Judgment

GROVER, J.: This is an appeal by special leave from a judgment of the Allahbad High Court arising out of an Income tax reference relating to the assessment year 1949-50.

2. The assessee, at the material time, was an undivided Hindu family carrying on money-lending business. In the course of that business the assessee lent Rs. 40,000/- to one Sri Kishan and his brother in September 1930 The transaction was one of simple mortgage of immovable properties and the interest was payable according to the terms of the mortgage. In September 1933 the assessee purchased a portion of the mortgaged property for Rs. 35,000/-. Out of this amount a sum of Rs. 3,000/- was adjusted against the mortgagor s share of the loss in a firm which was payable to the assessee. The balance of Rs. 32,000/- was adjusted against the mortgage debt leaving a sum of Rupees 8,000/- outstanding on the mortgage. Between the date of mortgage in September 1930 and the date of sale three years later, the mortgagors had effected further encumbrances on the properties which were the subject matter of mortgage. The assessee had to pay Rs. 17,800/- to the mesne encumbrancers. In October 1946 the assessee obtained a dec