COMMISSIONER OF INCOME-TAX, MADRAS versus V. MR. P. FIRM, MUAR

Citation: [1965] 1 S.C.R. 815 · Decided: 26-10-1964 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed
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Judgment (excerpt)

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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 principle-
of 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 Govern-
ment 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 made-
by 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 accord-
ing 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<> 
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SUPllEM! COUJ.T llEPORTS 
[1965] I S.C.R. 
payment.., and the contention of the Revenue that the State provided for 
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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 
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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, Solicitor-
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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, Solicitor-
General, N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, for 
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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
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