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Commissioner of Income-tax Vs. Maharaja Pateshwari Prasad Singh - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Application No. 368 of 1964
Judge
Reported in[1970]76ITR208(All)
ActsContract Act - Sections 60
AppellantCommissioner of Income-tax
RespondentMaharaja Pateshwari Prasad Singh
Appellant AdvocateShanti Bhushan, Adv. General and ;R.R. Misra, Adv.
Respondent AdvocateAhsok Gupta and ;B.L. Gupta, Advs.
Excerpt:
- - but the principle underlying them has been applied to a claim like this, and there is a general rule that, in the absence of any application by the debtor, the payment should be applied in the first instance, to interest, and to the principal, the balance only so far as those payments exceed the interest due......debt. whenever the debtor omits to do so, and there are no circumstances indicating to which debt the payment is to be applied, the creditor is entitled to appropriate it towards any lawful debt. where certain amount is due for costs, interest and principal under a decree, it constitutes only one debt and technically the provisions of those sections do not apply. but the principle underlying them has been applied to a claim like this, and there is a general rule that, in the absence of any application by the debtor, the payment should be applied in the first instance, to interest, and to the principal, the balance only so far as those payments exceed the interest due. in that case the decree-holder credited certain payments towards interest. that appropriation was upheld by the.....
Judgment:

V.G. Oak, C.J.

1. This is an application under Section 66(2) of the Indian Income-tax Act, 1922. Maharaj Pateshwari Prasad Singh, Balrampur, is the assessee. The assessment year is 1957-58. Some time in 1931, the assessee had advanced a loan of Rs. 6,00,000 to Baraon Estate. The assessee obtained a decree against Baraon Estate for a sum exceeding Rs. 6,00,000 on account of principal and interest. In execution of the decree a sum ofRs. 62,000 was realised in 1956. The assessee adjusted that amount towards the principal amount outstanding under the decree. During the previous year, relevant to the assessment year, a further sum of Rs. 89,687 was received by the assessee. This amount was also credited by the assessee towards the principal amount outstanding under the decree. This position was not accepted by the Income-tax Officer. He held that the sum of Rs. 89,687 ought to have been credited towards interest due under the decree. The assessee appealed, and succeeded before the Appellate Assistant Commissioner. He deleted the amount of Rs. 89,687. This view was upheld in further appeal by the Appellate Tribunal. In an application under Sub-section (1) of Section 66 of the Act, the Commissioner of Income-tax, U.P., raised the question whether the sum of Rs. 89,687 should be adjusted towards principal or interest. That application was dismissed by the Tribunal. The Commissioner of Income-tax, U.P., has, therefore, filed the present application under Section 66(2) of the Act. The question of law proposed by the applicant is this:

'Whether, on the facts and in the circumstances of the case, the sum of Rs. 89,687 realised by the assessee from Baraon Estate was taxable as income from interest ?'

2. The Income-tax Officer pointed out that when the assessee received the sum of Rs. 89,687, an amount exceeding Rs. 3,00,000 was outstanding under the decree towards interest. The Income-tax Officer, therefore, held that the payment of Rs. 89,687 ought to have been adjusted against interest, and not against principal.

3. The applicant has referred to Order 34, Rule 10, Code of Civil Procedure. Order 34 of the Code of Civil Procedure deals with suits relating to mortgages of immovable property. Rule 10 provides for application of sale proceeds. In the instant case, we are not dealing with any mortgage suit or any sale proceeds in execution. So Order 34, Rule 10, Code of Civil Procedure, has no application.

4. In Meka Venkatadri Appa Row v. Parthasarathi Appa Row, [1921] 19 A.L.J. 465; 61 I.C. 31; A.I.R. 1922 P.C. 233, it was held by the Judicial Committee that the rule is that where a debt carries interest, payments are appropriated in the first place towards interest. In that case, money was received without a definite appropriation on the part either of the payer or the payee.

5. In re Gopiram Govindram : [1936]4ITR157(Cal) it was observed by the Calcutta High Court on page 163:

'Where interest is outstanding on a principal sum due and the creditorreceives an open payment from the debtor without any appropriation ofthe payment as between capital and interest by either debtor or creditor, the presumption is that the payment is attributable in the first instance, towards the outstanding interest.'

6. In Chaganlal Shrilal v. Gopilal Choturam A.I.R. 1954 M.B. 151, it was held that Sections 59 and 60 of the Contract Act provide that the debtor has, at the time of making payment, a right to intimate that the payment is to be applied towards the liquidation of a particular debt. Whenever the debtor omits to do so, and there are no circumstances indicating to which debt the payment is to be applied, the creditor is entitled to appropriate it towards any lawful debt. Where certain amount is due for costs, interest and principal under a decree, it constitutes only one debt and technically the provisions of those sections do not apply. But the principle underlying them has been applied to a claim like this, and there is a general rule that, in the absence of any application by the debtor, the payment should be applied in the first instance, to interest, and to the principal, the balance only so far as those payments exceed the interest due. In that case the decree-holder credited certain payments towards interest. That appropriation was upheld by the court.

7. In Mst. Munno Bibi v. Commissioner of Income-tax : [1952]22ITR101(All) , there was a decree for a principal sum of Rs. 49,320, Rs. 34,994 towards interest and Rs. 1,582 towards costs. The decree was sent to the Collector for liquidation of the debt. The Collector paid the assessee a sum of Rs. 13,000 only in cash and for the balance executed bonds in her favour. There were no circumstances prior to the filing of the return by the assessee indicating to which item of the mortgage dues the sum of Rs. 13,000 was to be appropriated. It was held that the sum of Rs. 13,000 should be first applied to the payment of costs which amounted to Rs. 1,582 and the balance of Rs. 11,418 should be applied towards the payment of interest.

8. None of these authorities lays down that when open payment is made by a debtor, the creditor is not at liberty to credit the payment towards the principal, but is under an obligation to credit the payment towards interest. Section 60 of the Contract Act states:

'Where the debtor has omitted to intimate, and there are no other circumstances indicating to which debt the, payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due, and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits.'

9. It is true that Section 60 of the Contract Act makes ho specific referenceto interest due. But, as explained by the Madhya Bharat High Court, the principle of Section 60 of the Contract Act has been applied to a situation whereprincipal and interest are due from a debtor. In such a case when paymentis made by a debtor without any direction as regards appropriation, thecreditor is at liberty to appropriate the payment towards principal.

10. In the present case, the payment of Rs. 89,687 was appropriated bythe assessee towards principal. The Income-tax Officer was bound todispose of the matter on that basis. Since the legal position is clear, thereis no point in directing the Tribunal to make a reference.

11. The application is dismissed with costs, which we assess at Rs. 100.


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