Case: Commissioner of Income Tax, Madras Vs. V. MR. P. Firm, Muar

fifty dollars in amount, which- (i) was not due at the time of such payment; or (ii) if due, was not demanded by the creditor or by his agent on his behalf and was not payable within the occupation period under a time essence contract; (iii) if due and demanded as aforesaid was not paid within three months of demand or within such extended period as was mutually agreed between the creditor or his agent and the debtor or his agent; or (c) ......................such payment shall be revalued in accordance with the scale set out in the Schedule to this Ordinance and shall be a valid discharge of such debt only to the extent of such revaluation. THE SCHEDULE 1. (a) Where any such payment as is mentioned in sub-section (2) of S. 4 of this Ordinance was made in occupation currency during any month or on any day mentioned in the first column of the scale set out in paragraph 3 of this Schedule, such payment shall be revalued by taking the number of dollors in occupation currency set out opposite such month or day in the second column of the said scale as equivalent to one hundred dollors Malayan currency, and so in proportion for any portion if such payment amounting, when revalued, to less than one hundred dollars Malayan currency (b) Where any such payment was made in occupation currency on or after the thirteenth day of August, 1945, the value of such payment shall be taken to be nil. 2. (a)-- In the case of an unsatisfied occupation debt or part thereof which falls to be revalued under Section 6 of the Ordinance such debt or part thereof shall be revalued at the appropriate date as provided in the said section or sub-section by taking the number of dollars in occupation currency mentioned opposite such month or day in the second column of scale set out in paragraph 3 of this Schedule as equivalent to one hundred dollars Malayan currency, and so in proportion for any portion of such debt amounting, when revalued, to less than one hundred dollars Malayan currency. (b) When any such debt or part of a debt fell due for payment on or after the thirteenth day of August 1945, its value shall be taken to be nil. 3 Sliding scale of the value of occupation currency 1942-45. 16. We have not allowed the Solicitor General to contend that sub-section(2) of Section 4 of the Ordinance does not apply to the debts in question as throughout the proceedings of this case it was assumed that it applies to the said debts. During the Japanese Occupation both the Japanese currency and the Malayan currency were in vogue. In January 1943 the Japanese currency began to depreciate and by August 13, 1945, it ceased to be of any value. During that process of devaluation debts were paid off and received in Japanese currency which resulted in loss to the creditors. To regulate the relationships between creditors and debtors during that period the said Ordinance was passed by the Malayan Legislature on December 16, 1948. Under the said Ordinance payments in Japanese currency were to be valued and scaled down in accordance with the Schedule appended to the Ordinance. If a debtor was paid his debt in depreciated Japanese currency, he was required to pay over again a certain amount to be ascertained by the application of the provisions of the Schedule. In terms sub-section (2) says that the payment in Japanese currency shall be a valid discharge of such debt only to the extent of such revaluation. When the payments made towards debts were scaled down the debts were revived in regard to the balance of the debt. After the making of the Ordinance, the creditor could enforce his debt to the extent not discharged and the debtor had the obligation to discharge the same. On the express terms of the Ordinance it is impossible to accept the contention that the State provided for compensation for the losses incurred by the assessee. Indeed the State did not pay any compensation at all. The legal relationship of the creditor and debtor was not created by the Ordinance but it was regulated on the basis of the pre-existing relationship. We, therefore, hold, agreeing with the High Court, that under the Ordinance the discharged debts, became enforceable to the extent of the balance of the amount due after the scaling down of the payments. If so, the Income-tax Officer could only impose tax on the income recovered by the assessees thereafter towards their debts if such income was taxable under the provisions of the Act. 17. So too, in regard to the payment made by the assessee towards such debts they could claim relief by way of deductions only if such deductions were permissible under the Act. 18. The High Court held that the assesses who had received repayments 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. It further held that 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 a direction that in the case of open payments the respective amounts paid towards principal or interest should be ascertained in accordance with the law of appropriation of payments. Neither the learned Solicitor General, who appeared for the Revenue, nor the learned counsel, who appeared for the assessees, questioned the correctness of the said directions if the construction we placed on the Ordinance was correct. The directions given by the High Court will, therefore, stand. In our view, the High Court gave correct answer to the questions referred to it.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. The first question had not been raised at any stage of the proceedings before the Tribunal and the High Court. Nor does it find a place in the statement of case. We cannot, therefore, allow the learned counsel to raise it for the first time before us12. Nor has the second question been raised in the High Court in the form in which it is presented before usThe doctrine of approbate and reprobate is only a species of estoppel; it applies only to the conduct of parties. As in the case of estoppel it cannot operate against the provisions of a 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. Equity is out of place in tax law; a particular income statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income14. The decision in Amarendra Narayan Roy v. Commissioner of Income-tax, West Bengal, AIR 1954 Cal 271  has no bearing on the question raised before us. There the confessional scheme tempted the assessee to disclose voluntarily all his concealed income and he agreed to pay the proper tax upon it. The agreement there related to the quantification of taxable income but in the present case what is sought to be taxed is not a taxable income. The assessee in such a case can certainly raise the plea that his income is not taxable under the Act. We, therefore, reject this pleaUnder the said Ordinance payments in Japanese currency were to be valued and scaled down in accordance with the Schedule appended to the Ordinance. If a debtor was paid his debt in depreciated Japanese currency, he was required to pay over again a certain amount to be ascertained by the application of the provisions of the Schedule. In terms sub-section (2) says that the payment in Japanese currency shall be a valid discharge of such debt only to the extent of such revaluation. When the payments made towards debts were scaled down the debts were revived in regard to the balance of the debt. After the making of the Ordinance, the creditor could enforce his debt to the extent not discharged and the debtor had the obligation to discharge the same. On the express terms of the Ordinance it is impossible to accept the contention that the State provided for compensation for the losses incurred by the assessee. Indeed the State did not pay any compensation at all. The legal relationship of the creditor and debtor was not created by the Ordinance but it was regulated on the basis of the pre-existing relationship. We, therefore, hold, agreeing with the High Court, that under the Ordinance the discharged debts, became enforceable to the extent of the balance of the amount due after the scaling down of the payments. If so, the Income-tax Officer could only impose tax on the income recovered by the assessees thereafter towards their debts if such income was taxable under the provisions of the Act17. So too, in regard to the payment made by the assessee towards such debts they could claim relief by way of deductions only if such deductions were permissible under the Act18. The High Court held that the assesses who had received repayments 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. It further held that 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 a direction that in the case of open payments the respective amounts paid towards principal or interest should be ascertained in accordance with the law of appropriation of payments. Neither the learned Solicitor General, who appeared for the Revenue, nor the learned counsel, who appeared for the assessees, questioned the correctness of the said directions if the construction we placed on the Ordinance was correct. The directions given by the High Court will, therefore, stand. In our view, the High Court gave correct answer to the questions referred to it.