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TMI Blog1971 (8) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... former holder of an estate under section 50(2) of the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948 (Madras Act 26 of 1948) (to be hereinafter referred to as "the Act"), whose estate vested in the Government under section 3 of the Act was of capital nature and not liable to tax ? The material facts bearing on the point in issue are identical in all these appeals. Hence it would be sufficient if we set out the facts of Civil Appeals Nos. 1309 to 1312 of 1968, which were filed by the same assessee. The assessee in those appeals is a Hindu undivided family and that family was the holder of the estate of Devarkota and Challappalli. This estate vested in the Government under the Act. During the assessment years 1953-54, 1954-55, 1956-57 and 1958-59, the assessee received some interim payments. The Income-tax Officer sought to include those payments in the assessment of the assessee in those years. The assessee contended that those receipts were not revenue receipts and hence not taxable. He based his plea, firstly, on the ground that those receipts represented agricultural income or alternatively they were capital receipts and, lastly, on the ground that the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notified date. Clause (c) of that section put an end to all rights and interests created in or over the estate before the notified date by the principal or any other land-holder. Clause (e) of that section is important. It reads : " The principal or any other landholder and any other person, whose rights stand transferred under clause (b) or cease and determine under clause (c), shall be entitled only to compensation from the Government as provided in this Act. " Section 21 provides for the survey and settlement of estates for effecting Ryotwari settlement. The manner of effecting the ryotwari settlement of the estate vested in the Government is prescribed in sub-sections (2), (3) and (4) of section 22. Sections 24 to 27 prescribe the manner of determining the compensation payable for the estates taken over. The scale of compensation is laid down in section 37. Section 39 provides for determination of basic annual sum and of total compensation. Section 4 lays down that the Government shall deposit in the office of the Tribunal, the amount of compensation in respect of each estate as finally determined under section 39, in such form and manner and at such time or times and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soon as the notification contemplated in section 3 was issued. But the compensation payable to the estate-holders became due only when the same was finally determined under section 39. In other words, the liability of the Government to pay the compensation finally determined arose only after the same was determined under section 39 though the Act provided for payment of half the amount of compensation on the basis of a rough estimate within six months from the date of vesting. It may also be noted that there is no provision in the Act providing for payment of interest on the compensation payable as from the date of vesting. Now we shall proceed to consider the question whether the interim payments made under the Act under section 50(2) are revenue receipts or capital receipts. It was urged on behalf of the assessee that those receipts were capital receipts. In support of that contention, reliance was placed on clause (e) of section 3 as well as on the circumstance that though the estate abolished vested in the Government on the notified date, compensation became payable to them only after the same was determined under section 39. On the other hand, it was urged on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced on behalf of the assessee that the interim payments made were given as compensation for depriving the assessees of the income that they would have got from their agricultural lands: an income which would not have been assessable to tax under the Act if it had been received as agricultural income. The quantum of interim payments payable to the former holders of those estates was determined by taking into consideration the income that the former owners would have received had they continued to be the owners of those estates. This, prima facie, shows that the Government was compensating the former holders for taking away their income producing assets. The interim payments do not appear to have any relationship with the compensation ultimately payable. On the other hand, it takes note of the loss of income incurred by the former owners due to the abolition of the estates. The contention that it was in lieu of interest on the compensation payable overlooks the fact that the liability of the Government to pay the compensation excepting to the extent provided in section 54A, arose only after the compensation payable was finally determined under section 39. The interim payments we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment, supports the case of the assessees. All that that provision says is that the interim payments made under section 50(2) are not to be considered as compensation which the Government is required to deposit under section 41(1) or to any extent to be in lieu of such compensation. That section does not say that the interim payments are not compensation. It only says that it is no part of the compensation required to be deposited under section 41 or in lieu of such compensation. That does not mean that it cannot be compensation for the recurring loss caused to the owner because of the taking away of an income producing asset without payment of compensation. It is not the contention of the assesees that the interim payments made are part of the total compensation payable for the acquisition of the estates. According to them, it is a compensation for the destruction or taking away of an income producing asset of theirs till the assets taken from them are compensated. Now we shall proceed to consider the decided cases. We shall first take up the cases relied on by the appellants. The appellants placed great deal of reliance on the decision of the Madras High Court in Shanmuha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Justice Hidayatullah J. (as he then was), speaking for the court, observed : " The compensation which was paid in the two years was no doubt paid as an equivalent of the likely profits in those years; but, as pointed out by Lord Buckmaster in Glenboig Union Fireclay Co. Ltd. v. Commissioner of Inland Revenue and affirmed by Lord Macmillan in Van den Berghs Ltd. v. Clark, there is no relation betwen the measure the is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the applicaton of that test. This proposition is as sound as it is well-expressed, and has followed in numerous cases under the Indian Income-tax Act and also by the 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 it fall within capital or reenue. Again, at pages 407 and 408 of the report, the letrned judge observed: "Now, when the payment was made to compensation the assessee, no doubt the little was the out-turn of test which would have manufactured but that has little relevance. The assessee was not compensated for loss or destruction of or injury to a capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e compensation, and the tribunal which assessed the principal sum has assessed it on the basis of interest. I think this sum first came into existence by the award, and no previous history or anterior character can be attributed to it. It is exactly like damages for detention of a chattel, and unless it can be said that damages for detention of a chattel can be called rent or hire for the chattel during the period of detention, I do not think this compensation can be called interest. I therefore think the Crown fails on this point." In the appeal court Lord Hanworth M. R., while confirming the judgment of Rowlatt J., observed: " The duty to pay compensation was imposed upon them by the treaty. The statute does not apply it, and the root of the payment is the duty to pay compensation .... For withholding this sum, for preventing Mr. Kay, or his executors, exercising the power of disposition over his property, the Germans have been compelled to pay compensation. The way to estimate that compensation or damages--the sensible way no doubt--would be by calculating a sum in terms of what interest it would have earned. That has been done, but the sum that was paid has not been turne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each jagir and for its payment. The character of the receipt which this court was called upon to consider was the maintenance allowance paid under section 14 of the first of the two regulations. Under that regulation the administrator of jagirs took over the management of the estates pending the making provision for determination of the commutation amnount. Provision in that regard was made under the second regulation. Till the payment of the commutation sum, the administrator merely managed the estates on behalf of the former owners of those estates. This is clear from sections 5, 8, 11, 12, 13 and 14 of the first regulation. Under section 5 thereof the quondam jagirdars were required to hand over the possession of ther estates to the jagir administrator. Section 8 required the former jagirdars to pay to the Government the administration expenses of their estates. Section 11 provided for distribution of the net income of an estate between the jagirdar and his hissedars who were entitled to a share in the income of the estate. Section 12(1) says : "From the amount payable to any person under section 11, there shall be deducted the amount of any maintenance allowance which under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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