Patna High Court
Rani Bhubneshwari Kuar vs Commissioner Of Income-Tax, Bihar & ... on 7 August, 1940
Equivalent citations: [1940]8ITR550(PATNA), AIR 1941 PATNA 39
JUDGMENT
HARRIES, C. J. - This is a reference made by Commissioner of Income-tax. Bihar and Orissa, under section 66 (3), Indian Income-tax Act, 1922.
The learned Commissioner was called upon to state a case upon the following points. -
1. Whether the sum of Rs. 158 received by the assessee for settlement of lands is assessable to income-tax or is it agricultural income within the meaning of section 2, Indian Income-tax Act, 1922.
2. Whether the sum of Rs. 2,000 received by the assessee for certain lands and other sources connected therewith from the Mukarraridars or permanent lease-holders is assessable to income-tax or is it agricultural income within the meaning of section 2 of the Indian Income-tax Act, 1922 ?
The assessee in the case is the proprietaries of Tikari Raj in the Gaya District. She has been assessed for many years on (a) the annual rental of house properties, (b) the income from money-lending business and (c) the income from non-agricultural sources connected with zamindari, and the question to be considered in this case relate solely to the last source of income.
For the assessment year 1936-37 the Rani returned an income of Rs. 11,044-15-3 from this source of income, that is, non-agricultural income connected with zamindari, and filed statements in sport of it. The Income-tax Officer, after scrutinising the statements with the books of accounts, found several items of omission and required the assessee to file supplementary statements. In this supplementary statement an omission of Rs. 158 is shown as "Nazrana payable for settlement of lands," and it is this sum of Rs. 158 that gives rise to the first question. I shall deal more fully with the facts relating to this sum later.
The Income-tax Officer further found that the statements and supplementary statements were not satisfactory and further that a portion of the assessees zamindari was not in her won possession but was leased out to Mukarraridars ho paid rents to her. In the statements filed before the Income-tax Officer no portion of this rent was shown as part of her non-agricultural income. It appears that portions of the lands leased out consisted of non-agricultural lands, and eventually the Income-tax Officer came to the conclusion that out of the total mukarrari rent payable to the assessee a sum of Rs. 2,000 represented the proportion of rent due for the non-agricultural lands. He accordingly added this sum of Rs. 2,000 to the income of the assessee which he had already found to be taxable.
The assessee objected to the inclusion of these two sums of Rs. 158 and Rs. 2,000 before the Assistant Commissioner, and eventually the Commissioner was called upon to state a case for the opinion of this Court. The Commissioner refused to state a case, but this Court called upon him under section 66 (3), Indian Income-tax Act, to state a case on the two questions which I have already mentioned.
It will be convenient to deal with the question separately.
1. Whether the sum of Rs. 158 received by the assessee for the settlement of lands is assessable to income-tax or is it agricultural income within the meaning of Section 2, Indian Income-tax Act, 1922.
The case shows that this sum of Rs. 158 was made up of eleven small sums paid to the assessee as nazrana or salami for settlement of land of rate construction of houses in various place. The smallest amount is Rs. 4 and the largest is Rs. 37. It was contended by the assessee before the Income-tax authorities that these payments did not represent income but were capital receipts. It was urged that the payments were made to the assessee for the granting of there lands to these tenants. It was further urged that even if these sums could be regarded as income it was income from an agricultural source and, therefore, not taxable. The view of the income-tax authorities and the learned Commissioner is that these payments constitute income and income arising from a non-agricultural source and therefore, taxable.
From the case stated by the learned Commissioner, it is clear that he regards the matter as a pure question of law. In his view salami or nazrana should be regarded as rent and, therefore, revenue, and he relies upon the cases of Birendra Kishore Manikya v. Secretary of State for India, Meher Bano Khanum v. Secretary of State for India and Probhat Chandra Barua v. King Emperor. In the view of the Commissioner these cases establish that payments of salami or nazrana are in fact payments of rent and, therefore, constitute income, and such is derived from a non-agricultural source it is taxable income under the Income-tax Act.
In my judgment it is impossible to lay down any general rule that payments in the nature of salami or nazrana must be regarded as payments of rent and, therefore, income. The Income-tax authorities throughout in this case have assumed that such payments are payments of rent and have not considered any further facts. The Privy Council case relied upon by the learned Commissioner does not support his view, as that case did not deal with payments in the nature of salami or nazrana such as the payments in this case. The payments dealt with in the Privy Council case were very different from the payments in this case. The other cases, which were cases of Calcutta High Court, have not been followed in this Court. The most recent case of this Court dealing with this question is the case of the Commissioner of Income-tax v. Maharajadhiraj Kumar Visheshwar Singh. In that case it was laid down that where the premium or salami represents the whole or part of the price of the land it cannot be income. Income can notes a periodical monetary return coming in with some sort of regularity, or periodical monetary return coming in with some sort of regularity, or expected regularity, from defiant sources. The premium, or salami, which is paid once for all, and is not a recurring payment, hardly satisfies this test. The facts of the case were that the assessee gave a beamed lease of certain lands of building a goal house and platform for a rice mill and received a certain sum of money as salami. The kabuliyat provided that the lessee or his representatives were not to put forward any objection as to the payment of rent, and the assessee and his heirs had the right to realised and enhance the rent. The lessee could not sell the residential rights to any one without obtaining the permission of the assessee, and the assessees own challan described the lease as a mukarrari settlement. It was held that the lease was intended to be a permanent one, as no term had been fixed in the lease and provision had been made for the exercise of certain rights by the heirs of the lessor and the lessee. It was further held that the recipes of salami was not income and that it must be treated as a capital receipt of salami was not income and that it must be treated as a capital receipt and not as advance rent. Such being the case, it was not taxable. The principal judgment in the case was delivered by Fazl Ali, J., and Manohar Lall, J., who also delivered judgment expressly held that it would depend on the facts and circumstances of each case.
Though in the case of the Commissioner of Income-tax v. Maharajadhiraj Kumar Visheshwar Singh it was held that the salami payable was a capital receipt. The case does not go so far as to lay down that no salami can ever be a revenue receipt. The case disapproves of the Calcutta view that salami is payment of advance rent, but it makes it clear that salami may in certain cases amount not to a capital receipt but to a revenue receipt. Whether the payment of salami is a capital receipt or income must depend on the particular facts of the case. This case however, makes it clear that the Commissioners view that salami must as a matter of law be held to be income is erroneous.
As I have stated, all the Income-tax authorities appear to have taken the view that payment of salami or nazrana is in the nature of a payment of rent in advance, and that being so it is income. In come cases it might be payment of rent in advance, and in other cases it might well be a limp sum payment for the transfer of the lease-hold interest. In the present case the facts have never been ascertained. All that is disclosed in the record is the certain small payments were made for the settlement of certain lands in various places to various people. It is not known whether the lessees were to pay any rent, and if so what rent. It is not known whether these leases were for an indefinite period or for some fixed term. It is further not known what was the extent of the property which was made the subject-matter of the settlement. Until such facts and others are ascertained, it is impossible for any Court to come to the conclusion whether or not the nazrana or salami paid amounted to a payment of rent in advance or whether it amounted to a capital receipt. The question, as I have stated, is discussed in great detail by the learned Judges in the case of the Commissioner of Income-tax v. Maharajadhiraj Kumar Visheshwar Singh, and it is only after all the facts have been considered that a conclusion can be arrived at. The nature of these payments whether capital or income cannot be decided as a question of law but can only be decided after a full investigation of all the facts relating to the settlements for which these sums were payable. That being so, it is impossible to answer the first question upon the case as stated by the learned Commissioner. It will be necessary, therefore, to refer the case back to him under Section 66 (4), Income-tax Act, for the Commissioner to go further into the matter and ascertain all the facts relating to these settlements. It is then and then only that an opinion can be formed as to the nature of these payments.
It was also argued that even if these payments were in the nature of income they were not taxable, because they constituted income derived from agricultural sources. It appears to me that this point is not open to the assessee. It appears to me that this point is not open to the assessee. It was urged by Mr. Manuk that there was no finding that the settlements were settlements of land for a non-agricultural purpose; but in my view the Income-tax authorities throughout have so held. The Income-tax Officer mentions that nazrana is in the nature of rent, and he points out that it is only taxable if the nazrana is in respect of a holding which is not used for holdings used for non-agricultural purposes. He accordingly holds that they are taxable. It appears to me that the Income-tax Officer clearly found that the holdings which were settled were holdings unconnected with agriculture. The Assistant Commissioner, in dealing with this aspect of the case, says :
"The Income-tax officer was right in assessing the income from nazrana taken for settlement of lands and for construction of houses. This is clearly an income from non-agricultural sources connected with zamindari."
It appears to me that there is a clear finding that the lands settled were settled for purposes unconnected with agriculture and that the source of income if it is income, is non-agricultural. However, as it has to be decided whether these payments are income of capital receipts, the matter must be referred back to the Commissioner as I have indicated earlier.
The amount involved, namely the tax on Rs. 158 is trifling, and the costs of further investigation may well exceed that sum. The Commissioner may, if he thinks right, remit the tax on this sum of Rs. 158, and if he does so he should inform this Court, and no further hearing upon this question will be necessary. If he remits this tax on this sum for this particular year, it will in on way follow that he accepts the contention of the assessee that these payments must be in the nature of capital receipts. It will be open to the Income-tax authorities to contend otherwise when the question arises again.
2. Whether the sum of Rs. 2,000 received by the assessee for certain lands and other sources connected therewith from the Mukarraridars or permanent lease-holders is assessable to income-tax or is it agricultural income within the meaning of section 2, Indian Income-tax Act, 1922 ?
AS I have stated earlier, the assessee derived a large income from Mukarraridars and the Income-tax authorities held that a substantial part of the land leased to these various Mukarraridars was land used for non agricultural purposes. Of course, the rent payable by the various Mukarraridars was a lump sum payment and nothing was specifically apportioned to agricultural and non-agricultural land. As part of the land was non-agricultural, the Income-tax authorities were of opinion that part of the rent revived by the assessee was received in respect of non agricultural land and taxable. The Income-tax authorities found if impossible to ascertain that sum with certainty; but eventually, after considering all the surrounding circumstances, they came to the conclusion that out of the total mukkarrari rent received by the assessee a sum of Rs. 2,000 represented rent payable for non-agricultural land. They accordingly assessed the assessee upon this sum.
It has been strenuously argued by Mr. Manuk on behalf of the assessee that there was no evidence at all upon which the Income-tax authorities could hold that Rs. 2,000 represented income from non-agricultural sources. He urged that there was no evidence as to what portions of the lands given in mukarrari were non-agricultural and what were the rents payable in respect of the agricultural and non-agricultural lands. In short, he argued that fixing a sum of Rs. 2,000 as representing rents payable for non agricultural land was sheer guess-work. There was very little material before the income-tax authorities upon which they could arrive at this conclusion; but it appears to have been conceded in the earlier proceedings that this sum of Rs. 2000 was in no way excessive. It seems to have been admitted that non-agricultural land was comprised in these mukarrari leases, and no point appears to have been urged that the sum of Rs. 2,000 said to represent the proportion of rent payable in respect of these non agricultural land was excessive. The point now urged by Mr. Manuk does not arise on the question as framed. That question presupposes that the sum of Rs. 2,000 correctly represents the portion of rent which could be attributed to non-agricultural land. What the question as framed, raises, is, whether this sum, even if attributable to non-agricultural land, can be regarded as income arising from non-agricultural sources and, therefore, taxable. It is clear that the point urged by Mr. Manuk that there is no evidence to support this finding that Rs. 2,000 represents income from non agricultural sources is taken for the first time in this court and was never seriously agitated before the Income-tax authorities and the Commissioner. That being so, I am bound to hold that there is no force in this contention.
It was however, urged by Mr. Manuk that, even if this sum can be regarded as representing income from non-agricultural sources, yet it is not assessable. He has urged that the whole income payable by the Mukarraridar must be regarded as agricultural income and that the non agricultural income is taxed in the hands of the Mukarraridar. He collects agricultural and non-agricultural income and he is taxed on the non agricultural income which he receives. According to Mr. Manuk, to tax the assessee on the proportion of the total rent which represents rent from non agricultural land would be to tax the same income twice over. In my view there is no force whatsoever in this contention. It is clear that the land, which was made the subject-matter of these mukarrari leases, consisted in the main of agricultural lands but it was conceded that non agricultural lands of value were also included. A rent was agreed upon which is a rent payable for both types of land. The amount which the assessee received from the Mukarraridar she did not receive in respect of agricultural land only but she received it in respect of agricultural land and non-agricultural land. The amount which the assessee received from the Mukarraridar she did not receive in respect of agricultural land only but she received it in respect of agricultural land and non agricultural land. What she received in respect of non-agricultural land is not exempted from the payment of income-tax and such is clearly taxable. The Mukarraridar is, of course assessable on the non-agricultural income received by him; but it must be remembered that he is not assessable on the whole amount which he receives. He can only be assessed on what he receives less the amount which he has to pay to the landlord for the lease which gives him the right to receive the rents from the tenants. Once the matter is regarded from that point of view it is obvious that this non agricultural income is not being taxed twice. In my view the findings in this case make it clear that this sum of Rs. 2000 represented income arising not from agricultural land but from land and property unconnected with agricultural purposes. That being so, the sum is taxable and cannot be regarded as agricultural income. Different considerations might arise if at the date of the mukarrari the lands was purely agricultural and the rent fixed on that basis.
I would, therefore, answer the second question as follows : The sum of Rs. 2,000 received by the assessee is assessable to income-tax and is not agricultural income within the meaning of Section 2. Indian income-tax Act.
As I have stated earlier, this case must be referred back to the commissioner for further findings to enable the court to answer the first question submitted to it.
FAZI ALI, J. - I agree. In connection with the second question I should like to observe that there may be case in which mukarrari rent would not be taxable at all in view of section 2 of the Indian Income-tax Act. Such a case might arise where the property let out on mukarrari lease yields mainly agricultural income and the income from non-agricultural sources is merely nominal or negligible. Similarly the rent ought not to be taxed when it is shown that at the time of the lease, it was fixed where it is shown that at the time of the lease, it was fixed on the basis of agricultural income only and the non-agricultural income was not taken into account. I do not, however, wish to pursue the matter because, as my lord the chief justice has pointed out, in the present case the facts on which the Income-tax authorities have based their conclusion do not appear to have been challenged for some reason or other.