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Issues:
- Whether interest on arrears of rent for land used for agricultural purposes is exempt from income tax as agricultural income under the Indian Income-tax Act. - Whether the legislative history and interpretation of the definition of agricultural income support the exemption of interest on arrears of rent. - Taxability of a usufructuary mortgage bond executed in satisfaction of interest on arrears of rent. Analysis: The judgment pertains to four appeals challenging the High Court of Judicature at Patna's decisions favoring the respondents, assessees in the appeals, regarding the exemption of interest on arrears of rent for land used agriculturally from income tax under the Indian Income-tax Act. The central issue in all appeals is whether such interest qualifies as agricultural income under Section 2(1) of the Act, which exempts agricultural income from income tax under Section 4(3)(viii). The conflicting opinions of various High Courts, including Calcutta, Madras, Allahabad, and Patna, are highlighted, with differing interpretations regarding whether interest on arrears of rent is derived from land and thus exempt as agricultural income. The judgment delves into the interpretation of the term "agricultural income" under the Income-tax Act, emphasizing the debate on whether interest on arrears of rent is directly linked to the agricultural relationship between landlord and tenant or merely a commercial compensation between creditor and debtor. The court examines the legislative intent behind the definition and the historical treatment of such interest by the Income-tax authorities. It rejects the contention that the legislative silence on taxing such interest implies an exemption, emphasizing the lack of evidence supporting the authorities' interpretation being silently adopted by the legislature. Furthermore, the judgment addresses a secondary issue concerning the taxability of a usufructuary mortgage bond executed to satisfy interest on arrears of rent. The court, aligning with the High Court of Patna's view, concludes that the bond did not absolve the debtor of personal liability for the debt, thereby affirming the taxability of the transaction based on precedent. Ultimately, the Privy Council advises allowing the appeals, answering the questions posed in the negative, and directing the respondents to bear the costs incurred by the appellant in the High Court of Patna, while upholding the High Court's decision on the second question raised in the second appeal. In conclusion, the judgment provides a comprehensive analysis of the exemption of interest on arrears of rent for agricultural land from income tax, considering legislative intent, judicial interpretations, and historical practices. It clarifies the distinction between agricultural income and commercial transactions, ensuring a nuanced understanding of the tax treatment of such interest under the Indian Income-tax Act.
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