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TMI Blog1929 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... e proportionate valuation of this palace, which is not required for agricultural purposes." The cost of the whole palace was about 4 lakhs of rupees. The proviso to section 2 sub-section (1)(c) of the Act exempts from taxation as agricultural revenue the notional income of a building "which the receiver of the rent or revenue or the cultivator or the receiver of the rent in kind by reason of his connexion with the land, requires as a dwelling-house or as a store house, or other out building." The Department contended that the words "by reason of his connexion with the land requires as a dwelling-house" mean that the proviso is only to apply to such portion, if any, of the building as should be needed as a dwelling house, store house or out building for the purpose of receiving of rents, or cultivation, or receiving of rent in kind as the case may be. The argument more shortly put is that the word "requires" is used in the sense of "needs" and that the words "by reason of his connexion with the land" mean as applied to this case "for the purpose of collecting the rent or revenue." This interpretation, if correct, woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceiver of the rent or revenue or the cultivator or the receiver of the rent in kind,'' whereas the verb ''requires'' is separated by a comma from the grammatical subject and the phrase "by reason of his connection with the land." My conclusion is that this phrase has a qualitative and not a quantitative significance. Of course there must be a bona fide use of the building as a dwelling house, store house or out building and the assessee is not at liberty to claim arbitrarily the exemption of any building which he may at his own choice describe as a dwelling house, store house or out building without regard to the actual facts. For these reasons I am in agreement with the decision arrived at in the case of Maharajadhiraja of Darbanga v. Commissioner of Income-tax 3 I.T.C. 158. It has further been argued that the income on account of buildings which is to be exempted from taxation is not the notional income but the actual income, if any, derived therefrom. This argument will hardly bear examination, and I will say no more than that I am in full agreement with the views of my learned brethern on this point. The next matter for decision is as to whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... destroys the meaning of the clause. If, a Zemindar lets his house, then he does not require it and therefore it is outside the clause altogether. It is suggested that what the clause refers to is income derived from letting part of the house,; but the clause only exempts income from a building owned and occupied by the receiver of rent, and so far as it is not occupied by him, it is not within the exception. The alternative argument was that advanced by the Commissioner of Income-tax that the house is too large for the assessee's requirements as a Zemindar and is therefore assessable in part. But if the legislature had contemplated such an inquisition into the domestic affairs of the assessee as this argument involves, it seems to me that it would have been expressly provided for. As was observed by Lord Hannen in Tennant v. Smith 3 Tax Case 158, (1892) A.C. 150 income-tax is imposed not on the personal suitableness of the man's surroundings which must vary with the man and the same man in different circumstances, but on his income capable of being calculated. There are three requisites for exemption under this clause: (1) the building must be owned and occupied by the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income is derived. If a mutation fee on the transfer of a tenure is agricultural income, it is difficult to see on what principle the mutation fee on the transfer of a raiyati holding is not agricultural income also. In my opinion both these payment are equally revenue issuing from the land or, what is the same thing, from the relation of landlord and tenant. Learned Counsel for the assessee pressed for a decision on the question of the legality of these charges. It is contended that section 30 merely states the rule of devolution of occupancy holdings in the case of intestacy and that the exaction of a mutation fee would be governed by custom, at any rate in a permanently settled estate. It is said that this custom has been recognized in the instructions of the Board of Revenue in 1893, and that it is followed by the Government itself as proprietor of the Khurda estate. This may be so, but the question seems to me to be altogether outside the jurisdiction of the Commissioner of Income-tax; and, consequently, not fit for decision by this Court in the present proceeding. Wort, J.-This is a case stated by the Commissioner of Income-tax under an order of this Court, dated the 22nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t provide that the dwelling house should be required for agricultural purposes. The Act uses the expressions "required as a dwelling house in connexion with the land." The second section defines "agricultural income" and sub-section (1)(c) includes any income derived from any building owned and occupied by the receiver of rent or revenue of any such land, and eliminating irrelevant portions it goes on to provide that the building is on or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue by reason or his connection with the land requires as a dwelling house, etc. The question which arises is a question of mixed fact and law. But the real point before us, having regard to the findings of fact by the Commissioner, is what is the proper construction to be placed upon the words "required as a dwelling house in connection with the land." The question has already come up before this Court and it has been decided in the case of Maharajadhiraj of Dharbhanga ( supra), that it is sufficient to show that by reason of the assessee's connexion with the land he requires a dwelling house in the vicinity and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of this argument that there is only one section in the Act which deals with notional income and that is section 9. It is obvious that the Crown must be driven back as it was to the contention that the exception under section 2 was not an exception to section 9. For the purposes of this argument the Crown relies upon the case of Tennant (supra ). The judgment in that case however gives no support to this argument. The judgment which related to the assessment of a bank manager under Schedule D of the Income-tax Act in England then in force, that is to say, the Act of 1842 and the question therein arising was whether the occupation of a house provided for him by his employees was an emolument within the meaning of that Schedule. The words in that judgment relied upon by the Crown are those in Lord Asbury's speech "that the thing sought to be taxed is not income unless it can be turned into money." The case as I have stated dealt with words quite different from those we have to construe. In effect the argument is this: that wherever the word "income" is used it means actual money or money's worth and not notional income in the sense of an annual value of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument? The Crown contends that the words warrant the following enquiries which the case stated suggests:-(i) "Whether the assessee occupies the house qua landlord; (ii) What proportion does his income from land bear to his income from other sources; (iii) "Whether the palace is required exclusively for agricultural purposes. The Crown contends as to (1) that the assessee does not occupy the house qua landlord. Then in what capacity does he occupy ? In my judgment in as much as he is entitled to a partial exemption according to the case stated he does in fact occupy the house qua landlord. That is to say that this or that part of the palace is not required by his occupation qua landlord or for agricultural purpose is either enquiring into the assessee's personal habits or tastes, an enquiry quite irrelevant on any construction to be placed upon the section, or to apply a test which the language of the Act in no way warrants. The section says requires as a dwelling house in connexion with the land, not requires as a dwelling house in connexion with and for the purposes of the land (or agriculture). If we were to read "for the purposes of agriculture" into t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Crown admits that the basis of the Commissioner's contention so far as the fees secured by the Raja on the transfer of tenure was wrong and that the assessee is entitled to treat these as agricultural income within the meaning of the Act and therefore exempt. However his admission, as I understand it, goes, only so far as the case, in which the amount chargeable by the Raja is. one which he is entitled by law to recover and not so far as any excess amount is concerned. The other mutation fees are those realized from occupancy riots and it is contended that as these are illegal always, they can in no sense be termed revenue, from land within the meaning of section 2 sub-section (1)(a). In dealing with this latter point therefore I shall deal with that portion of the mutation fee on the transfer of tenures which is stated by the Crown to. be illegal. In the first place it was argued that the test which was to be applied in order to discover whether mutation fees could be treated as "agricultural income" within the meaning of the section, depended upon the question whether these fees were enforceable or not and this argument was supported by the case of King E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quot;rent" or "revenue" intended by the word "revenue" something other than "rent". In my opinion the word "revenue" is not to be construed as elude generic with rent. "Rent" has characteristics which are well known to lawyers. "Revenue" whilst it may be a species of agricultural income has, in my judgment, a wider meaning than rent. Now from what source do these fees come? Is it by reason of the relation that the person recovering them has with the land? I think this question must obviously be answered in the affirmative; and apart from the fact that they may not be recoverable in law, I do not see any distinction, between near and or salami in the ease of a tenure and the fee paid with regard to occupancy holdings. If the former is "revenue", I do not see how it can be argued that the other is not revenue as well. In this connection it is important to notice again that what the case of King Emperor (supra), has decided is that near was revenue although the reason which is given in the case of Maher Banjo Khan (supra), for that decision is that near was in the nature of rent. It is not suggested before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or revenue of any such land, or occupied by the cultivator, or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in sub-clauses (ii) and (iii) of clause ( b) is carried on. To this there is a proviso to the effect that the building is on or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue or the cultivator or the receiver of the recent-in-kind by reason of Ms connection with the land, requires as a dwelling house, or as a store-house, or other outbuilding. The question is whether the assessee can rely upon this proviso for exemption to his house from taxation. Section 6 of the Act gives the heads of income, profits and gains which shall be chargeable to income-tax in the manner provided in the Act, and one of these heads is "property." The manner in which 'property' is chargeable to income-tax is given in section 9, sub-section (1) of which provides that the tax shall be payable by an assessee under the head "property'' in respect of the bona fide annual value of the property consisting of any buildings or lands appurtenant thereto of which he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a dwelling house the income derived from such building would become agricultural income and exempt from taxation. The argument that the word "requires" gives the Income-tax authorities the power to determine what portion of the building is as a matter of fact required by the assessee in his capacity of receiver of the rent is, in my opinion, not warranted by the terms of the sanction. I agree with the reasons given by my Lord the Chief Justice and by Ross and Wort, JJ., for holding that the construction sought to be placed upon the proviso by the Income-tax authorities is not warranted by the terms of the section. It would no doubt be open to the Income-tax authorities to hold that a particular building on account of its size or situation is not a building which the receiver of rent or revenue does require, by reason of his connection with the land, as a dwelling house and in that case it would be open to them to assess the income from the entire building, but the moment they find that the house is required by the receiver of the rent or revenue by reason of his connection with the land as a dwelling house or a store-house or other out-building, it is beyond their juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a palace and there, is a detached guest-house. The Commissioner states: "The Income-tax Officer in making that assessment has taken ₹ 3,000 as the proportionate valuation of-the portion of the palace which is not required for agricultural purposes." It would appear that the expression "requires for agricultural purposes" here means "which the assessee by reason of his connection with the land requires as a dwelling house." The Commissioner sets out that it is the contention of his department that the palace is not occupied by the receiver of rent, nor required by him qua landlord as a dwelling house, store-house or other out-building. The assessee's income from, rent proper is approximately fifty per cent, of his total income and it is contended that "the assessee requires or has built his palatial residence not because he requires such a building by reason of his connection with the land but because his total income and high social position demand." The Commissioner submits that "this palatial building is not required wholly and exclusively for agricultural purposes and that the question of the valuation of what proportion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land requires" must be "needs as appropriate and convenient for his calling as a receiver of the rent or revenue derived from the land." The learned Counsel for the assessee would practically read the proviso (so far as is material) as "Provided that……the receiver of the rent or revenue…….by reason of his connection with the land requires a dwelling house." But the enactment contemplates that he must by reason of his connection with the land require the particular building as a dwelling house. In this Province the case of the great Indigo concerns of North Bihar readily occurred to one. The residence of the owner or manager was appropriate to the extensive landed interests of the Concern. But it is otherwise when on the dissolution of the Concern that building is acquired with some neighboring land constituting but a small fraction of the territory of the Concern and is occupied by the purchaser mainly not by reason, of his connection with the adjoining land but for merely residential reasons, or from considerations of local prestige, or for sporting purposes, or some similar object. The Legislature cannot have intended to exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not within the definition of 'rent' under that Act and indicates that if the expression 'revenue' is to be taken in so wide a sense 'agricultural income' would include illegal realizations, such as always. This however does not appear to be the correct criterion, since 'rent' in the Tenancy Act has by definition a restricted meaning appropriate to such an enactment but inappropriate to an Income-tax Act, and the learned Government Advocate is unable to contend that the fee paid by a tenure-holder to the landlord under the statute is not "rent or revenue derived from the land" and therefore "agricultural income." As to the succession fees paid by the raiyats in this permanently settled estate, the Commissioner considers that they are illegal impositions under section 84 of the Orissa Tenancy Act, the exaction of which is punishable by fine under section 83. In short "the landlord is charging a fee for keeping his jacaranda up to date, which it is his duty to do without any fee", and the payment is therefore one without consideration. Here again the chief fallacy appears to lie in the Commissioner's assumption tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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