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TMI Blog1963 (4) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... , were made to him under the Hyderabad (Abolition of Jagirs) Regulation, 1358 F., hereafter called the Abolition Regulation. These payments were brought to tax under the Income-tax Act, 1922, as income. The appellant contended that they were capital and not liable to be taxed. He took various proceedings and eventually a case was stated to the High Court of Andhra Pradesh for decision of the following question : " Whether the interim maintenance allowances received by the assessee under the Hyderabad (Abolition of Jagirs) Regulation, 1358 Fasli, are income and therefore liable to tax ? " The question was answered against the appellant by the High Court and hence this appeal. The point at issue is whether these payments constituted capital or income. The answer to this question will have to be found in the Abolition Regulation under which the payments were made and another Regulation called the Hyderabad Jagirs (Commutation) Regulation, 1359 F. (hereafter called the Commutation Regulation), which was intended to be supplementary to the earlier Regulation. The material provisions of these Regulations may, therefore, be referred to at once. We shall first take up the Abolition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant contends that he was divested of the Jagir as from the "appointed day " fixed under section 5 which was, it is said, September 15, 1949. It appears that a somewhat different view was taken in Shanmugha Rajeswara Sethupathi v. Income-tax Officer, Karaikudi [1962] 44 I. T. R. 853 . We do not think it necessary in the present case to fix the precise point of time when the Jagir was taken away from the appellant and we will proceed on the basis that the appellant's contention is the correct one. As we have earlier said, the real point for decision is whether the payments were of income nature or of the nature of capital. If they were made as compensation for the deprivation of the Jagir, they would undoubtedly be capital. It may be stated that it is common case of the parties that the commutation sum payable under the Commutation Regulation was paid as such compensation. The first thing that we wish to observe is that the two regulations made a clear distinction between the interim maintenance allowances and the commutation sum. The allowances were paid under the Abolition Regulation which said nothing about the right to the payment of the commutation sum; that right w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the commutation sum payable under this Regulation. Quite clearly, therefore, only what was paid in respect of the period prior to April 1, 1950, was to be interim maintenance allowance, and what was thereafter paid was towards the commutation sum. It was contended on behalf of the appellant that the words "final commutation " in the sub-section showed that the interim maintenance allowances were also part of the commutation sum. It seems to us impossible to accept this contention for that would make the two the same, which, as we have shown earlier, they could not be. " Final commutation " meant the only commutation that the Jagirdar was to get in respect of his rights in the Jagir, that is to say, he was to get no other commutation. In fact, as already stated, if any interim maintenance allowance was paid after the commutation became payable, that was to be recovered from and not added to, the commutation. We have earlier said that it is not in dispute that the commutation sum was paid as compensation for the loss of the Jagir and was, therefore, capital which was not liable to be taxed. We thus find that the Regulations make a clear distinction between the commutation sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase very near to the one in hand and a case that throws a great deal of light on the problem that faces us is Commissioners of Inland Revenue v. Butterley Co. Ltd. [1955] 36 Tax Cas. 411 We think a detailed reference to it can be very profitably made. That case was concerned with the English Coal Industry Nationalisation Act, 1946, which nationalised the collieries and divested all owners of them and the business concerning them. Under this Act and the Coal Industry (No. 2) Act, 1949, the assessee company became entitled to compensation for the assets transferred to the Government and to certain payments called " revenue payments " and " interim income " for the period between what was called the primary vesting date and the date on which compensation for the assets taken away was fully satisfied. The question was with regard to these payments. The assessee company had contended in the beginning that the payments were not of income nature at all. In the Court of Appeal however that contention was abandoned and it was conceded that the payments were of income nature. The only dispute was whether they were income chargeable to profits tax as profits of a trade or business carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept those which are strictly applicable to their own special circumstances. Thus, they were paid because the nationalisation statute decreed that they should be paid. They would not have been payable to the respondents if they had not been conducting a colliery business at the vesting date, and in that sense, of course, they were paid to and received by the respondents for no other reason than that they had been owners of colliery assets and had been in the colliery trade. Equally, of course, the interim income payments that the respondents got were fixed either as a proportion of the profits which they had been earning in the colliery trade before the date of vesting or by a computation of interest at varying rates before sums received from time to time by way of capital compensation. But, when all that is said, the fact remains that the only identifiable origin of the payments was the statute which authorised them and at the same time defined their terms and methods of computation. It is natural enough that moneys paid in this way, described by their instrument of creation as ' interim income ', should be regarded as inherently of an income nature when the question arises of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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