JUDGMENT.
MANHOAR LAL, J-In this case the Commissioner of Income-tax, Bihar has been called upon to stae a case under Section 66 (3) of the Income-tax Act upon the question “whether in the circumstance of this case the sim of Rs. 88,756 is assessable to income-tax in the year of assessment 1938-39 under the Indian Income-tax Act. 1922”?
The facts found by the Commissioner are these. The assessee, Raja Bahafur Kamahya Narain Singh of Ramgrh, was assessed by the Income-tax Officer on his income from different source comprising among others royalties received from various lessees for working the coal mines located on his estate. When these leases were granted the assessee was a minor and his estate was being administered by the Court of Wards. Upon the assessee attaining majority he tool charge of his estate during the accounting year 1937-38. One of the lessee is the well-know firm of Messrs. Bird & Co., who paid to the assessee during the accounting year a total royalty of Rs. 1,38,955. Out of this sum, Rs. 50,209-14-3 was paid by them estate was still in charge of the Court of Wards. They paid Rs. 88,756 in the latter part of that year when the assessee had himself assumed cahrge of the estate. This is the sum in question in these proceedings. In the return filed for the assessment year 1938-39 which related to previous year 1937-38 the assessee showed and included only Rs. 50,209-14-3 but not the sum in question. The as acmessees contention was that he was not bound to pay any income-tax on this amount because he had kept this in suspense account for the reason that there was certain dispute between the lease and the assess with regard to the correct amount of royalty which was payable for the period. The assessee stated further that as he was thinking of repudiating the leases granted by the Court of Wards to Messrs BOrd & co., he eas advised that he should not enter the sum as royalty in his account books otherwise his right to forfeiture would be jeopardized in the civil Courts.
It appears that by an arrangement made by the Court of Wards with Messars. Bird & Co., they used to credit the amount of royalty from time to time in the account of the assessee in the Imperial Bank at Calcutta. The lessee had made the payment of the sum in question in the same way be depositing the amount to the account of the assessee in the Imperial Bank. Upon the finding of the Commissioner that sum had been operated upon be the assessee by his agreeing to have it mixed up with the other amounts to his credit in the Bank; but the account was operated upon not in the previous year but in the following year.
Upon these facts Mr. P. R. Das, who appears for the assessee, contends that the assessee has never received the sum in question because he has kept it in a suspense account and also because the sum had been received by the bank who is debtor to the assessee for this sum and the receipt, if at all, was a receipt by the bank and not by the assessee.
Relience his placed upon the case of this Court in Maharajadhiraja of Darbhanga v. Commissioner of Income-tax, where in Kulwant Sahay, J., observed at page 289 : “It is clear from the method of accounting adopted by the assessee that no appropriation was made by the assessee on account of interest in the previous years and the whole of the amounts received was kept by him in suspense account. A creditor is entiled to keep the amounts received by him from his debtor in suspense and in case the creditor bona fide keeps the amount in suspense he is entitled to say that he is not liable to assessment so long as the appropriation has not been made and the account has not been settled; but if it is found that the suspense account is not kept boba fide the Income-tax Department would be entitled to find for themselves that was the amount received on account of interest”. It will be noticed that in that case the question for consideration was whether the assessee who was receiving sums of money from his debtor Damodar Das is liquidation of the large debt due from him was entitled to be taxed upon so much of the receipt as could be called interest in the year of assessment. The assessment had been receiving payment from time to time by he used to enter these in a deposit register and not in the interest account. In the year of assessment two sums of Rs. 3,400 and Rs. 2,78,000 were paid by the debtor to the assessee who wanted to treat only Rs. 3,400 as interest received, and out of the second sum he contended that only Rs. 18,816 was on account of interest and the balance on account of principal. But the Commissioner of Income-tax found that “the total amount of interest which has accrued to the assessee on account of his debt up to the end of the year 1332 is Rs. 3,0,281. Out of this sum only Rs. 38,091 which was the amount received in the year 1331, was assessed to income-tax in that year. The Income-tax Officer has given a credit for this sum of Rs. 38,091 and has held that as the payment in the year 1332 exceeded the balance of the total interest tax should be assessed upon the whole of the balance of the interest”. Upon these facts it is clear that the dispute in that case was how much was to be treated as interest and how much was to be treated as principal in a sum which had been received by the assessee. The assessee had not made any appropriation in the earlier years because he kept the sums received in suspense account. When he made the appropriation the Income-tax Officer was held justified to override his appropriation and force him to make an appropriation for a large sum towards the interest the an what the assessee himself had done.
In other words the Income-tax Department was held not bound by the appropriation of the assessee. I do not see how this case helps the assessee in this case. There is no dispute in the present case that any portion of the amount revived is principal or interest. There is also no dispute that the amount has been received, but the assessee contends that he is not bound to appropriate it where there is a dispute pending between him and the lessee who paid him the amount. But what is the dispute between the assessee and his lessee? The answer is given by the Commissioner : “The purpose for which it is entered by the assessee in the “Suspense” account is not that there is any doubt that it is “income”, but there is doubt whether this is sufficient income from the lessees. The assessee thinks that he should get something more than the sim which he has already got and for the purpose of realisation of extra amount, he contemplates a suit. The result of the suit cannot affect this sum, but the is chance of his getting a decree for an extra amount, which will however be taxed in the year in which the extra amount is realised. The dispute in this case is whether this amount is “Minimum Royalty” or not. There is no dispute that it is not “income”. The Income-tax Department has a right to go into the account books and find our whether a particular item had been properly treated by the assessee as income or not”. A little late on at the same page (page 13) he states : “It is quite immaterial from the income-tax point of view, that the assessee chose to trat the money received as deposit and kept it in “Suspense” in his account books and did not take it to the “Royalty” account in the accounting year in question. He had some dispute with the lessee with regard to the question of the quantum of royalty. HIs claim was to get more royalty from them. There was no doubt at all in the mind of the lessees (Bird & Co.) who had treated the sum as payment of “royalty”. The assessees claim was merely that it was not in full satisfaction of his dues, as it was not calculated in a particular way. He did not refuse or refund the money to Bird & Co., which he could have done if he did not want to keep it as his income or if he wished to repudiare the lease. He allowed the money to remain in the account with the Imperial Bank, which he has been operating. All this shows that the so-called “Suspense” account was not really a suspense account in this true sense so far as this sum is concerned.”
In my opinion upon the facts which I have just referred to it follows that the assessee received this sum as his income and that it was mixed up with the other sums to his credit in the Imperial Bank over which he had completer control. He had complete control over this sum also as is shown by his operation upon it in next year.
The next contention of Mr. P. R. Das is that the sum was never received by him but was only received by his bankers, who to the extent was a debtor of the assessee and the sum could only be said to be received by him when he operated upon the amount, and, therefore, he never received the sum in the accounting year. Reliance was placed upon Halsburys Lawa of England, second edition, Vol. 1, paragraph 1305, which delas with the receipt of money on current account under the heading “Business of Banking” and is as follows : “Save as regards the following of trust funds into his hands receipt of money b a banker from or on account of his customer constitutes him merely a debtor of the customer although the obligation to repay only arise upon demand and repayment need only be made at the brace at which the account is kept. He is not a trustee for the customer and the latter has no right to enquire into or question the use made of the money by the banker”. But this rule only deals with the situation which arises between a banker and his customer and has nothing to do with the situation which arises when a debtor pays money to the account of his creditor in a bank at the request of the creditor, as in this case. It has been found that by an arrangement with the Court of Wards the lessee used to pay money to the Imperial Bank to the account of the assessee. After he took charge of the estate the assessee worte a letter to Messrs. Bird & Co., not to pay in future the royalties into his bank account because he was disputing the exact amount of royalties due from them. It has been found that before this letter was received by the lasses they paid in the sum in question to the account of the assessee in the Imperial Bank. The assessee has neither returned the money to the lessee not has kept it in separate account in the Bank with a direction that is will not be operated upon until the assessee and Messrs. Bird & Co., agreed that it should be so operated upon, but on the other hand as stated already he himself operated upon it in the next year-he could also operate upon it earlier if he liked. The assessee knew or must have known all the time that this sum which has been paid by the lessee has been mixed up with other sums in his account in the Imperial Bank. In truth the matter is set at rest by the observation of Lord Lindley in the well-known case of gresham Life Assurance Society v. Bishop (1903) 4 Tax cas. 464, at p. 476. : “First, let us consider what is meant by the receipt of a sum of money. My Lords I agree with the Court of Appeal that a sum of a coin or a nergotiable instrument of other document which represents and produces coin, and it treated as such by business men. Even a settlement in account may be equivalent to a receipt of a sum of money, although no money my pass; and I am not myself prepared to say that what amongst business men is equivalent to a receipt of a sum of money is not a receipt within the meaning of the Staute which your Lordships have to interpret. But to constitute a receipt of anything there must be a person to receive and a person from whom he receives and something received by the former from the latter, and in this case that something must be a sum of money. A mere entry in an account which does not represent such a transaction does not prove any receipt whatever else it may be worth”.
Can it be doubted that amongst business men the payment by Messrs. Bird & Co., to the account of the assessee in the Imperial Bank at the request of this authorised agent was not a receipt of the sum in question by the assessee and that the payer was not fully discharged of his debt to the assessee if this was the only sum which is ultimately found to be payable by the lessee to the assessee? If the argument of the assessee was correct it is open to him to bring another suit against Messrs. Bird & Co., for recovery of the very sums which they have deposited to his credit in the Imperial Bank.
Mr. P. R. Das argued that if it is held in this case that the assessee had received the sum in question and pays tax upon it, his civil rights in the litigation which he proposed to start, as has been stated by the commissioner, to which he has actually started, as it is stated by the assessee, will be jeopardized. It will be enough to state that any decision that will be arrived at in this proceeding will have no effect whatsover in deciding the ultimate rights of the parties in the Civil Courts. The question in this case is a question between the Crown and the assessee and the decision of this question is entirely irrelevant to a decision of the question that may arise between the assessee an the lessee.
For these reasons I agree with the Commissioner that the answer to the question stated above should be in the affirmative. The assessee must pay the costs of the commissioner. Hearing fee is assessed at Rs. 250. The Commissioner will also be entitled to retain the sum of Rs. 100 which is in deposit as the for making the reference.
HARRIES, C. J.-I agree.