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Commissioner of Income-tax Vs. Smt. A.K.T.K.M. Vishnudatha Antharjanam - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Referred Case Nos. 76 to 83 of 1970
Judge
Reported in[1973]91ITR521(Ker)
ActsKanom Tenancy Act, 1955 - Sections 2(3), 2(13) and 48; Income Tax Act, 1961
AppellantCommissioner of Income-tax
RespondentSmt. A.K.T.K.M. Vishnudatha Antharjanam
Appellant Advocate P.A. Francis and; P.K. Ravindranatha Menon, Advs.
Respondent Advocate K.P. Radhakrishna Menon and; K.K. Ravindranathan, Advs.
Cases ReferredDr. Shamlal Narula v. Commissioner of Income
Excerpt:
.....by kanom tenant assessable to tax - said amount paid not for extinguishments of entire rights of jenmi in land of kanom holding - jenmi entitled to said amount even before abolition of his rights - held, jenmmikaram payable by kanom-tenant to jenmi assessable to tax. - - that such payments were as compensation for the deprivation of capital and, therefore, did not constitute income for the purpose of assessment under the income-tax act, 1961. this contention was negatived by the income-tax officer and the appeals by the assessee before the appellate assistant commissioner failed. '5. for the sake of completeness, we may extract section 3 as well as section 48 of the act, the provisions of which were relied on either by one side or the other in support of their contentions :3...........the facts and in the circumstances of the case, the jenmikaram payable by the kanom tenant to the jenmi is compensation for the extinguishment of the entire rights of the jenmi in the land of the kanom holding, as held by the tribunal ?2. whether, on the facts and in the circumstances of the case, the jenmikaram payable by the kanom tenant to the jenmi is income assessable to tax under the income-tax act or only a capital receipt? '2. the assessee is a person governed by the kanom tenancy act, 1955 (hereinafter referred to as 'the act'). the jenmi is defined in section 2(3) of the act and the questions referred to this court relate to the assessment of income-tax of the jenmi for eight years 1957-58 to 1963-64, both years inclusive, and for the year 1965-66, for the relevant accounting.....
Judgment:

Govindan Nair, J.

1. These are references at the instance of the revenue by the Income-tax Appellate Tribunal, Cochin Bench, and the questions referred are :

'1. Whether, on the facts and in the circumstances of the case, the jenmikaram payable by the kanom tenant to the jenmi is compensation for the extinguishment of the entire rights of the jenmi in the land of the kanom holding, as held by the Tribunal ?

2. Whether, on the facts and in the circumstances of the case, the jenmikaram payable by the kanom tenant to the jenmi is income assessable to tax under the Income-tax Act or only a capital receipt? '

2. The assessee is a person governed by the Kanom Tenancy Act, 1955 (hereinafter referred to as 'the Act'). The jenmi is defined in Section 2(3) of the Act and the questions referred to this court relate to the assessment of income-tax of the jenmi for eight years 1957-58 to 1963-64, both years inclusive, and for the year 1965-66, For the relevant accounting periods relating to these assessment years the assessee had received amounts as jenmikaram payable under the provisions of the Act, the payments being received by the assessee from the Government as envisaged by the Act. The assessee contended before the Income-tax Officer that these payments of jenmikaram really represented payments of capital; that such payments were as compensation for the deprivation of capital and, therefore, did not constitute income for the purpose of assessment under the Income-tax Act, 1961. -This contention was negatived by the Income-tax Officer and the appeals by the assessee before the Appellate Assistant Commissioner failed. In further appeals before the Tribunal, the Tribunal found that the jenmikaram received by the assessee is compensation for deprivation of the rights of the jenmi and that such payments had to be treated as capital. This conclusion was reached by the Tribunal on the finding entered by it that the transfer of ownership of the land from the jenmi to the kudiyan was effected by the Act under the provision in Section 3(1) thereof. This finding has not been assailed before us by the revenue and we find that the finding is justified by the provision in Section 3(1) and that, notwithstanding Section 48 and the wording in Section 3(1) that the jenmi shall have the right to receive the jenmikaram thereof, the rights of the jenmi in the land ceased.

3. The question that now arises is what is the nature of these payments. Jenmikaram is defined in Section 2(13) of the Act in these terms:

''Jenmikaram' in respect of a holding or any land comprised in a holding means the amount payable in respect of that holding or land under the provisions of this Act by the kanom-tenant to the jenmi every year in lieu of all claims of the jenmi in respect of the holding or land and shall be the sum total of the michavaram and the fractional fee.

Explanation.--Payment of or the liability to pay jenmikaram is equivalent to paying or the liability to pay the michavaram, renewal fees and puravaka dues. '

4. Fractional fee and michavaram have also been defined in the Act in Sections 2(1) and 2(6) as follows ;

'2. (1) ' Fractional fee ' means the fee fixed as claimable in substitution of the renewal fees in annual instalments at the rate of seven per cent. of the aggregate value or amount of one year's michavaram or of the renewal fees payable under the Cochin Tenancy Act, XV of 1113, whichever is less, or in annual instalments proportionately lower in percentage when renewal on the expiry of any longer period is provided for by the kanom ;

2. (6) 'Michavaram' means the balance of money or produce or both payable periodically under the contract of tenancy to the jenmi after deducting from the pattern the interest due on the kanom amount and purakadam, if any. '

5. For the sake of completeness, we may extract Section 3 as well as Section 48 of the Act, the provisions of which were relied on either by one side or the other in support of their contentions :

' 3. Kanom-tenant owner of land subject only to payment of jenmikaram. --(1) From and after the commencement of this Act, the jenmi shall not have any right, claim or interest in any land in a holding except the right to receive the jenmikaram thereon and the kanom-tenant shall be deemed to be the owner of the land subject only to the payment of the jenmikaram. .....

(2) The jenmi's right as well as the kanom-tenant's right is heritable as well as transferable by sale, gift or otherwise,

(3) The jenmi's right to the jenmikaram shall be deemed to be immovable property. ....

48. Apportionment of compensation money on land acquisition.--When the jenmi and the kanom-tenant cannot agree as to the apportionment as between them of the compensation money awarded or awardable on the acquisition of any land or portion of land comprised in any holding, under any law providing for the compulsory acquisition of land for public purpose, the portion due to each shall be determined in accordance with the following rules:

(a) so much of the compensation money as is due to any buildings shall belong entirely to the kanom-tenant;

(b) the balance left after deducting the portion of compensation moneyreferred to in rule (a) shall belong to the jenmi and the kanom-tenant inthe proportion of the jenmikaram charged or chargeable on the land orportion of land and the average annual net produce of the land or portionof land, as the case may be :

Provided that if the capitalised value of the jenmikaram is smaller than such share of the jenmi, the capitalised value alone shall belong to the jenmi and all the rest shall belong to the kanom-tenant.'

6. On behalf of the revenue the submission was that though the jenmi ceased to have any interest in the land by virtue of the provision in the Act, the payments of jenmikaram provided under the Act and apparently in perpetuity except in the unlikely event of all the land being acquired for public purposes and compensation under Land Acquisition Act paid to the jenmi and the kudiyan in the proportion envisaged by Section 48 of the Act was really in the nature of an annuity and, therefore, represented income. On the other hand, it was urged by counsel on behalf of the assessee that the jenmikaram payments provided under the Act are nothing other than compensation payable to the jenmi who had been deprived of his interest in the land. Reliance was placed by counsel for the assessee mainly on the ruling in S.R.Y. Sivaram Prasad Bahadur v. Commissioner of Income-tax, [1971] 82 I.T.R. 527 (S.C.). Before examining these rival contentions it is necessary to state a few words as to what exactly happened by the passing of the Act. Before the passing of the Act the jenmi had, what we may term, the residuary rights in the bundle of rights that constituted ownership of the property ; and the kudiyan the kanom right which in several, if not in the majority of cases, amounted to a perpetual right to enjoy the property. The Act has abolished, as we indicated, all proprietary rights in the jenmi and every right and interest in the property, and the kudiyan has become the full owner of the property. The jenmikaram, as is clear from the definition which we have referred to, is nothing more or less or at least is almost the same as what was payable by the kudiyan to the jenmi before the introduction of the Act by way of michavaram and renewal fees. What is more significant, it appears to us, is the Explanation to the definition in Section 2(13) which clearly states that the jenmikaram payable to the jenmi by the kudiyan is in substitution of liability to pay michavaram, renewal fees and puravaka dues. This clearly shows that the jenmikaram payable under the Act has no relation to the capital value of the assets which the jenmi had in his property before the Act took away those capital assets from the jenmi and enforced it on the kudiyan. There is no provision in the Act for quantifying the capital value of the assets of the jenmi as they stood at the time the Act came into force and there is no provision for payment of either that capital or for compensation for the deprivation of that capital. The provision in Section 48 of the Act clearly indicates that, in the event of the property being acquired by the State Government, the capital of the jenmi as represented by his interests in the land acquired are liable to be paid to the jenmi and his capital is, therefore, returned to the jenmi if and when land is acquired for public purposes. Till such an event occurs the jenmikaram has to be paid and it is difficult to conceive that this payment of jenmikaram was towards capital, because if it was towardscapital it certainly must go in diminution of the compensation awardable on land acquisition and the entire amount of the value of the interest of the jenmi in the land would not have been directed to be paid to the jenmi. The payments of jenmikaram are certainly not a return of capital in instalments. The only question then is whether it is a payment as compensation for deprivation of the right to a property. In this connection we have to observe that the residuary interest of the jenmi in the property gave them only a right to receive michavaram, renewal fees and puravaka dues and that after the extinguishment of the residuary right by the Act it was substituted by the payment of jenmikaram. So jenmikaram is really a consolidated payment that a kudiyan is to make to the jenmi which is considered by the statute to be a liability of the kudiyan equivalent to what was obtaining before the Act came into force. The payment, therefore, seems to be mainly in substitution of a contractual liability arising out of a tenure by statutory obligation imposed by the Act. These factors have to be borne in mind in applying the principles enumerated in a number of decisions concerning this matter. We consider it unnecessary to refer to all these decisions and it appears to us that the question really is only whether the principles stated by the Supreme Court in Commissioner of Income-tax v. Kunwar Trivikram Narain Singh must apply or whether the principles laid down in S. R. Y. Sivaram Prasad Bahadur v. Commissioner of Income-tax must apply. We find it difficult to distinguish the case before us from that decided by the Supreme Court in Commissioner of Income-tax v. Kunwar Trivikram Narain Singh, [1965] 57 I.T.R. 29; [1965] 3 S.C.R. 700 (S.C.). The head-notes of the case very briefly state the facts in these terms :

' The respondent was a Hindu undivided family descended from Babu Ausan Singh to whom was given the jagir of Parganas Seyedpore and Bhittery in perpetuity. In 1796 certain disputes arose between Babu Ausan Singh and his zamindars. They ended in 1837 by a compromise between the British Government and the then jagirdar, whereby the Government granted a pension to the jagirdar and his heirs in perpetuity, the quantum of the pension being calculated on the basis of one-fourth of the net revenue collections of the jagir. Thereafter, the zamindars paid the revenue and land collections to the British Government directly.'

7. On the above facts, the question that was considered by the Supreme Court was whether the amount received by the respondent during the relevant period on account of the pension was agricultural income in its hands and whether the amount received by the respondent was revenue income taxable under the Income-tax Act, 1961. The Supreme Court held that the income received was not agricultural income as there has been no question of land revenue payable and was, therefore, not agriculturalincome. It also held that the payments towards what is called pension was revenue income and was taxable. We shall extract a passage from the judgment:

' It seems to us that where an owner of an estate exchanges a capital asset for a perpetual annuity, it is ordinarily taxable income in his hands. The position will be different if he exchanges his estate for a capital sum payable in instalments. The instalments when received would not. be taxable income.'

8. In the case before us, we are not considering the rights and obligations of the jenmi and kudiyan arising out of any contract between them. In most of the cases decided, the question arose on the basis of an agreement where there have been either a purchase of what is called an annuity by the sale of a capital asset or an agreement by which there has been provision made for payment in instalments of an ascertained sum towards the value of capital transferred. It had been noticed often that cases arising in those circumstances were not easy to solve and that it was difficult to determine in a given case whether it was a purchase of an annuity or a return of capital. In the case before us, we think the payments towards jenmikaram is not towards return of capital. We say so for reasons which we have already indicated and which we may repeat. The capital value of the interest of the jenmi has to be paid to the jenmi in the event of acquisition of the land for public purposes. This means that there was no transfer of a capital asset to the kudiyan for which transfer the kudiyan had to make payment to the jenmi as compensation. The capital asset, it appears, had not been extinguished for all purposes. In any event it had not become that of the kudiyan. Consequently, from the provisions which we have referred to, it is clear that the payments towards jenmikaram have no relation whatever to the capital value of the interest of the jenmi in the land. The payments, as we stated, were related to the michavaram, renewal fees and puravaka dues which the kudiyan was bound to pay even before the Act came into force and it is stated specifically to be in substitution of the liability to pay the michavaram, renewal fees and puravaka dues. It will, therefore, be most difficult to come to the conclusion that the jenmikaram payable represents return of capital. We must confess that the question as to whether jenmikaram is compensation for deprivation of the interest in the property of the jenmi, as contended by counsel, is a more difficult question to answer. He is supported in his submissions by some of the observations in the decision in S. R. Y. Sivaram Prasad Bahadur v. Commissioner of Income-tax. The case arose in the wake of the promulgation of the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948. The question was whether interim payments made under section50(2) of that Act and received every year by a former holder of an estate which was abolished under the Act during the period between the taking over of the estate and final determination and deposit of compensation under the Act were of a capital nature and not liable to income-tax. The matter is discussed at page 532 of the decision and we may extract that part of the judgment to which reference has been made more than once by counsel:

'While it is true that the terminology used by the legislature in respect of a payment is not conclusive of the true character of that payment, it would be proper to proceed on the basis that the legislature knew what it was saying. The word 'compensation' is a well-known expression in law When the legislature says that all payments made under the Act are in respect of the compensation payable to the former holders unless there are clear and convincing circumstances to show that one or more items of payment do not form part of the compensation payable, we must hold that those payments are what they are said to be by the statute. We must give the word 'compensation' its normal and natural meaning. As seen earlier, in Clause (e) of Section 3 of the Act, the legislature definitely says that the holder or holders of the estate falling within Clauses (b) and (c) of Section 3 'shall be entitled only to compensation from the Government as provided in this Act'. From this, it follows that all payments made to them under the Act are compensation payable to them for taking over their estates. Statutes which take away others' property, by and large, provide for payment of compensation as from the date of taking. In the generality of those statutes, if immediate payment is not made at the time of taking, provision is made for payment of interest on the compensation payable as from the date of taking. In the Act, there is no provision for payment of compensation at the time of the vesting of the estates in the Government. Nor is there any provision for payment of interest on the compensation payable, as from the date of taking. The compensation determined has to be deposited only after the enquiry under Section 39 was over. We are told at the Bar that the final determination of the compensation under Section 39 was made years after the estate vested in the Government, though some advance compensation was paid. Hence, there is force in the contention advanced on behalf of the assesses that the interim payments made were given as compensation for depriving the assessees of the income that they would have got from their agricultural land; an income which would not have been assessable to tax under the Act if it had been received as agricultural income. The quantum of interim payments payable to the former holders of those estates was determined by taking into consideration the income that the former owners would have received had they continued to be the owners of those estates. This, prima facie, shows that the Government was compensating the former holders fortaking away their income-producing assets. The interim payments do not appear to have any relationship with the compensation ultimately payable. On the other hand, it takes note of the loss of income incurred by the former owners due to the abolition of the estates. The contention that it was in lieu of interest on the compensation payable overlooks the fact that the liability of the Government to pay the compensation excepting to the extent provided in Section 54A, arose only after the compensation payable was finally determined under Section 39. The interim payments were not fixed on the basis of the estimated compensation. They were fixed on the basis of the loss of income to the former owners. Under these circumstances, it is not possible to accept the contention that the interim payments were paid in lieu of interest or even that they represented compensation for loss of interest. If the legislature intended that the interim payments were to be made in lieu of the payment of interest on the compensation payable, nothing would have been easier than to say so in the Act. The term 'interest' is a familiar term in law. In this very Act, the legislature had prescribed payment of interest under certain circumstances. As observed by this court in Dr. Shamlal Narula v. Commissioner of Income-tax, [1964] 53 I.T.R. 151; [1964] 7 S.C.R. 668 (S.C.) the interest is a payment to be made by the debtor to the creditor when money was due to the creditor but was not paid or in other words was withheld from the creditor by the debtor after the time when the payment should have been made. Proceeding further, this court observed in that case that interest, whether it was statutory or contractual, represented the profit the creditor would have made if he had the use of the money which he was entitled to. In the cases before us, the assessees were not entitled to any compensation till the same was determined under Section 39. Therefore, no amount, to which they were entitled, was withheld from them. Hence, on that account, they were not entitled to any compensation, in lieu of interest.'

9. It appears to us that the situation arising out of the promulgation ofthe Kanom Tenancy Act, 1955, substituting the obligation on the part ofthe kudiyan to pay jenmikaram in lieu of michavaram, etc. (it is in lieu ofis clear from the Explanation to Section 2(13) of the Act) indicates thatthere has been no deprivation of the income the jenmi used to receive fromthe land before the Act. There has been only a substitution of thatincome by the consolidated payment by way of jenmikaram under the Act.Therefore, we think, the principle of the decision cannot apply. No doubt,this court has held in Commissioner of Agricultural Income-tax v. N. T.Namboodiripad, [1967] 641.T.R. 57 (Ker ) that the jenmikaram payable is not agricultural income.This is for the reason that the jenmi ceased to have any interest in theland and his only right was to get the jenmikaram or compensation in theevent of acquisition. It does not follow that what was received by thejenmi is not Income for the purposes of the Income-tax Act, 1961. On theother hand, it appears to us that what was received is an amount more orless equivalent to what was payable by the kudiyan to the jenmi beforethe abolition of the rights of the jenmi in the land calculated in the mannerprovided in the Act regarding which a statutory obligation to pay was caston the kudiyan. As far as we are able to see, no concrete payment wasto be made by the kudiyan to the jenmi for the transference of the interestof the jenmi in favour of the kudiyan unless we say that the provision made in the Act making the liability of the kudiyan as statutory,liability and the collection being taken over by the Governmentwith a provision that the Government shall pay it to the jenmi can becalled to be a compensation to the jenmi for the loss of his interest in theproperty. This may or may not be so. But we are not concerned withthat type of compensation. It appears to us that the original liability ofthe kudiyan has only been substituted by a liability to pay jenmikaram bythe provision in the Act.

10. We, therefore, answer question No. 1 referred to us in the negativeand question No. 2, by stating that the jenmikaram payable by the kanom-tenant to the jenmi was assessable to tax. We. direct the parties to beartheir costs.

11. A copy of this judgment under the seal of this court and the signature of the Registrar will be. sent to the Income-tax Appellate Tribunal, Cochin Bench, as required under Section 260(1) of the Income-tax Act, 1961.


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