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TMI Blog1985 (7) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... esumption of Jagirs Act, 1952 (Act No. VI of 1952) (for short " the Act "). On account of the resumption of the jagir lands, the assessee became entitled to receive compensation from the State of Rajasthan and an annuity in perpetuity in accordance with clause 7 of the Second Schedule appended to the Act. One contention raised on behalf of the assessee before the Income-tax Officer was that the annuity amount received during the aforesaid four assessment years, was capital receipt as it was on account of compensation in lieu of the resumption of the jagir lands. The Income-tax Officer in the four orders, passed on different dates, held that the annuity in perpetuity, received by the assessee was not a capital asset, but was compensation paid by the Government in lieu of the actual income from the jagir lands and, therefore, was a revenue receipt liable to tax. It may be stated that the Income-tax Officer further held that the annuity received by the assessee was not agricultural income as it was not rent or revenue derived from land by agricultural operations carried on by the assessee. The assessee filed appeals before the Appellate Assistant Commissioner. The Appellate Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the annuity received by the assessee in the previous years relevant to the assessment years 1970-71 to 1973-74 by way of compensation for the jagir of the assessee resumed by the State was a revenue receipt liable to tax ? " It is clear that we have to determine whether the annuity received by way of compensation on account of the resumption of jagir lands of the assessee by the Government is a capital receipt or revenue receipt which is liable to tax. In order to determine the nature of the annuity, it will be useful to refer to the relevant provisions of the Act and its Second Schedule. Section 21 of the Act deals with resumption of jagir lands. The consequences of the resumption have been laid down in section 22 of the Act. For the present purpose, we shall read the material part of section 22(1) of the Act: " 22. Consequences of resumption.-(1) As from the date of resumption of any jagir lands notwithstanding anything contained in any existing jagir law applicable thereto but save as otherwise provided in this Act (a) the right, title and interest of the jagirdar an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognised in accordance with law as being charged for the time being with the duty of the maintenance of such institution or place of worship or the performance of such service. Explanation.-For the purpose of this clause, the net income of any jagir land shall, notwithstanding anything hereinbefore contained, be an amount equal to the gross income from such land calculated in accordance with the provisions of clauses (2) and (3) minus ten per cent. of such gross income to be deducted on account of expenses of the management of the land." A reading of clauses 5 and 7 abundantly makes it clear that compensation is payable after the resumption of the jagir lands. Under clause 5, the compensation payable to the jagirdar is seven times the net income which is to be calculated in accordance with the provisions contained in the Second Schedule. Clause 7 of the Second Schedule is applicable to charitable and educational institutions. This is an overriding clause, for, despite applicability of section 26 of the Act and clauses 5 and 6 of the Second Schedule (sic). In the case of jagir lands held for the purposes specified therein, which in this case is maintenance of charitable insti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th approval, the following from the latter case (at p. 397 of 42 ITR) : "There is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the application of that test. " In this connection, their Lordships have expressed themselves as under (at p. 397): " This proposition is as sound as it is well-expressed, and has been followed in numerous cases under the Indian Income-tax Act and also by this court. It is the quality of the Payment that is decisive of the character of the payment and not the method of the Payment or its measure, and makes it fall within capital or revenue. " (Emphasis added). In P. H. Divecha v. CIT [1963] 48 ITR (SC) 222, it was held as under (at p. 231),: " In determining whether this payment amounts to a return for loss of a capital asset or is income, profits or gains liable to income-tax, one must have regard to the nature and quality of the payment. If the payment was not received to compensate for a loss of profits of business, the receipt in the hands of the appellant cannot properly be described as income, profits or gains as commonly understoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im payment. An argument was raised that the interim payment was part of the compensation which he received for the loss of his estate and should, therefore, be regarded as capital and not income. In these facts, it was held that the terminology used in the Abolition Act was not conclusive in so far as the character of the payments for the purposes of the Indian Income-tax Act, 1922, falls to be considered. The important observations made are these (p. 869): "...that the interim payments were made to the landholders not as income or as interest on the undeposited portion of the compensation; these payments in so far as the scheme of the Act reveals their nature were clearly in addition to the compensation provided in section 39 of the Act to compensate for the deprivation of the estate and for the loss of an income producing asset of the landholders. They are accordingly of capital nature and not liable to income-tax. " The question pertaining to compensation for compulsory acquisition arose in Ukhara Estate Zamindaries P. Ltd. v. CIT [1979] 120 ITR 549 (SC). Tulzapurkar J., speaking for the court, observed as under (at pp. 558 559): " So far as the amounts of compensation r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Government is nothing but income ? In that case, the trust was receiving income out of certain assets which had been endowed to deities, for whom the trust had been created. Those assets vested in the State of Bihar, but the income from the assets continued to flow for the purpose of the trust. In these facts, it was observed as under (at p. 943): " It obviously means that the income arising from the trust properties shall continue to be paid to the trust, with only this difference that after the vesting of the estate, now it shall be paid by the State. The annuity received shall, therefore, continue to bear the same character as it had when the assets, out of which the income arose, were held in private hands." This decision is clearly distinguishable on facts and we have no hesitation in saying that it is of no assistance to the learned counsel for the Revenue. For the reasons mentioned hereinabove, we are of the opinion that the Tribunal was not right in holding that the annuity received by the assessee in the previous years, by way of compensation for the resumption of the jagir lands by the Government, was a revenue receipt liable to tax. In our opinion, the compensa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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