1965 (10) TMI 19 - SC - Income Tax

Whether the sum of ₹ 16,309/Rs. 39,515 received by the assessee from the syndicate is income for the purpose of the Indian Income-tax Act, 1922 ? If the answer to the above question is in the affirmative, whether the income-receipt is exempt under section 4(3)(vii) of the Act by reason of its being of a casual and non-recurring nature ? Held that - The appellant has received certain amount under a contract with the syndicate, and if that amount was income, the fact that the person who paid it may claim refund will not deprive it of its character of income in the year in which it was received. The contention that this income was of a casual and non-recurring nature was abandoned before the Tribunal. It cannot be said that the receipt was produced by chance or was accidental, fortuitous or from unforeseen sources of income. Assuming that the amounts sought to be included as income were paid as a result of some mistake on the part of the syndicate, they have not the characteristic of casualness, nor is it suggested that they are non-recurring. Appeals dismissed

Summary

Issues Involved:
1. Whether the sums received by the appellant from the syndicate are 'income' for the purpose of the Indian Income-tax Act, 1922.
2. Whether the income-receipt is exempt under section 4(3)(vii) of the Act by reason of its being of a casual and non-recurring nature.

Issue-wise Detailed Analysis:

1. Whether the sums received by the appellant from the syndicate are 'income' for the purpose of the Indian Income-tax Act, 1922:
The appellant granted mining rights to the Shivrajpur Syndicate Ltd. for manganese ore extraction. The lease included terms for rent and royalty payments, as well as a clause requiring the syndicate to pay all taxes, rates, assessments, and public demands, except land revenue. The appellant received Rs. 16,309 and Rs. 39,515 from the syndicate, which were described as "local fund cess." The Income-tax Officer taxed these amounts, but the Appellate Assistant Commissioner excluded them, considering them as local fund cess collected on behalf of the Government or Local Board and of a casual and non-recurring nature. However, the Tribunal found that the payments were made under the lease agreement and were not local fund cess collected on behalf of the government. The High Court upheld the Tribunal's view, stating that the amounts exceeded the local fund cess payable and were taxable as income.

The Supreme Court agreed, stating that the amounts paid by the syndicate had the quality closely similar to rents and royalty and were therefore taxable as income. The appellant did not collect the cess on behalf of the government but received it under a contractual obligation. The Court emphasized that the definition of "income" under the Income-tax Act is inclusive and broad, covering various categories that might not be traditionally considered income. The Court concluded that the sums received by the appellant were indeed income for the purpose of the Act.

2. Whether the income-receipt is exempt under section 4(3)(vii) of the Act by reason of its being of a casual and non-recurring nature:
The appellant contended that the sums were of a casual and non-recurring nature and should be exempt under section 4(3)(vii) of the Act. However, the Tribunal rejected this contention, and the High Court affirmed that the amounts were not casual or non-recurring. The Supreme Court noted that the amounts were received under a contractual obligation and were not accidental or fortuitous. Even if the payments were made by mistake, they did not have the characteristic of casualness. The Court also mentioned that the syndicate might seek to recover the excess amounts paid, but this did not change the nature of the receipt as income in the year it was received.

Conclusion:
The Supreme Court dismissed the appeals, affirming that the sums received by the appellant from the syndicate were taxable as income under the Indian Income-tax Act, 1922, and were not exempt as being of a casual and non-recurring nature. The Court emphasized the broad definition of "income" and the contractual nature of the payments, which closely resembled rents and royalty. The appellant was not acting as an agent of the government in collecting the cess, and the amounts received were not casual or non-recurring. The appeals were dismissed with costs.