1943 (8) TMI 2 - HC - Income Tax

Summary

Issues:
1. Taxability of interest received on preference shares
2. Classification of interest on rent payable under the Madras Estates Land Act as agricultural income

Issue 1: Taxability of interest received on preference shares
The Tribunal referred two questions to the High Court, one of which concerned the taxability of interest received by the assessee on preference shares in the Steel Corporation of Bengal. The assessee decided not to pursue this matter further, indicating acceptance of the Tribunal's decision that the interest is taxable income. Therefore, the Tribunal's decision on this issue stands.

Issue 2: Classification of interest on rent under the Madras Estates Land Act
The second question referred to the High Court was whether interest on rent payable to the assessee as a landholder under the Madras Estates Land Act qualifies as agricultural income exempt from assessment under the Income-tax Act. The Income-tax Officer contended that the interest received by the assessee from tenants is not agricultural income and hence taxable. The Tribunal upheld the assessment, stating that the interest is not agricultural income within the meaning of the Income-tax Act.

The definition of "agricultural income" under the Income-tax Act includes rent or revenue derived from land used for agricultural purposes. The High Court referred to a previous decision by the Calcutta High Court which held that interest on arrears of rent is not agricultural income. The Madras Estates Land Act defines rent as the amount payable by a ryot to a landholder for the use of land for agriculture. The interest on arrears of rent is considered compensation for delayed payment, not rent or revenue derived from the land.

Additionally, the High Court cited a judgment involving a zamindar and ryots, where interest on a promissory note was held not to be agricultural income due to a change in the character of the liability. The Court emphasized that interest on rent under the Madras Estates Land Act is not rent but a penalty for non-payment, which does not qualify as agricultural income under the Income-tax Act.

In conclusion, the High Court affirmed the Tribunal's decision that interest on rent payable to the assessee under the Madras Estates Land Act is not agricultural income within the meaning of the Income-tax Act. The assessee was directed to pay costs of &8377;250.

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