1. This is rather an unusual reference, in that the assessee is contending that he is liable to pay a larger amount and the taxing department equally emphatically insists that the liability of the applicant is a smaller liability. Of course, such a position would be inconceivable if the dispute was restricted to the payment of tax. No assessee ever contends that he is liable to pay more income-tax and no taxing department ever says that the assessee is liable to pay less tax. But this controversy arises because the liability is different in nature. The liability which the assessee wants to take up upon himself is the liability to pay to the State Government and the liability which the department wishes to impose upon the assessee is a liability to the Central Government in respect of income-tax.
2. Now, the question arises this way. The assessee is the Thakore Saheb of Shivrajpur and the assessment years are 1952-53 and 1953-54. The Thakore Saheb had leased out certain of his lands to the Shivrajpur Syndicate Ltd. Under the lease, the syndicate was liable to pay rent and royalty and it was also liable to pay and discharge all taxes, rates, assessments and impositions whatsoever being in the nature of public demands which shall from time to time be charged, assessed or imposed upon or in respect of the mines or works of the lessee or any part thereof by authority of the Government of India, or the Government of Bombay or otherwise. Therefore, the lessee was liable to pay rents, taxes and rates as the lessor was in law liable to discharge. It is clear, in our opinion, that before the lessee can be made liable to pay any amount under this clause of the lease, the condition precedent is the liability of the lessor to pay any tax or rate. To put it in a different language, under this clause the lessor became entitled to collect from the lessee the amount of taxes or rates which he in law was liable to pay.
3. Now, the lessee company paid to the assessee two sums of Rs. 16,309 and Rs. 39,515 in these two assessment years respectively in respect of local cess, and the taxing department sought to bring these amounts to tax. The contention of the assessee was that these amounts represented local cess which he was liable to pay to the State Government and therefore these sums did not constitute his income. It is important to note that he admitted his liability in respect of these amounts. It is true that there is a finding of fact by the Tribunal that no demand was made by the district local board in respect of these amounts, nor is there any evidence to show that in fact the assessee has discharged any liability in respect of local cess amounting to these two sums. But whether the district local board made a demand or not, whether the assessee paid any amount for local cess or not, we have a clear admission on the part of the assessee on the record that in law he is liable to pay these amounts in respect of local cess to the district local board. It seems to us clear that, if there is a legal liability imposed upon the assessee to pay to the district local board in respect of local cess these two amounts, then these two amounts cannot and do not represent income. If, however, the liability of the assessee is in respect of only part of this amount, then to the extent of the surplus, even though the lessee might have paid it for payment of tax or cess, the excess would be income in the hands of the assessee. We are not concerned with the relationship between the lessor and the lessee, nor are we interested to know how and why the lessee came to pay these amounts. If in respect of the whole of these two amounts there is a liability upon the assessee to pay to the district local board the local cess, then clearly the assessee is merely the collecting agency for the payment of tax and the tax collected by him for being paid in law to the district local board cannot constitute his income. If, on the other hand, what the assessee has received is not wholly or in part tax collected to be paid to the district local board, then to that extent what he has received is income. Here again, we are not concerned with the action of the district local board in collecting or not collecting the tax and in demanding or not demanding the tax. What we have to find is : What is the nature of the sums received by the assessee Do they represent amounts in respect of which there is a legal liability to pay as tax or cess, or do they represent something which is received by the assessee without any such legal liability Now, with respect to the Tribunal we do not agree with the view taken by it that the liability of the assessee on a true construction of the lease was to pay an amount equivalent to the cess. The language used by the contracting parties in the lease is clear and unequivocal. The liability of the lessee is to pay and discharge all taxes, rates, assessments and impositions whatsoever in the nature of public demands which shall from time to time be charged, assessed or imposed upon or in respect of the mines or works of the lessee. Therefore, as we pointed out, there must be a charge or an assessment upon the lessor in respect of his lands or mines and some demand being made by a public authority before the lessee can become liable to pay anything to the lessor under this clause.
4. Now, the question that really the Tribunal should have considered and which it has failed to consider is what is the liability of the assessee in law with regard to the payment of the cess and turning to the relevant provisions of the law, which is the Bombay Local Boards Act, 1923, we have first section 75 which constitutes the local fund of the district local board, and the item with which we are concerned is clause (c) - the net proceeds (after deducting the expenses of assessment and collection) of the cesses in the district authorised by sections 93 and 95. When we turn to section 93, it imposes an obligation upon the State Government to levy a cess at the rate of 3 annas on every rupee of every sum payable to the State Government as ordinary land revenue. We are not concerned with the other part of this sub-section. Therefore, the scheme of this section is that the Government in order to finance the district local board, charges over and above the land revenue a further sum of 3 annas on every rupee from every person liable to pay land revenue and that additional sum is paid to the district local board. Now, we have cases where there is alienation of land revenue; where the Government does not recover the whole of the land revenue but has alienated either the whole or part of it. That case is dealt with in clause (b) - every sum which would have been assessable on any land as land revenue had there been no alienation of land revenue. So for the purpose of the cess the alienation has to be ignored and Government has a right to levy cess on the original land revenue payable ignoring the alienation. Then we have clause (c) - every sum which would have been assessable on any land as land revenue had the land not been talukdari land. This deals with talukdari land and again the intention is to charge the cess on the basis of assessment again ignoring the fact of any connection given to the talukdar in respect of his talukdari land. Then section 94 lays down rules for assessment and it dealt with the case of alienated villages. We are told that the Tribunal will have to find as a fact that the lands are alienated villages and in the cases of alienated lands, we are concerned with villages under clause (a) - if the village has been surveyed and assessed in the manner laid down in the said Code and rules made thereunder, the cess shall be fixed on the total amount of assessment of the village as fixed under the said Code or rules made thereunder. The villages here are admittedly surveyed villages and the question is what is the total amount of assessment which these villages have to pay.
5. Mr. Joshi's contention is and he is supported by what appears on the record, that the assessee pays a certain amount to the Government which is known as Jama and he pays the cess only on the basis of that Jama. In other words, he treats the Jama as the assessment of the village fixed under section 94(1) (a). Again, this is something which the Tribunal will have to ascertain whether the amount of the assessment of the village is the same as the Jama paid by the assessee, or whether the amount of the assessment is different from the Jama paid by the assessee. In the latter case, whatever may be the Jama that the assessee may pay, his liability to pay the cess would be on the basis of the actual assessment of the village. If, on the other hand, the assessment and the Jama is the same, then the cess would be on the basis of the Jama. Section 96 provides that the cess described in section 94 shall be levied, so far as may be, in the same manner, and under the same provisions of law, as the land revenue. In this case the land revenue is collected by the assessee and part of it or may be the whole of it as Jama is paid to the Government. Therefore, with regard to the cess it would also be for the assessee to collect the cess and pay it to the Government. Then we have section 104 which dealt with collection of taxes and the errors into which the Tribunal seems to have fallen is to confuse the question of collection with the question of levy and assessment. Even though the assessee may be assessed to tax and even though the Government may have levied the tax, the district local board may not have proceeded to collect the tax under Chapter VIII of the Act. But the failure on the part of the district local board to collect tax will in no way affect either the fact of the assessee having been assessed to tax or his liability to pay the tax.
6. Now, we are inclined to dispose of this reference by answering the question submitted to us as follows : The amounts in question or part of them are income to the extent that they exceed the amount in respect of which the assessee is liable to pay cess under the law. But Mr. Palkhivala has drawn our attention to a decision of the Supreme Court in Rajkumar Mills Ltd. v. Commissioner of Income-tax, and he has pointed out that it would be safe and better course for us to call for an additional statement of the case and on the basis of that statement to finally dispose of the question ourselves. Mr. Palkhivala says that if we send down the matter answering the question in this way, giving the Tribunal the directions that we have given, it would really be that the Tribunal would be ultimately deciding the question and not ourselves.
7. In view of this, we direct the Tribunal to submit to us a supplemental statement of the case in the light of this judgment.
8. Question No. 2 will stand over till the supplemental case has been received.
SUPPLEMENTARY STATEMENT OF CASE
The High Court has directed by its order I. T. Reference No. 85 of 1957, dated 22nd September, 1958, to submit a supplementary statement of the case on the following points :
'(1) Whether the lands we are concerned with are alienated villages ?'
(2) What is total amount of assessment which these villages have to pay
(3) Whether the amount of the assessment of the village is the same as the Jama paid by the assessee, or whether the amount of the assessment is different from the Jama paid by the assessee
(4) What is the liability of the assessee in law with regard to the payment of the cess ?'
2. The material facts bearing bearing upon each of these questions are set out hereunder :
Q. 1. - The assessee says that though the lands were originally alienated villages, they were not so in the relevant years of account, which are the years ending July 31, 1951, and July 31, 1952, respectively; the said lands ceased to be alienated villages as from August 15, 1950, as a result of the promulgation of the Bombay Taluqdari Tenure Abolition Act, 1949 (LXII of 1949). This Act came into force on August 15, 1950; therefore the concerned lands were only alienated villages from the 1st of August, 1950 to the 15th of August, 1950, and thereafter they ceased to be alienated villages under the aforesaid Act. In our opinion, though the village has ceased to be an alienated village under the Act, the incident of the said tenure of the Act, having regard to section 5(2) of the Taluqdari Abolition Act, remains and the Taluqdar has not to pay land revenue under section 5(1) but has to pay Jama under section 5(2) till the expiry of the settlement in 1962.
Q. 2 & 3. - The required information is contained in the letter dated July 11, 1959, written by the Additional Mamlatdar, Halol, annexed hereto as annexure 'D' and forming part of the case. According to that letter :
'1. The lands in question are Talukdari (a short of alienation) lands and are assessed.
2. The assessment of the village Shivrajpur is Rs. 930.03 while the Thakore Saheb, i.e., the Talukdar, pays Jama of Rs. 504.45.
As to payment of L. F. Cess, referring to the village record it transpires that the Thakore Saheb pays L. F. Cess of Rs. 270.45 over the total assessment of villages Shivrajpur and Bhat as under :
Shivrajpur Rs. 930.03Bhat Rs. 292.89------------Rs. 1,222.92' The aforesaid figures relate to the assessment year 1960-61 (accounting year August 1, 1958, to July 31, 1959). The assessment is a fixed one, year after year and hence the figures are the same for all the years.
Q. 4. - As regards the liability in law, according to the assessee he has to be assessed to land revenue after the 15th August, 1950, in accordance with the provisions of the Bombay Taluqdari Tenure Abolition Act (LXII of 1949). The basis therefore would be the assessment of the village and not the Jama payable, but for the provisions of section 5(2) of the said Act. The relevant portion of section 5(2) of the said Act is as under :
'Nothing in sub-section (1) shall be deemed to affect :.... (b) the right of any person to pay Jama only under any agreement or settlement recognised under section 23 or under a declaration made under section 22 of the Talukdars' Act so long as such agreement, settlement or declaration remains in force under the provisions of this Act.'
The agreement admittedly was in force during the relevant years of account and the assessee therefore had only to pay the Jama. The agreement would be abrogated after April 6, 1962 only.
3. If the liability of the assessee has only to be determined by reference to the Bombay Local Boards Act, 1923, then section 94(1) clearly lays down :
'(a) if the village has been surveyed and assessed in the manner laid down in the said code and the rules made thereunder, the cess shall be fixed on the total amount of assessment of the village as fixed under the said code or the rules made thereunder.'
The difference in that case between the cess realised and the liability of the assessee would be as under :
Cess realised Rs. 16,309.00Cess payable with reference to theassessment of the village. Rs. 270.45 nP.--------------Excess Rs. 16,038.45--------------
4. The assessee however has realised the cess on the basis of 3 annas in a rupee on the amount of royalty and he supports it by the provisions contained in the Manual of Revenue Accounts of the Villages, Talukas and Districts of the Bombay State, 5th edition, page 41. The relevant portion thereof is as follows :
'3. The items of fluctuation revenue are of two kinds -
(i) Carrying Local Fund.
(ii) Free of Local Fund.
(i) Carrying Local Fund.
(1) & (2).............
(2A) Rent and Royalties under Mining Leases (usually collected at T), Rs. 8,513.03.'
5. Mr. Joshi, the learned counsel for the Revenue, contended before us that the . for the half year ending June 30, 1935. These are annexed hereto as annexures 'E' and 'F' respectively, and form part of the case.
6. The preface to the first edition of the said Manual, which is dated July 1870, is as under :
'The following Manual has been prepared in accordance with Government Resolution, Financial Department, No. 1454 of November 6, 1869, which sanctioned on the recommendation of a Committee which had assembled at Poona in the previous September, the adoption of certain forms which I had suggested in lieu of the Taluka Ledgers and numerous disjointed Revenue Accounts kept at the Hazur.....
The designation 'Revenue Accounts' is perhaps not strictly accurate, but will sufficiently indicate the scope of this work, which is intended to embrace all accounts which are kept by the Revenue Department.......... July 1870. T. C. HOPE.'
7. In our opinion, the said Manual has not the force of law, but it does constitute the basis of the practice followed by the Revenue Departments of the Government of Bombay in such matters to the extent to which it deals with it.
8. Both parties agree that facts have been correctly stated and no material facts are omitted.
N. A. Palkhivala with Hathi for the assessee.
G. N. Joshi with R. J. Joshi for the Commissioner.