Orissa High Court
Commissioner Of Income-Tax vs Raja S.N. Bhanja Deo on 10 August, 1976
JUDGMENT R.N. Misra, J.
1. On an application of the revenue made under Section 256(2) of the Income-tax Act of 1961 (hereafter referred to as "the Act) this court directed the Income-tax Appellate Tribunal, Cuttack Bench, to state a case and refer the following two questions for opinion of the court :
"(1) Whether, on the facts and in the circumstances of the case, the assessee's building at Cuttack Town is an agricultural house property and the income therefrom is not assessable income as defined in the Act ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that only the instalment due referable to the year under consideration, namely, Rs. 1,245, as disclosed by the assessee is assessable and not the entire amount ?"
2. We are concerned with assessment year 1965-66. The assessee had not taken into account the income attributable to a house called the Kanika House situated in the immediate vicinity of agricultural lands measuring about 35 acres all located within the municipal area of Cuttack which was also used as the residence of the assessee and claimed that the income attributable to the dwelling house was exempt as coming within the definition of agricultural income under Section 2(1) of the Act, Assessee was the ex-proprietor of the Kanika Estate and became entitled to compensation under the Orissa Estates Abolition Act of 1951. Assessee claimed that a sum of Rs. 14,947 received by way of interest on the compensation should be spread over twelve years on equal proportion covering the assessment years 1953-54 to 1964-65 on the ground that the income had accrued equally in each of these years. This contention was not accepted by the Income-tax Officer as also the Appellate Assistant Commissioner. But the Tribunal came to hold that a sum of Rs. 1,245 out of the interest referred to above was to be taken as income of this year.
3. So far as the second question is concerned, it is conceded by both sides that the decision of this court in Commissioner of Income-tax v. Raja S.N. Bhanja Deo [1977] 106 ITR 748 (Orissa) disposed of on 1st of December, 1975, between the parties answers the point. In that case a Bench of this court held (page 751):
"There is no material here at all to hold that before compensation was finalised, the quantum of interest could at all be worked out because under the statutory provision interest is a percentage of the compensation that becomes due. Therefore, as long as the compensation is not quantified, it is difficult to hold that interest was accruing on yearly basis. On the terms of the statute, the right to interest would accrue only when the compensation gets quantified though, for purposes of working out the quantum of interest to be paid to the ex-proprietor, the rate indicated on annual basis has to be taken into account. This being the position, we are of the view that the Tribunal went wrong in holding that interest was accruing to the assessee year after year since abolition of the estate till payment of the compensation ".
4. On this reasoning, this court held that the total interest was assessable during the year of receipt, namely, assessment year 1965-66, and not in any earlier year. Our answer to the second question, therefore, is :
On the facts and in the circumstances of the case, the Tribunal was not justified in holding that only the instalment due referable to the year under consideration, namely, Rs. 1,245, as disclosed by the assessee was assessable. We shall now deal with the first question. It has been found that the assessee has a house within the municipal limits of Cuttack and close to it the assessee has thirty-five acres of cultivable lands. The Income-tax Officer added income from this dwelling house overruling the contention of the assessee that the income was exempt from income-tax being agricultural income. There is no dispute that "agricultural income" as denned in Section 2(1) of the Act is not to be taken into the ambit of income liable to tax under the Act. "Agricultural income" has been defined in Section 2(1) of the Act under three sub-heads marked as Clauses (a), (b) and (c). A proviso under, Clause (c) to the following effect appeared in the parent Act:
"Provided 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 rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other outbuilding."
5. By the Taxation Laws (Amendment) Act, 1970 (Act 42 of 1970), the aforesaid proviso was replaced by the following and with retrospective effect from April 1, 1962 : "Provided that-
(i) 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 rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other outbuilding, and (ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by the officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated-
(A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or........."
6. According to learned standing counsel, the effect of the amendment is that income from a building located in any area which is comprised within the jurisdiction of a municipality having a population of more than ten thousand would not come within the purview of the definition. Mr. Lenka for the assessee contends, on the other hand, that the effect of the amending provision is to enlarge the field of exemption and not to restrict it. He relies upon a departmental circular.
7. Learned standing counsel is absolutely justified in contending that we are not bound by the interpretation placed by the department on the provisions and if by analysis we come to hold that the view indicated in the circular is erroneous, the assessee cannot take cover under the circular.
8. An analysis of the recast provisos having retrospective effect from the date of commencement of the Act of 1961 shows that under the old provisions, income attributable to any building owned and occupied by the receiver of rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, was treated as agricultural income, provided that the building was on or in the immediate vicinity of the land and was a building which the occupier by reason of his connection with the land required as a dwelling house, or as a store-house or other outbuilding. The amended proviso has widened the scope of the provision by prescribing alternatively that even if the described condition, as indicated earlier, of assessment to land revenue et cetera is not satisfied, the income from the farm house may still be treated as agricultural income it one of the two following circumstances exists, namely, (a) either the land is not situated within the jurisdiction of a municipality et cetera, or a cantonment board having a population of ten thousand or more inhabitants ; or (b) the land is situated beyond a distance of eight kilometres (or such shorter distance, if any, notified by the Central Government in respect of any urban area) from the local limits of a municipality or cantonment board having a population of ten thousand or more inhabitants.
9. Prior to the Taxation Laws (Amendment) Act of 1970, the two requirements were that the land should be assessed to land revenue in India or should be subject to a local rate assessed and collected by Government officials as such. In the event when the land is not assessed to land revenue or subject to a local rate, it qualifies for exemption in case it is not situated within the local limits of a named local body as specified in Sub-clause (A) of Clause (ii) or in an area within such distance not being more than eight kilometres from the local limits of a municipality or cantonment board as the Central Government may notify, as specified in Sub-clause (B) of Clause (ii) of the proviso. Sub-clauses (A) and (B) in the proviso do not refer to land assessed to land revenue or land subject to local rate. They apply to cases where land is neither assessed to land revenue nor subject to local rate. Assessee has throughout claimed, as contended by his counsel, that the house is subject to land revenue. There is no finding recorded by any of the authorities that the assessee does not pay land revenue. Judicial notice can be taken of the fact that Cuttack is Khasmahal and some areas which were previously part of an estate have now become Khasmahal after the vesting of the estates and all lands are subjected to tax payable to the State Government apart from municipal rates and taxes. The lands in question, therefore, come within the first category referred to in Clause (ii) of the proviso and, therefore, the exemption granted by the Tribunal is justified and learned standing counsel's submission that if it is located within a municipal area the income arising from the building would not be agricultural income has no force. Our answer to the first question, therefore, is :
On the facts and in the circumstances of the case, the assessee's building at Cuttack is an agricultural house property and income therefrom is not assessable as income under the Act.
10. As success is divided, we direct both parties to bear their respective costs.
Mohanti, J.
11. I agree.