(The judgment of the Court was delivered by the Honble the Chief Justice).

The petitioner is the managing member of an undivided Hindu family and as such he has been assessed to Income Tax for the year 1937-38. The family belongs to the Nattukottai Chettiar community and carries on a money-lending business. In the year 1913 the petitioners father advanced Rs. 2,15,000 to Bangaru Ammal, the Zamindarini of Thevaram, on the security of the Zamindari. The loan was not repaid and in 1925 the petitioner was compelled to file a suit in the Court of the Subordinate Judge of Dindigul to enforce payment of the amount then due. Accumulations of interest, it was said, had brought the figure up to Rs. 5,49,683 but this was denied. A compromise was eventually agreed upon and a decree was passed by the Subordinate Judge embodying the terms of settlement. Under this decree the debtor was to pay to the petitioner a sum of Rs. 3,75,000 in full settlement of all claims on or before July 31, 1931. In the meantime this sum was not to carry interest. In the event of the amount not being paid by the due date the Zamindari was to become the absolute property of the petitioners family. By this decree a receiver was appointed and it was a term of the compromise that any moneys which the petitioner received from the receiver should be set off against the Rs. 3,75,000 and that the debtor should only be responsible for the balance. It was, however, stipulated that in the event of the balance not being paid the whole of the Zamindari would still become the property of the petitioners family. From July 28, 1928, the date of the compromise decree, to July 31, 1931, Rs. 42,000 was paid into Court by the receiver as the net rent collections for that period. This amount was later on paid to the petitioner. The sum due to be paid to the petitioner under the terms of the compromise decree on July 31, 1931 was not paid and in consequence his family became the absolute owners of the Zamindari. The estate was not, however, handed over to the petitioner until February 2, 1933.

The Zamindarini died on December 14, 1930 and her heir was her mother Errammal. Errammal died on February 2, 1933, leaving a will by which she purported to bequeath the Zamindari to one Thangaswami Naicker, who with two others challenged the right of the petitioner to obtain possession of the estate. The case was carried to this Court and the litigation did not end until September 31, 1936, when the title of the petitioners family to the property was finally decided. Until this had happened the account books of the petitioner showed the Zamindarini as the debtor, but the title of the petitioners family having been confirmed he closed this account and opened one under his own name transferring to that account the moneys he had received in connection with the loan.

In assessing the petitioner as the manager of the family for the year 1937-38 the Income Tax authorities have included the profits which they calculated has been made out of this mortgage transaction. The profit has been calculated at the sum of Rs. 2,57,998, less Rs. 84,700 which had been received towards the loan before 1924. The petitioner objected to an assessment being made on this basis and he requested the Commissioner of Income Tax to refer to this Court, under the provisions of Section 66 of the Income Tax Act, the questions raised by him. In accordance with this request the Commissioner has referred the following questions :-

"(1) Whether the sum of Rs. 42,000 deposited in the Court between July 1928 and July 1931 and withdrawn by the petitioner and adjusted as income in the year of account is agricultural income.

(2) Whether the entire income excluding the sum of Rs. 84,700 interest realised in 1915 to 1923 from this transaction as a whole can be said to have accrued, arisen or been received in the year of account."

The petitioners case with regard to the first question is this : He says that as the Rs. 42,000 represents r