Interest received by assessee as his share of amount paid by Ceylon Estate Duty Authorities consequent to judgment of Supreme Court of Ceylon ordering refund of amount was income and not capital receipt and was not exempt under S. 4 (3) (vii) of Income-tax Act, 1922 as receipt of casual and non-recurring nature.

Headnote:
INCOME TAX - Interest received by assessee as his share of amount paid by Ceylon Estate Duty Authorities consequent to judgment of Supreme Court of Ceylon ordering refund of amount - Held, interest was income and not capital receipt - Also, it was not exempt under S. 4 (3) (vii) of Income-tax Act, 1922 as receipt of casual and non-recurring nature.
Fact of the Case:

The assessee, Ramanathan Chettiar, was adopted by Nachiar Achi, the widow of Arunachalam Chettiar (senior), who died in 1938. The estate of Arunachalam Chettiar (senior) was divided into three equal shares, with Ramanathan Chettiar receiving one-third share. In the assessment year 1958-59, the assessee was assessed to income tax on a total income of Rs. 2.53,828, which included a sum of Rs. 1,93,328 received by him as his share of the interest paid by the Ceylon Estate Duty Authorities consequent to the judgment of the Supreme Court of Ceylon ordering the refund of the amount.
Finding of the Court:

The court held that the interest received by the assessee was income and not a capital receipt. It also held that the interest was not exempt under S. 4 (3) (vii) of the Income-tax Act, 1922 as a receipt of a casual and non-recurring nature.
Issues: 1. Whether the interest received by the assessee was income or a capital receipt? 2. Whether the interest was exempt under S. 4 (3) (vii) of the Income-tax Act, 1922 as a receipt of a casual and non-recurring nature?
Ratio Decidendi: 1. The court held that the interest was income and not a capital receipt because it was paid under the judgment and decree of the Supreme Court of Ceylon, which ordered the Crown to refund to the appellants the sum of Rs. 7,00,402.65 with legal interest thereon from the date of the institution of the proceedings in the District Court. 2. The court held that the interest was not exempt under S. 4 (3) (vii) of the Income-tax Act, 1922 as a receipt of a casual and non-recurring nature because it was granted under the decree of the Court from the date of the institution of the proceedings in the District Court and was calculated upon the footing that it accrued de die in diem, and hence it had the essential quality of recurrence which was sufficient to bring it within the scope of the Act.
Final Decision: The court dismissed the appeal with costs.

Judgment

RAMASWAMI, J. : This appeal is brought by special leave on behalf of Ramanathan Chettiar (hereinafter called the assessee ) from the judgment of the High Court of Madras, dated September 24, 1962 in T. C. No. 144 of l960.

2. Arunachalam Chettiar (senior) was a resident of Devakottai, Ramanathapuram District who owned extensive properties including properties in Ceylon. He married three wives, viz., Valami Achi, Lakshimi Achi and Nachiar Achi. Valami Achi died in 1913 leaving behind her a son Arunachalam Chettiar (junior) and three daughters. Lakshimi Achi and Nachiar Achi did not have natural born sons. Arunachalam Chettiar (junior) died on July 9, 1934. Arunachalam Chettiar (senior) died on February 23, 1938. He was survived by his two widows Lakshimi Achi and Nachiar Achi and by the widow of his predeceased Son, Arunachalam Chettiar (junior), viz., Umayal Achi. After the death of Arunachalam Chettiar (senior) disputes arose between his two widows and the widow of Arunachalam Chettiar (junior) Umayal Achi, in respect of the estate of Arunachalam Chettiar (senior). Umayal Achi filed 0. S. No. 93 of 1938 in the Subordinate Judge s Court of Devakottai for administration and partition of the estate of deceased Arunachalam Chettiar (senior). She claimed a half-share in the properties under the provisions of the Hindu Women s Rights to Property Act. During the pendency of the suit the Subordinate Judge appointed two Advocates as Receivers for the administration of the estate. On the death of Arunachalam Chettiar (junior) the Estate Duty Authorities of Ceylon levied Estate Duty on what was described as the "deceased s half share of the assets of the business carried on by the family in Ceylon". Estate Duty was also levied on the death of Arunachalam Chettiar (senior) in 1938. The two Advocate Receivers who were administering the estate paid under protest to the Commissioner of Estate Duty in Ceylon the Estate Duty claimed from them. The administrators subsequently filed a suit in the Court of the District Judge, Colombo questioning the validity of the Estate Duties. The District Judge upheld the levies, but the SC of Ceylon allowed the appeal of the administrators and ordered the rebound of the Estate Duty together with interest. The Attorney-General of Ceylon took the matter in appeal to the Judicial Committee in P. C. A. Nos. 16 and 17 of 1955. By its judgment, dated July 10, 1957 the Judicial Committee affirmed the judgment of the SC of Ceylon and dismissed the appeals. In consequence of this decision the Estate Duty Authorities of Ceylon had to refund a sum of Rs. 7, 97,072 as interest payable on the amount of Estate Duty formerly collected. Meanwhile, the litigation in O. S. No. 93 of 1938 filed in the Subordinate Judge s Court of Devakottai had also reached the Judicial Committee and at that stage the parties compromised. In pursuance of this compromise the two widows of Arunachalam Chettiar (senior) took a boy each in adoption on June 17, 1945, Lakshimi Achi taking in adoption one Arunachalam Chettiar and Nachiar Achi taking in adoption one Ramanathan Chettiar. The widow of Arunachalam Chettiar (junior) Umayal Achi also adopted a son to her deccased husband, a boy called Veerappa Chettiar on June 17, 1945. The estate was divided into three equal shares, Lakshimi Achi and her adopted son taking one-third share, Nachiar Achi and her adopted son taking another one-third share, and Umayal Achi and her adopted son Veerappa taking the balance of one-third share.

3. Ramanathan, the adopted son of Arunachalam Chettiar (senior) taken in adoption by Nachiar Achi was assessed to income-tax for the assessment year 1958-.59, the relevant previous year being the year ending March 31, 1958. He was assessed in the status of a Hindu undivided family, on a total income of Rs. 2. 53,828 and a total tax of Rs. 1,79,412.12 P. was levied. The assessment included a sum of Rupees 1,93,328 which was received by the assessee as his share of the

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Judicial Analysis

1966 Supreme(SC) 294

Cases Referred (2)

Judicial Analysis