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The Commissioner of Income-tax Vs. Ct. Rm. N. Narayanan Chettiar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai
Decided On
Reported inAIR1943Mad682; (1943)2MLJ316
AppellantThe Commissioner of Income-tax
RespondentCt. Rm. N. Narayanan Chettiar
Cases ReferredVyse v. Foster
Excerpt:
- - 309 the court of equity did not punish trustees who had failed to perform their trust;.....it was agreed that certain securities should be transferred to the respondent and certain sums of money paid over to him. he was in fact paid three sums of money. on the 1st april, 1925, he was paid 2,00,000, on the 21st april, 1926, 3,50,000 and between the 26th april, and 23rd june, 1927, 3,27,250. it was found as a fact that these sums, although described as capital sums, did represent interest in part. the question was whether the respondent was liable to be taxed in respect of the interest portion. it was held that he was. in his judgment, romer, l.j., said:if he (respondent) had elected to take profits, i cannot see how it could be suggested for a moment that any profits he so recovered could be regarded in any shape or form as damages. as we know, in the end he elected to take.....
Judgment:

Alfred Henry Lionel Leach, C.J.

1. This is a reference by the Income-tax Appellate Tribunal, Calcutta Bench, under Section 66(1) of the Income-tax Act, and has been made at the instance of the Commissioner of Income-tax, Madras. The assessee's father, who died in 1921, was a partner in a money-lending firm carried on in the Federated Malay States. Notwithstanding the death of the assessee's father, the business of the firm was carried on until 1928 when a Panchayat met to decide what was payable to the assessee and his brother on account of their father's share, and the amount was fixed at $155,900. The assessee and his brother were minors, and so was Meyyappa. Ten years later, another Panchayat was formed for the purpose of deciding what interest should be paid on the $155,900 and the panchayatdars fixed the amount at $27,000. A sum of $182,900 representing principal and interest was paid to the assessee and his brother by way of a hundi on the 2nd April, 1938, the hundi being cashed on the 9th March, 1938. The assessee's.share of the interest came to Rs. 21,153. The Income-tax Officer included this sum as income of the assessee for the year 1939-40 and the assessee objected. He contended that the Rs. 21,153 represented damages paid to him for the wrongful detention of the principal sum to which he was entitled under the award of the Panchayat. This contention was accepted by the Income-tax Appellate Tribunal, but as the decision involved a question of law, it has referred to this Court for decision the following question:

Whether, having regard to the circumstances of the case, the conclusion of the Bench, namely,, that the amount of Rs. 21,153 received by the appellant was in the nature of damages for wrongful detention of the money in the hands of the partner of the appellant's father and therefore, not assessable, is correct in law

2. In accepting the assessee's contention that this sum represented damages for the wrongful detention of the principal, the Tribunal relied on two, cases, Commissioner of' Income-tax, Bihar and Orissa v. Rani Prayagkumari Debi I.L.R.(1939) Pat. 186 and Beharilal Bhargava v. Commissioner of Income-tax I.L.R. (1941) All. 54. In our judgment these cases are not in point, and in any event the correctness of the decision in the second case is open to doubt. The first case had reference to a sum which had been awarded to the assessee in a civil suit as damages for the wrongful detention of her movable property. The Patna High Court held that as the amount was decreed as damages, it was not a sours of income within the contemplation of the Act. The second case was decided by the Allahabad High Court. There an amount awarded as compensation in land acquisition proceedings carried interest, and the question was whether the interest-represented assessable income. The Allahabad High Court held that it did not, but with great respect we find ourselves unable to follow the reasoning. Certainly we are not prepared to accept the judgment as a guide to the decision in the present case.

3. There are two cases which we consider have beating here, namely, Schulze V.S.W. Bensted (1915) 7 T.C. 30 and Commissioners of Inland Revenue v. Bernato (1936) 20 T.C. 455. In Schulze v. S.W. Bensted (1915) 7 T.C. 30 the appellant, who Was the trustee of an estate, sued the representatives of a deceased trustee for damages to the estate caused by Ms negligence, and a decree was passed directing the defendants to pay a sum of money with interest thereon at the rate of 3 1/2 per cent, per annum from the date on which the sum should have belonged to the estate. The Surveyor of Taxes claimed that the interest represented income, but this claim was resisted. The Court of Session held that the Surveyor of Taxes was right. In Commissioners of Inland Revenue v. Bernato (1936) 20 T.C. 455 the decision in Schulze v. S.W. Bensted (1915) 7 T. C. 30 was approved by the Court of Appeal in England. In that case, the respondent inherited certain sums in a business which vested in him on attaining majority. After he had attained majority, he became a partner in the firm, but soon afterwards the partnership was dissolved, and it was agreed that certain securities should be transferred to the respondent and certain sums of money paid over to him. He was in fact paid three sums of money. On the 1st April, 1925, he was paid 2,00,000, on the 21st April, 1926, 3,50,000 and between the 26th April, and 23rd June, 1927, 3,27,250. It was found as a fact that these sums, although described as capital sums, did represent interest in part. The question was whether the respondent was liable to be taxed in respect of the interest portion. It was held that he was. In his judgment, Romer, L.J., said:

If he (respondent) had elected to take profits, I cannot see how it could be suggested for a moment that any profits he so recovered could be regarded in any shape or form as damages. As we know, in the end he elected to take interest in lieu of profits. But any interest that the trustees were directed to pay him in addition to the principal sum would not be damages. As pointed out by James, L.J., in Vyse v. Foster (1872) 8 Ch. 309 the Court of Equity did not punish trustees who had failed to perform their trust; the trustees would be ordered to pay the interest because in the eyes of equity that interest belonged to the plaintiff; it was interest which had been earned, or must be deemed to have been earned, by the trustees by the use of the plaintiff's money.

4. We hold that the sum of Rs. 21,153 represented interest and not damages for the wrongful detention of money. Accordingly, the answer to the question referred is that the Appellate Tribunal erred in holding that the sum represented damages. The Commissioner succeeds and he will have his costs, Rs. 250.


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