9911796707
TMI Blog1959 (7) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... is a Hindu undivided family whose karta is Sri Trivikram Narain Singh. He is a descendant of one Sri Babu Ausan Singh who was the original founder and owner of what is known as the Ausanganj Estate in the district of Varanasi. It was some time in the year 1775 that the then Province of Banaras was ceded to the British Government by Nawab Asfuddaula of Audh whereafter the British Government granted a Sanad to Raja Chet Singh conferring on him the rights of a Raja. Raja Chet Singh in turn gave the jagir of pargana Seyedpore and Bhittary in perpetuity to Babu Ausan Singh. In the year 1798, there were some disputes between Babu Ausan Singh and the zamindars of this pargana with the result that the matter was referred by the Collector of Banaras to the Board of Revenue in Calcutta. During the pendency of the disputes, Babu Ausan Singh was succeeded by Babu Sheo Narain Singh who in turn was succeeded by Babu Har Narain Singh. Various proposals were made at intervening stages for settling the disputes but the ultimate settlement came in the year 1837. The final notification by which the terms of the settlement were notified does not appear to have been produced before the Income-tax Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural income exempt from income-tax or income liable to tax under the Indian Income-tax Act. The Tribunal finally held that this income being received by Babu Har Narain Singh and his successors was not agricultural income and was consequently liable to income-tax. It is in these circumstances that the question mentioned above has been referred for our opinion at the instance of the assessee. In this reference before us no further material has been provided on the basis of which it can be held that the Tribunal acted incorrectly or against law in basing their decision on the terms of the settlement contained in the letter dated 7th of July, 1837. In fact, the assessee as well as the Income-tax Department have proceeded on the basis that the terms contained in that letter are the final terms which have been enforced between the parties, exactly as they had done before the Tribunal. We have also mentioned earlier that the Agricultural Income-tax authorities took notice of a subsequent notification dated 19th of October, 1837, which from the description given in their orders appears to have merely given effect to the terms of settlement contained in the letter of 7th of July, 1837. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was described in the letter of July 7, 1837, in paragraph 3 as cited above. The consequence is that it is no longer open to the assessee to contend that the income that he is receiving should be held to be agricultural income on the basis of the definition contained in sub-clause (b) of section 2(1) of the Income-tax Act. Sub-clause (b) of section 2(1) of the Income-tax Act can only be relied upon by an assessee who has a right or interest in the land itself from which the income is derived. This is, however, immaterial as in the present Case the assessee has relied on sub-clause (a) of section 2(1) of the Income-tax Act under which all that is required is that the income must be rent or revenue derived from land, which is used for agricultural purposes and is either assessed to land revenue in the taxable territories or subject to a local rate assessed and collected by officers of the. Government as such. This sub-clause (a) nowhere lays down the requirement that the land from which the rent or revenue is derived should be owned by the person who derives the income or that the person should have any existing right or interest in land. All that is required is that there shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of the case. In the appellate order or in the statement of the case, the Tribunal made no mention at all as to whether after this settlement Babu Har Narain Singh and his successors were receiving a fixed amount of ₹ 36,322-8-0 every year or whether the amount varied from year to year in accordance with the net collections of revenue each year. The copies of the orders of the Agricultural Income-tax Commissioner and the Board of Agricultural Income-tax, however, show that the amount which has been received by the successors of Babu Har Narain Singh under this settlement has varied from year to year. In the order of the Agricultural Income-tax Board, it is mentioned that for the three agricultural years 1356 to 1358 Fasli the income return of the assessee in respect of what was received by him under this settlement was ₹ 37,465-10-0, ₹ 14,761-14-11 and ₹ 37,465-10-0 respectively. The fact that the income which Babu Har Narain Singh and his successors have been receiving under this settlement has not remained fixed at the amount of ₹ 36,322-8-0 also appears from the question which the Income-tax Appellate Tribunal has itself referred to us for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Singh had a right to one-fourth of the land revenue, he because of his right in land was the person entitled to collect the land revenue and after retaining his one-fourth share was required to pay the remaining three-fourth share of the Government to the Government to which that share belonged. Subsequent to this settlement, the position was altered. The right of collection of land revenue was taken over by the Government but the Government took upon it the liability to pay to Babu Har Narain and his successors their one-fourth share in the land revenue. In these circumstances, when the Government was collecting the land revenue, it was actually collecting three-fourth of the land revenue for its own benefit and the remaining one-fourth share of land revenue for the benefit of Babu Har Narain Singh and his successors, so that in fact, while collecting that one-fourth share of the land revenue the Government was in the position of an agent making collections on behalf of Babu Har Narain Singh and his successors. The income thus received is agricultural income of the Government in the capacity of an agent and was passed on to the person actually entitled to it so that the mere co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Premier Construction Co. Ltd. v. Commissioner of Income-tax [1948] 16 ITR 380 ; Maharaja Pratap Singh Bahadur v. Province of Bihar [1949] 171 ITR 202 and Bacha F. Guzdar v. Commissioner of Income-tax [1955] 27 ITR 1 . In Maharajkumar Gopal Saran Narain Singh's case (supra) their Lordships of the Privy Council considered the case of an assessee who had transferred his agricultural-property and at the time of the transfer had reserved the right to an annual payment of ₹ 2,40,000 for his life. It was held that the annual payment was not agricultural income as it was not rent or revenue derived from land but money payable under a contract imposing a personal liability on the covenantor even though the discharge of that liability was secured by a charge on land. In Raja Mustafa Ali Khan's case (supra) the facts showed that a fixed annual payment or a malikana was acquired by the assessee's predecessors in consideration of the relinquishment of all their rights in property in certain villages and, though that payment was originally calculated on the basis of the land revenue of the villages, it was fixed once for all and was payable by the superior proprietors of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n into arrears. The source of the income of the interest was, therefore, the arrears of rent and not the revenue. In our case, it is true that the right to the revenue was created by the settlement of 1837 but that right which was created was itself a right to receive a portion of the revenue and not a portion of any income derived from amounts of land revenue which might have either fallen in arrears or might have been collected and kept in deposit. The case of Premier Construction Co. Ltd. v. Commissioner of Income-tax [1948] 16 ITR 380 was a case where remuneration of managing agents was calculated at the rate of 10 per cent, per annum on the annual net profits of a company after making all proper allowances and deductions, the company being one, part of whose income was agricultural income as defined in the Income-tax Act. It was held by their Lordships of the Privy Council that the assessee received no agricultural income as defined by the Act, that it received remuneration under a contract for personal service calculated on the amount of profit earned by the employer, payable not in specie out of any item of such profits, but out of any moneys of the employer available for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 60 per cent, of the dividend income received by her on her shares in those companies was also exempt from tax as agricultural income. It was held that dividend income received by the assessee was not agricultural income but was income assessable under section 12 of the Indian Income-tax Act. In their decision, their Lordships of the Supreme Court held that agricultural income as denned in the Act is obviously intended to refer to the revenue received by direct association with the land which is used for agricultural purposes and not by indirectly extending it to cases where that revenue or part thereof changes hands either by way of distribution of dividends or otherwise. In fact and truth, dividend is derived from the investment made in the shares of the company and the foundation of it rests on the contractual relations between the company and the shareholders. Dividend is not derived by a shareholder by his direct relationship with the land. There can be no doubt that the initial source which has produced the revenue is land used for agricultural purposes but to give to the words "revenue derived from land" the unrestricted meaning apart from its direct association or relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come; whether, in other words, a new source was created, the effect of which was that the money which passed into his hands as beneficiary ceased to be agricultural income. The facts of that case show that originally the right to receive the payment accrued to the mutwalli because under the trust deeds it was considered that he was entitled to remuneration in lieu of his services. To remunerate him for his services, the trust deeds conferred on him the status of a beneficiary and, in that status of beneficiary, he was entitled to receive a share of the agricultural income. All the terms of the trust deeds taken together thus created in the mutwalli a right to a share of the agricultural income of the trust and it was held that the income so received by him was agricultural income. This was held in spite of the fact that the right in the mutwalli had been created only for the purpose of remunerating him for his services. In the case before us, certain rights of Babu Har Narain Singh and his successors were taken away by the Government under the settlement of July, 1837, and it was considered fair that, for being deprived of those rights, Babu Har Narain Singh and his successors shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee who is not entitled to receive the income, but, on the other hand, receives it on behalf of some one else. It was held that, in the circumstances, it would hardly be said to be agricultural income received by him only because some money became payable to him under a contract for the work done by him as an agent or a servant. In such a case he derived his income not from an agricultural source but in lieu of the work done by him and the money so received could not be said to be agricultural income received by him. Examining this aspect, the learned Chief Justice who delivered the judgment of the court envisaged a case where, by an arrangement between the principal and the agent, the agent may become entitled to retain the income of one village out of the income of, say, ten villages and expressed the opinion that it may be possible to say that in such a case the agent had a right to receive and retain income which was exempt from income-tax. It was further held that there would be a difference, though a fine one, between an agent realising the income for his own benefit and realising it on behalf of his master and being allowed to retain a part of it as his remunerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n received as an allowance during the previous year of the assessment year 1949-50. It appears to us that the use of the word "allowance" in this question is immaterial. It may be that the sums which were being received under the settlement by Babu Har Narain Singh and his successors was an allowance but the question is what was the nature of that allowance. The allowance was a sum of money which Babu Har Narain Singh and his successors received because of being granted a right in the land revenue itself. The use of the word "allowance" or even the use of the word "pension," as it was used in paragraph 6 of the letter of 7th July, 1837, would make no difference to the actual nature of the right which was granted under the said agreement. The nature of the right has to be gathered from the terms of the settlement and, as we have held above, the right being a right to receive revenue or part of revenue derived from land, the income accruing under that right was agricultural income. We, therefore, answer the question referred to us in the negative. The assessee will be entitled to receive ₹ 400 as costs of this reference from the Department. For purposes of assessment of the fe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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