1944 (9) TMI 22 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of income from the sale of forest trees.
2. Taxability of malikana income.
3. Taxability of annuity and interest received by the Utraula Estate.
4. Nature of the interest portion of the annuity and its taxability.

Detailed Analysis:

1. Taxability of Income from the Sale of Forest Trees:

The first issue concerns whether income from the sale of forest trees growing naturally on land assessed to land revenue is considered agricultural income under Section 2(1)(a) of the Income-tax Act and thus exempt under Section 4(3)(viii). The court referred to its previous decision in Maharaja of Kapurthala v. Commissioner of Income-tax, where it was held that such income is not agricultural income. Consequently, the court reaffirmed that income from the sale of trees growing naturally without human intervention is not agricultural income and is taxable.

2. Taxability of Malikana Income:

The second issue pertains to whether the malikana income of Rs. 6,271 realized by the assessee is agricultural income. The court examined the historical origin of the malikana, which was a feudal tribute retained by the Raja of Utraula. This malikana was fixed by a settlement decree and did not vary with the land's agricultural productivity. The court noted that the malikana was payable regardless of the land's use or profitability and was recoverable through civil courts, not revenue courts. Citing various precedents, including Brahma Din v. Sangam Lal and Gopal Saran Narain Singh v. Commissioner of Income-tax, the court concluded that the malikana was not agricultural income as it did not constitute rent or revenue derived from land. Therefore, it was taxable.

3. Taxability of Annuity and Interest Received by the Utraula Estate:

The third issue involved the taxability of Rs. 1,07,000 received by the Utraula Estate from the Nanpara Estate. This amount was part of a larger sum due under a "liquidation scheme" resulting from litigation and an arbitration award. The court noted that the annual payment included both principal and interest components. The learned counsel for the Income-tax department conceded that only the interest portion of Rs. 42,425 could be considered for taxation. However, the court referred to the Privy Council case Feroz Shah v. Sobhat Khan and the Special Bench decision in Commissioner of Income-tax, Bihar and Orissa v. Kameshwar Singh, which supported the view that the transaction should not be treated as a simple mortgage. Therefore, the court held that the entire sum of Rs. 1,07,000 was agricultural income and exempt from tax.

4. Nature of the Interest Portion of the Annuity and Its Taxability:

The fourth issue was whether the interest portion of the annuity represented damages or compensation for wrongful withholding and was thus not assessable to income-tax. The court noted that the interest portion was part of the annual rental due under the lease and could not be separated from the principal amount. Referring to the case In the matter of Makund Sarup, the court concluded that the entire amount of Rs. 1,07,000 should be considered agricultural income. Therefore, no portion of this receipt could be deemed interest, damages, or compensation for tax purposes.

Conclusion:

1. Income from the sale of forest trees is not agricultural income and is taxable.
2. Malikana income is not agricultural income and is taxable.
3. The sum of Rs. 1,07,000 received by the Utraula Estate is agricultural income and exempt from tax.
4. No portion of the Rs. 1,07,000 can be considered interest, damages, or compensation for tax purposes.