MODI, J. - This is a reference by the Income-tax Appellate Tribunal, Delhi Bench, under section 66(1) of the Income-tax Act. The question of law referred to us for our opinion reads as follows :
'Whether on a true construction of the Jaipur District Boards Act, 1947, and section 2(1)(a) of the Indian Income-tax Act, 1922, the assessees income from jagirdari lands was agricultural income exempt from income-tax under section 4(3)(viii) of the Indian Income-tax Act, 1922 ?'
The facts in so far as they are relevant for the purposes of the present reference may be shortly stated as follows. The assessee was a jagirdar in the former State of Jaipur. He derived income from his jagir lands, which, according to the statement of facts furnished to us by the Tribunal, are non-Khalsa settled lands. It is admitted that the assessee did not pay land revenue to the State. It is further admitted that under the Jaipur District Boards Act, 1947 (XXXIII of 1947) (hereinafter referred to as the Act of 1947), these lands were subject to a cess based on the rent payable by the tenants thereof. The dispute relates to the assessment year 1952-53 corresponding to the financial year 1951-52 ending on March 31, 1952. The net income derived by the assessee from the jagir lands during the accounting period amounted to Rs. 5,490. It was contended by the assessee before the Income-tax Officer that this income was exempt from income-tax as it was agricultural income within the definition of section 2(1) of the Income-tax Act. The relevant portion of section 2(1) of the said Act reads as follows :
'Agricultural income means -
(a) any 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.'
The Income-tax Officer held that although the income in question was derived from land used for agricultural purposes, it was not agricultural income within the meaning of section 2(1) of the Income-tax Act quoted above inasmuch as this income could not be said to be subject to a local rate assessed and collected by the officers of the Government as such. Consequently, the Income-tax Officer declined to grant exemption and assessed the net income derived from the jagirdari land to income-tax. The assessee went in appeal to the Appellate Assistant Commissioner. The latter disagreed with the Income-tax Officer and held that the income in question was liable to exemption as it was agricultural income subject to a local rate assessed and collected by the officers of the Government as such. Aggrieved by this decision, the Department went in appeal before the Appellate Tribunal. The Appellate Tribunal found that the cess payable by the assessee was assessed and collected by officers of the Government as such within the meaning of section 2(1) of the Income-tax Act, and in that view of the matter held that the said income was exempt from income-tax under section 4(3)(viii) of the Act. Thereafter the Commissioner of Income-tax made an application under section 66(1) to the Tribunal to refer the question of law arising out of its decision to this court, which we have already set out above.
The assessee has not appeared before this court.
It is not disputed before us that the income derived by the assessee from the lands in question is rent or revenue derived from lands used for agricultural purposes. Further, it is nobodys case that the assessees land was assessed to land revenue. The sole question which arose for determination in these circumstances was whether these lands were subject to a local rate assessed and collected by officers of the Government as such. This controversy is further narrowed down because it has been held throughout and this was not questioned before us that the lands were subject to a local rate under the Act of 1947. Section 31 of the Act in so far as it is material for our purposes reads as follows :
'A Board shall levy with the previous sanction of the Government in non-Khalsa area :
(a) in settled villages and also in unsettled villages where rents are payable wholly in cash, a cess ranging from six pies to two annas per rupee on the rents payable.'
Section 32(a) then provides that all sums due from tenants in Khalsa areas shall be realised by the tahsildars along with the land revenue. Sub-section (b) is important for our purposes. This reads as follows :
'(b) All sums due from tenants in areas other than Khalsa including the tenants of sub-grantees shall be recoverable from the grantees and remitted by them to the Government.'
It is further provided, however, that the grantees shall be entitled to realise from their tenants and the sub-grantees, and the sub-grantees from their tenants, the sums due in this connection. Section 34, to our mind, makes the position still clearer :
'34. (1) Government shall realise from each State-grantee an amount equal to the aggregate of the amounts of cess payable to him by his tenants :
Provided that in the case of State-grantees whose income is below Rs. 10,000 the Government may, by notification, grant such relief in regard to this realisation as they may deem suitable.
(2) No grantee shall be entitled to increase the rental demand payable to him by his tenants on account of the contribution realised from him by the Government under sub-section (1).'
These are all the relevant provisions of the Act of 1947 which have a bearing on the decision of the question before us.
Now it was not disputed before us, nor indeed could it be, that the cess was in its substance assessed by officers of the Government in the present case. What was pressed for our consideration, however, was that the cess was not realised as such by the officers of the Government. We have given our anxious consideration to this contention and have arrived at the conclusion that there is no force in it. The principal argument raised in this connection before us on behalf of the revenue was that this cess was virtually something which was realised by the jagirdar from the tenant, and, therefore, it could not be said to be a cess collected by officers of the Government as such. The argument, in our opinion, is fallacious, having due regard to the various provisions of law which we have set out above. In the first place, we should like to emphasize that the cess in question fell primarily on the jagirdar. Sub-section (2) of section 34 speaks of it as 'the contribution realised from him by the Government under sub-section (1).' Therefore, it was ex facie a jagirdars contribution to the finances of a district board based on rent payable to him by his tenants. It is true that the jagirdar was in turn permitted by the provisions of this Act to reimburse himself by recovering an equal amount from his tenants under sub-section (b) of section 32; but that, in our opinion, does not affect the primary responsibility of the jagirdar to pay the cess or alter its essential character as being a payment by him and for which he was to be held answerable.
The next point which we wish to emphasize in this connection is that it was the responsibility of the Government under sub-section(1) of section 34 to realise from a jagirdar the amount of the cess which was due from him and which as stated above was to be recoverable by him from his tenants. A specific provision has been made under section 33 in the case of Khalsa lands the Government shall give a grant equivalent in amount to the cess levied on such an area to the board. And though no similar provision seems to have been made in the case of the cess recovered by the Government from a jagirdar in non-Khalsa area, it seems to us to be contemplated by necessary implication that a similar grant was to be made by the Government to the board in respect of the cess realised by the former from the State-grantees in non-Khalsa areas. In these circumstances we have no hesitation in coming to the conclusion that, having regard to the totality of the provisions to which we have referred to above, the local rate or cess to which the assessees lands were subject in the present case was a cess which was collected by Government or its officers and by no other agency within the meaning of section 2(1)(a) of the Income-tax Act. That being so, it must follow that the assessee would be entitled to claim exemption with respect to the income from his jagirdari land under section 4(3)(viii) of the Income-tax Act.
We, therefore, answer the question referred to us for opinion in the affirmative. As the assessee has not appeared before us, we would make no order as to costs.
Question answered in the affirmative.