The Debtor and Creditor (Occupation Period) Ordinance No. XLll of 1948 revived the discharged debts to the extent of the balance due after scaling down the payments made in Japanese currency, and the income recovered by the assessees towards their revived debts was taxable under the provisions of the Income-tax Act if such income was taxable under the Act.

Judgment

SUBBA RAO, J. :- These l6 appeals are filed against the Judgment of the High Court of Judicature at Madras and raise the question of the effect of the Debtor and Creditor (Occupation Period) Ordinance No. XLll of 1948 of Malaya, hereinafter called the Ordinance, on the liability of the assessee to pay income-tax in respect of pre-occupation debts revised thereunder.

2. During the last World War Japan occupied Malaya. During the period of their occupancy i. e., from February, 1942 to September, 1945, they introduced their own currency in dollars. During that period both the currencies were in vogue though there was a progressive depreciation of Japanese currency in its relation to Malayan currency. On September 5, 1945, the British Government reoccupied Malaya and introduced the Malayan currency as legal tender in place of Japanese currency. The Indian nationals, who were carrying on business in Malaya during the period of Japanese occupation, were hit adversely and suffered losses. The Government of India came to their rescue and by Notification dated August 14, 1947, they propounded a scheme to give them relief by allowing them to set off the losses incurred by them during the 5 years relevant to the assessment years 1942-43 to 1946-47 against the profits of the assessment years 1942-43 and 1941-42. We shall consider the scheme in some detail at a later stage of the judgment. On December 16, 1948, the Malayan Legislature passed the Ordinance declaring that payments made in Japanese currency by debtors to their creditors in respect of debts incurred prior to and during the Japanese occupation were to be valued and scaled down in accordance with the schedule appended to the Ordinance. We shall deal with the Ordinance in some detail at the appropriate place but the broad effect of the Ordinance was that though a debt had been discharged fully by paying the amount due in Japanese currency, the debt was revived in proportion to the depreciation of Japanese currency in relation to the Malayan currency as laid down by the schedule. The creditor s right to recover the debt to the said extent and the liability of the debtor to pay the same revived.

3. As the question raised is one of law and does not depend upon the peculiar facts of each case, we think it is enough if we state briefly the facts of two cases, one illustrating the claim of an assessee against the imposition of income-tax in respect of the income he realised by the revival of the debts and the other illustrating that of an assessee to an allowance on the ground that he paid the scaled down debts over again.

4. The respondent in Civil Appeals Nos. 722 to 735 of 1963 is a firm carrying on business of moneylending in Kampar in Federated Malaya State. It applied for relief under the special scheme. It incurred loss for the aforesaid four years of Rs.1,33,125. For the years 1941-42 and 1942-43 it had a profit of Rs. 53,010 and Rs. 35,753 respectively. The said profits were set off against the losses and the taxes paid by it for the years 1941-42 and 1942-43 were refunded to it. After the Ordinance was passed, in terms of that Ordinance the respondent recovered 6,437 dollors during the previous year ending April 12, 1952 corresponding to the assessment year 1952-53.

5. Civil Appeals Nos. 518 to 520 of 1963 deal with the converse case. The appellant therein is a Hindu undivided family carrying on, inter alia, a money-lending business in its own villasam in Kaula Kubbu Bharu and Parit Buntar in the Federated Malaya States. In the course of its business it had taken moneys as deposits from various persons before April 12, 1942. During the period of occupation it discharged its liability to various creditors but after the publication of the Ordinance it had to pay again to the creditors 6,214.58 dollars in the previous year ending April 12, 1950; 28,586 dollars for the previous year ending April 12, 1951; and 11,547 dollars for the previous year ending April 12, 1952. The afo