SMT. INDERMANI JATIA vs. COMMISSIONER OF INCOME-TAX, U.P., LUCKNOW

CIVIL APPEAL No. 278/1956Supreme Court1958 INSC 7703 October 1958Bench: 3 JudgesAuthor: T.L. VENKATARAMA AIYYAR, P.B. GAJENDRAGADKAR, A.K. SARKAR S.C.R. SUPREME COURT REPORTS18 pages
AI SummaryDismissed

What were the facts?

The assessee, Smt. Indermani Jatia, continued assessment proceedings for her deceased husband, Seth Ganga Sagar Jatia, for assessment years 1943-44 and 1944-45. The husband carried on business in British India and the Indian State of Bahawalpur. His central accounts, maintained on a mercantile system at Khurja, showed credit entries for interest received on capital invested in the Bahawalpur shop. The Income-tax Officer included these amounts in the assessee's taxable income in India. The assessee contended these were mere book entries and not actual receipts. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld the tax authorities' view. The Tribunal referred two questions to the Allahabad High Court, which answered them against the assessee. Special leave to appeal to the Supreme Court was granted.

What did the Supreme Court hold?

The Supreme Court held that the entries in the books of account, maintained on a mercantile basis, justified the inference that the assessee had actually received the amounts by way of interest. Where an assessee keeps accounts on the mercantile method, a credit entry in the interest account is treated as income or profits received for tax purposes. The Court approved the decision in Commissioner of Income-tax v. A.T.K.P.L.S.P. Subramaniam Chettiar. Regarding the new point that one cannot trade with oneself, the Court declined to allow it to be raised for the first time on appeal. This was because allowing it would necessitate re-opening the entire enquiry into remittances from Bahawalpur to British India and the rates at which tax was to be levied, given the complexities of the assessee's business operations and the mercantile system of accounting employed. The Court noted that if this principle were to be relied upon, it should have been urged at an earlier stage. The appeals were dismissed.

What were the issues?

1. Whether, in the circumstances of the case, the sum of Rs. 17,132/- for 1943-44 and Rs. 47,029/- for 1944-45 could be legally deemed to have been received in British India and were liable to tax under s. 4(1) of the Indian Income-tax Act, 1922? The assessee argued that these were merely book entries and not actual receipts. The revenue contended that entries in mercantile accounts signify receipt for tax purposes. 2. Whether, in the circumstances of the case, the expenditure of Rs. 7,512/- incurred in connection with criminal litigation was admissible expenditure within the meaning of s. 10(2)(xv) of the Act? The judgment does not record the specific arguments for this issue, but it was referred to the High Court. Additionally, a new point was raised by the assessee that one cannot trade with oneself, implying the interest from her own shop could not constitute income. The revenue argued this point was raised too late and would reopen the entire assessment.

Which sections of the Income-tax Act were involved?

Section 4(1),Section 10(2)(xv),Section 14(2)(c),Section 66(1),Section 66A

AI-generated summary — verify with the full judgment below

(1) S.C.R. SUPREME COURT REPORTS 45 is applied solely to the purpose of the institution and x95B the business is carried on in the manner provided. It The Commissioner is enough to say that the scheme, considered as a of Income-tax. business, was not carried on on behalf of any religious Madhya Pradesh or charitable institution. Once it is held that the and Bhopal assessees made the profit, bow they use it would not v. matter.

Messrs. Vyas c;.

In the result, we would answer both parts of the Doliwula question framed, in the affirmative. We bold that the Sarkar J. profits were the income which accrued to the a.ssessees and such income is assessable to income-tax and is not exempt from taxation under s. 4(3)(i-a).

The appeal is allowed with costs here and below.

Appeal allowed. SMT. INDERMANI JATIA v. COMMISSIONER OF INCOME-TAX, U.P., LUCKNOW (VENKATARAMA AIYAR, P. B. GAJENDRAGADKAR and A. K. SARKAR, J J)

Income-tax-Mercantile system of accounts-Accounts in India showing credit entry of receipt of interest from Indian State-If such amount liable to tax-New point-Indian Income-tax Act. z9:z:z (XI of z9:z:z), s. 4 (I)(a).

The assessee, who was ordinar

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 4(1)

All 43 judgments and leading authorities on Section 4(1) →

Recent GST High Court judgments

Search GST case law →