State provided for
A
compensation for the loss incurred by the creditor-assessees could not be
accepted. (825 B-E]
(iii) The Incon!e-taxf Officer could only impose iincome tax on the
income recovered by the assesse .. thereafter towards their debu if such
income was taxable under the provisions of the Act. So too in regard to
the payments made by the assessees towards such debts, they could claim
relief by way of deduction only if such deductioOJ were permissible under
B
the Act.
(825 F-G)
CML APPELLATE JURISDICTION: Civil Appeals Nos. 55, 8811
and 889 of 1962 and 518 to 520, 722, 724, 725, 727 to 729 &
732 to 735 of 1963.
Appeals from the judgment dated August 19, 1958, of the
Madras High Court in Referred Case No. 52, R. C. No. 90, 43 and
82, 33, 58 to 60, 64 and 65 of 1955 and 97, 98, 102, 112, 113
and 115 of 1956, respectively.
c
C. K. Daphtary, Allorney-General, S. V. Guple, SolicitorD
General, Gopal Singh, R. H. Dhebar and R. N. Sachthey, for the
appellant (in C. A. No. 55 of 1962).
C.

## Text

A
B
c
D
E
F
G
H
COMMISSIONER OF INCOME-TAX, MADRAS
v.
V. MR. P. FJRM, MUAR
October 26, 1964
(K. SUBBA RAo, J. C. SHAH AND S. M. SIKRI JJ.)
Income Tax-Debtor and Creditor (Occupation Period) Ordinance-
(Ma/aya Ord. No. XLII of 1948)-,-Scope of-Liability to tax on principleof eslPppel.
The Japanese currency introduced into Malaya! during the J apaneso
occupation began to depreciate after January 1963, so that debts paid off
and received in that currency resulted in loss to the creditors.
The Government of India, by a notification issued in 1947, propounded a scheme to
give relief to Indian natioo.als carrying on business in Malaya, and the
Central Board of Revenue issued further instructions on the scheme. One
of the instructions was that if any creditors opted to accept the scheme, a
recovery subsequently made by them, with respect to the debt due to them
was to be taken as their income. In 1948, the Debtor and Creditor
(Occupation Period) Ordinance No. XLII of 1948, of Malaya was passed
by the Malayan Legislature.
Under that Ordinance, payments made in
Japanese currency were to be valued and scaled down in accordance with
its Schedule, i.o that a payment in Japanese currency would be a valid
discharge of a debt only to the extent of such revaluation.
A creditor
could enforce his debt to the extent not discharged and the debtor was
under an obligation to discharge it to that extent.
On the questions as
to ( i) whether amounts, recovered by creditors who bad accepted the
scheme, from their debtors, in terms of the Ordinance, were liable to
income-tax; and (ii) whether the debtors could claim the payments madeby them as deductions, the High ColUt held, (i) that the assessees who
had received payments would not be liable to tax in respect of amounts
they had received towards principal, but they would be so liable in respect
of moneys which they had received towards interest; and (ii) th;tt those
assessees who had made payments towards the debts, would be entitled to
deduct from their income, and claim exemption from tax only such amounts
as they had paid on account of interest, but they would not 'be entitled'
to deduct any payment made on account of principal. The High Court
also gave directions that open payments should be . appropriated according to the law of appropriation of payments. The Commissioner and a.
debtor-assessee appealed to the Supreme Court.
HELD : The appeals should be dismissed.
(i) The creditor-assessees were not precluded on the principle of
"approbate and reprobate" from pleading that the income they derived·
subsequently, by realisation of the revived debts, was not taxable income.
The doctrine was only a· species of estor:iel and "l'nnot operate against
the statute. If -a particular income is not taxable under the Income-tax
Act, it cannot be taxed on the basis of estoppel or any other equitable
doctrine. [822 f-H]
(ii) Under the Ordinance, the discharged debts became enfo.ceable
to the extent ef the balance of the amount due after the scaling down of th<>
1116
SUPllEM! COUJ.T llEPORTS
[1965] I S.C.R.
payment.., and the contention of the Revenue that the State provided for
A
compensation for the loss incurred by the creditor-assessees could not be
accepted. (825 B-E]
(iii) The Incon!e-taxf Officer could only impose iincome tax on the
income recovered by the assesse .. thereafter towards their debu if such
income was taxable under the provisions of the Act. So too in regard to
the payments made by the assessees towards such debts, they could claim
relief by way of deduction only if such deductioOJ were permissible under
B
the Act.
(825 F-G)
CML APPELLATE JURISDICTION: Civil Appeals Nos. 55, 8811
and 889 of 1962 and 518 to 520, 722, 724, 725, 727 to 729 &
732 to 735 of 1963.
Appeals from the judgment dated August 19, 1958, of the
Madras High Court in Referred Case No. 52, R. C. No. 90, 43 and
82, 33, 58 to 60, 64 and 65 of 1955 and 97, 98, 102, 112, 113
and 115 of 1956, respectively.
c
C. K. Daphtary, Allorney-General, S. V. Guple, SolicitorD
General, Gopal Singh, R. H. Dhebar and R. N. Sachthey, for the
appellant (in C. A. No. 55 of 1962).
C. K. Daphtary, Allorney-General, S. V. Gupte, SolicitorGeneral, N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, for
E
the appellant (in C. As. NC'S. 888-889 of 1962 and 722, 724,
725, 728 to 729 and 732 to 735 of 1963) and for the respondentli
(in C. As. Nos. 415 of 1962, 518 to 520 of 1963).
R. Ganapathy Iyer, for the appellantJ> (in C. A. Nos. 5 l 8 to
520 of 1963) and for the respondents (in C. As. Nos. 55 of 1962,
F
888 to 889 of 1962 and 729, 732 and 735 of 1963).
K. Srinivasan and R. Gopalakrishnan, for the respondent (in
C.A. Nos. 733 to 734 of 1963).
K. R. ChiSldhurl, for the respondent (in C.A. No. 724 of G
1963 ).
A. V. Viswanatha Sastri, K. Parasaran, K. Rajendra Chaudhuri
and K. R. Chaudhuri, for the respondent (in C.A. No. 722 of
1963).
S. Swaminathan and M. S. Narasimhan, for the respondents
(in C.A. Nos. 725 and 728 of 1963).
H
C.I.T. v. MR. P. FIRM (Subba Rao I.)
a 17
A
The Judgment of the Court was delivered by
Subba Rao J. These 16 appeals are filed against the Judgment of the High Court of Judicature at Madras and raise the
question of the effect of the Debtor and Creditor (Occupation
Period) Ordinance No. XLII of 1948 of Malaya,
hereinafter
B
called the Ordinance, on the liability of the assessee to pay incometax in respect of pre-occupation debts revived thereunder.
During the last World War Japan occupied Malaya. During
the period of their occupancy i.e., from February 1942 to Sepe
tember 1945, they introduced their own currency i!n dollars.
During that period both the currencies were in vogue though
there fas a progressive depreciation of Japanese currency in ita
relation to Malayan currency.
On September 5, 1945,
the
British Government re-occupied Malaya and introduced the
Malayan currency as legal tender in place of Japanese currency.
D
The Indian nationals, who were carrying on business in Malaya
during the period of Japanese occupation, were hit adversely ,and
suffered losses.
The Government of India came to their · rescue
and by Notification dated August 14, 1947, they propounded a
scheme to give them relief by allowing them to set off the !ossca
E
incurred by them d11oring the 5 years relevant to the assessment
years 1942-43 to 1946-4 7 against the profits of the assessment
years 1942-43 and 1941-42. We shall consider the scheme in
some detllil at a later· stage of the judgment. On December 16,
1948, the Malayan Legislature ·passed the Ordinance declaring
that payments made in Japanese currency by debtors to their
F
creditors In respect of debts incurred prior to and during the
Japanese occupation were to be valued and scaled down in
accordance with the schedule appended to the Ordinance. We
shall deal with Ordinance in some detail at the appropriate place
but the broad effect of the Ordinance was that though a debt had
G been discharged fully by paying the amount due in Japanese currency, the debt was revived in proportion to the depreciation of
Japanese currency in relation to the Malayan currency as laid
down by the schedule.
The creditor's right to recover the debt
to the said extent and the liability of the debtor to pay the same
revived.
H
As the question raised is one of law and does not depend
UpQJI Jie peculiar facts of each case, we think it is enough if we
818
SUPREME COURT REPORTS
[1965] l S.C.R.
state briefly the facts of two cases, one illustrating the claim of A
an asse•see against the imposition of income-tax !n respect of the
income he realized by the revival of the debts and the other
illustrating that of an assessee to an allowance on the ground that
he paid the scaled down debts over again.
The respondent in Civil Appeal No. 722 to 735 of 1963 is a
firm carrying on business of money-lending in Kampar in Fedcrat~ Malaya State.
It applied for relief
under the special
scheme. It incurred
lo~s for the aforesaid four years of
B
Rs. 1,33, I 25. For the years 1941-42 and 1942-43 it had a
C
profit of Rs. 53,010 and Rs. 35,753 respectively. The said
profits were set off against the losses and the taxes paid by it for
the years 1941-42 and 1942-43 were refunded to it.
After the
Ordinance was passed, in terms of that Ordinance the respondent
recovered 6,437 dollars during the previous year ending April
12, 1952. corresponding tc the assessment year 1952-53.
Civl! Appeals Nos. 518 to 520 of 1963 deal with the converse
case.
The appellant therein is a Hindu undivided family carrying on, inter a/ia, a money-lending business in its own vil!asam
D
ic Kania Kubbu Bharu and Parit Buntar in the Federated Malaya
E
State>.
In the course of its business it had taken moneys
~
deposits from various persons before April 12, 1942.
During
th~ period of occupation it discharged its liability to various credito:s but after the publication of the Ordinance it had to pay
again to creditors 6,214.58 dollars in the previous year ending
F
April 12, 1950; 28.586 dollars for the previous year ending
April 12, 1951; and 11,547 dollars for the previou~ year ending
April 12, 1952.
The aforesaid amounts were claimed by the
appellant as deductions
respectively for the assessment
years
1950-51, 1951-52 and 1952-53.
The following tabular form at a glance gives the claims of the
asscs~ccs as creditors or debtors, as the case may be :
G
Civil Appeal No.
I
722 to 735 of 1963
..
&
SS of 1962
:
I
518 to 520of1963
838 & 889 of 1962
•
R.C.No.
Appellant
2
3
33 of 1955 Comm. of I.T., Madras .
52 of 1955 .
S8of19S5
..
59of1955
..
60 of 1955
..
64of1955
\
65of1955
..
97of1956
..
9~ofl956
..
102 of 1956
..
112of1956
..
113 of 1956
..
11Sofl956
,,
43 of 19S6 0. Y. R. SY. AP. Aruna·
chalam Chettiar
TABLE
'
Respondent
4
O. RM. SP. SY. Firm.
V. MR. P. Firm, lvfuar
VP. AL. CT. Chluambaram ·
Chettiar.
S. SV. Firm, Kampar
M. RM. SP.· Y. Ycnkatacha·
Jam Chettiar
R?-.f. P. A1agappa Chettiar.
M. R?\f. SP. SM. Swaminathan Chettiar.
M/s. A. L.A. Firm
AR. M. M. Firm
S. M. RM. !lleyyappa Cbettiar
&Sons.
All. M. 1\1. Firm (Penang)
AR. M. ?\.f, Arunachalam.
P. S. R. r..f. Annarnalai Subramaniarn
Chcttiar.
M/s. L. All. Firm
Commissioner of lncon1e-tax1
Madras.
90 of 195S Commissioner oflncome 0. R. M. O. M.A. M. Chidam·
Tax, Madras. '
baram, Chettiar,
.,
'
Assesstucnt
year
s
t
1951-52
19Sl-52
1951·S2
19S2-53
19Sl·S2
19Sl-S2
1951-52
1951-52
1951-52
1950.51
1951·52
19S3-S4
19Sl-S2
1951-S2
1951-52
1952-53
1951-52
&
19S2·53
Claim
6
S5739S·69
S39,8SI
S9889
S6437
$7667
S3SSOO
S~006
S8388
$6770
SI119}
$3214
S244S
$12004
$1979·62
$28,586}
Sll,S74
s 6,746)
S664J
..
1 .. uc for dctermlno·
ti on
7
Creditor claims that the
receipt is . capit.:i.l and
not revenue,
(l
..
:-..
..
:-i
...
~
..
;;::
"'
.. ..
:"'
"1
..
~
.. ..
.......
..
i:'
"'"
..
-~ ... •.
~-
..
"'.
0
Debtor claims deduction
~
on account
of these
payments.
._,
Creditor claims that the
receipt is capital
and
not revenue.
00
~
"'
820
SUPREME COURT REPORTS
[1965] I S.C.R.
The Income-tax Officel'5 held that during the period
of
A
Japanese Qeeupation the debts were discharged and that
the
receipt of additional amounts under the Ordinance was in fact
a%cssablc to tax.
They also held that in the case of an asscssee
who was a debtor no deduction was permissible on the ground that
the amounts paid represented only repayment of capital and not
business expenditure. On appeal the Appellate Assistant CommisB
sioner held that the receipts by the assessee in respect of the revived
debts were only realization of the original amounts lent and, therefore, could not be regarded as income.
In the case of the claim
for deduction, be agreed with the view of the Income-tax Officer.
On further appeal to the Tribunal, in the case of receipts it held
C
that the asscssee by claiming benefits under the sch=e and in
including all its cash and Bank balances in the Malayan business
as part of the losses incurred therein in effect indirectly wrote off the
debts due to them and, therefore, the recoveries under the Ordinance were only a subsequent realization of the written off bad
debts and, therefore, assessable to income-tax. In those appeals
D
relating to deductions, the Tribunal confirmed the orders of the
Appellate Assistant Commissioner.
The High Court
an.~wered the questiom referred to it as
follows:
( I) Where an assessee has received repayments, be
will not be liable to tax in respect of amounts he has
received as or towards principal, but he will be so liable
in respect of moneys which he has received as or towards
interest.
Where only part of the debt has been recovored, the assessee will be at liberty, subject to the law
relating to appropriation of payments, to appropriate the
money he has received either towards principal
or
interest.
The assessment in respect of such receipts will
proceed on this basis, that is to say, if the payment has
been lawfully appropriated towards interest, assessee
will be liable to pay tax thereon.
But if he has lawfully
appropriated it towards principal, he will not be liable
to pay tax on it.
(2) Where an assessee has made payments, he will
be entitled to deduct them from his income and claim
exemption from tax'for only such amounts as he has paid
on account of interest.
He will
not be entitled to
deduct any payments on account of principal.
E
F
G
H
A
B
C.I.T. v. MR. P. FIRM (Subba Rao J.)
821
The Tribunal was directed to review the assessment in the
light of the said directions.
The· main reason given by the High
Court for giving the said answers was that the result of the Ordinance was to revive the old debts and the question of the exigibility
of the said income to tax can only be decided on the provisions of
the Income-tax Act qnd not by the terms of the scheme of the
Ordinance.
Hence the appeals'.
The learned· Solicitor-General, appearing for the Revenue,
raised before us the following three points: ( 1) Sub-s. ( 2) of s. 4
oi the Ordinance on which reliance was placed by the High Court
applies only to pre-occupation capital debts and the debts with
C which the appeals are concerned are not pre-occupation capital
debts and, therefore, they are not revived thereunder.
(2) The
assessees having taken benefit under the scheme propounded by
the Government of India which contained a condition that if any
recoveries subsequently made would be taken as income, they are .
now precluded from contending that the amounts realized towards
D
the revived debts are not taxable on the principle of approbate and
reprobate.
And (3) on a reasonable construction of the relevant
.sections of the Ordinance it should be held that there was no
revival of the debts but only that the State had provided for com-
~nsation for the losses incurred during the occupation period by
E
the assessees.
F
G
The first question had not been raised at any stage of the
proceedings before the Tribunai and the High Court.
Nor does
it find a place in the statement of case. · We cannot, therefore,
allow the learned Counsel to raise it for the first time before us.
Nor has the second question been raised in the High Court in
the form in which it is presented before us.
The scheme propounded by the. Government of India, inter a/ia, contains the
following provisions :
( i) No assessee was under any obligation to accept
the scheme. If he desired to opt for ·the scheme he was
required to give option with one month after he was
informed of the scheme.
(ii) An assesse.e was permitted to include in his
expenses certain items which would
be inadmissible
under the Indian Income-tax Act.
H
(iii) The losses suffered by an assessee during the
five years relevant to the assessment years 1942-43 to
1946-47 were to be aggregated.
822
SUPREME COURT REPORTS
(1965] I s.c.R.
(iv) An assessee was pem1itted to carry the aggreA
gated loss backward and set it off against his profits for
the assessment year 1942-43.
(v) Any loss still unabsorbed could be carried backward to the year 1941-42.
(vi) Any excess tax found to have been paid after
B
recomputing the income of an assessee by' carrying his
loss backward could be refunded to him.
(vii) The loss could not be carried forward.
The Central Board of Revenue issued further instructions on
C
the above scheme by its letter dated December 1, l '47. One of
the instructions was that debts due to the assessec if paid in
Japanese currency would be taken to have been satisfied to that
extent and excluded from the asset side in the balance sheet, provided that if any recovery was subsequently made, it wa.' to be
taken as income.
Briefly stated, under the scheme the losses
D
suffered by an assessee during the assessment years 1942-43 to
1946-47 were set off against his profits for the assessment years
1942-43 and 1941-42 and any unabsorbed loss could not be
carried forward.
The debts discharged in Japanese currency
were excluded from the assets side in the balance sheet but the E
authority reserved for itself the right to treat any recoveries subsequently made as income.
The contention is that the a~
having opted to accept the scheme, derived benefit thereunder, and
agreed to have their discharged debts excluded from the asset side
in the balance sheet subject to the condition that subsequent
recoveries by them would be taxable income, they are now preF
eluded, on the principle of "approbate and reprobate", from pleading that the in~0me they derived subsequently by realization of
the revived debts is not taxable income. The doctrine of "approbate and reprobate" is only a species of estoppel; it applies only to
the conduct of parties. As in the case of estoppel, it cannot
operate against the provisions of a statute. If a particular income is
G
not taxable under the Income-tax Act, it cannot be taxed on the
basis of estoppel or any other equitable doctrine. Equity is out of
place in tax law; a particular income is eithe;· exigible to tax under
the taxing statute or it is not. If it is not the Income-tax Officer
ha~ no power to impose tax on the mid income.
The decision in Amarendra Narayan Roy v. Commis~ioner of H
Income-tax, West Bengal(') has no bearing on the question raised
--- -- ---- --·-
(t) A.I.R. 19S4 0.1. 271.
C.l.T. v. MR. P. FIRM (Subba Rao J.)
823
A before us.
There the concessional scheme tempted the assessee
to disclose voluntarily all his concealed income and he agreed to
pay the proper tax upon it.
The agreement there related to the
quantification of taxable income but in the present case what is
sought to be taxed is not a taxable income.
The assessee in such
a case can certainly raise the plea that his income is not taxable
B under the Act.
We, therefore, reject this plea.
To appreciate the third argument it is necessary to notice the
relevant terms of the Ordinance. The Ordinance was issued by
the Malayan Government to regulate the relationship between the
C debtor and creditor in respect of debts incurred prior to and during
the period of the enemy occupation of the territories comprising
the federation of Malaya.
The relevant sections of the Ordinance read:
D
E
F
G
Section 4. Discharge during occupation period of
preoccupation debts :
.( 1) Subject to the provisions of sub-s. ( 2) of this
section, where any payment was made during the occupation period in Malayan currency or occupation currency
by a debtor or by his agent or by the Custodian or a
liquidation officer purporting to act on behalf of such
debtor, to a creditor, or to his agent or to the Custodian
or a Liquidation Officer purporting to act on behalf of
such creditor, and such payment shall be a valid dis- '
charge of such pre-occupation debt to the extent of the
face value of such payment.
(2) In any case--
(a) where the acceptance of such payment in
occupation currency was caused by duress or coercion; or
(b) where such payment was made after the thirtyfirst day of December 1943, in occupfr!ion currency in
respect of a pre-occupation capital debt, exceeding two
hundred and fifty dollars in amount, which-··
(i) was not due at the time of such payment; or
H
(ii) if due, was not demanded by the creditor or by
his agent on his behalf and was not payable within the
occupation period under a time essence contract;
824
SUPRBfE COURT REPORTS
[ 1965] I S.C.R.
(iii) if due and demanded as aforesaid was not paid
within three months of demand or within such extended
period as was mutually agreed between the creditor or
his agent and the debtor or his agent; or
( c) . . . . . such payment shall be revalued
in accordance with the scale set out in the Schedule to
this Ordinance and shall be a valid discharge of such
debt only to the extent of such revaluation.
THE SCHEDULE
I. (a) : Where any such payment as it mentioned
in sub-section ( 2) of section 4 of this Ordinance was
made in occupation currency during any month or on
any day mentioned in the first column of the scale set out
in paragraph 3 of this Schedule, such payment shall be
revalued by taking· the number of dollars in occupation
currency set out opposite such month or day in the
second column of the said scale as equivalent to one
hundred dollars Malayan currency, and so in proportion
for any portion of such payment amounting when
revalued, to less than one hundred dollars Malayan
currency.
(b) Where any such payment was made in occupation currency on or after the thirteenth day of August
1945, the value of such payment shall be taken to be nil.
2. (a) : In the case of an unsatisfied occupation
debt or part thereof which falls to be revalued under
section 6 of this Ordinance such debt or part thereof
shall be revalued at the appropriate date as provided in
the said section or sub-section by taking the number of
dollars in occupation currency mentioned opposite such
month or day in the second colu111n of the scale set out
in paragraph 3 of this Schedule as equivalent to one
hundred dollars Malayan currency, and so in proportion
for any portion of such debt amounting, when revalued,
to less than one hundred dollars Malayan currency.
(b) When any such debt or part of a debt fell due for
payment on or after the thirteenth day of August 1945,
its value shall· be taken to be nil.
3. Sliding scale of the value of occupation currency
1942-45.
We have not allowed the Solicitor-General to contend that
sub-s. (2) of s. 4 of the Ordinance does not apply to the debts in
A
B
c
D
E
F
G
H
•
A
B
c
D
E
C.I.T. v. MR. P. FIRM (Subba Rao I.)
825
question as throughout the proceedings of this case it was assumed
that it applies to the said debts. During the Japanese Occupation
both the Japanese currency and the Malayan currency were in
vogue.
In January 1943 the Japanese currency began to depreciate and by August 13, .1945, it ceased to be of any value.
During that process of devaluation debts were paid off and received in Japanese currency which resulted in loss to the creditors.
To regulate the relationship between creditors and debtors during
that period the said Ordinance was passed by the Malayan
Legislature on December 16, 1948. Under the said Ordinance payments in Japanese currency were to be valued and scaled
down in accordance with the Schedule appended to the Ordinance.
If a debtor had paid his debt in depreciated Japanese currency,
he was required to pay over again a certain amount to be ascertained by the application of the provisions of the Schedule. In
terms sub-s. (2) says that the payment in Japanese currency shall
be a valid discharge of such debt only to the extent of such revaluation. ·When the payments made towards debts were scaled
down, the debts were revived in regard to the balance of the debt.
After the making of the Ordinance, the creditor could enforce
his debt to the extent not discharged and the d~btor had the
obligation to discharge . the same.
On the express terms of the
Ordinance it is impossible to accept the contention that the State
provided for compensation for the losses incurred by the assessees.
Indeed the State did not pay any compensation at all. The legal
relationship of the creditor and debtor was not created by the
Ordinance but it was regulated on the basis of the pre-existing
relationship.
We, therefore, hold, agreeing with the High Court,
that under the Ordinance the discharged debts became enforceable
F to the extent of the balance of the amount due· after the scaling
down of the payments. If so, the Income-tax Officer could .only
impose tax on the income .recovered by the assessees thereafter
towards their debts if such income was taxable under the provisions
of the Act.
G
H
So too, in regard to the payment made by the assessees towards
such debts they could claim relief by way of deductions only if
such deductions were permissible under the Act.
The High Court held that the assessees who had received repayments would not be liable to tax in respect of amounts they had
received towards principal but they would be so liable in respect
of moneys which· they had received towards interest. It further
held that those assessees who had made payments towards the
826
SUPREME COURT REPOllTS
[1965] I S.C.R.
debts would be entitled to deduct from their income and claim
exemption from tax only such amounts as they had paid on account
of interest but they would not be entitled to deduct any payment
made on account of principal.
The High Court also gave
a
direction that in the case of open payments the respective amounts
paid towards principal or interest should be ascertained in accordance with the law of appropriation of payment~. Neither
the
learned Solicitor-General, who appeared for the Revenue, nor the
learned counsel, who appeared for the assessees, questioned the
correctness of the said directions if the construction we placed on
the Ordinance was correct.
The directions given by the High
Court will, therefore, stand.
In our view, the High Court gave
cornet answers to the question~ referred to it.
In the result the appeals arc dismissed with costs. One hearing fee.
A ppealr dismissed
A
B
c