V. BHARAGAVA, C.J. - The question referred for our opinion is :
'Whether, on the facts and in the circumstances of the case, the Malikana receipts constituted agricultural income within the meaning of section 2(1) of the Indian Income-tax Act, 1922, and were therefore exempt from tax under section 4(3) (viii) of the said Act ?'
The facts as found by the Income-tax Appellate Tribunal in its appellate judgment and as given in the statement of the case show that the assessee was receiving a sum of Rs. 8,947 as Malikana in respect of an estate of 133 villages, which had belonged to her predecessor-in-interest. The only point that arose was whether this amount, received as Malikana, was agricultural income, and, consequently, exempt from the applicability of the Income-tax Act.
In the appellate order, quotations from various settlement report have been reproduced to show the circumstances under which this Malikana dues became payable. The reference made first is to a settlement report of the district of Manipuri for Fasli year 1280 equivalent to 1872 A. D. In this settlement report it was said :
'A protracted enquiry ensuing during the progress of settlement operations made by Mr. Edmonston resulted in the Raja being stripped of the management of upwards 200 villages which had from old times been regarded as part of the territorial possessions of the family. The compensation given to him in recognition of his talukdari rights was a fixed percentage on the assets of each village.'
It is principally on the basis of this settlement report that it has been urged by learned counsel for the assessee before us that it should be held that this Malikana amount received by the assessee really represents rent or revenue derived from land under section 2(1) (a) of the Income-tax Act and should be held to be agricultural income. It is true that this settlement report indicates that all that was done at the time was to deprive the Raja of the management of his village. He was not divested of his proprietary rights in the villages. But the last sentence indicates that, though the proprietor or talukdari rights of his were recognised, it was held that the would be paid compensation in recognition of those rights. That compensation was to be calculated at a fixed percentage on the assets of each village. In these circumstances, Malikana amounts payable to the assessee have to be held to represent compensation being given under this engagement by the Government in recognition of the talukdari rights of the assessee, but cannot be held to be receipt by the assessee of actual land revenue or rents. Under this report, what the assessee receives is compensation calculated at a percentage on the assets of the village and not a portion of the assets of the village itself.
This is further clarified by the subsequent settlement reports, which have been quoted in the appellate judgment of the Income-tax Appellate Tribunal. In paragraph 15 of that judgment is quoted the settlement report of 1870 and in that this Malikana received by the then Raja is described as a money allowance in each village calculated at 22 1/4 per cent. on the Jamma and 18 per cent. on the net estimated assets. This settlement report proceeds further to say that the Raja claimed to have this set aside and required engagement to be taken with himself. But this claim was rejected. This report again makes it clear that the Raja was receiving an allowance calculated at a particular rate by virtue of the engagement entered into under the settlement and was not actually receiving a share of the rents to revenue of the villages.
Another settlement report is quoted in paragraph 16, where there is mention of the question of the amount of money allowance to be paid to the Raja being the subject of a protracted discussion on the occasion of the visit of Sir William Muir, the then Lt. Governor, in February, 1873. The Lt. Governor decided that under the strict application of the rule the Rajas allowance would have been reduced to one-eleventh of the Biswadars payment. But as his talukdari amount constituted large portion of his income and there were other considerations, the Lt. Governor resolved to have his Malikana for his lifetime at its then existing assessment. There was further provision that, on the Rajas death, the amount would be reduced to 1/11th of the Biswadars payment of 1/10 of the land revenue assessed on the subject. This settlement report again indicates that the Malikana being paid to the Raja was an allowance and not any rent or revenue to which he might have been entitled by virtue of his talukdari or zamindari rights in the villages themselves. Similar inference follows from the settlement proceedings of 1906, where again there is the mention of a partition by the Raja regarding the rate of the allowance being fixed in perpetuity which request was rejected.
It will thus be seen that the facts as found in the Appellate Tribunals judgment show that what the Raja was receiving was an allowance in lieu of the talukdari or zamindari rights possessed by him in various village which he could not himself enforce because he was stripped of the management. This allowance was payable under the various engagements entered into at the time of settlement of revenue and were not in the nature of a share in the land revenue or rent arising from the villages. Consequently, the principle laid down by the Supreme Court in the case of Commissioner of Income-tax v. Kunwar Trivikram Narain Singh is applicable, so that we hold that the Malikana income received by the assessee is not agricultural income, and as such it is not exempt from tax under section 4(3) (viii) of the Act.
We answer the question referred to us accordingly. The assessee shall pay the cost of the department. Counsels fee is fixed at Rs. 200.
Question answered accordingly.