The Commissioner Of Income Tax V. Arunachalam Chettiar R.M. A.R. A.R. R.M.

1935.   Present :  Akbar S.P.J. and Maartensz J.

THE COMMISSIONER OF INCOME TAX v.

R.M.  A.R. A.R. R.M. ARUNACHALAM CHETTIAR.

D. C. (Inty.) Colombo, 24.

Income Tax-Unpaid interest due for the period of assessment-Recoverable loans-income Tax Ordinance, No. 2 of 1932, ss. 6, 9 (1).

A money-lender may be assessed for income Tax in respect of unpaid interest on recoverable loans which fell due during the period for which profits are ascertained.

THIS was a case stated by the Board of Review under section 74 of the Income Tax Ordinance on the application of the Commissioner of Income Tax.

The respondent was a firm carrying on the business of money-lending in Ceylon, and his income was assessed for the year 1932-1933 at Rs. 79,830. It included a sum of Rs. 32,000 which was a fair estimate of the unpaid interest which fell due on recoverable loans during the year preceding the year of assessment. The question referred to the Supreme Court was whether in law the assessment should be reduced by Rs. 32,000.

M. W. H. de Silva, Acting S.-G. (with him Basnayake, C.C.), for Commissioner of Income Tax, the appellant.-The Board of Review is wrong in disregarding section 47 (re-enacted as sub-section (3), section 9). Income Tax on income which accrues by way of interest was not levied in India; but later, by an amendment of the law in 1922, tax is to be levied (assessed) in India according to the system of bookkeeping resorted to by individual taxpayers. Our view point is a different one, and no assistance can be obtained through Indian cases.

Two things are taxed in Ceylon:-(1) Profits, and (2) Income; and not merely income. Profits are not received; they are made. Income is received. Profits are liable to be taxed whether they come in or not.

By section 9 (1) (d) of our Ordinance, provision is made for allowances for bad debts; this connotes the existence of good debts. If there is a discretion to allow deductions for bad debts, there should be a similar discretion to include good debts in profits. In England, in assessing the profits of a business, one has to take into consideration debts, good as well as bad. See Scottish Mortgage Company of New Mexico v. Surveyor of Taxes1[2 Tax Cases 165.], where it was held the Crown had the right to tax under that heading most favourable to the revenue.

It is well settled that it is for the Crown to choose in which capacity the tax is to be charged. See Liverpool and London Globe Insurance Company v. Bennett2[6 Tax Cases 327.] and The Rosyth Building and Estates Co., Ltd. v. P. Rogers (Surveyor of Taxes)3[8 Tax Cases 11 at p. 15.].

A practice of the revenue authorities not warranted by statute cannot be upheld in a Court of law-see judgment of the Privy Council in Gleaner Company Ltd. v. Assessment Committee4[(1922) 2 A. C. 169 at 175.]. Therefore, in this case it was open to the Commissioner to assess on the basis of profits at a business or of an investment. In his own interest, the Commissioner has

assessed the respondent as on an investment. If it was necessary, the Commissioner would have been justified in calling in aid section 9, subsection (3). But it was not necessary.

The profits are to be determined in the ordinary commercial way. See Gresham Life Assurance Society v. Styles1[2 Tax Cases 633.]. For meaning of "profits", see In re the Spanish Prospecting Company Ltd.2[(1911) 1 Ch. 92 at 98.]

If the assessee's own system of accounts is accepted as the basis of assessment, then assessee may possibly so adjust his accounts as to evade liability to pay any tax whatever.

There is no power in England to make a contingent assessment; with us there is provision to defer collection of the tax, after assessment has been made.

Counsel also cited 2 Tax Cases 437, 441; 3 Tax Cases 189; 5 Tax Cases 221 at 223, 491; 12 Tax Cases 282, 338, 382, 740, 780, 813 at 823,

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