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TMI Blog1977 (7) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Tribunal were unsuccessful. This question now falls for consideration in this reference. Late Maharajadhiraja Sir Rameshwar Singh, father of the assessee, had advanced certain loans to Maharajkumar Gopal Saran Singh of Tekari in 1914 and 1915, for which the latter executed two mortgage deeds in favour of the former. Later on, two suits were filed by the Darbhanga Raj for recovery of the loans, and ultimately, a compromise decree was passed against Maharajkumar Gopal Saran Singh in mortgage Suit No. 25 of 1921 in the Court of the Subordinate judge, Patna, on the basis of the two mortgage bonds of 1914 and 1915. A sum of Rs. 31,54,936 remained due out of the said decree. The original creditor, Maharajadhiraja Sir Rameshwar Singh, died on 3rd July, 1929, and the present assessee, his eldest son, succeeded to his estate. In the year 1931 Raja Bahadur Harihar Prasad Singh of Amawan approached the assessee for the assignment of the mortgage decree in his favour for the consideration of the aforesaid decretal amount of Rs. 31,54,936 which offer was accepted by the assessee and a deed of assignment dated the 15th June, 1931, was executed. Out of the consideration, Rs. 1,04,936 was pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the balance payable--vide order dated 10th June, 1957. The assessee made enquiries from the Additional Collector, Gaya, as to the amount of compensation payable to the assessee in respect of the vested zarpeshgi properties. The assessee was informed by the Additional Collector, Gaya, by his letter dated August 18, 1959, that the compensation payable to the assessee in respect of the properties involved in the zarpeshgi thika deed was Rs. 3,42,996. The assessee on that basis claimed that the balance amount of Rs. 29,16,000 was an irrecoverable loan and a bad debt against income from money-lending business during the accounting period 1957-58 and so admissible under s. 10(2)(xv) of the Indian I.T. Act, 1922. This was disallowed by the ITO, the AAC and the Appellate Tribunal as already mentioned. At the instance of the assessee, however, the Tribunal by order dated the 20th June, 1970, referred five questions for the opinion of this court. It is not necessary to set out those questions as, in the course of the hearing of the case, with the consent of the learned counsel for the parties, those questions were reduced to the following single question : " Whether, on the facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel, is dated the 3rd September, 1935, written by Shri G. M. Mishra, manager, Darbhanga Raj, to Aditya Babu, manager of the estate of Rani Bhuwaneshwari Kuer. This letter relates to a proposal from Rani Bhuwaneshwari Kuer to have a further loan to be advanced to her. It is stated therein that if this proposal is accepted, the said loan is to be added to the portion of the zarpeshgi loan which yet remains unpaid by the Rani, with the result that the zarpeshgi bond will have to be recast and consolidated into a new bond for the entire loan. It is stated in that letter that for that purpose it is necessary to have an accurate accounting of the dues of the Rani which remained unpaid. It is further stated therein that in case the proposal is entertained, it would have to be examined whether it would be more advisable to have a sudbharna transaction in place of a sadhaua pataua bond, and the assessee would have to release a portion of the property and retain such part of it as would yield an income sufficient to liquidate the amount of interest. Dr. Pal has laid emphasis on the use of the expressions like " loan ", " dues ", " interest " in this letter as forming the background of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the 31st January, 1936, for the amalgamated amount of loan to the tune of Rs. 47,61,000 for a period of 28 years, i.e., up to 1964, in place of the 1931 lease which was for a period of 17 years, i.e., up to 1948. It is on the basis of these letters that Dr. Pal has submitted that the transactions evidenced by the two zarpeshgi deeds of lease were really security for the loans advanced by the assessee and that these letters are, therefore, relevant for culling out the true import of the two zarpeshgi deeds of 1931 and 1936. According to learned counsel, therefore, the decision of the Supreme Court, mentioned above, which was made without reference to these letters, cannot be held to be final adjudication as to the real import of the documents, specially when the question whether the income from the leasehold property being from land would fall within the definition of " agricultural income " was not seriously contested by the parties before the Supreme Court. The controversy in the case before the Supreme Court was whether the holder of the zarpeshgi property was liable to pay agricultural income-tax or not. The contention of the present assessee before the Supreme Court wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be debited to the lessor but were to be borne by the lessee. Unless such a provision was included in the instrument, it might have been a matter of some dispute as to who was to be responsible for this expenditure. The learned counsel for the assessee next drew our attention to the last clause of the instrument of January 31, 1936. That, however, was a special covenant and the provision therein was in relation to matters not covered by the instrument. That the income from this leasehold property which was land would fall within the definition of 'agricultural income' was not seriously contested before us. The case of the assessee rests upon the claim that this was a money-lending transaction and the receipts represented a capital return. If, however, the payment to the lessor was premium and not a loan, the income, being agricultural from the leasehold properties was assessable under the Act. We are of the opinion that it was so, and that the Agricultural Income-tax Officer was right when he assessed it to agricultural income-tax. The income was not the income of money-lending, and this does not depend upon the character of the recipient. The thika profits were clearly agricult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of appeal before the AAC and before the Income-tax Appellate Tribunal as also the reference application under s. 256(1) of the Act filed by the assessee are exhaustive, no grievance was made in any of them regarding the non-consideration of the five letters. This also shows that the letters in question were not filed before the authorities concerned. Dr. Pal has also submitted that from the order of the AAC at para. graph 10, as also from the order of the claims officer at para. 5, it is apparent that the intention of the parties was that the loan was to bear interest till the satisfaction of the principal amount. He has also made a reference to one of the clauses in the zarpeshgi deed mentioning the necessity for the loan, where it is mentioned that the lessor was in need of a sum of Rs. 17,61,000 for meeting the pressing demands of the creditors, who are charging a heavy rate of interest, to show that the intention of the lessor was to take a loan bearing interest for which the zarpeshgi bond was executed. These submissions of Dr. Pal in this regard have been considered by the Tribunal while deciding the appeal. The Tribunal relied, in support of its finding, against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty in question was agricultural property. Dr. Pal has alternatively submitted that even though the property in question was in the nature of agricultural land, its loss was admissible as a bad debt. It may be that the income from such property will be exempt from income-tax, in view of there being specific provision to that effect in the Indian I.T. Act, 1922, namely, s. 4(3)(viii), but from that it does not necessarily follow that its loss was not admissible. Learned counsel has submitted that the approach of the Tribunal on the question at issue was based on the assumption that the moment the property is found to yield agricultural income, the property from which it is derived will be agricultural property and the loss of the aforesaid property will be agricultural loss is wholly erroneous and untenable in law. The Privy Council and the Supreme Court decisions, relied upon by the Tribunal in this regard, merely emphasised that the exemption in the case of agricultural income is total. It was not held in those decisions that if the income derived is el agricultural " income ", the property from which it is derived must be agricultural property. It is contended that the Privy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 per annum and was thus a leasehold property and not a security for the loan advanced, This finding of the Tribunal is supported by the decision of the Supreme Court in the case of this very assessee (Maharajadhiraj Sir Kameshwar Singh v. State of Bihar [1959] 37 ITR 388, 397), the relevant portion from which may again be quoted : " The case of the assessee rests upon the claim that this was a money-lending transaction and the receipts represented a capital return. If, however, the payment to the lessor was premium and not a loan, the income, being agricultural, from these leasehold properties was assessable under the Act. We are of the opinion that it was so, and that the Agricultural Income-tax Officer was right when he assessed it to agricultural income-tax. The income was not income of money-lending and this does not depend upon the character of the recipient. The thika profits were clearly agricultural income being actually derived from land. " (Italics are mine). Dr. Pal has emphasised that the original advance given to Maharaj kumar Gopal Saran Singh was undoubtedly a loan given to him. That may be so. But the Tribunal has also found that the character of the origina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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