RAJA MOHAN RAJA BAHADUR versus THE COMMISSIONER OF INCOME-TAX, U.P.

Citation: [1967] 3 S.C.R. 482 · Decided: 06-04-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

RAJA MOHAN RAJA BAHADUR 
v. 
THE COMMISSIONER OF INCOME-TAX, U.P. 
April 6, 1967 
[J. c. SHAH, s. M. S!KRI ANO v. RAMASW~Ml, JJ.J 
Jncome-tax-Assessee maintaining accounts on Ct1$h baris--Obtalning 
decree for repayment of loan made to debtor to whom U.P. Encumbered 
Estates .Act, 1934 applied-Receiving Interest in loon in U.P. Encumber-
ed Bonds-Whether amounting to receipt of income on date when bonds 
received. 
The apJ?ellant, a Hindu undivided family, carried on the busin..,. of 
money-lending and maintained its accounts on cash basis. 
After 
the 
appellant had obtained a decree for the recovery of a Joan made to a 
debtor, the latter obtained an order under the U.P. Encumbered Estates 
Act 25 of 1934, applying the provisions of the Act to him. The Special 
Judge, Sultanpur, thereafter passed an order for payment of the principal 
sum and interest to the appellant. 
Pursuant to this order the appellant 
received in 1946 an amount in cash from the debtor and for the balance 
the State Government gave to the appellant U.P. Encumbered 
Estates 
Bonds. While the cash amount received in 1946 was appropriated by the 
appellant toward• the principal due, he split up the amount of the face 
value of the bonds into two sums and credited one amount in the books 
of account towards the balance of r,rincipal and the other amount to an 
account styled as "interest accrued'. In submitting tl)e 
return of the 
taxable income for the assessment year 1948-49, 
the appellant did not 
disclose any ·receipt of income from interest due on the loans advanced 
to the debtor and was duly assessed to tax on the income disclosed by 
him. 
In October 1948 the appellant sold the bonds and disclosed in the 
return for the assessment year 1949-'50 as interest received during the 
year of account the difference between the amount realised by sale of the 
bonds and the amount due as principal. The Income-tax Officer issued 
a notice under s. 34(1)(a) of the Income-tax Act, 1922 and brought to 
tax the amount disclosed by the appellant as escaped income of the pre-
vious year relevant to the assessment year 1948-49. 
This order was confirmed by 
the Appellant Assistant Commissioner 
as well "' by the Tribunal. The High Court, upon a reference, also 
held in favour of the respondent. 
In appeal to this Court it was contended on behalf of the appellant 
that the accounts maintained by the appellant being on cash basIS, until 
the appellant realised the value of the bonds, no interest was received by 
him; that when a trader maintains accounts on cash basis, the receipt of 
money alone can be taken into account in determining the taxable in· 
come. It was contended in the alternative that the bonds i8"ued by the 
Government merely amounted to a fresh promise by an agent of the 
debtor to 1'"Y the amount of the bonds in instalments and by receiving 
the bonds 1ncorpo·rating such a promise, no money or money's worth was 
received by the creditor. 
HELD : Dismissing the appeal; the Encumbered Estates Bonds were 
by operation of the statute received ey the appellant in satisfa~tion pro 
tanto of the liability of the debtor. They were a fresh security. Tbc 
liability of the original debtor was substituted by an obligation uhde·rtaken 
A 
B 
c 
I> 
E 
F 
G 
H 
A 
B 
c 
D 
E 
F 
G 
H 
MOHAN RAJA v. C.I.T. (Shah, l.J 
483 
by the State : the bonds were convertible in terms of money : income 
was therefore received by the appellant when the bonds were received. 
Where the accounts are maintained on cash basis receipt of money or 
money's worth and not accrual of the right to receive is the determining 
factor. Therefore, if commercial assets are received by a trader maintain· 
ing accounts on cash basis in satisfaction of an obligation, income which 
is embedded in the value of the assets is deemed to be received; the re-
ceipt of income is not deferred till the asset is realised in terms of cash 
or money. It makes no difference whether the receipt of a..ets is in 
pursuance of an agreement or that the trader is compelled by law 
to 
accept the assets from the debtor. Once title of the trader to an asset 
received is complete whether by consensual arrangement or by operation 
of law, he receives the income embedded 
in the value of the assets. 
[486D-F] 
Californian Copper Syndicate (Limited and Reduced) v. Harris (Surve-
vor of Taxes), 5 T.C. 159, referred to. 
Although the uovernment had the ri~ht to recover the amount due 
under the bonds from the lan

Excerpt shown. Read the full judgment & AI analysis in Lexace.