The Japanese currency introduced into Malaya! during the J apaneso occupation began to depreciate after January 1963, so that debts paid off and received in that currency resulted in loss to the creditors. The Govern- ment of India, by a notification issued in 1947, propounded a scheme to give relief to Indian natioo.als carrying on business in Malaya, and the Central Board of Revenue issued further instructions on the scheme. One of the instructions was that if any creditors opted to accept the scheme, a D recovery subsequently made by them, with respect to the debt due to them was to be taken as their income. In 1948, the Debtor and Creditor (Occupation Period) Ordinance No. XLII of 1948, of Malaya was passed by the Malayan Legislature. Under that Ordinance, payments made in Japanese currency were to be valued and scaled down in accordance with its Schedule, i.o that a payment in Japanese currency would be a valid discharge of a debt only to the extent of such revaluation. A creditor could enforce his debt to the extent not discharged and the debtor was E under an obligation to discharge it to that extent. On the questions as to ( i) whether amounts, recovered by creditors who bad accepted the scheme, from their debtors, in terms of the Ordinance, were liable to income-tax; and (ii) whether the debtors could claim the payments madeby them as deductions, the High ColUt held, (i) that the assessees who had received payments would not be liable to tax in respect of amounts they had received towards principal, but they would be so liable in respect of moneys which they had received towards interest; and (ii) th;tt those F assessees who had made payments towards the debts, would be entitled to deduct from their income, and claim exemption from tax only such amounts as they had paid on account of interest, but they would not 'be entitled' to deduct any payment made on account of principal. The High Court also gave directions that open payments should be . appropriated according to the law of appropriation of payments. The Commissioner and a. debtor-assessee appealed to the Supreme Court.
