1942 (4) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Whether the direction to spend a sum for charitable and religious objects constitutes a binding trust under Section 8, Bihar Agricultural Income Tax Act.
2. Whether interest charged on arrears of rent is considered rent under the Bihar Agricultural Income Tax Act for deduction purposes.

Issue-wise Detailed Analysis:

1. Binding Trust for Charitable and Religious Objects:

The first issue concerns whether the direction in the will of the late Maharaja Sir Radha Prasad Singh to spend Rs. 32,400 for charitable and religious objects constitutes a binding trust under Section 8 of the Bihar Agricultural Income Tax Act. The assessee, the Maharaja Bahadur Ram Ran Vijay Prasad Singh, claimed exemption from agricultural income tax for the sums spent on these purposes, arguing that the income was derived from land held on trust for public charitable or religious purposes.

The court analyzed Clause 21 of the will, which directed the executrix, executor, and future holders of the property to maintain certain religious, charitable, and educational institutions. However, it was noted that no specific land or income from any particular property was set aside for these purposes. The court held that the clause did not create a binding trust but was merely an expression of a pious wish of the testator. According to the Indian Trusts Act, a trust requires an obligation annexed to the ownership of property, which was not evident in this case. Consequently, the court concluded that the will did not create a trust, and the income in question was not exempt from taxation under Section 8 of the Bihar Agricultural Income Tax Act.

2. Interest on Arrears of Rent as Rent:

The second issue addressed whether interest charged on arrears of rent could be considered rent under Section 6(c) of the Bihar Agricultural Income Tax Act for the purpose of claiming a deduction. The assessee had claimed a deduction of 12.5% on both the rent accrued and the interest on such rent. The Income Tax Authorities allowed the deduction only on the actual rent, excluding the interest.

The court examined the definition of "rent" and concluded that interest on arrears of rent does not form part of the rent. The ordinary meaning of rent, as per the Shorter Oxford Dictionary, is the payment made by a tenant to the landlord for the use of land or houses, which does not include interest. Even under the Bihar Tenancy Act, interest on arrears of rent is not considered part of the rent but is deemed so for specific purposes under Section 161(c). The court held that the word "rent" in Section 6(c) of the Bihar Agricultural Income Tax Act means rent only and does not include interest. Therefore, the assessee was only entitled to deduct 12.5% of the total amount of rent accrued, excluding interest.

Conclusion:

The court answered both questions in the negative, ruling against the assessee. The direction in the will did not constitute a binding trust, and interest on arrears of rent was not considered rent for deduction purposes under the Bihar Agricultural Income Tax Act. Consequently, the assessee was required to pay the costs of the proceedings, assessed at ten gold mohurs.