Srinivasa Chari, J.
1. This petition arises on a reference made by the Income-tax Appellate Tribunal (Bombay Bench) under Section 66(1) of the Indian Income-tax Act.
2. The assessee is one Rameswar Rao, the Proprietor of the Samasthan of Wanaparti, one of the big Jagirs in the Hyderabad State. This Jagir as other jagirs was abolished after the coming into force of the Hyderabad (Abolition of Jagirs) Regulation, 1358 F., and the administration of the Jagir was transferred to the Government on and from a particular date fixed by the Military Governor. The Jagir was made over to the Government by the Jagirdar and after the administration came into the hands of the Government, payments were made to the erstwhile Jagirdar in accordance with the provisions mentioned in Sections 10 to 14 of the aforesaid Regulation. In this case the petitioner received the following sums on the particular dates shown as against them :
25-1-1950 -- Rs. 49,285-12-0
10-4-1950 ... Es. 49,285-12-0
3-7-1050 ... Ra. 24.642-14-0
3.8-1950 ... RS. 24,642-14-0
The Income-tax Officer, who made the assessment for the years 1951-52 included in the assessee's total income, the aggregate amount of Rs. 1,47,857-4-0. The assessee contended before the Income-tax Officer that these payments were on account of maintenance allowance given to the Jagirdar and as such were not liable to tax. The Income-tax Officer overruled these objections whereupon the assessee preferred an appeal to the Appellate Assistant Commissioner who also dismissed the appeal,
Thereafter an appeal was taken to the Appellate Tribunal and before the Appellate Tribunal ft was contended that all these items were not liable to tax or at any rate in the alternative the allowances received after 1-4-1950 were not liable to tax. The Tribunal held that only the interim maintenance allowances payable under the Hyderabad (Abolition of Jagirs) Regulation, 1358 F., were liable to tax and further made a direction that the Income-tax Officer do find out as to what period these four payments related and opined that if any payment related to the period after or subsequent to 1-4-1950 that payment could not be taxed and would be treated as capital receipt.
As it was not definite and clear as to whether the payments received on 10-4-1950, 3-7-1950 and 3-8-1950 were in respect of the period subsequent to 1-4-1950 the Income-tax Officer was directed to institute an enquiry. The appellate Tribunal framed the following questions of law for determination by the High Court :
'1. Whether the interim maintenance allowances received by the assessee under the Hyderabad (Abolition of Jagirs) Regulation, 1358 Fasli are income and, therefore, liable to tax?
2. Whether the receipt of maintenance allowances is exempt under Section 4 (3) (vii) of the Indian Income-tax Act?'
The argument of the learned counsel appearing for the petitioner is that these amounts must be treated as capital receipts for the reason that the right of the petitioner in the jagir was extinguished on 15-9-1949 when the Samasthan was taken over by the Government under the provisions of the Regulation and these amounts must be deemed to have been paid to the erstwhile Jagirdar in substitution of his right or interest in the jagir; these amounts the learned counsel contended could only be regarded as solatium paid for the deprivation of the jagir of the petitioner.
It was urged that the property vested in Government and amounts paid initially as interim allowances and laterly the total compensation payable to the Jagirdar were in substitution of the rights that he lost. It was also argued that if the commutation amount could not be taxed then the interim allowance also, which partakes of the same nature, could not be taxed.
3. The question whether a particular receipt should be treated as a 'capital receipt or 'revenue receipt' has frequently come up for consideration before courts. Various principles have been laid down as affording a guidance for the determination of this question. But it has been acknowledged that it is not possible to lay down any single test or any single criterion for the determination of the question and it must necessarily depend on the facts of the particular case and the various decisions can only indicate what matters have to be taken into consideration in reaching a decision.
Under the Income-tax Act anything which can properly be described as income is taxable unless expressly exempted. This was the observation of the Privy Council in the case of Gopal Saran Narain Singh v. Commissioner of Income-tax B. and O. . To decide as to whether a particular receipt is income or not the test would be to find out its character in the hands of the recipient. Applying this test we would have to consider as to what the nature of these receipts is; for arriving at the correct conclusion it would be necessary to understand the nature and scope of the Regulation under which the petitioner got these amounts.
The Hyderabad (Abolition of Jagirs) Regulation, as the preamble would indicate, was for the purpose of abolishing Jagirs. The Regulation also makes provision for payment to the jagirdars and hissadars (sharers), of certain interim allowances pending the determination of 'commutation.' It is, therefore, clear that this Regulation envisages interim payments such as maintenance allowances pending final determination of the communication amount. After the jagir has been taken over by the Government, the procedure to he followed as regards realisations from the jagir has been set out in Sections 8 to 14 of the Regulation. Section 8 prescribes the method as to how and in what manner and what percentage of the gross revenue should be adjusted on account of administration expenses. Section 10 speaks of the distribution of the balance that may remain after appropria:ion by the Government for administration expenses, among the jagirdars and hissedars (sharers). Section 12 speaks of the maintenance allowances payable to any person belonging io the family of the jagirdar and it says that such in maintenance allowanees shall be debited to the share of the person who is liable to incur the maintenance expenses. An account of such sums is expected to be maintained by the Jagir Administra-tor who would be in charge of this. This is mentioned in Section 13. Section 14 says that until such time as the terms for the commutation of jagirs are determined the amounts payable to the jagirdars and his-sedars (sharers) shall be deemed to be interim allowances.
The scheme of this legislation and i;.s framework would show that af or a jagir is taken over by the Government it would proceed to determine the amount of commutation payable in respect of each jagir and until such lime as the Government is in a position to fix the commutation amount, the Jagirdar, who was in receipt of income from the jagir, should be paid the income that used to be derived from the jagir less the expenses of management. No doubt It is termed as interim allowance. The object is clear that until the commutation amount is determined the income derived from the jagir should be made over to the jagirdar less the expenses.
That it is the income that is made over to the jagirdar is also clear from the words used in the relevant sections. Section 10 speaks of the distribution between the jagirdars and the hissedars in proportion to the share to which they would be entitled under the existing law in the income of the jagir. Section 11 also, which deals with jagirs other than paigahs, speaks of the net income being distributed while Sub-section (2) of the same section dealing with paigahs (particular tenure of the jagir) also speaks of the net income.
4. It would be useful to refer in this connection to the Hyderabad Jagirs (Commutation) Regulation No. 25 of 1359F., an allied piece of legislation connected with the payments of commutation amounts to jagirdars, This was passed on 25-1-1950 With regard to the distribution of the commutation amount Section 6 of this Regulation says that the commutation amount, which might be fixed in accordance with the calculation mentioned in Section 3 of the Regulation shall be distributable between the jagirdars and hissedars in the like proportions as the net income was distributable under Section 11 of the Abolition Regulation.
It further says that if such payment was subject to any dcduction under Section 7 of the Abolition Regulation, the share of the commutation amount also shall be subject to such deduction. This section would, therefore, make il abundantly clear that what was being paid prior to the fixation of the commutation amount represented the income derived from the jagir which was made over to the jagirdar pending the final ascertainment of the commutation amount. There can, therefore, be no doubt that if the amounts received by him prior to the fixation cf the commu-ta ion amount, they partake of the nature of income. This is made further clear by the words used in Section 3 of the Commutation Regulation.
It is called the commutation sum. It would be evident ihat throughout, in both pieces of legislation, viz., the Jagir Abolition Regulation and the Com- mutation Regulation, the distinction has been kept up between 'income' and 'commutation sum'. The purpose is obvious. Commutation could not be determined till a particular date -- in the present case 1-4-1950 -- and until that tune the jagirdar could not be deprived of the benefit that he was deriving from the Jagir being in enjoyment of the jagir and as Such the Government, which was managing the estate made over the income to him after adjusting the amounts spen for management of the estate.
5. Learned counsel lor the petitioner argued that the amounts that were paid to his client were only in part payment of the final amount of the commutation that he was to receive and if the commutation amount is to be regarded as compensation for his being deprived of the jagir, it must necessarily be treated as capital receipt. In this connection he referred to the leading English case of Glenboig Union Fire Clay Co. Ltd. v. Commissioners of Inland Revenue, (1928) 12 Tax Cas 427. This oft-cited case is an auhority for the proposition that where sum is received as solatium tor compulsory cessation of business it must be regarded as capital receipt. Likewise is the decision of the Privy Council in yet another leading case viz., Commissioner of Income-tax Bengal v. Shaw Wallace and Co. . In that case the amount that was paid to the company was for the closing in the business altogether. Under those circumstances the Privy Council observed that where the amount received had nothing to do with the continuance of the business but was one for the compulsory cessation of the business it would be tieated as capital receipt.
6. This matter has been discussed by this Bench in R. C. No. 4 of 1958 decided on 14-2-1958 and since reported in Venkata Reddi v. Commissioner of Income Tax, Madras, 1958 AWR 616: AIR 1958 A P 736. Having regard to what we have discussed above, the cases relied upon by the learned counsel for the petitioner can have no application to the facts of this case. If as we have stated above, the amounts should be treated as income made over to the petitioner, then no question of their being regarded as solatium for deprivation cf the property can arise.
We might also dispose of the other cases relied upon by the teamed Counsel for the petitioner. Commissioner cf Income Tax M. P. v. N. J. Naldu was a case where the lessee of a premises of a theatre exhibiting cinemas was deprived of the premises by the acquisition of the premises by the Nagpur Improvement Trust and he was paid a certain sum in cash by way of compensation. It must be observed that in this case the owner was given separa.e compensation for deprivation of the premises and this lessee was paid some amount for the termination of the lease. Under those circumstances it was held that that could not be regarded as income liable to tax. This case cannot help the petitioner.
7. We do not think that the case decided by the Bombay High Court in Commissioner of Income Tax and Excess Profits Tax, Bombay City v. Shamsher Printing Works. : 23ITR363(Bom) could help tbe petitioner either. Chagla, C. J., and Tendolkar J., relying upon both the English cases referred to earlier stated that where a party was prevented from carrying on business there was a sterlisation of the capital assets and, therefore, on the dictum in the aforesaid English case and the Privy Council case, it should be treated as capital receipt and not as income.
8. Yet aonther argument was advanced that the case came under Section 4(3)(vii) of the Indian Income Tax Act and it was urged that it was a casual and non-recurring receipt and, therefore, it was not liable to tax. . Learned counsel went to the extent of saying that it should be treated as a windfall. On the face of it this argument is wholly fall-acious. If we are to examine tbe provisions of the Hyderabad (Jagir Abolition) Regulation -- for, this amount is paid under the above Regulation alone,--we find that Section 21(2) of the Regulation while dealing with judicial proceedings in connection with the erstwhile jagirs says that all claims relating to jagir (meaning erstwhile jagirs) or to any share in the income thereof ..... be filed in, and decided by, the appropriate civil court. It speaks of a share in the income. This also supports the proposition that the Regulation envisages the distribution of the income also to the jagirdar.
If it were merely a bounty or an accidental or fortuitous receipt, how could the right to that amount be enforced in a Court of law? It therefore follows that this receipt cannot be said to be an accidental or casual receipt. In this regard we may refer to a decision of the Madras High Court in the Commissioner of Income Tax, Madras v. V. P. Rao, : 18ITR825(Mad) wherein a retired Judge of the Madras High Court agreed to serve as an arbitrator with regard to a dispute bet-ween two District Boards and the Government agreed to pay him for his service a lump sum fee of Rs. 3,000/-. When the Income Tax Department sought to tax him on this income, there was a claim that it was exempt from assessment under Section 4(3) (vii) of the Indian Income-tax Act and the matter came up on reference before the High Court.
Dealing with this contention the learned Judges observed that that section could be applied to receipts which are accidental or fortuitous without there being a contract. The learned Judges stated that it must be in the nature of an unforeseen windfall. The receipt must have been received without any stipulation or contract. No such thing could be said of the amount that was received by the petitioner before us that it was an unexpected receipt. It was an amount which he was entitled to by virtue of the Statute.
9. Learned counsel for the petitioner relied upon a decision of the erstwhile Hyderabad High Court in Sarvar Lal v. State of Hyderabad, AIR 1954 Hyd 227. We must say that there was no question of the distinction between income and commutation amount in that case. The learned Judges merely said that the right to recover jagir dues was lost on 15-9-1949. Learned counsel sought to rely upon the observation to say that it supported his case that his right in the jagir was lost on 15-9-1949 and these amounts should be regarded as, compensation for the loss of his right in the jagir. We do not think that that decision could help the petitioner for the reason that the question before us is as to whether the amounts received could be treated as income.
10. It was submitted on behalf of the Department that all the payments now under question should be regarded as income and as such, taxable. This argument cannot be accepted for the obvious reason that if any of such payments has been made towards the commutation payable to the petitioner, and since it is to go in partial discharge of the commutation amount it would be a capital receipt and as such not liable to be taxed.
(11) The questions referred by the Tribunal are answered as follows:
1. The interim maintenance allowances received by the assessee, which do not form part of the com-mulalion amount, are income and liable to tax.
2. The aforesaid interim allowances are not exempt under Section 4(3)(vii) of the Indian Income-tar Act. .
3. Payments subsequent to 1-4-50 towards thecommutation amount and in partial discharge therefore would not be liable to taxation.Answered accordingly. The assessee will pay thecosts of the Income Tax Department. Advocate's feeRs. 100/-.