1952 (2) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Agricultural Income-tax Officer under Section 26 of the Bihar Agricultural Income-tax Act to revise a previous assessment order.
2. Taxability of income from the zarpeshgi lease under the Bihar Agricultural Income-tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Agricultural Income-tax Officer under Section 26 of the Bihar Agricultural Income-tax Act to revise a previous assessment order:
The first issue was whether the Agricultural Income-tax Officer was competent under Section 26 of the Bihar Agricultural Income-tax Act to review the previous order of assessment and assess the income from the zarpeshgi lease. The assessee argued that there was no escape of income from the process of assessment and that Section 26 was wrongly applied. It was contended that a mere change of view on the part of the Agricultural Income-tax Officer was not sufficient to invoke Section 26. However, the court held that Section 26 states: "If for any reason any agricultural income chargeable to agricultural income-tax has escaped assessment for any financial year, or has been assessed at too low a rate, the Agricultural Income-tax Officer may, at any time within one year of the end of that financial year, serve on the person liable to pay agricultural income-tax on such agricultural income...". The court emphasized that the phrase "for any reason" should not be given a restricted meaning. Income can be said to have escaped assessment if it was not charged due to a mistake or oversight by the taxing authorities. Therefore, the Agricultural Income-tax Officer is entitled to reassess income if he believes a part of the income has not been assessed due to some mistake in the first assessment. The court also referenced several cases supporting this interpretation, including *Commissioner of Income-tax v. Raja of Parlakimedi* and *Anglo Persian Oil Co., Ltd. v. Commissioner of Income-tax*. The court concluded that the Agricultural Income-tax Officer had jurisdiction to make a fresh assessment under Section 26 of the Act.

2. Taxability of income from the zarpeshgi lease under the Bihar Agricultural Income-tax Act:
The second issue was whether the income from the zarpeshgi lease was taxable under the Act. The assessee argued that the receipt from the leasehold properties was appropriated in recoupment of a loan and interest, and thus should not be taxable. However, the State of Bihar contended that the assessee was to remain in possession and enjoy the usufruct of the properties for a fixed term of years, making the income derived during the lease term taxable. The court examined the true nature and character of the transaction between the assessee and Rani Bhuvaneshwari Kuer. The zarpeshgi lease documents indicated that the assessee advanced a sum of Rs. 17,16,000 and was granted the right to enjoy rent and profits of the properties for 28 years. The court noted that there was no stipulation in the documents that the usufruct would be taken towards adjustment of the loan, nor was there a fixed rate of interest. The assessee essentially exchanged capital for income for a period of 28 years, making the income derived from the lease taxable. The court referenced *Kumar Gopal Saran Narain Singh v. Commissioner of Income-tax* and *Chadwick v. Pearl Life Insurance Co.* to support its conclusion that the income from the zarpeshgi lease was not a capital receipt but an income receipt. The court further noted that the receipt was agricultural income, as the assessee was granted possession of the villages, had the sole right to collect rents from the tenants, and enjoy the profits, similar to the case of *Commissioner of Income-tax, Bihar & Orissa v. Maharajadhiraj of Darbhanga*. Therefore, the court concluded that the income from the zarpeshgi lease was taxable as agricultural income.

Conclusion:
Both questions were answered in favor of the State of Bihar. The assessee was directed to pay the cost of the reference, with a hearing fee of 10 gold mohurs.