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1920 Supreme(Mad) 313
IN THE HIGH COURT OF MARAS
J Wallis, Ayling, S Ayyar, Napier, Krishnan
The Secretary To The Board Of
Versus
Al. Ar. Rm. Arunachalam Chettiar
Decided On : 6 October, 1920
The term "income" as used in the Income-tax Act, VII of 1918, implies the idea of receipt, actual or constructive.
Headnote:
The question referred to the court was whether money which became due to a money-lending firm in the course of its business by way of interest in the year of account, or year on the income of which the tax is to be assessed for the current year, is to be treated as part of the assessable income for that year of account, although it was not recovered or realized by the firm in that year, either in cash or by adjustment in the accounts.
Fact of the Case:
The assessee, a money-lending firm, did not realize interest which became due to it in the year of account, either in cash or by adjustment in the accounts.
Finding of the Court:
The court held that the interest which became due to the assessee in the year of account was not liable to be included in the amount for which it was taxable under the Income-tax Act, VII of 1918.
Issues: Whether money which became due to a money-lending firm in the course of its business by way of interest in the year of account, or year on the income of which the tax is to be assessed for the current year, is to be treated as part of the assessable income for that year of account, although it was not recovered or realized by the firm in that year, either in cash or by adjustment in the accounts.
Ratio Decidendi: The court held that the term "income" as used in the Income-tax Act, VII of 1918, implies the idea of receipt, actual or constructive. The court further held that the term "profits" as used in Section 9 of the Act does not properly apply to unrealized amounts at all.
Final Decision: The court answered the question referred to it in the negative, holding that the interest which became due to the assessee in the year of account was not liable to be included in the amount for which it was taxable under the Income-tax Act, VII of 1918.
John Wallis, C.J.
1. The only question argued before us was whether money which became due to a money-lending firm in the course of its business by way of interest in the year of account, or year on the income of which the tax is to be assessed for the current year, is to be treated as part of the assessable income for that year of account, although it was not recovered or realized by the firm in that year, either in cash or by adjustment in the accounts.
2. "Income" is defined in the "Concise Oxford Dictionary of Current English", adapted from the great Oxford Dictionary and published at the Clarendon Press, as "Periodical (usually annual) receipts from ones business, lands, work, investments, etc.; income-tax (levied on this)." This is also the legal acceptation of the term, as appears from Strouds Judicial Dictionary and numerous definitions, some of which are there cited while others have been referred to by Mr. K.V. Krishnaswami in his argument for the petitioners. Lord Selbornes "income signifies what comes in" is the tersest, and at the same time sufficiently indicates that the taxation of interest which has not come in is not within the scope of an Income-tax Act. The use of the word "income" in Section 3 of the present Act, on which some reliance is placed in the reference, also seems to me to be entirely in accordance with this view. That section, which appears under the head of "Taxable income," provides in effect that the income which is to be taxed under the Act is income from whatever source derived if it accrues or arises or if it is received in British India, that is to say, income which accrues or arises in British India is taxable even if it is received elsewhere as in England, while income which is received in India is taxable even if it accrued or arose out of British India. With this may be compared the more stringent provisions of Schedule D of the English Income-tax Act, 1918, which make residents in the United Kingdom liable in respect of annual profits or gains accruing or arising from any trade or business, whether the same be carried on in the United Kingdom or elsewhere.
3. What we are concerned with in the present case is, not the liability of the petitioners to pay income-tax which is admitted, but the way in which the income they derive from their business is to be arrived at. That, of course, is to be ascertained by reference to the provisions of the Act regarding the particular class of income, which in this case is "income derived from business," but in construing these provisions and the uniform interpretation which has been put upon the corresponding provisions of the English Acts, it must always be borne in mind that in its natural and legal meaning income means periodical receipts; that an income-tax is therefore presumably a tax on annual receipts; and that, while it is open to the legislature for good and sufficient reason to enact that debts which have not been paid but are still outstanding shall be treated as income for the purposes of the Act, the Court would not be justified in attributing such an intention to the legislature, in the absence of the clearest and most express language. As observed by Warrington, L.J., in Inland Revenue Commissioner v. Blott [1920] 2 K.B., 257, 267, with reference both to the Super-tax Act and the Income-tax Act, "it is income and income only which is brought into charge."
4. The tax on income derived from business, which is the class of income with which we are dealing, has never been charged on the actual receipts of the year, which would involve postponing the levy of the tax to the following year, but has bean charged in England on the average income for the three previous years. The language of Rule 1 of Schedule D of the English Income-tax Act, 1918, which has superseded all the earlier enactments dealing with this class of income, requires the tax in respect of trade not otherwise provided for to be "computed on the full amount of the balanc
