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Judgment
Sethuraman, J.—The following question has been propounded by the Appellate Tribunal for the opinion of this court under s. 256(1) of the
I.T. Act, 1961 :
Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of Rs. 25,655 in computing the total income
?
The assessee is a firm consisting of two partners, SM. M. Muthappa Chettiar and SM.KR. Karuppan Chettiar, who are sons of one
Somasundaram Chettiar. They belong to the former Indian State of Pudukottai and hailed from a village known as Nachiarpuram. Somasundaram
had a brother by name Chockalingam Chettiar, who started a business in money-lending in Ipoh. Somasundaram joined the said business as a
partner. In the partnership, Chockalingam had 5/8ths share and Somasundaram 3/8ths share. This firm was brought into existence under the terms
of an instrument of partnership dated May 9, 1921. The two brothers had an uncle by name Vaduganathan Chettiar who became a sub-partner
with Somasundaram with 1/8th share. In other words, Somasundaram gave 1/8th share in the profits of the partnership to his uncle and retained
the balance of 2/8ths share. The firm was known as R.M.S.M. Firm, Ipoh, and carried on business in money-lending in Malaya. On the same day,
on which the partnership deed of the main firm was entered into (i. e., May 9, 1921), Somasundaram entered into a sub-partnership with
Vaduganathan, by writing a letter in which the contribution of $ 1,312.50 by Vaduganathan was acknowledged as a receipt on capital account and
a further sum of $ 1,312.50 as mempanam. It is in lieu of the sum of $ 2,625 that Vaduganathan received 1/3rd share of 3/8ths share of
Somasundaram in the partnership.
This business in Ipoh was carried on in partnership for quite some time until was dissolved on May 1, 1937. During the currency of the
partnership, the capital contribution by both the partners, i.e., Somasundaram and Chockalingam totalled $ 10,500 and they contributed an equal
amount as mempanam. It is only in line with this contribution that Vaduganathan, who was taken as sub-partner by Somasundaram was required to
pay the capital and the mempanam referred to above.
The firm did not carry on any business after 1937, but the work of collecting the assets of the firm was going on till 1945. In the meanwhile,
Malaya was occupied by the Japanese forces in February, 1942, and their occupation continued till September, 1945, when the British re-entered
Malaya. Somasundaram had a firm of his own in a place called Koping in Malaya, while in another place called Taping there was another firm
belonging to Somasundaram and Chockalingam in equal shares.
Vaduganathan died some time in 1931. He had a son by name Vairavan, who pre-deceased him, but who left a son by name Sundaram alias
Karuppan. This Sundaram alias Karuppan filed O.S. No. 41 of 1946 on the file of the Chief Court,Pudukottai, on January 12, 1946, claiming
1/8th share in the partnership assets and profits of the firm in Ipoh. At the time when the suit was filed, both Somasundaram and Chockalingam
were alive; but Chockalingam was not made a party to the suit.
A preliminary decree was passed by the Chief court of Pudukottai on March 31, 1949, decreeing 1/8th share in the partnership assets in favour
of Karuppan, the plaintiff in the suit. There was an appeal against the preliminary decree to this court. The appeal was A.S. No. 198 of 1950.
During the pendency of the suit, an application was filed to implead the legal representatives of Chockalingam, who had died by then, as parties to
the suit. The Chief Court, Pudukottai, rejected this petition and, therefore, a civil revision petition was also filed in this court which was numbered
as C.R.P. No. 391 of 1952. Both the appeal and the civil revision petition came up for disposal before Panchapakesa Iyer J. By a common
judgment dated February 12, 1954, the preliminary decree was modified in some particulars and the civil revision petition was allowed with the
result that the legal representatives of Chockalingam were added as defendants Nos. 5 to 8 in the suit and, consequently, respondents Nos. 2 to 5
in the appeal. In the said judgment, it was observed :
There will be a preliminary decree directing the defendant to render accounts, but limiting such liability to the accounts he has got actually in his
possession, and to the amount he has actually received, and enabling the Commissioner, to be appointed for final decree, to call for accounts,
papers, vouchers, etc., not only from the defendant but also from the newly added legal representatives of Chockalingam as well as from the
plaintiff, if he is in possession of any of them, and finding out the actual assets of the partnership firm from all those accounts so produced, without
drawing any presumption for or against the plaintiff or the defendant or Chockalingam for their failure to produce any accounts, because of their
not being with them. After the Commissioner finds out the actual assets, after going through those accounts, he will, of course, if there is anything
remaining to be divided, give 5/8ths to Chockalingam, 2/8ths to Somasundaram and 1/8th to the plaintiff after adjusting the amounts, if any, drawn
out by Chockalingam and Somasundaram, towards their shares....
In pursuance of this judgment, a Commissioner was appointed by the trial court, and taking into account the Commissioner''s report and after
considering the objections of the rival parties, the subordinate judge passed a final decree. It may be mentioned here that though the legal
representatives of Chockalingam did not, in spite of notice, appear in the appeal and the civil revision petition which came up before Panchapakesa
Iyer J., they participated in the final decree proceedings in the Court of the Subordinate Judge of Pudukottai mentioned earlier. The subordinate
judge in his judgment dated September 28, 1956, which was followed by a final decree dated December 15, 1956, directed that the defendants
Nos. 2 to 4 (the sons and widow of Somasundaram who had by then died and who were brought on record as the legal representatives) from out
of the assets and joint family properties of the first defendant (Somasundaram Chettiar) in their hands do pay to the plaintiff the sum of Rs. 35,645-
5-9 with subsequent interest thereon at 6 per cent. per annum from October 29, 1956, till the date of realisation. There was also a direction that
defendants 2 to 4 from out of the assets and joint family properties of the first defendant in their hands do pay to the defendants Nos. 5 to 8 (the
legal representatives of Chockalingam) a sum of Rs. 11,788-15-6 with interest thereon at 6 per cent. per annum from October 29, 1956, till the
date of realisation. The sum of Rs. 35,645-5-9 decree in favour of Vaduganathan''s grandson out of which Rs. 25,655 was the amount due on
accounting to the plaintiff in the said suit, the balance representing the court expenses and costs. This judgment was affirmed on appeal to this court
in A.S. No. 47 of 1957.
The assessee-firm consisting of the two sons of Somasundaram claimed in the assessment for 1964-65, the previous year ending on April 12,
1964, the sum of Rs. 38,966 as deduction. Before the ITO, the claim was made on the basis that there were bad debts to that extent. The ITO
observed that the bad debt, if any, did not arise in the money-lending business of the assessee-firm and that, therefore, it could not be allowed as a
deduction. In the appeal before the AAC, the claim for deduction as bad debt was given up, but it was contended that this payment related to the
business of the assessee-firm and had been incurred in the course of the business so as to be allowed as deduction. He took the view that the
amount awarded to Karuppan Chettiar, the plaintiff in the suit, represented the share of Vaduganathan out of the share of Somasundaram in the
profits of the Ipoh firm and that the deduction should have been claimed in the hands of Somasundaram in whose hands the profits of the firm were
assessed. He, therefore, confirmed the disallowance. The assessee appealed to the Tribunal which held that since the assessee-firm had taken over
the assets and liabilities of Somasundaram as its stock-in-trade, and since, in pursuance of the decree of the High Court such assets and liabilities
were traced to the hands of the assessee-firm and the assessee-firm was bound to discharge the liabilities of Somasundaram Chettiar from such
assets, the liability discharged would be an additional deduction in the hands of the assessee who has succeeded to such assets. It was, therefore,
held that the sum of Rs. 25,655 was admissible as deduction. As regards the balance of Rs. 13,310 it was found from the schedule of expenses
furnished that the amounts represented expenditure and costs in the litigation, incurred in every instance prior to the accounting year under
consideration, and that, therefore, there was no liability which was discharged by the assessee in the relevant year and which could be allowed as
deduction. The result was that the assessee lost the claim for deduction of Rs. 13,310. The assessee has left the matter there, while the
Commissioner has come up with this reference on the question extracted already.
At this stage, some facts may be made clear. The Ipoh firm was dissolved on May 1, 1937. There, however, large outstanding due to the said
firm. Those outstandings were collected till 1946. Somasundaram continued the business in Ipoh apparently on his own account. As the
outstandings were in a money-lending business, they were capable of easy ascertainment and identification and obviously those assets were taken
over by the business which he carried on on his own account. The Tribunal has pointed out that the assessee-firm had taken over the assets and
liabilities of Somasundaram as its stock-in-trade.
The learned counsel for the Commissioner contended that there was absolutely nothing to show that the assets and liabilities of Somasundaram
included the assets and liabilities of the Ipoh firm and that those assets and liabilities had been taken over by the assessee-firm.
The contention in this form had not been taken before the Tribunal and the Tribunal had no occasion to go into this question whether actually all
the assets and liabilities of the Ipoh firm came into the hands of Somasundaram and whether those assets and liabilities which remained in the
business carried on by Somasundaram were taken over by the assessee-firm. This being a question of fact, it is not possible to allow the learned
counsel for the Revenue to raise this point at this stage. It may also be observed that, in the suit mentioned above, all the accounts books relating to
the business in Ipoh were produced by Somasundaram. It is only because it was alleged that part of the assets were in the hands of Chockalingam
that Chockalingam''s heirs came to be impleaded in the suit at the stage when the matter was before Panchapakesa Ayyar J. As the assets and
liabilities in the money-lending business were identifiable, and as the assessee had taken over the outstandings, there would be nothing improbable
or unreasonable in the finding of the Tribunal that the entire assets and liabilities of Somasundaram were taken over as stock-in-trade by the
assessee firm. We, therefore, proceed on the basis of the finding of the Tribunal that the assets and liabilities of Somasundaram included the assets
of the Ipoh firm and that those assets, among others, were taken over by the assessee-firm which was constituted.
The question that now arises for consideration is whether the sum of Rs. 25,655 paid to the grandson of Vaduganathan was an admissible
deduction for the assessment year 1964-65. There are two decisions of this court which appear to support the assessee''s claim, but which were
sought to be distinguished by the learned counsel for the Revenue. The first of the decisions was in V.N.V. Devarajulu Chetty and Co. Vs. The
Commissioner of Income Tax, . There was a firm of five partners which came into existence in September, 1940. In October, 1942, two of the
partners retired from the firm. At the time of their retirement, thers was a forward contract for importing 336 bales of cloth from the United
Kingdom. At the time of the retirement of the two partners, these bales had not been received. By about March, 1944, all these bales were
disposed of. There was an arbitration with reference to the dispute between the continuing partners and the two retired partners. The arbitrators
awarded a sum of Rs. 18,911-12-0 being paid to the two partners who had left the firm in October, 1942. This amount was paid during the
financial year 1943-44 and was claimed as deduction by the continuing firm of three partners. This claim stood disallowed by the Tribunal and the
matter was, therefore, brought on reference to this court by the assessee. It was claimed that the said sum represented an expenditure laid out
wholly and exclusively for the purposes of the business of then new firm and for the purpose of acquiring stock-in-trade and earning profits by the
sale of such stock. The contention for the Commissioner was that it was a payment out of the profits of the assessee-firm and not a payment made
to earn profits. It was also contended that it was capital expenditure. Viswanatha Sastri J., who delivered the judgment in that case, observed at
page 368 (of 18 ITR) that the two old partners had each a three annas share in the old firm and added :
They had certain valuable rights in respect of the forward contract for the purchase of piece-goods as the market was rising owing to war
conditions. Their rights in respect of these contracts were isolated and reserved at the time of the dissolution on October 31, 1932, when all other
matters were settled. The goods arrived and were taken delivery of and sold by the new firm at a considerable profit. u/s 37 of the Partnership
Act, the retiring partners had a right to a share of those profits which were made by the new firm with the assets of the old firm. Consequently, that
part of the profits payable to the old partners by the new firm under an obligation imposed by law was not in truth the income, profits and gains of
the new firm.
After referring to the decision in Bejoy SingDudhuria v. CIT [1933] 1 ITR 135 in the same page, there is another passage running as follows
(p. 368 of 18 ITR) :
This sum was really part of the price paid by the new firm to acquire full exclusive title to the goods from the old partners and it must be
remembered that the goods so acquired were the stock-in-trade of the new firm which sold the goods and thereby made a large profit. If instead
of taking cash the two old partners who had themselves started their own piece-goods business, had taken delivery each of a 3/16ths share of the
goods delivered under the forward contracts and sold the goods on their own account. They would well have been within their rights and made a
profit directly. In such an event the new firm could only have sold 10/16ths of the total number of bales and their profits would have been
proportionately less. Instead, the new firm acquired the entire quantity of the goods by paying the retiring partners the sum of Rs. 18,911 which,
according to the award of the award of the arbitrators, represented the percentage of the profits payable to the old partners for their having parted
with the goods or their right in the goods in favour of the new firm. The sum, though paid as representing the old partners'' share of the profits, was
really the price paid by the new firm for the acquisition of an exclusive right to the goods which firmed the stock-in-trade and is, therefore, a
revenue expenditure laid out solely and exclusively for the business of the new firm.
The contention that the expenditure was of a capital nature was rejected, because it was not paid as consideration for the acquisition of any
interest to the old partners in the firm, including its goodwill and other assets, but was paid only as consideration for the acquisition of any exclusive
right of the stock-in-trade of the new firm.
In M.S. Kandappa Mudaliar Vs. The Commissioner of Income Tax, Excess Profits Tax, Madras, , there was a firm of four partners trading in
cotton, yarn and piece-goods. Part of the trade consisted in making exports to Ceylon, where there was a system of quota granted on the basis of
the imports into that country. One of the partners retired from the firm in February, 1944, the remaining partners continuing in the same firm. Soon
after the retirement of one of the partners, the new firm entered into an arrangement with the retiring partners, in April, 1944, and until the retiring
partner obtained a separate quota, the new firm was to utilise the entire quota and as recompense pay the retiring partner in accordance with the
prevailing conditions. In accordance with this agreement, certain sums were paid in the accounting years relevant in the assessment years 1944-45
and 1946-47. These amounts were claimed as deduction. As they had not been allowed by the Tribunal, the matter was brought on reference to
this court. It was held that the amount paid to the retiring partner was not capital expenditure, as no capital asset was brought into existence, and
that it was not even an acquisition of any fresh quota rights. It was held also that what the assessee paid to the retiring partner was really an
addition to the price of the goods purchased for export to Ceylon on the basis of the quotas issued and utilised. The case was taken as falling
within the principles of V.N.V. Devarajulu Chetty and Co. Vs. The Commissioner of Income Tax, .
In both these decisions, the principle laid down is that so long as the payment related to the stock-in-trade which was dealt with by the new
firm, the amount paid would be revenue expenditure. In the case of money-lending business, moneys or outstandings could be the stock-in-trade,
and the amount actually paid the case, constituted an outgoing with reference to the stock-in-trade. In other words, the assessee which had carried
on business with the assets taken over from the Ipoh firm through Somasundaram and earned profits, had to account for the assets and profits, and
in consequence had to pay the sum claimed above. In these circumstances, it appears to us to fall within the principle of the two decisions
mentioned above :
The learned counsel for the Commissioner sought to distinguish these decisions by contending that they were contrary to an earlier decision of a
larger Bench in RAYALU AYYAR and CO. Vs. COMMISSIONER OF INCOME TAX, MADRAS., . In that case, four firms entered into
four separate and independent contracts with a firm called Walker and Co., Madras, to purchase 720 bales of imported yarn. All the partners of
the respective firms entered into a contract of partnership to deal with those 720 bales. Rayalu Ayyar and Co., one of the firms, was to manage the
business. A large profit of Rs. 1,56,000 was made out of the part of the bales that were imported. As, by the time the rest of the bales were to
arrive, there was a fall in the prices consequent on the termination of the first world war, three of the firms, to describe them compendiously,
entered into an arrangement with Walker and Company, terminating the contract for the supply of the balance of the bales on payment of the profit
they had made in the first consignment. They there after entered into a fresh contract with Messrs. Walker and Company to repurchase the second
lot at a smaller price and made a profit of Rs. 72,000. One of the four firms which entered into the original arrangement was known as K. M.
Subbier and Sons. This firm filed a suit for recovery of its share of the profits. It was held that it was entitled to the profits and in accordance with
the decree, Rayalu Ayyar & Co. paid Rs. 12,348, being the share of profit due to K. M. Subbier and Sons. In the assessment, the assessee had
accounted for a profit of Rs. 48,999 on the said transaction with Walker and Co. The question was whether the sum of Rs. 12,348 paid was
allowable as deduction. It was held by this court that the sum of Rs. 12,348 represented the share of profits due to K. M. Subbier and Sons, and
that the amount could not, therefore, be allowed as deduction. It was held that it was not an expenditure incurred for the purpose of earning any
profit.
We do not consider that this decision has anything to do with the problem dealt with in the earlier two cases or the problem now before us. In
the case of Rayalu Ayyar and Co., the suit was by one of the parties to a joint venture for a share made by the joint venture. In the two earlier
cases, the payment was in respect of stock-in-trade. In the present case also, as pointed out earlier, money outstandings being the stock-in-trade,
the amount paid in respect of them is liable to be treated as revenue expenditure. If the assessee had taken over these outstandings which had in an
earlier dissolution been allotted to Vaduganathan''s grandson, then it cannot be in dispute that the assessee would be in a position to get deduction
for the sum paid for taking over the outstandings as a liability on trading account. The fact that this result flowed from a decree in an accounting suit
cannot make any difference.
The learned counsel for the Commissioner put forward his contentions under two heads, namely, (1) that the expenditure was personal in
nature as the suit was not against the firm but against Somasundaram and, after his death, his sons, and (2) that the expenditure incurred would be
of a capital nature. We have already discussed the nature of the expenditure so far and we have pointed out that the expenditure was of a revenue
nature. We have no hesitation in rejecting the second contention. We do not consider that there was any personal liability which was sought to be
discharged by reason of the decree. Though the firm as such was not as nominee a party to the suit, still what actually happened was that with
reference to the assets in the hands of the assessee-firm certain payments had to be made. Though the medium which discharged the liability was
Somasundaram or his heirs, still the liability arose to the firm as a result of its use of the stock-in-trade in its business. Thus, both the contentions do
not merit acceptance.
One of the contentions taken before us was that the present case would fall within the principle of the decision of the Allahabad High Court in
RAGHUNATH PRASAD Vs. COMMISSIONER OF Income Tax, U. P. AND AJMER MERWARA, LUCKNOW., . In that case, the
assessee was a partner in a firm and he filed a suit against the other partners for rendition of accounts. The question was whether the amount spent
in the litigation was an expenditure wholly and exclusively laid out for the purpose of the business. It was held that the amount was not allowable as
deduction. This decision would have scope for application in case the grandson of Vaduganathan sought to obtain deduction of the amounts spent
in the litigation as an allowable expenditure. Further, in the present case, we are not dealing with any deduction in respect of Rs. 13,310 incurred
as and by way of litigation expenditure and costs and, therefore, we do not find any scope for applying the principle laid down in this decision.
It was then contended that Vaduganathan was not actually a partner in the Ipoh firm and that his claim could only be against Somasundaram.
The well-known principle that a person coming in as a sub-partner could not affect the relationship between the partner of the main firm was
brought to notice. In the present case, as a result of the judgment of Panchapakesa Ayyar J., the legal representatives of Chockalingam were also
impleaded as parties. The legality or propriety of the order passed by panchapakesa Ayyar J. was questioned in Appeal No. 47 of 1957, which
came before Ganapatia Pillai ano Venkataraman JJ. They found that the order had become final and that at best the course adopted by the learned
judge could only be termed as irregular. The effect of Panchapakesa Ayyar J.''s judgment was to allow the grandson of Vaduganathan to proceed
against the Ipoh firm or its partners. Whether this course was proper or not is not for us to consider. The effect of the litigation was that the
outstandings belonging to the Ipoh firm were traced to the assessee-firm and that, therefore, the assessee-firm had to account for the saij
outstandings. Therefore, whatever might be the legal rights of Vaduganathan or his grandson against the Ipoh firm as such, the decision as far as
this firm is concerned is that it had to pay for what it had utilised in its own business as its stock-in-trade. It is not, therefore, necessary here to go
into the relationship of the sub-partner vis-a-vis the partners of the main firm.
Two other decisions were brought to our notice by the learned counsel for the Revenue and they require only a brief attention. In Adarsha
Dugdhalaya Vs. Commissioner of Income Tax, Bombay City-II, , there was a firm of five partners which carried on business in dairy products.
That firm was started 1934 by three persons. This firm got expanded in 1941 by the admission of three more partners. Differences arose between
the partners and these deferences were, however, settled by the admission of one more partner. One of the partners retired from October 31,
1941, and on failing to get a settlement of accounts, he filed a suit. This was followed by another partner who also retired from the firm and who
also took the matter to court. There was an arbitration in which a large amount was payable as arbitrator''s fees and costs of solicitors on both
sides. The question was whether the total expenditure of Rs. 1,65,000 incurred in the matter was deductible under the provisions of s. 10 of the
Indian I.T. Act, 1922. The Bombay High Court held that the expenditure incurred was not for the purpose of protecting the assets but for arriving
at the amount due on a settlement of accounts between the partners and that having regard to the nature of the litigation and the purpose for which
it was contested, the expenditure incurred by the firm could not be allowed as an expenditure incurred wholly and exclusively for the purpose of
carrying on its business. It is enough to mention that in the present case, as we have seen earlier, we are not dealing with any litigation expenses
with reference to the suit between Vaduganathan''s grandson and the legal representatives of the partners of the Ipoh firm. We are here concerned
with the payment of the outstandings taken over by the firm, and, therefore, the position here is not at all governed by the principle of the decision
cited above.
The other decision referred to was Commissioner of Income Tax Vs. Deccan Sugar and Abkhari Co. Ltd., to which one of us (Ramanujam J.)
was a party. In that case, the assessee-company had a managing agent who was remunerated by an office allowance, a share in profits and also
selling commission. The office allowance and share in the profits were shown as the managing agency expenses, while the commission paid on sales
was deducted in the sales account, and not shown as part of the managing expenses. A shareholder of the questioned the propriety of the action of
the auditor in certifying the accounts presented in this manner. According to him, the information regarding the payment to the managing agents was
misleading. The proceedings relating to the professional conduct of the auditor reached the Calcutta High Court which held that in spite of the
evidence of negligence and imprudence in certifying the profit and loss account without obtaining any explanation from the director, the particular
charges laid against the auditor had not been established. It is in the course of the disciplinary proceedings before the Institute of Chartered
Accountants and the Calcutta High Court that a sum of Rs. 16,854 had been incurred as expenditure by the company itself, and it was claimed as
deduction by the assessee-company which took upon itself the reimbursement of the said expenditure. It was held that the assessee-company had
nothing to do with the said expenditure and that it was for the auditors to defend themselves in those proceedings. The nature of the expenditure in
that case was wholly alien to the carrying on the business of the assessee and, therefore, the expenditure was not allowed as a deduction. We do
not consider that the amount paid under the decree in the present case is of an analogous type. As pointed out earlier, the assessee had utilised the
outstandings and, therefore, the amount paid cannot be said to be unrelated to its business.
The only other contention taken by the learned counsel for the Revenue was that even assuming that the amount was liable to be allowed as
expenditure, the whole of it could not have been allowed as deduction. He submitted that the Tribunal had proceeded on the basis that the whole
amount was liable to be allowed as deduction only because, on July 31, 1963, there was a payment of Rs. 7,437.86 which discharged the amount
due under the decree and that it was only on that day satisfaction of the decree was entered. It was submitted that only Rs. 7,437.86 could, if at
all, be allowed as deduction. For the assessee, the submission was that the balance of the amount to discharge the decree had been paid earlier in
accordance with the directions of this court in A.S. No. 47 of 1957 and that it was not actually in satisfaction of the decree. It was submitted that
only on the entry of full satisfaction of the decree that the liability to pay the sum of Rs. 25,655 could be said to have been discharged and that,
therefore, the assessee was eligible for deduction in this year.
In order to consider this aspect of the dispute, it is necessary to state a few more facts. In C.M.P. No. 914 of 1957 in A.S. No. 47 of 1957
this court passed an order on February 5, 1957, directing stay of execution of the final decree dated December 15, 1956, in O.S. No. 41 of
1946, that on the judgment-debtors depositing into the court of the subordinate judge one-half of the decree amount, it would be open to
Karuppan Chettiar, the grandson of Vaduganathan, to withdraw one-half thereof without furnishing security and to withdraw the other half on
furnishing security to the satisfaction of the subordinate judge of Pudukottai. Accordingly, one-half of the decree amount was deposited in the
accounting period 1956-57. After the judgment of the High Court and the decree following therefrom, there was a balance of Rs. 7,437.86 out of
Rs. 25,655 to be paid. It was this amount which was paid on July 31, 1963, and satisfaction of the decree was entered. We do not consider that
the date of entry of satisfaction of the decree is material. It is common knowledge that there are cases where the parties settle the matter between
themselves and do not enter satisfaction of the decree in the court. Where money is deposited under an order of the court, the terms of the deposit
would be governed by the order. If, for example, an order grants only a time for deposit with no other restriction on its withdrawal, the deposit
made would go in satisfaction of the decree. If, on the other hand, the order imposes a condition, on the decree-holder drawing the money, like
furnishing of security, there would be an impediment to the satisfaction of the decree. The mere fact that the decree-holder furnished security would
not affect the question, as by the order of the court, payment could be deemed to have been made only provisionally subject to the result of the
pending proceedings. The legal position regarding the nature of a deposit in pursuance of an order of the court has been considered by Bench of
this court in O. RM. P. RM. Ramanathan Chettiar Vs. P.S.L. Ramanathan Chettiar and Others, . In that case, by Act 23 of 1948, amendments
were made to Tamil Nadu Act 4 of 1938. These enactments dealt with granting relief to indebted agriculturists. In the Amending Act, 1948, it was
provided that no creditor should be required to refund any sum which was paid to or realised by him before the commencement of that Act. In that
case, an amount was paid on July 21, 1947, in accordance with an order in C.M.P. No. 3112 of 1947. The question was whether this amount had
been paid to or realised by the creditor before the commencement of the Act so as not to be refunded. The learned judges pointed out that when
the money was deposited on August 20, 1947, it was done in pursuance of the order in C.M.P. No. 3112 of 1947 and that order placed a
restriction on the creditor drawing the money. It was, therefore, held that it should not be taken to be a deposit under O. 21, r. 1 of the CPC, but
one under the order of the court. The money deposited was, therefore, taken as payment to, or a realisation on behalf of, the creditor only on
September 14, 1951, when the appeal, in which the C.M.P. was filed, was disposed of. As by that item Act 23 of 1948 had already come into
force, the provision not requiring refund had no application. Applying the principle of this decision here, it would follow that there could be a part
satisfaction of the decree as soon as the appeal was disposed of. The appeal, as mentioned earlier, was disposed of on September 7, 1962, which
is prior to the accounting year under consideration. The balance that was due under the decree was paid during the year and irrespective of the
question of entry of satisfaction of the decree, the amount could be allowed as deduction in this year to the extent of Rs. 7,437.86. If the judgment
of the appellate court had been rendered during the accounting year under consideration, then the position would be different. As by reason of the
judgment in the appeal the amount has gone in satisfaction of the decree in the earlier year, to that extent, there could be no allowance in this year.
The assessee would thus be entitled to a deduction of only Rs. 7,437.86. We, therefore, answer the question by stating that the assessee would be
entitled to the deduction of Rs. 7,437.86 only and not to the entire amount of Rs. 25,655. As neither party has wholly succeeded, there will be no
order as to costs in this reference.