JUDGMENT

M. C. DESAI, C.J. - The Income Tax Appellate Tribunal Delhi, has, at the instance of the assessee, referred a statement of the case to this court for its opinion on the three questions given below :

"(1) Whether on a true interpretation of the provisions of section 18 and 14(7) of the U. P. Government Encumbered Estates Act, 1934, the liability for the debts and interest thereon due from Wahiduddin had passed on the U. P. Government with the passing of the decree on February 18, 1940, by the special judge appointed under the U. P. Encumbered Estates Ac ?

(2) If the answer to question No. 1 is in the affirmative whether on the facts and in the circumstances of the case the surplus of Rs. 79,347 being the difference between the market price of the U. P. Government Encumbered Estate Bonds and the balance of the debt due from Wahiduddin was revenue income liable to tax ?

(3) Whether the receipt by the assessee of the sum of Rs. 58,266 in April, 1935, during the execution proceedings of the decree was rightly treated by the Tribunal as receipt towards the principal of the deb ?"

From the statement I find that the assessee advanced a loan of Rs. 1,50,000 to two brothers, Wahiduddin and Bashiruddin on a mortgage of the property at a certain rate of interest. In 1930 the assessee field a decree for Rs. 2,27,699 made up as follows :\

A final decree seems to have been passed and was put into execution. In the course of the execution the assessee on April 25, 1935, realised Rs. 58,266. He is a money-lender by profession and maintains the accounts on cash basis. He did not appropriate the receipt of Rs. 58,266 and odd (which will be referred to as the disputed sum, receipt or payment) either to the principal that was due from the two brothers or to the interest that was due from them. In this accounts he simply entered the receipt on the credit side with the principal of Rs. 1,50,000 entered on the debit side and said nothing in the ledger whether the receipt was on account of interest, principal or costs. He does not maintain any separate interest account and there was therefore, no question of his debiting the interest as it accrued and of crediting any payment of interest. He has adopted the financial year as the accounting year. In his accounts for the financial year 1936-37 he brought over the sum of Rs. 91,734 (Rs. 1,50,00 minus Rs. 58,266). In the return submitted by him for the relevant assessment year 1936-37 he did not show the disputed amount as having been received either as principal or as interest; he did not show it in the return at all. The result was that he was not assessed on the disputed sum. It is conceded that if the disputed he was received by him as principal, it was not liable to assessment and that if it was received by him as principal, it was not liable to assessment and that if it was received as interest, it was, because interest received by a money-lender is revenue income. About this time the U. P. Encumbered Estates Act came into force and the two brothers applied for its benefit. In the proceedings under the Act two simple money decrees were passed u/s 14(7) on February 18, 1940, against the two brothers for Rs. 93,625 each, with future interest at 3 1/4 %. The liquidation proceedings were then started under the Act. In November, 1944, the assessee got bonds of the face value of Rs. 1,19,200 payable after 20 years and bearing interest, in satisfaction of the money decree obtained against Bashiruddin. In the corresponding assessment year 1945-46 the assessee was assessed on an income of Rs. 71,809; the Income Tax authorities worked out the assessable income as follows :

1,19,200

Received from