1972 (7) TMI 21 - HC - Income Tax

Kanom Tenancy Act, 1955 - 1. Whether, on the facts and in the circumstances of the case, the jenmikaram payable by the kanom tenant to the jenmi is compensation for the extinguishment of the entire rights of the jenmi in the land of the kanom holding, as held by the Tribunal ? - 2. Whether, on the facts and in the circumstances of the case, the jenmikaram payable by the kanom tenant to the jenmi is income assessable to tax under the Income-tax Act or only a capital receipt ?

Issues Involved:
1. Whether the jenmikaram payable by the kanom tenant to the jenmi is compensation for the extinguishment of the entire rights of the jenmi in the land of the kanom holding.
2. Whether the jenmikaram payable by the kanom tenant to the jenmi is income assessable to tax under the Income-tax Act or only a capital receipt.

Detailed Analysis:

Issue 1: Nature of Jenmikaram as Compensation
The court examined whether the jenmikaram payable by the kanom tenant to the jenmi constitutes compensation for the extinguishment of the entire rights of the jenmi in the land of the kanom holding. The Tribunal had found that the jenmikaram received by the assessee is compensation for the deprivation of the rights of the jenmi and should be treated as capital. This conclusion was based on the finding that the transfer of ownership of the land from the jenmi to the kudiyan was effected by the Act under section 3(1). The court noted that this finding was not contested by the revenue and was justified by the provisions of section 3(1).

The court analyzed the definitions provided in the Act, particularly section 2(13), which defines jenmikaram as the amount payable in lieu of all claims of the jenmi in respect of the holding or land. The court emphasized that the jenmikaram is essentially a substitution for michavaram, renewal fees, and puravaka dues, which were payable before the Act came into force. The court highlighted that there is no provision in the Act for quantifying the capital value of the jenmi's assets or for payment of compensation for the deprivation of those assets. The court concluded that the jenmikaram is not a return of capital in installments and is not compensation for the deprivation of property rights.

Issue 2: Jenmikaram as Taxable Income
The court then addressed whether the jenmikaram is income assessable to tax under the Income-tax Act or only a capital receipt. The revenue argued that the jenmikaram payments are in the nature of an annuity and represent income. The assessee contended that the payments are compensation for the deprivation of the jenmi's interest in the land.

The court referred to the Supreme Court's decisions in Commissioner of Income-tax v. Kunwar Trivikram Narain Singh and S. R. Y. Sivaram Prasad Bahadur v. Commissioner of Income-tax to analyze the nature of the payments. The court found it difficult to distinguish the case from Commissioner of Income-tax v. Kunwar Trivikram Narain Singh, where the Supreme Court held that payments received as a perpetual annuity in exchange for a capital asset are taxable income.

The court noted that the jenmikaram payments are a statutory obligation imposed by the Act and are in substitution of the michavaram, renewal fees, and puravaka dues. The court emphasized that the payments have no relation to the capital value of the jenmi's interest in the land and are not a return of capital. The court concluded that the jenmikaram payments are not compensation for deprivation of property rights but are a substitution of the income previously received by the jenmi.

Conclusion
The court answered the first question in the negative, concluding that the jenmikaram payable by the kanom tenant to the jenmi is not compensation for the extinguishment of the entire rights of the jenmi in the land of the kanom holding. The court answered the second question by stating that the jenmikaram payable by the kanom tenant to the jenmi is assessable to tax under the Income-tax Act. The court directed the parties to bear their costs and ordered that a copy of the judgment be sent to the Income-tax Appellate Tribunal, Cochin Bench, as required under section 260(1) of the Income-tax Act, 1961.

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