1940 (4) TMI 28 - HC - Income Tax

Summary

Issues:
1. Whether the allowance received by the assessee can be considered as agricultural income under Section 2(1) of the Income-tax Act?

Analysis:
The case involves a reference under Section 66(2) of the Indian Income-tax Act made by the Commissioner of Income-tax regarding the nature of an allowance received by the assessee. The assessee, being the adopted son of a widow who held a thikadari lease from the Bettiah Raj, received an annual allowance of Rs. 4,500 after the lease expired. The Court of Wards, managing the estate, granted this allowance to the widow in recognition of her claim to consideration from the Raj. The question at hand is whether this allowance constitutes agricultural income. The Court examined the source of the income, which was determined to be an ex gratia payment from the Raj and not derived from any land. The Court emphasized that the income was not related to any agricultural activities but was a payment made in consideration of past services by the assessee's ancestor. The Court rejected the argument that the source of income was the land previously under thikadari lease, as the Court of Wards had declined to grant a new lease and had taken possession of the property. Therefore, the Court concluded that the annual sum of Rs. 4,500 cannot be classified as agricultural income under the Income-tax Act.

The Chief Justice, in delivering the judgment, emphasized that the source of the income must be considered to determine its nature. The Court noted that the allowance was granted as a personal payment to the widow in lieu of the profits she would have made if she had continued as a lessee. The Court clarified that the income was not directly linked to agricultural activities or derived from land but was an ex gratia payment based on past circumstances. The Court highlighted that the order from the Board of Revenue indicated the intention to resume possession of the land and provide a personal allowance to the widow, reinforcing the non-agricultural nature of the income. Therefore, the Chief Justice concluded that the annual sum of Rs. 4,500 received by the assessee cannot be categorized as agricultural income under the Income-tax Act.

In a concurring opinion, Justice Manohar Lall agreed with the Chief Justice's analysis and conclusion. The reference made by the Commissioner of Income-tax was answered in the negative, indicating that the allowance received by the assessee was not considered agricultural income. The Court directed the assessee to bear the costs of the reference, assessed at Rs. 200, with the amount already deposited in court to be adjusted against the total cost awarded.