HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Raja Mohan Raja Bahadur v. Commissioner of Income-tax, U.P.
Civil Appeal No. 1395 of 1966
[1967] 3 SCR 482 ·
Indian Income-tax Act, 1922: sections 4, 10, 12, 13 and 34(1)(a) · U.P. Encumbered Estates Act, 1934: section 27
Sources & disclosures includedDownload original judgment / order
3-judge bench; unanimous judgment delivered by J. C. Shah, J. · J. C. Shah, J. · S. M. Sikri, J. · V. Ramaswami, J.
Assessment years: 1948-49, 1949-50
01 · Facts of the case
The appellant Hindu undivided family carried on money-lending on the cash basis and obtained a decree against Nisar Ahmad Khan. After the U.P. Encumbered Estates Act applied to the debtor, the Special Judge fixed Rs.5,00,992 due. The appellant received Rs.1,54,692 in cash in 1946 and, on 26 February 1948, State bonds with face value Rs.3,46,300 for the balance. It allocated Rs.2,22,097/9/11 to principal and costs and Rs.1,24,202/6/1 to interest accrued, but did not return that interest for assessment year 1948-49. After selling the bonds for Rs.3,21,600 in October 1948, it disclosed the difference over principal for 1949-50. A section 34(1)(a) reassessment treated the bonds as interest received in the earlier year; the appellate authorities and Allahabad High Court agreed (SCR pp.482-485; PDF pp.1-4).
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
Section 13 made the regular accounting method relevant. On cash basis, receipt of money or money's worth rather than mere accrual controlled; where a trader received a marketable commercial asset in satisfaction, income embedded in that asset was received without waiting for a cash sale. Compulsion by law did not change the result once title was complete (SCR p.486; PDF p.5). The State's bonds were not simply the original debtor's renewed promise or an agency arrangement. They replaced the debtor's liability with an independent State obligation and were convertible into money, unlike the deferred self-promise considered in Cross (SCR pp.487-488; PDF pp.6-7). However, only the excess of market value at receipt over principal was taxable, not the excess of face value. Revenue also agreed to adjust any tax already charged on the later sale disclosure (SCR pp.488-489; PDF pp.7-8).
Source: Primary judgment: discussion
03 · Judicial decision
The Supreme Court maintained the affirmative answer that receipt of the Encumbered Estates bonds brought embedded income into tax for assessment year 1948-49 and dismissed the appeal without costs. It relied on Revenue's concessions that market value, not face value, controlled and that any duplicate tax from assessment year 1949-50 would be adjusted (SCR pp.488-489; PDF pp.7-8).
Source: Primary judgment: decision
04 · Outcome / in whose favour
Principally in favour of Revenue on timing and character of receipt, but subject to valuation and anti-duplication protections for the assessee. Only market value over principal at receipt was taxable, and any tax already collected on the later sale disclosure was to be adjusted (SCR pp.488-489; PDF pp.7-8).
Source: Primary judgment: outcome
05 · AKHB REVIEW POINT
AKHB analysis: under a cash-basis receipt inquiry, identify whether the creditor received only a deferred promise or a completed transfer of an independently enforceable, realisable asset. Then value the asset at the legally relevant receipt date, separate principal from embedded income and reconcile later sale-year returns so the same economic amount is not taxed twice. The report's market-value qualification is as important as its receipt holding (based on SCR pp.486-489; PDF pp.5-8).
Source: Primary judgment: reviewPoint
Source & verification
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Statutory scope
The judgment applies receipt and accounting-method provisions of the repealed Indian Income-tax Act, 1922 to bonds issued under the historical U.P. Encumbered Estates Act, 1934. It does not determine current accrual, fair-value, debt-restructuring, securities or reassessment law. No current-law or later-treatment clearance was undertaken.
Later treatment
Source checked 2026-10-11. Later judicial treatment and current statutory applicability have not been comprehensively checked; no current-law or citator clearance is represented.
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