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Kunwar Trivikram NaraIn Singh Vs. Commissioner of Income-tax, U.P., Lucknow - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberCivil Misc. Ref. No. 307 of 1957
Judge
Reported inAIR1960All264; [1961]41ITR150(All)
ActsIncome Tax Act, 1922 - Sections 2(1) and 4(3)
AppellantKunwar Trivikram NaraIn Singh
RespondentCommissioner of Income-tax, U.P., Lucknow
Appellant AdvocateSurendra Narain Singh, Adv.
Respondent AdvocateGopal Behari, Adv.
Excerpt:
direct taxation - meaning of 'agricultural income' - sections 2 (1) (a) and 4 (3) (viii) of income-tax act, 1922 - 'agricultural income' to mean income derived from agricultural land - may be in the form of rent or revenue - settlement made by government granting receipts from a tract of land - not in nature of grant - income being received from agricultural land - hence is 'agricultural income' for tax purpose. - - for the purpose of stating the facts and circumstances, therefore, we are referring to the statement of the case as well as the various documents which form, part of the statement of the case. 5. in this reference before us no further material has been provided on the basis of which it can be held that the tribunal acted incorrectly or against law in basing their decision on.....v. bhargava, j. 1. the question referred by the income-tax appellate tribunal, allahabad bench, for our opinion under section 66 (1) of the income-tax act is :'whether on a true interpretation of clause (viii) of sub-section (3) of section 4 of the indian income-tax act the sum of rs. 36,396/- received by the asses-see as an allowance during the previous year of assessment year 1949-50 is revenue income liable to tax under the indian income-tax act, 1922,'the facts and circumstances under which this question has arisen and has been referred to this court have been mentioned by the tribunal in the statement of the case to which were attached as annexure a number of other documents. for the purpose of stating the facts and circumstances, therefore, we are referring to the statement of the.....
Judgment:

V. Bhargava, J.

1. The question referred by the Income-tax Appellate Tribunal, Allahabad Bench, for our opinion under Section 66 (1) of the Income-tax Act is :

'Whether on a true interpretation of Clause (viii) of Sub-section (3) of Section 4 of the Indian Income-tax Act the sum of Rs. 36,396/- received by the asses-see as an allowance during the previous year of assessment year 1949-50 is revenue income liable to tax under the Indian Income-tax Act, 1922,'

The facts and circumstances under which this question has arisen and has been referred to this Court have been mentioned by the Tribunal in the statement of the case to which were attached as annexure a number of other documents. For the purpose of stating the facts and circumstances, therefore, we are referring to the statement of the case as well as the various documents which form, part of the statement of the case.

2. The assessee in this case is a Hindu undivided family whose karta is Sri Trivikram Narain Singh He is a descendant of one Sri Babu Ausan Singh, who was the original founder and owner of what is known as the Ausanganj Estate in the district off Varanasi. It was some time in the year 1775 that the then Province of Banaras was ceded to the British Government by Nawab Asfuddaula of Audh whereafter the British Government granted a Sanad to Raja Chet Singh conferring on him the rights of a Raja. Raja Chet Singh in turn gave the Jagir of Pargana Seyedpore and Bhittary in perpetuity to Babu Ausan Singh. In the year 1798, there were some disputes between Babu Ausan Singh and the zamindars of this Pargana with the result that the matter was referred by the Collector of Banaras to the Board of Revenue in Calcutta.

During the pendency of the disputes, Babu Ausan Singh was succeeded by Babu Sheo Narain Singh who in turn was succeeded by Babu Har Narain Singh. Various proposals were made in intervening stages for settling the disputes but the ultimate settlement came in the year 1837. The final notification by which the terms of the settlement) were notified does not appear to have been produced before the Income-tax Appellate Tribunal though there is a mention that there was such a notification dated 19-10-1837 in the copies of the orders of the Commissioner of Agricultural Income-tax and the Agricultural Income-tax Board which have been annexed to the statement of the case by the Tribunal.

The Tribunal, however, relied on a report of the Sadar Board of Revenue contained in a letter sent by the Secretary of the Board of Revenue to the officiating Secretary to the Lt. Governor dated 7-7-1837 which is annexure 1 to the statement of the case. The appellate order of the Tribunal shows that the terms which were suggested in this letter were accepted by the Tribunal as indicating the final terms on the basis of which Babu Har Narain Singh and his successors-in-perpetuity were given the right by virtue of which this amount now in question in the reference was actually received by the present assessee. Paragraph 3 of the letter, which gives the terms of settlement between the Government and Babu Har Narain Singh, is the one paragraph that really needs interpretation by us, and is consequently reproduced below:

'3. The settlement of the Pargana connected with 1241 F from which time the Board proposes that the Muqarraridar should get one-fourth of the net collections after deducting from the whale gross-collections the cost of Tahsil Establishment which will give him an income of Rs. 36-322-8-0 as in the margin, on which principle the immediate accounts should be adjusted.

Yearly Jamma 1.51.800/-

Deduct Tahsil Establishment 6,510/-

4

_1.45.290/__

36.322/8/-'

3. The Tribunal in its order also relied on therecontents of paragraph 6 of this letter which is asfollows :

'The Board also request that a Sanad be issuedunder the authority of the Lt. Governor conferringthe pension of Rs. 36,322-8-0 on Babu Har Narain Singh and his heirs in perpetuity.'

4. After reproducing these parts of the letter, the Tribunal in their appellate order proceeded to interpret this settlement and expressed the opinion that this letter left no room for doubt that what was given to Babu Har Narain Singh was a mere pension and the quantum of the pension was calculated an relation to the rent collection. Having given this interpretation the Tribunal then proceeded to examine whether the sum that was being received under this letter by Babu Har Narain Singh and his successors was agricultural income exempt from income-tax or income liable to tax under the Indian Income-tax Act. The Tribunal finally held that this income being received by Babu Har Narain Singh and his successors was not agricultural income and was consequently liable to Income-tax. It is in thesecircumstances that the question mentioned above has been referred for our opinion at the instance of the assessee.

5. In this reference before us no further material has been provided on the basis of which it can be held that the Tribunal acted incorrectly or against law in basing their decision on the terms of the settlement contained in the letter dated 7-7-1837. In fact, the assessee as well as the Income-tax department have proceeded on the basis that the termscontained in that letter are the final terms which have been enforced between the parties, exactly as they had done before the Tribunal. We have alsomentioned earlier that the Agricultural Income-tax authorities took notice of a subsequent notification dated 19-10-1837 which from the description given in their orders appears to have merely given effect to the terms of settlement contained in the letter of 7-7-1837. In this view also, the terms of settlement between the Government and the assessee have to foe gathered from the language of the letter of 7-7-1837.

6. Paragraph 6 of the letter reproduced above mentions that the Board had made a request that aSanad may be issued under the authority of the Lt. Governor conferring a pension of Rs. 36,322-8-0 on Babu Har Narain Singh and his heirs in perpetuity. There is, however no material on the record of this reference to show that any such Sanad was in fact, subsequently, issued. Whether this part of the recommendation for issue of a Sanad made by the Board of Revenue to the Lt. Governor was accept-ed and acted upon or not, is not known. The terms of the settlement have, therefore, to be gathered from the language of paragraph 3 rather than from the language of paragraph 6.

We have mentioned this as, during the course of arguments before us, learned counsel for the department relied on the use of the word 'pension' in paragraph 6 in order to urge that what Babu Har Narain Singh and his successors in perpetuity were granted was a mere pension and not any grant of money or land revenue. There is no doubt that, after this settlement, Babu Har Narain Singh and his successors ceased to have any further right or interest in the land in Pargana Seyedpore and Bhittary in respect of which this settlement was arrived at. At one stage, they were Jagirdars of that land. Subsequent correspondence shows that their right was sought to be converted by the State into the right of a Tahsildar but at the final settlement in July 1837 no such right in the land in the Pargana remained vested in Babu Har Narain Singh and his successors.

This fact was also noticed by this Court whendeciding a writ petition filed by the present assesseeclaiming payment from the Government under thesettlement for one year. For convenience, we may refer to that judgment of this Court by citing the decision as reported in Tri Vikram Narain Singh v. Govt. of State of U. P. : AIR1956All564 . In that case it was held that, as a result of the settlement in the year 1837, Babu Har Narain Singh and his successors were divested of all interest in the land in Pargana Seyedpore and Bhittary, and that is also our interpretation in the present case. The right in land having ceased, a new right was created in favour of Babu Har Narain Singh and his successors which was described in the letter of 7-7-1837 in para 3 as cited above.

The consequence is that it is no longer open to the assessee to contend that the income that he is receiving should be held to be agricultural income on the basis of the definition contained in Sub-clause (b) of Section 2 (1) of the Income-tax Act, Sub-clause (b) of Section 2 (1) of the Income-tax Act can only be relied upon by an assessee who has a right or interest in the land itself from which the income is derived. This is, however, immaterial as in the present case the assessee has relied on Sub-clause (a) of Section 2 (1) of the Income-tax Act under which all that is required is that the income must be rent or revenue derived from land, which is used for agricultural purposes and is either assessed to land revenue in the taxable territories or subject to a local rate assessed and collected by officers of the Government as such. This Sub-clause (a) nowhere lays down the requirement that the land from which the rent or revenue is derived should be owned by the person who derives the income or that the person should have any existing right or interest in land.

All that is required is that there should be some rent or revenue derived from land, which is used for agricultural purposes and is assessed to land revenue or is subject to a local rate, and the person ~ claiming that his income is agricultural income should be receiving that rent or revenue. It would thus appear that under Sub-clause (a) of Section 2 (1) of the Income-tax Act a person can claim his income to be agricultural income if it is comprised of rent or revenue derived from land, which is used for agricultural purposes and is either assessed to land revenue or to local rate, irrespective of the fact whether he himself has any right or interest in the land or not. It is this provision of law that has to be applied to the right under which the present assessee has received the sum of Rs. 36,396/- in question.

7. It is to be noticed that, under the letter of 7-7-1837, after Babu Har Narain Singh and his successors were divested of all rights in the land, the proposal which was made by the Board of Revenue and which was given effect to was that Babu Har Narain Singh was to receive one-fourth of the net collections after deducting from the gross collections the cost of tahsildari establishment which according to that letter would give him an income of of Rs. 36,322-8-0. This language used in the letter makes it manifest that the right which was conferred on Babu Har Narain Singh and his successors was a right to a share of one-fourth in the net land revenue collections after deducting costs of Tahsil establishment.

It appears that, for the one particular year in question when this settlement was arrived at. the net collections after deducting costs of Tahsil establishment, it was envisaged, would amount to Rs. 36,322-8-0. This was, therefore, a case where, according to the terms of settlement, a right was given to Babu Har Narain Singh and his successors to a one-fourth share in the net land revenue collected and not a case where a right to any specified sum of money was granted. It was not even a case where a right was created to receive a sum of moneycalculated on the basis of land revenue or rent collected. The right mentioned is a right to a one-fourth share of the collections themselves, the collections being of land revenue. This fact is made all the more manifest by the subsequent enforcement of the terms between the parties as indicated in some of the annexures attached to the statement of the case.

In the appellate order or in the statement of the case, the Tribunal made no mention at all as to whether after this settlement Babu Har Narain Singh and his successors were receiving a fixed amount of Rs. 36,322-8-0 every year or whether the amount varied from year to year in accordance with the net collections of revenue each year. The copies of the orders of the Agricultural Income-tax Commissioner and the Board of Agricultural Income-tax, however, show that the amount which has been received by the successors of Babu Har Narain Singh under this settlement has varied from year to year.

In the order of the Agricultural Income-tax Board, it is mentioned that for the three agricultural years 1356 to 1358 Fasli the income return of theassesses in reject of what was received by him under this settlement was Rs. 37,465-10-0, Rs. 14,761-14-11 and Rs. 37,465-10-0 respectively. The fact that the income which Babu Har Narain Singh and his successors have been receiving under this settlement has not remained fixed at the amount of Rs. 86,322-8-0 also appears from the question which the Income-tax Appellate Tribunal has itself referred to us for opinion as in that question the amount of income from this source is mentioned as the sum of Rs. 36,396/- and not the sum of Rs. 36,322-8-0.

It, therefore, appears that the actual income received by Babu Har Narain Singh and his successors under that settlement of July 1837 has varied with the net collections of land revenue. The amount that has been received was, therefore, not an amount calculated on the basis of the land revenue but was actually a share of the net collections of land revenue. It would thus appear that, even in accordance with the practice which has obtained under this settlement, Babu Har Narain Singh and his successors have been receiving a one-fourth part of the revenue collected after deducting Tahsil expenses and not a sum represented by one-fourth of the land revenue or the net land revenue collections.

The language of the letter and this conduct of the parties can only lead to the inference that, by this settlement contained in the letter of 7-7-1837, Babu Har Narain Singh and his successors were granted in perpetuity a right to one-fourth of the land revenue collections themselves and not merely a right to receive a sum of money calculated on that basis. In such a case, where the right created was a right in the land revenue itself and that land revenue was derived from land, the income received would clearly fall under the definition of agricultural income as contained in Sub-clause (a) of Section 2 (1) of the Income-tax Act. This would be so irrespective of the question whether the person receiving the income has any right or interest in the land fromwhich the revenue was derived or he has no such right.

8. The position might have been different if, instead of granting a right to the land revenue or a part of land revenue itself, the settlement had been in the form of grant of a pension or allowance payable under the settlement even though its calculation might have been based on the land revenue or its collections. The distinction, though a very narrow one, arises in the present case where the right that was granted was directly connected with the incidence of land revenue and under that right the income received was directly variable with collections and not merely proportionate to the land revenue collected. In fact, the terms of the settlement would indicate that, though at earlier stages also Babu Har Narain Singh had a right to one-fourth of the land revenue, he because of his right in land was the person entitled to collect the land revenue and after retaining his one-fourth share was required to pay the remaining three-fourth share to the Government to which that share belonged.

Subsequent to this settlement, the position was altered. The right of collection of land revenue was taken over by the Government but the Government took upon it the liability to pay to Babu Har Narain Singh and his successors their one-fourth share in the land revenue. In these circumstances, when the Government was collecting the land revenue, it was actually collecting three-fourth of the land revenue for its own benefit and the remaining one-fourth share of land revenue for the benefit of Babu Har Narain Singh and his successors; so that in fact, while collecting that one-fourth share of the land revenue, the Government was in the position of an agent making collections on behalf of Babu Har Narain Singh and his successors.

The income thus received is agricultural income of the Government in the capacity of an agent and was passed on to the person actually entitled to it so that the mere collection by the Government and its being passed on to Babu Har Narain Singh and his successors did not bring about any alteration in the character of the income received by Babu Har Narain Singh and his successors. It was not a case where the Government could collect the whole land revenue and appropriate it towards its own funds and, therefore, had the liberty of paying the money to Babu Har Narain Singh and his successors not necessarily out of the actual collection of this land revenue but out of any other moneys belonging to the Government. It would thus appear that on the terms contained in this letter of 7-7-1837 the correct interpretation is that by this settlement Babu Har Narain Singh and his successors were granted in perpetuity a right in land revenue derived from land and whatever money they have been receiving under that settlement is a part of the revenue thus derived from land and not a mere amount calculated on the basis of the land revenue. It has, therefore, to be held that the income received was agricultural income.

9. In this connection our attention was drawn to a number of cases where the High Courts, the Privy Council or the Supreme Court had occasion to consider the scope of the provision of law defining agricultural income. It appears to us that it is not necessary to discuss those cases in detail. All the decisions which were relied upon by learned counsel for the Income-tax Department relate to cases where the assessee had claimed that his income was agricultural income without being ab]e to say that the right by virtue of which he was receiving the income was a right to land revenue or rent derived from land, that is to say, a right to the agricultural income itself or to a share in that agricultural income. Most of the cases dealt with are those where the income in question was money payable as an allowance, pension or some other similar form of payment the amount of which in some cases had to be calculated on the basis of the agricultural income received by the person liable to make the payment.

Such cases are Gopal Saran Narain Singh v. Commr. of Income-tax, B. and O. , Mustafa Ali Khan v. Commr. of income-tax, U. P. and C. P. 1945 13 ITR 98: AIR 1945 Oudh 44, Commr. of Income-tax, B. and O. v. Kamakhya Narain Singh ; Mustafa AH Khan v. Commr. of Income-tax, U.P., Ajmer & Ajmer Merwara . Premier Construction Co., Ltd. v. Commr. of Income-tax. Bombay City , Pratap Singh Bahadur v. Province of Bihar : [1949]17ITR202(Patna) , and Bacha F. Guzdar, Bombay v. Commr. of Income-tax, Bombay : [1955]27ITR1(SC) .

10. In , their Lordships of the Privy Council considered the case of an assessee who had transferred his agricultural property and at the time of the transfer had! reserved the right to an annual payment of Rs. 2,40,000 for his life. It was held that the annual payment was not agricultural income as it was not rent or revenue derived from land but money payable under a contract imposing a personal liability on the covenantor even though the discharge of that liability was secured by a charge on land. In 1945 13 ITR 98: AIR 1945 Oud 44, the facts showed that a fixed annual payment or a malikana was acquired by the assessee's predecessors in consideration of the relinquishment of all their rights in property in certain villages and, though that payment was originally calculated on the basis of the land revenue of the villages, it was fixed once for all and was payable by the superior proprietors of the property for ever.

It was held by the Chief Court of Oudh that this income could not be considered as rent or re-venue derived from land and was not, therefore agricultural income within the meaning of Section 2 (1) (a) of the Income-tax Act. This view was upheld by their Lordships of the Privy Council in the case reported as , where it was held that having regard to the nature of the incidents of the tenure, the malikana could not be considered as rent or revenue derived from land and it was not, therefore, agricultural income within the meaning of Section 2 (1) (a) of the Income-tax Act even though it would not have become payable to the ancestors of the assessee had they not been feudal proprietors of the land.

11. In these cases, it is to be noticed that, after there had been subsequent agreements between the assessees and the persons from whom they were receiving the income, the right that was granted to the assessees was not a right to receive rent or revenue or a share in rent or revenue derived from land but merely a right to receive some money which created a personal liability against the person liable to make the payment.

12. In , the question that came up was whether interest accruing on arrears of rent payable in respect of land used for agricultural purposes is or is not agricultural income. It was held that the interest itself was neither rent nor revenue derived from land. The word 'derived' was explained by their Lordships of the Privy Council in this case as being a term which was not a term of art and they proceeded to hold that 'Its use in the definition indeed demands an enquiry into the genealogy of the product, but the enquiry should stop as soon as the effective source was discovered. In the genealogical tree of the interest, land indeed appears in the second degree, but the immediate and effective source was rent which had suffered the accident of non-payment, and rent is not land within the meaning or the definition'.

What their Lordships themselves laid down was that in that case the rent itself which was derived from land would have been agricultural income but the interest on the arrears of rent was income accruing not from the land but was income derived fromthe amount of rent which had fallen due and had fallen into arrears. The source of the income of the interest was, therefore, the arrears of rent and not the revenue. In our case, it is true that the right to the revenue was created by the settlement of 1837 but that right which was created was itself a right to receive a portion of the revenue and not a portion of any income derived from amounts of land revenue which might have either fallen in arrears or might have been collected and kept in deposit.

13. The case of was a case where remuneration of managing agents was calculated at the rate of 10 per cent per annum on the annual net profits of a company after making all proper allowances and deductions, the company being one part of whose income was agricultural income as defined in the Income-tax Act. It was held by their Lordships of the Privy Council that the assessee received no agricultural income as defined by the Act, that it received remuneration under a contract for personal service calculated on the amount of profit earned by the employer, payable not in specie out of any item of such profits, but out of any moneys of the employer available for the purpose, and that the remuneration was, therefore, not agricultural income and was not exempt from tax.

The significant words used by their Lordships of the Privy Council are 'not in specie out of any item of such profits'. The use of these words indicates that their Lordships attached importance to the circumstance that the amount which was payable to the managing agents could be paid from any funds belonging to the company and that the managing agents had no right to any particular portion of the agricultural profits themselves. In the case before us, as we have explained earlier, the right that was granted to Babu Har Narain Singh and his successors was a right in the land revenue itself and not merely a right to receive money which could be paid by the Government out of any of its other funds.

14. The facts of the case decided by a Division Bench of the Patna High Court reported in : AIR1950Pat86 , are even more distinguishable. The dispute in that case related to the nature of the income derived as malikana. It was held that the malikana was not agricultural income inasmuch as it was not established by the revenue authorities that it was rent or income derived from land which was used for agricultural purposes. The person entitled to its receipt derived the income from the statutory obligation of the Government to pay it, and although so far as malikana under the regulation was concerned Government recouped itself from the person with whom the land was settled, land in the genealogical tree of malikana appears in the second degree, its immediate and effective source being the Government's statutory obligation to pay it and that obligation was not land within the meaning of the definition. In that case also, clearly the obligation of the Government to pay the malikana dues was a separate and distinct legal obligation under which no right to the land revenue being collected by the Government had been granted to the person entitled to the malikana.

15. The last of the cases relied upon is the decision of the Supreme Court in : [1955]27ITR1(SC) . In that case the assessee was a shareholder in certain tea companies 60 per cent of whose income was exempt from tax as agricultural income under Section 4 (3) (viii) of the Indian Income-tax Act, 1922. The assessee claimed that 60 per cent of the dividend income received by her on her shares in those companies was also exempt from tax as agricultural income. It was held that dividend incomereceived by the assessee was not agricultural income but was income assessable under Section 12 of the Indian Income-tax Act. In their decision, their Lordships of the Supreme Court held that agricultural income as defined in the Act is obviously intended to refer to the revenue received by direct association with the land which is used for agricultural purposes and not by indirectly extending it to cases where that revenue or part thereof changes hands either by way of distribution of dividends or otherwise.

In fact and truth, dividend is derived from the investment made in the shares of the company and the foundation of it rests on the contractual relations between the company and the share-holders. Dividend is not derived by a shareholder by his direct relationship with the land. There can be no doubt that the initial source which has produced the revenue is land used for agricultural purposes but to give to the words 'revenue derived from land' the unrestricted meaning apart from its direct association or relation with the land, would be quite unwarranted.

16. These views expressed by their Lordships of the Supreme Court are clearly not applicable to the facts as they exist in the case before us. In that case, the agricultural income was being earned by a limited company which was a separate legal entity. In that income earned by the company no shareholder had any right or interest. The right or interest of the share-holder was only to receive the dividend declared on the investment made by him in the form of shares. The share-holders receiving income, therefore, were not receiving any part of the agricultural income as such earned by the company.

Their income was really an accrual to or arose from their right as share-holders in the company by virtue of which they were entitled to dividends. Clearly, therefore, the share-holders who were entirely separate legal entities from the company were in no way receiving any part of the agricultural income itself. In the present case before us we have held that the correct interpretation of the settlement contained in the letter of 7-7-1837 is that under the settlement the assesses had been grantee a right in the land revenue itself and not a right to receive moneys from Government out of any of its other funds.

17. Though there is no case in which the circumstances were identical with the case before us, it appears to us that maximum assistance can be derived from a decision of a Full Bench of this Court in Syed Mohammad Isa v. Commr. of Income-tax, C. P. and U. P. : [1942]10ITR267(All) . In that case the Court had to consider the nature of some income received by a mutawalli. Under the trust deeds in question the mutawalli was required to perform the functions of his office and so long as he did so he was entitled in consideration of those services to appropriate the residue of the profits. In each of the trust deeds he was a beneficiary with an obligation attached to the enjoyment of the benefits. He had two capacities one as mutawalli and the other as beneficiary.

The question which came up for determination was whether the assessee when as beneficiary he appropriated the money from the fund held by him as mutawalli, he received it as agricultural income within the meaning of Section 4 of the Act, or whether, in the process of passing through his hands as mutawalli into his hands as beneficiary, it lost its character of agricultural income; whether, in other words, new source was created, the effect of which was that the money which passed into his hands as beneficiary ceased to be agricultural income. The facts of thatcase show that originally the right to receive the payment accrued to the mutawalli because under the trust deeds it was considered that he was entitled to remuneration in lieu of his services,

To remunerate him for his services, the trust deeds conferred on him the status of a beneficiary and, in that status of beneficiary, he was entitled to receive a share of the agricultural income. All the terms of the trust deeds taken together thus created in the mutawalli a right to a share of the agricultural income of the trust and it was held that the income so received by him was agricultural income, This was held in spite of the fact that the right in the mutawalli had been created only for the purpose of remunerating him for his services. In the case before us, certain rights of Babu Har Narain Singh and his successors were taken away by the Government under the settlement of July 1837 and it was considered fair that, for being deprived of those rights, Babu Har Narain Singh and his successors should receive payment.

This payment was ensured to them by creating in them in perpetuity a right in the land revenue itself so as to entitle them to claim one-fourth of the net collections of land revenue. It would thus appear that the facts of this case are very similar to the case dealt with by the Full Bench of this Court. No doubt, the rights created in the two cases were different. In the Full Bench case, the right was created in order to remunerate the mutawalli for his services whereas in the case before us the right was created to compensate Babu Har Narain Singh and his successors for the loss suffered by them.

The actual right created in both the cases was, however, similar. In the case before the Full Bench, the right created was a share in the agricultural income of the trust itself which was payable to the mutawalli because he was nominated as one of the beneficiaries under the trust. In the case before us by the settlement of July 1837. Babu Har Narain Singh and his successors were given a right to a one-fourth share in the collections of land revenue after deducting Tahsil expenses so that the right was a right in revenue derived from land just as in the case of the mutawalli it was a right in the rents or other agricultural income of the trust.

18. Learned counsel for the Income-tax department also referred to a later Division Bench decision of this Court in Jawad Ali Shah v. Commr. of Income-tax, U. P. : [1950]18ITR95(All) . In that case, the question that had to be considered was the nature of the income of a sajjadanashin. It was held by the Income-tax Appellate Tribunal that the assessee, who was a sajjadanashin, was not a beneficiary under the deed of trust but he was entitled to retain ten per cent of the income received by him as remuneration for his services. This Court in deciding the question referred to the earlier decision of the Full Bench in : [1942]10ITR267(All) , in which it held that, where a mutawalli is a beneficiary, the agricultural income received by him would be exempt from taxation.

The case of such a mutawalli was contrasted with that of a person having an interest in the property whether the interest be legal interest or equitable interest, who in his own right is entitled to receive the income either by himself or through his agent. The case for mutawalli was he'd to be similar to that of an assessee who is not entitled to receive the income, but on the other hand receives it on behalf of some one else. It was held that, in the circumstances, it could hardly be said to be agricultural income received by him only because some money became payable to him under a contract for the work done by him as an agent or a servant.

In such a case he derived his income not from an agricultural source but in lieu of the work done by him and the money so received could not be said to be agricultural income received by him. Examining this aspect, the learned Chief Justice who delivered the judgment of the Court envisaged a case where, by an arrangement between the principal and agent, the agent may become entitled to retain the income of one village out of the income of, say, ten villages and expressed the opinion that it may be possible to say that in such a case the agent had a right to receive and retain income which was exempt from income-tax. It was further held that there would be a difference, though a fine one, between an agent realising the income for his own benefit and realising it on behalf of his master and being allowed to retain a part of it as his remuneration.

These views expressed in that case give an indication of how the point arising in the present case should be decided. In the present case, the position Is that the whole of the land revenue from the Pargana Seyedpore and Bhittary, in which the rights of Babu Har Narain Singh and his successors were extinguished by the settlement, was to be collected by the Government and after deducting the Tahsil expenses one-fourth of those collections were to be paid to Babu Har Narain Singh and his successors. The question is whether, while the Government was collecting the land revenue, it was collecting it under its own right and for its own benefit and was giving to Babu Har Narain Singh and his successors some money which they were entitled to under the settlement, or whether the terms of the settlement showed that at every stage, while the revenue was being collected by Government, one-fourth of the collections by the Government were on behalf of Babu Har Narain Singh and his successors so that the collections to the extent of that one-fourth were really in the capacity of an agent of Babu Har Narain Singh and his successors.

It seems to us that, on the language of the terms contained in the letter of 7-7-1837, the interpretation that must be accepted is that the Government in making the collections was to collect the whole of the land revenue but three-fourth of those collections were on its own behalf and one-fourth of the collections were on behalf of Babu Har Narain Singh and his successors. The mere fact that the land revenue was actually collected by the Government and passed through its hands before reaching the hands of Babu Har Narain Singh and his successors could not change the nature of the income received by Babu Har Narain Singh and his successors who, as we have said above, were given the right to the extent of one-fourth in the revenue itself and not a mere right to receive certain moneys from the Government. On a consideration of the various decisions brought to our notice also therefore, we have come to the view that the question referred by the Income-tax Appellate Tribunal for our opinion must be answered in the negative.

19. Learned counsel for the department also addressed an argument based on the language of the question framed by the Tribunal where the Tribunal mentioned that the sum of Rs 36,396/- received by the assessee had been received as an allowance during tie previous year of the assessment year 1949-50. It appears to us that the use of the word 'allowance' in this question is immaterial. It may be that the sums which were being received under the settlement by Babu Har Narain Singh and his successors was an allowance but the question is what was the nature of that allowance.

The allowance was a sum of money which Babu Har Narain Singh and his successors received because of being granted a right in the land revenueitself. The use of the word 'allowance' or even the use of word 'pension', as it was used in paragraph 6 of the letter of 7-7-1837, would make no difference to the actual nature of the right which was granted under the said agreement. The nature of the right has to be gathered from the terms of the settlement and, as we have held above, the right being a right to receive revenue or part of revenue derived from land, the income accruing under that right was agricultural income.

20. We, therefore, answer the question referred to us in the negative. The assessee will be entitled to receive Rs. 400/- as costs of this reference from the department. For purposes of assessment of the fees of the learned counsel for the department the same amount will be treated as his fees.


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