The main legal point established in the judgment is the interpretation and application of the provisions of Madras Act IV of 1938, particularly Section 19, in the context of mortgage debt scaling, payments appropriation, and re-appropriation towards costs.

Wadsworth, J.

1. This is an appeal against an order of our learned brother Venkataramana Rao J., on an application under Section 19 of Madras Act IV of 1938 to scale down the debt due under a decree on a mortgage. The mortgage was for an amount of Rs. 7,500 and it was dated the 30th August, 1925. It was assigned to one Jagannatham Chetty who sued on the mortgage in C S. No. 42 of 1933. There was a preliminary decree for the principal amount with Rs. 3,311-140 interest and Rs. 336-8-0 subsequent interest up to the date fixed for redemption and Rs. 1,515-8-0 taxed costs. Final decree was passed in February, 1935. In October 1935, the judgment-debtors obtained the leave of the Court to raise a sum of Rs. 8,500 on a first mortgage of one item of the hypotheca, the amount so raised being paid to the credit of the decree. And in pursuance of this arrangement, on the 14th November, 1935 the Insurance Company which had taken the mortgage deposited Rs. 8,500 towards the decree. In June of the following year, the decree was assigned to one Krishnayya Chetti and on 13th August, 1936 a further sum of Rs. 500 was paid into Court to the credit of the decree. On the 16th April, 1937 part satisfaction was recorded to the extent of Rs. 9,000 and execution proceeded for the balance.

2. In the view which we have taken on similar cases, it cannot be contended that after the recording of part satisfaction on the 16th April, 1937, any portion of this sum of Rs. 9,000 paid towards the decree remained unappropriated. The only question is how it was appropriated. If a definite appropriation can be proved it will stand except so far as an adjustment towards suit costs may be necessary. To the extent to which the debtor cannot show an appropriation in his favour, it will have to be presumed that the appropriation was towards interest and that to this extent interest is not available for cancellation on 1st October, 1937. The learned trial judge did not go into the rather meagre evidence of actual appropriation but proceeded solely on the legal inferences in the absence of evidence of definite appropriation and arrived at a conclusion which cannot be supported in view of subsequent bench decisions arising out of Act IV of 1938. There was however, some evidence of actual appropriation of this payment of Rs. 8,500 adduced before the Official Referee, both on behalf of the judgment-debtors and on behalf of the decree-holder. The judgment-debtor stated in his evidence before the Official Referee that this sum of Rs. 8,500 was paid towards principal and that the sum of Rs. 500 subsequently paid was paid towards the decree. He gave no reason for an appropriation of this payment of Rs. 8,500 towards principal and it is difficult to see how, before the passing of Act IV of 1938, the judgment-debtor would have been benefited by such an appropriation, since both the principal and the interest included in the decree would bear interest at the same rate. In cross-examination he was apparently asked some further question about these payments and he said that these payments were towards the decree debt. There the matter stands so far as the oral evidence goes, no one having been examined on behalf of the decree-holder. But at the close of the enquiry, the decree-holder exhibited an order assessing him to Income Tax on the basis of the accounts covering this payment under the mortgage to the Insurance Company. The assessment order is Ex. VII. The Income Tax Officer apparently by a mistake speaks of a payment of Rs. 8,000 not of Rs. 8,500 and he says that the assessee has appropriated Rs. 3,500 out of this amount towards interest in his accounts and he proceeds for Income Tax purposes to treat the payment as if it had been appropriated towards the full amount of interest due under the decree and assesses the decree-holder accordingly. Now, there is no reason to doubt that this order of the Income Tax Officer shows the actual state of the decree-holders accounts at