1. This is an appeal filed by the assessee, Bhai Mohan Singh, objecting to the inclusion of a sum of Rs. 1,20,670 in his total income. This inclusion has a long history behind it and unless we refer to it, appreciation of the contentions raised both for and against the inclusion will become obscure.
2. The assessee, Bhai Mohan Singh, is the son of Bhai Gian Chand, who died on 18-8-1954. Bhai Gian Chand and Bhai Sunder Das were brothers and sons of Bhai Hans Raj. Bhai Sunder Das died on 27-10-1963, leaving behind him five sons and a daughter. Bhai Mohan Singh is the only son of his father, Bhai Gian Chand. He has three sons but no daughter.
3. Bhai Gian Chand and Bhai Sunder Das, the father and uncle of the assessee Bhai Mohan Singh, carried on extensive construction business in Rawalpindi Division of the undivided India. They joined in business sometime in 1922. The business ran into several crores. Bhai Gian Chand and Bhai Sunder Das came to India sometime in 1946. Sometime in March 1954, Bhai Sunder Das, with a view to avoid attachment of his assets for payment of huge income-tax liabilities that came upon him in respect of income earned in Pakistan, got deposited by Bhai Gian Chand Rs. 15 lakhs in the names of his two daughters, styled them as gifts.
That amount was first deposited in the State Bank of Calcutta, in fixed deposits, in the names of Smt. Govind Jaswant Singh and Karan Singh.
Those amounts moved from place to place and from hand to hand and eventually came into the possession of Bhai Mohan Singh, the assessee before us, only to be held as for and on behalf of those persons as trustees. That the sum of Rs. 15 lakhs came into the possession of Bhai Mohan Singh, as and by way of trust for and on behalf of the daughters, was a fact accepted by the ITO in the income-tax assessments. In the estate duty proceedings taken on the death of Bhai Sunder Das, on the admission of the assessee in his income-tax proceedings that he was only a nominee insofar as these sums were concerned, the department was satisfied and treated the money as belonging to Bhai Sunder Das. The relevant observations made by the Assistant Controller of Estate Duty in his order are not reproduced here, as they are not considered necessary. Out of the sum of Rs. 15 lakhs, Bhai Mohan Singh returned to those parties, on various dates, starting from 2-11-1954 and ending with 21-3-1956 amounts amounting to Rs. 4,35,000, leaving a balance of Rs. 10,33,000 due by 31-10-1956. This is the figure admitted as owing to them by the members of late Bhai Sunder Das in a certificate issued on 5-9-1966.
4. This sum, which came to the assessee in the circumstances stated above, was utilised by him in making fixed deposits in his own name, on which he earned interest. In the account books maintained by the assessee, there was a separate account opened for Bhai Sunder Das, to which account these sums were credited and also the interest received (paper book, Pages 17 to 19). The net effect of the crediting of the interest and withdrawals made from time to time for payment of income-tax, etc., resulted in the amount swelling to Rs. 17,89,163 by 31-3-1972.
5. For the assessment year 1973-74, the assessee filed a return of income admitting an income of Rs. 1,01,470. In Part III of the return, the assessee showed interest of Rs. 1,20,670 received from the fixed deposits, made out of the money, referred to above. Showing it under the head 'Income from other sources' he did not include it in the total income and claimed it to be not taxable on the ground that it was held in trust on account of Bhai Sunder Das. It was also stated that this amount was taxable in the hands of Bhai Sunder Das as in the past. When the ITO asked why this sum should not be included in the assessment, the assessee replied that the information regarding this was already submitted in the past and that the department had accepted this money as belonging to Bhai Sunder Das and his estate. It was also pointed out that the Tax Recovery Officer (TRO) treated the assessee as a garnishee for the sums owed by Bhai Sunder Das and group, and the assessee paid Rs. 38,707 at one time, Rs. 9,019 at another time and Rs. 7,177 at yet another time. This showed that it was accepted by the department that the money did not belong to the assessee but to the estate of Bhai Sunder Das, and since the money did not belong to him, the interest on the fixed deposits did not belong to him. It was further pointed out that in case the ITO should entertain a doubt, the legal heirs of Bhai Sunder Das could be summoned and the assessee even deposited the requisite diet money.
6. The ITO was not prepared to accept this contention. He held that Bhai Sunder Das died in 1963 and the assessee did not accept the liability to anybody. There was, thus, no debt owed by the assessee on the last day of the previous year relevant to the year under assessment to anyone. The ITO further pointed out that the question of calling one for evidence would arise only when confirmatory letters were filed by those persons. Since no confirmatory letters were filed in this case, the question of calling them would not arise. Relying upon the Supreme Court decision in the case of H.E.H. Nizam's Religious Endowment Trust v. CIT  59 ITR 582, the ITO observed that the onus to establish exemption was on the assessee, who claims exemption of any class of income and that onus was not discharged in this case. He also dealt with the merits of the assessee's claim. The assessee's claim was that the sum of Rs. 17,89,183 was a debt owed by him to Bhai Sunder Das as on 31-3-1973, and that money was held by him under the trust. To this, the objection of the ITO was that, there was nothing by way of documentary evidence to establish that the money was held by the assessee under the trust. No legal obligation existed binding the assessee to pay this money to the estate of Bhai Sunder Das. If at all there was any legal obligation, as contended for by the assessee, it could only be an obligation created by the assessee himself and a self-imposed obligation could not operate as superior overriding title, diverting the income at source. The assessee contended before the ITO that it was not fair and proper on the part of the department to call for details of this sum and other evidence when, in all the previous assessment years, the said amount was not included in the assessment.
There were no fresh facts or materials or evidence coming into the possession of the department to take a different view. But the ITO took the view, that even if it was conceded that the amount was owing by the assessee to the estate of Bhai Sunder Das, the debt became barred by limitation. Various authorities, cited by the assessee to the contrary, did not find favour with the ITO. It may be noticed here that the assessee's submission that even though the liability to pay the said sum to the estate of Bhai Sunder Das existed on the death of Bhai Sunder Das in 1963, there arose quarrels among the members of that family ; with the result the assessee was not certain as to who are the legal representatives who should receive the money and who could give a valid discharge for the debt on behalf of all. The assessee requested them to let him know to whom the money should be paid. Since no reply was coming to the assessee, he withheld the repayment of the debt to them, but held the same on trust for them. The assessee never denied the liability to pay to them, but only wanted the person to whom the money should be paid. There is a reason for the assessee to entertain doubts as to the legal heirs of Bhai Sunder Das. At one time, it was claimed that there was a partial partition in respect of this particular book debt on 31-3-1956, amongst the members of the family.
At another point of time, Smt. Somawanti, the widow of Bhai Sunder Das, claimed that she was entitled to one-seventh of the estate of Bhai Sunder Das according to a will. Thus, a doubt arose as to whether the heirs of late Bhai Sunder Das were claiming the money on the basis of the alleged partial partition in the family or on the basis of the alleged will or on grounds of survivorship. The assessee further submitted that he was also not aware, whether any probate of the alleged will was taken from the Court. This incapacity and disability to make the repayment, in spite of his best intentions, was construed by the ITO as amounting to denial of liability. To prove the point that the legal heirs of Bhai Sunder Das were demanding payment and the assessee was complying, he referred to the orders served on him by the TRO demanding the assessee to clear the income-tax demand owing by Bhai Sunder Das out of the aforesaid sum, which the assessee promptly complied with. The TRO could not have suo motu demanded from the assessee the payment of tax dues of Bhai Sunder Das, unless so requested for by the legal heirs and the assessee would not have complied with unless he accepted the liability as subsisting. But the ITO stuck to his line of argument that the debt became barred by limitation and there was no legal liability and the creditors of the assessee were not even in a position to enforce their rights, by filing a suit for the recovery of the aforesaid debt. A liability, according to the ITO, which was not legally enforceable, could, not be allowed as a deduction. What influenced the ITO to suppose that the debts became barred by limitation was the fact, that though the books of account showed that there was a debt owing by the assessee to Bhai Sunder Das, there were no payments made after 1957 except for the payment of income-tax. The ITO believed that if the assessee was honest enough to repay the money, nothing prevented him from depositing the money in a Court and requesting the Court to distribute it among the legal heirs of Bhai Sunder Das. Since the assessee did not adopt this course, it showed that the assessee was not owing the money to the estate of Bhai Sunder Das. In an attempt to prove that the assessee had the intention of repaying the debt, it was pointed out to the ITO that the assessee had kept equivalent money separately in a bank account, and had not used it for business purposes. According to the ITO, this fact did not establish that the assessee had the intention of making the payment to the creditors. He attributed the allowance in the past assessments to a mistaken appreciation of the facts and since the principle of res judicata did not apply to income-tax proceedings, he justified the course of departure. In this manner, the entire sum of Rs. 1,20,670 was added back to the income of the assessee.
7. Aggrieved by this decision, the assessee preferred an appeal to the Commissioner (Appeals). That Officer heard the case at length. The arguments addressed before the Commissioner (Appeals) were summarised by him as under : (i) The fact that debt was owed by Bhai Gian Chand to Bhai Sunder Das was established ; (ii) The facts that assets corresponding to this debt passed to the assessee was established by the order of the AAC dated 1-1-1962, for the assessment year 1947-48, in the case of estate of Bhai Sunder Das ; (iii) Therefore, a legal liability to discharge the debt and make over the interests earned on the funds devolved on the assessee under article 288 of the Mulla's Hindu Law. This liability was never disputed by the assessee, which is to be inferred not only from substantial payments that are made by the assessee but also because the liability had always been acknowledged by the assessee in his books and further he, by a letter dated 23-6-1971 addressed to the manager, estate of Bhai Sunder Das, admitted that sums aggregating to Rs. 16,18,383.86 was held by him as on 31-3-1971 in the trust on behalf of the estate of late Bhai Sunder Das ; (iv) That this debt should not be viewed as a loan but as a deposit. There was no duty cast upon the depositee to find out the depositor to repay the money, unlike in the case of debtors, who are to go out in search of creditors as in the case of loans. The limitation to sue the depositor would commence only after the person, who had made the deposit, seeks the return of the deposit and the creditor fails to honour it. There was no demand by the creditor. There was a doubt in the creditor's mind as to who are the claimants entitled to the repayment. The claimants never established their eligibility for repayment, either by producing a probated will or a succession certificate nor the legal representatives of Bhai Sunder Das ever joined together to claim the repayment of the amount. Consequently, the limitation did not start at all. Therefore, the question of liability, getting extinguished or becoming barred by limitation or the debt becoming unenforceable at law, did not arise.
Reliance was placed for these propositions on Sections 21 and 22 of the Limitation Act, 1963, and on the decision of the Privy Council in Mohd.
Akbar Khan v. Avtar Singh AIR 1956 PC 171 (sic) and several other cases; (v) Once the moneys were deposited with the assessee by the creditor, it is open to the assessee to deposit this money in his own name and that does not prove that the moneys belonged to the assessee ; and (vi) Past history of the case demonstrated that it created an obligation in the nature of a trust within the meaning of Sections 80 to 94 of the Indian Trusts Act, 1882, and, consequently, the assessee has no beneficial interest in that amount except to hold it on the trust for the legal representatives of Bhai Sunder Das and, consequently, neither deposits nor the interest earned thereon belonged to the assessee.
8. After considering these points, the Commissioner (Appeals) framed the following issues as arising out of the appeal : (i) Was the amount of Rs. 17,68,000, determined as the liability of Bhai Gian Chand to Bhai Sunder Das, in the nature of a deposit and, consequently, was the sum of Rs. 10,33,000 which was outstanding on this account on 1-4-1956, from Bhai Mohan Singh to his uncle, also in the nature of a deposit (ii) If the liability was not a deposit, had it become barred by limitation and, hence, unenforceable against Bhai Mohan Singh and if so, by what time (iii) Even if it had become unenforceable against Bhai Mohan Singh, was it revived by the letter dated 23-6-1971 signed by one Shri Ram Narain for Bhai Mohan Singh and addressed to the manager of the estate of late Bhai Sunder Das (iv) Did the liability at any time create an obligation in the nature of the trust on the assessee under the operation of the provisions of Section 94, read with Section 95, of the Indian Trusts Act (v) Was any overriding diversion of the income created as a result of such obligation in the nature of the trust On each of these issues, the conclusion of the Commissioner (Appeals) was against the assessee. He was of the opinion that for the sum to become a deposit within the meaning of Section 22 of the Limitation Act, there must be actual handing over of money by way of deposit and there was nothing in this case to show that actual money was ever handed over. Section 22 applies to moneys deposited under an agreement which shall be payable on demand, and in this case there was no evidence of deposit of money nor was there any agreement to show that the money was repayable on demand. Since it was not a deposit, it can only be taken as a loan and the account maintained by the assessee showed no payments after 1960. There was a payment made in 1968 but according to the Commissioner (Appeals), this was an ex gratia payment and not a payment contemplated under the Limitation Act. The other payments made related to income-tax. They could not, therefore, be taken as repayments. Thus, the liability to repay the money extinguished and the loan ceased to become unenforceable. Then the letter of 23-6-1971, according to him, did not revive the debt. That letter was only an acknowledgement of the debt within the meaning of Section 18 of the Limitation Act, and could not be construed as holding any promise to pay the debt. Nor could it be said to constitute a valid agreement, as neither there was any offer to pay that money nor any acceptance by either side. He held that no constructive trust was created, within the meaning of Section 94 of the Indian Trusts Act.
According to the Commissioner (Appeals), for Section 94 to apply, the assessee must be in possession of the property. In his view, there was no connection between the money said to have come into the possession of the assessee in 1954-55 and the fixed deposit. In the absence of a connecting link, Section 94 could not be invoked. This theory of extinguishment of debt was also used to turn down the assessee's contention that there was a legal obligation created by the course of events amounting to constructive trust within the meaning of Section 94. He also held that under the circumstances of the case, the existence of an overriding title diverting the income at source, did not simply arise.
9. The main reason that prevailed with the Commissioner (Appeals) to hold against the assessee, on all these points, is his understanding that there were no repayments made after 1960 which extinguished in toto the debt, with the consequence that no debt existed so as to create an obligation to pay interest.
10. We will have now to deal, whether this understanding of the Commissioner (Appeals) is correct in law and based on facts. The effort of Shri R. Ganeshan, appearing on behalf of the assessee, was to prove, that on each of these issues, the understanding of the Commissioner (Appeals) was erroneous. First and foremost, the point urged was that it is factually incorrect to state that there were no repayments. By filing a copy of the account of Bhai Sunder Das in the books of the assessee, he sought to prove that there were repayments even as late as 1973 though in partial discharge of the income-tax liabilities of Bhai Sunder Das. The repayments made to the Income-tax Department was a payment made by the assessee to Bhai Sunder Das and it went to reduce the liability. He submitted that it is not the object with which the payment was made that is relevant as much as the factum of repayment.
He then submitted that the assessee was admitting the liability to the estate of Bhai Sunder Das in his account books, by claiming it as a debt owed to that estate even till today. The acceptance by the TRO on the basis of the averments of the legal representatives of Bhai Sunder Das that so much of money was owing by the assessee to that group, was itself a proof that the debt was very much alive and did not cease to be a debt. Mr. Ganeshan produced before us the proceedings that took place before the TRO. He urged that there was no mention in the order of the Commissioner (Appeals) as to why in the past years, the department had accepted it as a liability, allowed deduction for the interest, and why it deviated this year when the facts remained the same. He argued that there was a total misappreciation and misunderstanding of sections of the Limitation Act as well as the Indian Contract Act, 1872. He submitted that to create an obligation in the nature of a trust, within the meaning of the Indian Trusts Act, it is not necessary that there should be a document. From the conduct of the parties, an obligation in the nature of a trust can be inferred and in fact Sections 80 to 94 envisaged such constructive trusts and enumerated the various possibilities, in none of which writing is necessary or even contemplated. Similarly, when the debt was acknowledged by the assessee and continued to be so, the debt can never be said to have been barred by limitation. He filed before us a voluminous paper book to show the various circumstances and occasions when the assessee had acknowledged the debt either in writing or by making a payment or in his income-tax returns as well as wealth-tax returns. The evaluation of this evidence by the department is a miscarriage of justice. Much was made of the fact that the assessee denied the liability to the legal representative of Bhai Sunder Das.
The statements made by Bhai Sunder Das at different occasions were also construed by the department as an admission on their part that the assessee denied the liability to them. Shri Ganeshan contended that the point missed was owing to disputes among the legal representatives of Bhai Sunder Das, it became impossible for the assessee to identify and determine the legal representatives eligible for the repayment of the debt, so as to get a valid and complete discharge of the debt. The assessee never denied the liability to the estate of Bhai Sunder Das though he said that to any of the single individual legal representative he would not be in a position to pay. When the amount involved is so huge, Shri Ganeshan submitted that the assessee could not be expected to make the payment to any one of the legal representatives claiming for all or on behalf of all and incur the risk of law suits and expose to litigation. The assessee is bound to satisfy himself in this matter and insist upon proper proof and when the legal representatives do not come forward with the required proof and if they take time to settle the matter amongst themselves, Shri Ganeshan argued that it cannot be said that the debt ceased to exist or the assessee denied the liability. Assuming that the assessee denied the liability to repay the money to the estate of Bhai Sunder Das, in law, such a denial will take the assessee nowhere, because the legal representatives can always file a suit in a Court of law and recover the money. Even if it is held that the filing of a suit is barred by time, the debt is never extinguished. The department having accepted in the past that the debt existed and allowed the interest, it is not open to the department to turn round and say on the same evidence that no debt existed. Shri Ganeshan has again pointed out that this matter when it came before the Tribunal once, the Tribunal set aside the matter and restored it to the file of the TRO with a direction to examine the legal representatives and then arrive at a fresh conclusion. This was not done by the department at all, and whosoever was examined had only said that Bhai Mohan Singh denied payment to him or to her but not to the estate. The assessment now made cannot be said to be in pursuance of the directions given by the Tribunal but in a way in violation thereof. There is another point, that is worthy of note. The TTO relied on the order of the Commissioner (Appeals) for the assessment year 1972-73 to support the inclusion of the income. That was a reopened assessment under Section 147 of the Income-tax Act, 1961 ('the Act').
The appeal was confirmed by the Commissioner (Appeals), holding that Section 147 was rightly applied. Merits were not gone into. The ITO was not, therefore, justified in relying upon that order. Our attention is also invited to the estate duty assessment made on Bhai Sunder Das, wherein Assistant Controller of Estate Duty held that the debt in question was a liability owed by the assessee to that estate. There was the intention to repay the debt, which was more than evident from the surrounding circumstances and the entries passed in the accounts more particularly by earmaking this sum for the repayment to the estate of Bhai Sunder Das. He also relied upon the provisions of the Limitation Act to clear the misappreciation of the legal position entertained by the Commissioner (Appeals).
11. The learned departmental representative strongly relied on the orders of the authorities below, more particularly that portion of the order where the denial by the legal heirs was emphasised. He reiterated that in the absence of any payment, no debt existed, and in the case of a non-existent debt, no obligation in the nature of a trust ever arose.
At one stage it was pointed out that the assessee was trying of file a interpleader suit to decide the legal heirs, to whom the amount could be paid. Relying upon that, he submitted, that it showed that the assessee did not accept the liability but we are unable to see how it is. Relying upon the order of the Assistant Controller of Estate Duty in the case of Bhai Sunder Das, he sought to show that there could be no deposit at all. Then he took us through the statement given by Bhai Mohan Singh before the Commissioner (Appeals) and particularly the question Nos. 62 and 66 and endeavoured to show that the assessee denied the liability. To the question No. 62, the answer elicited was that the assessee denied the liability to anyone of the legal representatives named therein individually. In reply to question No.66, he again repeated the same thing. The learned departmental representative, Shri R.N. Bara, argued, basing on these replies, that the assessee denied the liability and cannot now be heard to say that the liability existed so as to contend that the interest earned on the investment of this liability in fixed deposit is income held in trust on behalf of the legal representatives.
12. We have carefully considered the matter and, in our opinion, the department is not justified at all in saying that the liability to pay this sum to the legal representatives of Bhai Sunder Das did not exist.
A careful reading of the order of the Commissioner (Appeals) as well as the ITO shows, that they proceeded on the assumption that the liability to pay the amount to the legal representatives of Bhai Sunder Das ceased to exist long back, mainly for the reason that there were no payments made. It is to be noted in this context that on 5-9-1966 for and on behalf of the member of Bhai Sunder Das & Sons, the erstwhile HUF, a certificate was given which was in the following terms : This is to certify that a sum of Rs. 14,68,000 was due to us from late Bhai Gian Chand, when he died on 18-8-1954.
Subsequently, his son, Bhai Mohan Singh, undertook the liability of his father, he being legal heir of the deceased, and he paid the following amounts after his death :and, thus the balance remained payable to us as Rs. 10,33,000 on 31-3-1956.
For and on behalf of the This shows that the legal representatives of Bhai Sunder Das were admitting that a sum of Rs. 10,33,000 was owing to them even as late as 5-9-1966. On 22-11-1968, Bhai Surjit Singh Sabharwal son of Bhai Sunder Das wrote a letter to the assessee from Calcutta. In this letter, he pointed out that he collected the cheque on 10-11-1968 and expressed his thanks and gratitude personally on his behalf and on behalf of his brothers for the payment. Further, it was mentioned in that letter, that they needed Rs. 2.5 lakhs more to complete a hotel project and requested for releasing at least Rs. 1 lakh by 20-12-1968. Apart from this, there was a very crucial and telling paragraph in this letter which should clear the cobwebs of confusion that set in around this enigma : When you get time, please do keep in mind to instruct the bank to release interest on the fixed deposit as and when it is due. I had a talk with Swinder Singh yesterday on the telephone, who is at Ranchi. Please instruct your office to let Swinder Singh know, how the amount is to be credited.
This shows that Surjit Singh as well as Swinder Singh, sons of Bhai Sunder Das, know full well that the fixed deposit made by Bhai Mohan Singh in his name, which is now in dispute, belonged to them and that the interest on it was due to them and a request was made to release the interest. What would this show other than an admission by the legal representatives of Bhai Sunder Das that a huge amount was owing to them from Bhai Mohan Singh. Bhai Mohan Singh, it is to be remembered, did not even once contradict at any point of time that no money was owing from him to them. It is no doubt true in several statements recorded by the TRO. Bhai Mohan Singh had repeatedly said that he did not give any money to any individual representative, but he never denied the liability to the estate of Bhai Sunder Das. On the contrary, he categorically admitted it. His explanation that he had to resort to this line of action, is understandable. He was not sure of the legal representatives and they were indeterminate. He may not get a valid discharge. This apprehension entertained by the assessee cannot be minimised or ignored. That they are adopting different stands, is proved by the fact that at one time they were saying that there was a partition in which this debt was divided while at other time they were claiming that there was a will. At best, it can be said that the assessee was taking advantage of the disputes in their family or a loophole in legal position, to postpone the payment as long as he could. Maybe, in the process, he is getting the advantage of the use of the money that does not mean that the liability got extinguished merely because the payment was postponed or delayed. 13. Further, there is enough evidence on record to show by way of acknowledgment given by the legal representatives of Bhai Sundar Das that they were receiving payments from the assessee on several occasions and it is unnecessary for us to refer to each one of them. We may just refer to another piece of evidence which is at page 6 of the paper book, which is again a letter written by Bhai Swinder Singh, for and on behalf of Bhai Sunder Das & Sons, to the assessee on 12-5-1969 where the receipt of a letter dated 22-4-1969 was acknowledged, along with the original certificates for deduction of tax at source on account of income-tax under Section 203 of the Act on account of interest amounting to Rs. 13,536.89 and Rs. 71,095.60, on the amount held by the assessee on their behalf. This shows again that even on 12-5-1969, the understanding between the parties as well as their conduct was that the assessee was holding money on account of Bhai Sunder Das & Sons, that the interest earned on the fixed deposits belonged to them and the tax deduction certificates were being passed on to them. Now, that letter also shows that a receipt was enclosed by them to Bhai Mohan Singh, acknowledging the payment of the balance amount of interest. How deep and real are the disputes between the legal representatives of Bhai Sunder Das and how careful the assessee was in getting proper and due discharge for the amount paid by him to them, is indicated by an agreement signed by them and given to the assessee, which is at page 7 in the paper book : We the undersigned (beneficiaries) of the estate of Bhai Sunder Das, need money for purposes, needs and benefit of our respective F, and Bhai Mohan Singh has paid us Rs. 84,632.01 (Rupees Eighty-four thousand six hundred thirty-two and paisa one only to meet the same.
We hereby jointly acknowledge receipt of the said sum of Rs. 84,632.01 (Rupees eighty four thousand six hundred thirty two and paisa one) only received from Bhai Mohan Singh, son of late Bhai Gian Chand, as per details below on account of interest for the period 1-4-1968 to 3-3-1969 of Rs. 71,095.62 and for the period 4-4-1968 to 4-4-1969 of Rs. 13,536.39 as the amount held by him in the trust, and we hereby undertake to apportion the same according to our mutual arrangement.
Bhai Mohan Singh will not be responsible in any manner for any differences amongst the brothers in the matter of apportionment of the amount.10,000.00 on 22-3-1967, by cash to Bhai Sardar Singh.10,000.00 on 19-11-1968, by cheque in the name of bhai Sunder Das & Sons.5,000.00 on 5-12-1968, by cheque in the name of Bhai Sunder Singh.8,464.08 by delivery of original tax deduction certificates for amounts of tax29,164.81 vide cheque No. 553361, dated 30-4-1969.84,632.02 sic We further hereby absolve Bhai Mohan Singh of any obligation to any claim that may be made by any other person, claiming under Bhai Sunder Das, settlement of which would be entirely our responsibility.
Then in the books of the assessee, there is an account opened for Bhai Sundar Das which opened with a credit balance of Rs. 14.68 lakhs on 19-8-1954. The interest on that amount was credited every year and payments made were debited so that by 31-3-1972, the credit balance was of Rs. 17,89,163 after crediting the interest of Rs. 1,20,616 on 31-3-1972. The amounts paid to the ITO on behalf of Bhai Sunder Das & Sons was also debited to this account. The copy of the account up to 31-3-1975 was also given to us, which showed a credit balance of Rs. 19,50,991.02 by 31-3-1975 after crediting the interest of Rs. 96,162. A sum of Rs. 9,019 was debited to this account on 6-9-1974, which represented the arrears of income-tax demand of Bhai Sunder Das for 1960-61 paid to the ITO. There were also payments made earlier towards income-tax. This shows the position of this account in the books of the assessee. We have already shown that the legal representatives of Bhai Sunder Das have never stated that no money was owing to them from the assessee and on the contrary, there were transactions between the assessee and them and the acknowledgments given by them and they have also said more than once that the money was held by the assessee in the trust for them. Secondly, we have also seen that the assessee is making payments to the income-tax authorities in discharge of the tax liabilities of the legal representatives of Bhai Sunder Das. Thirdly, the assessee is admitting this liability in its accounts. The question then is, can it, in this background, be said that the debt ceased to exist Can the payments made to the income-tax authorities by the assessee be ignored In our opinion, the payments made to the income-tax authorities on behalf of the legal representatives of Bhai Sunder Das are to be deemed to be the payments made to the assessee.
There cannot be any quarrel on this proposition. The Act clearly provides for this situation in section. Therefore, the limitation does not end from 1968, as supposed by the Commissioner (Appeals), but from the last date of the last payment which is 6-9-1974. There is, therefore, no question of debt getting extinguished or becoming unenforceable. We have also shown that the assessee never denied the liability to pay the money to the estate of Bhai Sunder Das & Sons, although he was denying payment to any individual representative all because he wanted to save his position and secure a proper and valid discharge for the payment made. In the case of payment made to income-tax, the law deems it a valid and proper discharge. But such a redemption is not possible according to the assessee's stand, if payments are made individually to anyone of the legal representatives.
He wanted them to come collectively to him for payment and no doubt he had taken positive advantage of the disunity, if at all that existed in their group. The agreement extracted above also shows that on occasions they all came together to give a valid discharge and that discharge was in the end of 1969. It is, therefore, totally incorrect to say that the debt extinguished and became unenforceable from 1963 onwards. That apart in the wealth-tax assessments for all the previous assessment years the amount claimed was being allowed as a deduction and the interest income was being excluded in the income-tax assessment. An abrupt departure this time, for which there is no valid reason except a suspicion and a partial appreciation of the evidence, is not perhaps warranted.
14. Section 18 provides the effect of acknowledgment in writing as follows : 18. Effect of acknowledgment in writing.--(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.
(2) Where the writing containing the acknowledgement is undated, oral evidence may be given of the time when it was signed ; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.
This clearly says that where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment is made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.
Acknowledgment means a definite admission of liability. It is not necessary that there should be a promise to pay ; the simple admission of debt is sufficient. Surrounding circumstances also can be taken into consideration in construing the words used in writing--B. Shambumal Gangaram v. State Bank of Mysore AIR 1971 Mys. 156. In Official Liquidator v. Bishan Singh 1968 All. L.J. 171 and Mohesh Lal v. Busunta Kumaree 6 Cal. 340, it was held that where a series of acknowledgments have been made, each within the new period arising from the previous acknowledgment and the first is within three years of the date of the debt, the debt is kept alive. All the circumstances in the case point to the conclusion that there was an unconditional acknowledgment of the debt due to the estate of Bhai Sunder Das and the denial to pay to any one individual does not obliterate the liability owing to the estate but on the contrary supports it. Even the Commissioner (Appeals) accepts that there was acknowledgment by the letter dated 23-6-1971 written by the representative of the assessee. This acknowledgment given on 23-6-1971 revives the debt, if it is held that it was time barred. The further period of three years commences from 23-6-1971, which makes the debt subsisting during the relevant accounting year. An acknowledgment of a current account implies an acknowledgment to have accounts settled and implies that a promise to pay should the balance turned out to be against the person making it--Bengal National Bank v.Jatindra 56 Cal. 556. The Commissioner (Appeals) is therefore, in error in construing this letter as an acknowledgment without a promise to pay. The promise to pay may even revive time barred debts. The acknowledgment can be made not only by the assessee but also by his authorised representative. The person, who wrote the letter, has the full authority of the assessee and in any case, the assessee did not deny it but on the contrary admitted that it was on his behalf. In this letter, there was clear admission that the said sum was being held on trust. Section 19 of the Limitation Act may also be seen in this regard. It provides that where a payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made. It was in pursuance of this, the Income-tax Act provided that the payment made to the ITO or the TRO, as the case may be, and the tax due to it will be deemed to be a payment made to the debtor in full discharge and this is why we say that when the payment on account of income-tax was made to the TRO, that was a payment to be deemed to be the payment to the debtor and that gives a fresh period of limitation and if we carefully compute each one of the payments to the income-tax authorities, it is before the expiration of the prescribed period.
15. We may also notice at this stage the difference between a deposit and a loan. In the case of loan, money passes from the payer to the payee at the instance and for the requirement or use of the latter, while in the case of a deposit the payee receives the money at the instance of the payer and the requirement or use of the payee is not a relevant fact for consideration. Surrounding circumstances, relationship of the parties and the character of the transaction, are all factors decisive of whether a transaction is a deposit or money or loan--Ram Janki Devi v. Juggilal Kamalapat AIR 1971 SC 2551. In case of doubt, the presumption is that a transaction is a deposit and not a loan. A depositee stands in a fiduciary relation to the depositor. It has been held in Kanyalal Supdubhai v. Hiralal Deoram AIR 1947 Bom. 255 that where money is deposited in confidence, the transaction is a deposit made in trust and the depositee stands in a fiduciary relation to the depositor and is liable to render an account to the depositor.
In this case, the history, and the genesis of the amount showed that this money was entrusted to the care of Bhai Mohan Singh to be held in deposit for the benefit of legal heirs, with a view to evade the attachment of the same from income-tax. About the origin, there is no dispute. This origin clearly indicates that the money came to the assessee by way of a deposit and not by way of a loan. The essential requisite of a loan is that the money must come to the assessee at his request and for his use, which was not the case here. Therefore, there is enough evidence to show that this is only a deposit and not a loan and for deposit; under Section 22, the time of limitation runs from the date when the payment was demanded and in this case it was a continuing debt. The question of the debt becoming extinguished or becoming unenforceable by the operation of Section 22 does not arise. In our opinion, the Commissioner (Appeals) also is in error in holding that there is no constructive trust insofar as this money is concerned.
Section 94 of the Indian Trusts Act, quoted by him, clearly applies to the facts of this case and the assessee does hold this money in the trust for the legal representatives of Bhai Sunder Das and there is no escape from that situation. The reason that there was no legal obligation, cannot be accepted because the origin of this deposit and the subsequent conduct clothe this transaction with a legal obligation to hold the money in the trust. Looked at from any angle, it does appear that the assessee did owe this money to Bhai Sunder Das & Sons and that the liability did not extinguish and is enforceable at law and, therefore, a live debt. Assuming for the sake of argument that the debt became unenforceable, then only the remedy to file a suit is barred and the debt never ceased to subsist. This is a well settled law and we do not have to dwell on this subject. Thus, we arrive at a position where the creditor, Bhai Sunder Das & Sons, claims the debt and continue to do so ; the debtor, i.e., the assessee admits the liability and acts on that basis. There, how can the debt be said to have extinguished. The debtor in no case alters the legal position, by terminating unilaterally the liability. Since this is the main reason, if not the only reason (others being supporting reasons), that weighed with the revenue to hold that the debt extinguished and the liability to make over the interest to Bhai Sunder Das & Sons ceased and since it has been found that the debt existed, we hold that the approach of the revenue is not correct. We, therefore, find it extremely difficult to agree with the conclusions of the department.
16. We, therefore, hold that the assessee's claim to exclude this interest from its income has to be accepted as in the earlier assessment year and nothing has happened to deviate from the past procedure.