R.R. Rastogi, J.
1. The Income-tax Appellate Tribunal, Delhi Bench, has referred the following three questions for the opinion of this court:
' 1. Whether, on the facts and in the circumstances of the case, the loss of Rs. 2,89,929 from Matkhera Farm is non-agricultural in character and is allowable as a revenue loss in the computation of the assessee's total income for the assessment year 1959-60 ?
2. Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 7,462 on the construction of ' Molasses Fund Quarters ' is allowable as revenue expenditure ?
3. Whether, on the facts and in the circumstances of the case, the amalgamation expenses of Rs. 7,455 were allowable as a deduction in the assessment year 1959-60 '
2. So far as questions Nos. 2 and 3 are concerned, we need not set out the facts relating thereto because they stand covered by a decision of this court in the assessee's own case for the assessment year 1957-58 ; whereas the assessment year involved in this reference is 1959-60: vide Raza Buland Sugar Company Ltd. v. CIT : 122ITR817(All) . For that year as well, the assessee had claimed deduction of a sum of Rs. 11,069 paid to lessees in connection with the amalgamation of the Raza Sugar Company with the Buland Sugar Company Ltd., Rampur, and it was held that since those expenses had been incurred prior to the coming into existence of the present assessee, namely, Raza Buland Sugar Company Ltd., they were integrally connected with the creation of the assessee-company and as such were capital in nature. In regard to the amount of Rs. 7,455, which is the subject-matter of question No. 3, the facts and circumstances being the same we take the same view and hold that since this expenditure was incurred prior to the coming into existence of the present assessee and were integrally connected with its creation, it was capital in nature and as such its deduction has been rightly refused. Coming to the allowability of expenses of Rs. 7,426 on the construction of ' Molasses Fund Quarters ', this expenditure had been incurred on the extension of six two-room quarters. The ITO disallowed the deduction of this expenditure on the ground that it was of capital nature and the same view was taken by the AAC. The Appellate Tribunal, following its earlier order for the assessment year 1957-58, upheld the disallowance. The disallowance of a similar expenditure for 1957-58 was affirmed by this court and since the facts and circumstances with regard to the disputed issue are the same, we take the same view and hold that the expenditure was of a capital nature.
3. Coming to question No. 1, the facts found by the Appellate Tribunal are that in the erstwhile State of Rampur there were two companies, namely, Raza Sugar Company Ltd. and Buland Sugar Company Ltd. They entered into a partnership agreement in the name and style of M/s. Agricultural Company which obtained some land on lease from the Nawab of Rampur on payment of certain rent. Subsequently, these two companies were amalgamated and the present assessee-company was formed. It took over the affairs of M/s. Agricultural Company. This agricultural land was known as Matkhera Farm. The State of Rampur merged in the Indian Union in July, 1949. Till then the income from this farm was taxed as non-agricultural income under the Rampur State Income-tax Act read with Indian Income-tax Act, 1922. From 1950-51 onwards, losses were claimed in respect of this farm. For the assessment year 1958-59, the ITO treated this farm as non-agricultural activity of the assessee. That assessment was, however, reopened under Section 147(b) of the I.T. Act, 1961, but those proceedings were ultimately quashed by the Appellate Tribunal on the ground that the initiation thereof was not valid.
4. In the year under consideration, the assessee had debited to its profit and loss account, a loss of Rs. 2,89,929 from the Matkhera Farm. The assessee claimed that its income from this farm had always been treated as non-agricultural income. The ITO, however, found that before the authorities under the Agricultural Income-tax Act, the assessee had claimed the income from this farm as non-agricultural on the ground that the land had not been assessed to land revenue, while before the income-tax authorities the stand taken was that this income was of agricultural nature and hence was not taxable. According to the ITO, the assessee was liable to pay land revenue on the land of this farm and in the profit and loss account for the assessment years 1957-58 and 1959-60, the assessee had debited certain amounts on that account. He, therefore, held that Matkhera Farm represented an agricultural activity of the assessee and as such the loss claimed was not allowable and he added back the same to the total income.
5. The assessee appealed before the AAC, but remained unsuccessful. In the further appeal before the Appellate Tribunal, it was seriously urged on its behalf that the Matkhera Farm did not represent an agricultural activity of the assessee because no land revenue was payable by that date on that land. The Appellate Tribunal found that the submission made was not very correct. It found that the assessee was a grantee of this land, on a nominal rate of rent, from the Nawab of Rampur and after the extension of the U.P. Zamindari Abolition and Land Reforms Act, 1951, to the territory of the erstwhile State of Rampur with effect from January 26, 1956, the assessee became the Sirdar of the land of this farm. It paid 10 times of the land revenue which amounted to approximately rupees two lakhs andobtained rights under Section 134 of the U.P. Zamindari Abolition and Land Reforms Act. The view thus taken was that the entire loss from the farm debited to the profit and loss account was agricultural in character and as such was not an allowable deduction.
6. After hearing counsel for the department, we find that the view taken by the Appellate Tribunal is absolutely correct. Section 2(1) defines agricultural income and Clause (a) thereof read as under:
' (a) any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such.'
7. This clause has been substituted by the Taxation Laws (Amendment) Act, 1970, with retrospective effect from the commencement of this Act and it now reads :
' (1) ' Agricultural income ' means- (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes. '
8. It would be seen that this sub-clause required three conditions to be satisfied: rent or revenue should be derived from land; the land should be situated in India, and the land should be used for agricultural purposes. The word ' rent ' means payment of money in cash or in kind by any person to the owner in respect of grant of right to use land. The expression ' revenue ' is, however, used in the broad sense of return, yield or income and not in the sense of land revenue only. The only serious objection which was raised on behalf of the assessee before the Appellate Tribunal was that the land of this farm was not assessed to land revenue and hence this definition of agricultural income was not applicable to it. The submission was rightly repelled by the Tribunal on the facts found by it, viz., that the land had been granted to the assessee's predecessor by the Nawab of Rampur on favourable rate of rent and after the extension of the Zamindari Abolition and Land Reforms Act, to the territories of the erstwhile State of Rampur with effect from January 26, 1957, the assessee became the Sirdar of this land and it actually obtained Bhumidhari rights after depositing 10 times the revenue payable for this land. It has been further found that the assessee had been carrying on agricultural operations on this land. The case is thus fully covered by the definition of agricultural income as contained in Section 2(1)(a) of the Act and the income from this farm was not liable to inclusion in the assessee's income and, on parity of reasoning, the loss from the farm as well was not liable to be deducted from the assessee's income of the year.
9. We thus agree with the view taken by the Appellate Tribunal and answer all the three questions referred in the negative, in favour of thedepartment and against the assessee. Since nobody appeared for theassessee, there will be no order as to costs.