Lord Russell of Killowen:
The appellant is zamindar of the Permanently Settled Estate of Gouripur, and he appeals to His Majesty in Council in the circumstances herein set forth. By an assessment note of the Income-tax officer of Dhubri dated 28th August 1925, the appellant was assessed under the Income-tax Act, 1929, to income-tax in respect of income arising from his said estate. On appeal the assessment was confirmed by order of the Assistant Commissioner dated 22nd December 1925. At the request of the appellant the Commissioner of Income-tax, Assam, acting under S. 66 of the said Act, submitted certain questions for the decision of the High Court. The question so submitted were three in number, and (as amended in the course of the hearing) they were in the following terms
"1. Whether the following sources of income are agricultural and therefore exempted from assessment to Income-tax under S.4 (3) (viii) of the Act. [Then follow ten Items which it is unnecessary to set out here.]
2. Whether income derived from such of the above sources as were not taken into consideration at the time of fixing the jama at the Permanent Settlement is assessable for Income-tax purposes ?
3. Whether, having regard to the terms of the Permanent Settlement Regulation, Income derived from land in permanently settled states, subject to the exemptions provided by the Legislature, is liable to assessment to Income-tax?
In view of a diversity of judicial opinion already existing in regard to the proper answer returnable to the third question, both questions 2 and 3 were, by an order of the 21st May 1926, referred for decision of the Full Bench, the consideration of question 1 being in the meantime deferred. The case was argued before the Full Bench consisting of five Judges of the High Court, with the result that Ghose, Buckland and Panton, JJ., took one view and Mukerji and Suhrawardy, JJ., took a different and opposite view. The majority of the Judges held that questions 2 and 3 should both be answered in the affirmative. In the opinion of the minority, question 3 should be answered in the negative, from which answer it would follow that question 2 would not arise. By order dated 14th March 1927 the reference to the Full Bench was disposed of in accordance with the opinion of the majority of the Court.
The remaining question 1 was decided by the High Court on 11th May 1927. The
appellant confined his claim for exemption to three items out of the specified ten items, but the High Court held that none of the three items were exempted as agricultural income, and accordingly question 1 was answered in the negative. By an order of the High Court dated 7th November 1927 the application of the appellant for leave to appeal to His Majesty in Council against the said judgments or orders of 21st May 1926, the 14th March 1927, and 11th May 1927, was granted. It is in these circumstances that the matter came before this Board.
There can be no doubt as to the importance or difficulty of this case, which, in their Lordships' opinion, depends primarily, if not entirely, upon the consideration of question 3. It is sufficient to state that the problem of the correct answer to question 3 has been now considered before different Courts in Madras, Patna and Calcutta by thirteen Judges. As their Lordships read the various decisions, it would appear that five of the thirteen Judges would answer question 3 in the affirmative and eight would answer it in the negative.
The argument for the appellant on question 3 was presented to their Lordships in
great, but not excessive, detail, and covered a wide ground. It may be summarized thus:
That at the time of the Permanent Settlement in 1793 definite guarantees and assurances were given by the governing authority and were embodied in the Bengal Regulations of 1793 (hereinafter alluded to as the Regulations) to the effect that the Income of the zamindar from his estate would not, beyond payment thereout of the jama, be further touched or taxed; that the imposition of a tax on the income of a zamindar derived from his zamindari would be a breach of those guarantees and assurances; that the Income-tax Act, 1922, does not, according to its true construction, purport to impose a tax on the income of a zamindar derived from his zamindari; and that if such a tax could be said to be imposed under or by virtue of the language used in the Act, nevertheless the language used was not so clear and explicit as to operate as a repeal of the legislative provisions of the Regulation. Such an outline was the appellant's contention.
Incidentally to this argument the Board was invited to consider and indeed pronounce upon the question, mainly historical, of the position of the governing authority immediately before the Permanent Settlement in regard to ownership of the land or of some proprietary interest therein. The attention of their Lordships was called to the various views expressed in such works and documents as Field's "Regulations of the Bengal Code," Phillips's "Land Tenures of Lower Bengal" and Shore's Minutes. Their Lordships were also referred to certain reported decisions of the Courts.
Their Lordships, however, are of opinion that there is here no occasion for any pronouncement by them upon the question of the exact nature of the rights and interests in relation to the land which existed in the governing authority before 1793, but that this appeal falls to be determined upon a consideration of the language of the Regulations and of the Income-tax Act, 1922.
In view of the argument that the Act does not; according to its terms purport to impose a tax on the income of a zamindar derived from his zamindari, their Lordships propose in the first instance to examine the language of the Act, and then, if the Act does according to its terms, actually impose such a tax, to consider if the imposition of the tax is to any, and what extant, inconsistent with the provisions of the Regulations.
The Act of 1922 is a consolidation and amendment Act, S. 1 refers to its title, sphere of operation and commencement. S. 2 is a definition section. The rest of the Act is divided into ten chapters, of which only Chaps. 1 and 3 seam relevant to the present purpose.
Chapter 1 is entitled Charge of Income Tax," and consists of Ss. 3 and 4. S. 3 is so
framed as to charge income-tax at the rate which may from time to time be enacted.
The income-tax is stated to be "in respect of all income, profits and gains of the previous year of every individual." S. 4 (1) provides that the Act is to apply to all income, profits or gains as described or comprised in S. 6 from whatever source derived, accruing or arising or received in British India or deemed under the provisions of the Act to accrue or, arise or to be received in British India. S. 4 (2) affords an instance of profits and gains accruing or arising without British India being deemed to accrue or arise in British India. S. 4 (3) enumerates a list of classes of income to which the Act shall not apply. Income derived from a zamindari is not included in the list, but "agricultural income" is included.
It would appear that the purpose of S. 3 is to charge income-tax at the current rate for the time being, and that the purpose of S. 4 is (by sub-8. 1) to confine the tax to income actually or artificially accruing or arising or received in British India, and (by sub-S. 3) to exempt specified classes of income from tax.
Although Chap. 1 is entitled "Charge of Income-tax," the real charging section would appear to be S. 6, which occurs in Chap. 3.
Chapter 3 is entitled "Taxable Income," and is composed of Ss. 6 to 17 inclusive. S. 6 provides that;
"save as otherwise provided by this Act, the following heads of income, profits and gains shall be chargeable to income-tax, in the manner hereinafter appearing, namely:
(1) Salaries. (ii) Interest on securities, (iii) Property. (iv) Business, (v) Professional earnings, (vi) Other sources."
Each of the next following six sections deals severally with each of the six heads of income, profits and gains specified in S. 6, and states with greater particularity the items in respect of which the tax shall be payable by the assessee under the particular "head," and gives details of allowances and exemptions in regard to the different heads, S. 9 accordingly deals with the head "property," and a perusal of it makes it clear that the "income, profits and gains" charged under the head "property" are confined to the annual value of "buildings or lands appurtenant thereto," in other words to the annual value of what may be conveniently called house property. The income of a zamindar derived from his zamindari would not be chargeable under that head. If chargeable in the result it would be under the head "other sources."
Section 12 deals with that head, and requires close attention. S. 12 (1) provides that the tax shall be payable by an assessee under that head:
"In respect of income, profits and gains of every kind and from every source to which this Act applies (if not included under any of the preceding heads)."
These words appear to their Lordships clear and emphatic, and expressly framed so as to make the sixth head mentioned in S. 6 describe a true residuary group embracing within it all sources of income, profits and gains provided the Act applies to them, i. e., provided that they accrue or arise or are received in British India or are deemed to accrue or arise or to be received in British India, as provided by S. 4 (1), and are not exempted by virtue of S. 4 (3).
It was contended on behalf of the appellant that the income derived from a zamindari
was never brought into charge at all, because, in S. 6, the words " other sources "
must mean sources other than those described above and therefore could not include any source which could properly be described as "property."
Incidentally it may be pointed out that this argument, if successful, could not be confined to the income derived from a zamindari ; it would free from liability to income-tax all income derived from land which did not consist of buildings or lands appurtenant thereto, and it would seem to render unnecessary the specific exemption of agricultural income.
Their Lordships, however, feel unable to accede to the argument. In S. 6 the words "other sources " used in relation to the word " property " would naturally mean sources other than the source which the word " property " connotes in this Act. But if there were any doubt on this score, it would disappear in the light of S. 12, the meaning and effect of which have been indicated above.
Upon this part of the case therefore their Lordships are of opinion that the Income-tax Act, 1922, by Ss. 6 and 12, brings into charge for the purposes of income-tax the income derived from a zamindar and that a zamindar is assessable in respect of income, profits and gains derived from that source.
Before leaving this part of the case their Lordships deem it right, in view of discussions in the course of the arguments before the Board, to make a further statement as to the liability of the appellant to pay income-tax upon the income derived from his zamindari.
The tax is upon ' income, profits and gains." It is not a tax on gross receipts. With this fact in view, each section which deals with one of the first five ' heads " specified in S. 6 contains, where proper, specific provisions for the necessary deductions and allowances to be made for the purpose of arriving at the taxable balance. S. 12, which deals with the general residuary group, is necessarily framed in general terms and authorizes the allowance of any
" expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of making or earning such income, profits or gains."
Their Lordships were unable to ascertain upon what footing the appellant had been assessed in respect of the income derived from his zamindari, i.e., whether on the gross income or after some allowance had been made in respect of the jama assessed and paid upon the lands. Their Lordships are of opinion that, in assessing the appellant to income tax in respect of the income derived from his zamindari, his income, profits and gains from that source should be computed after making proper allowance in respect of the jama assessed and paid. Their Lordships now proceed to consider the question whether the imposition of income-tax in respect of the income derived from the zamindari is to any and what extent inconsistent with the provisions of the Regulations.
In regard to this part of the case their Lordships desire to make this observation. The
Bengal Regulations of 1793 are lengthy and numerous. In the course of the arguments before the Board attempts were made to support the respective arguments by a phrase picked from one Regulation or a passage chosen from another, even though the particular Regulation only purported to deal with some matter incidental to the Permanent Settlement. In the opinion of their Lordships this part of the case falls to be determined primarily upon a consideration of the language of Regulation 1 of 1793. While bearing in mind the passages in other Regulations to which their attention was drawn, their Lordships feel that the above mentioned Regulation is the master Regulation for the immediate purpose before the Board, and that its provisions constitute the overriding feature in the present case.
It bears date 1st May 1793, but is retrospective and operates as from 22nd March 1793. This last mentioned date was the date of a proclamation, to certain articles of which the Regulation gave legislative effect. In so far as it relates to the case of the appellant, the Regulation may be conveniently summarized.
Articles 1 and 2 of the Proclamation (paras. 2 and 3 of the Regulation) contain a notification by the Governor. General in Council to all zamindars in the province of Bengal that he has been empowered by the Court of Directors for the affairs of the East India Company to declare the jama which has been or may be assessed upon their lands under the Regulation for the decennial settlement of the public revenues of Bengal passed on 18th September 1789, fixed for ever,
Article 3 of the Proclamation (para 4 of the Regulation) contains a declaration to the zamindars with whom a settlement had been concluded under the Regulation of 18th September 1789 that at the expiration of the term of the settlement no alteration will be made in the assessment which they have engaged to pay, but that they and their heirs and successors will be allowed to hold their estates at such assessment for ever.
Article 6 of the Proclamation (para. 7 of the Regulation) is of great importance and appears to their Lordships to embody the legislative statements and provisions which are most favorable to the arguments advanced on behalf of the appellant. The first sentence recites as facts well known in Bengal: (1) that the public assessment upon the land has never been fixed; (2) that the rulers have from time to time demanded an increase of assessment from the proprietors of land; (3) that for the purpose of obtaining this increase, not only have frequent investigations been made to ascertain the actual produce of the estate, but it has been the practice to deprive the proprietors of the management of their lands. The second sentence of Art. 6 recites that the Court of Directors considers these usages and measures detrimental to the prosperity of the country, and states that the zamindars with whom a settlement has been or may be, concluded, are to consider the orders fixing the amount of the assessment as irrevocable and not liable to alteration. The third sentence runs as follows :
"The Governor-General in Council trusts that the proprietors of land, sensible of the benefits conferred upon them by the public assessment being fixed for ever, will exert themselves in cultivation of their lands, under the certainty that they will enjoy exclusively the fruits of their own good management and industry, and that no demand will ever be made upon them, or their heirs or successors, by the present or any future Government, for an augmentation of the public assessment, in consequence of the improvement of their respective estates."
It is upon this third sentence of Art. 6 that the appellant mainly relies for his contention that the imposition of income-tax in respect of the income derived by him from his zamindari would be a breach of and inconsistent with the provisions of the Regulations. He alleges that the jama was a tax and not a rent or rent-charge, and that by the Regulations a legislative assurance or guarantee was given that no tax beyond the amount of the fixed jama would be imposed upon the income of the permanently settled estate. To this contention the respondent makes answer: (1) that what the Permanent Settlement accomplished was to fix for ever the quantum of the Government's share of the produce of the land ; and (2) that upon their true construction the Regulations do not purport to exempt the zamindar from taxation in respect of the income derived from his zamindari. Their Lordships, after careful consideration of the Regulations, have arrived at the conclusion that the argument of the appellant cannot succeed.
They are unable to find in the Regulations any statement or assurance that a zamindar will never be liable to taxation in respect of the income derived from his zamindari, or (to put the matter from another point of view) that a zamindar will, as to so much of his property as consists of income derived from his zamindari, be exempt from schemes of taxation applicable generally to the incomes of the inhabitants of British India.
The language used in Regn.1, Art. 6, does not in their Lordships' opinion, mean anything other than this :
"You have in the past been liable to have the amount of the jama increased according as the actual produce of the estate increased; to enable the Government to obtain this you have been subjected to frequent investigations to ascertain the actual produce and you have even been deprived of the management of your estates. All this shall cease. You shall have fixity of payment and fixity of tenure. If you improve the revenue of your zamindari you shall enjoy the fruits of your improvements without fear of the Government claiming that, because the revenue produced by the estate has increased the payment you make to Government as a condition of holding that estate shall be increased also."
Their Lordships have ventured to paraphrase Art. 6, but they think that their paraphrase expresses with sufficient accuracy the true intent and meaning of the article. In their Lordships' opinion, while the Regulations contain assurances against any claim to an increase of the jama, based on an increase of the zamindari income, they contain no promise that a zamindar shall in respect of the income which he derives from his zamindari be exempt from liability to any future general scheme of property taxation, or that the income of a zamindari shall not be subjected with other incomes to any future general taxation of incomes.
Their Lordships agree with the views expressed by Ghose, J., in the following passage from his judgment :
"There was no promise or engagement of any description whatsoever by which, the Government of the day surrendered their right to levy a general tax upon incomes of all persons irrespective of the fact whether they are zamindars with whom the Permanent Settlement was concluded or not."
It follows that in their Lordships' opinion questions 2 and 3 should both be answered in the affirmative. Question 1 was but faintly argued before the Board. As to it their Lordships need only say that they have not been furnished either with materials or reasons which would justify them in suggesting that any of the ten specified items could properly be described as agricultural income within the definition of agricultural income contained in S. 2 (1), Income-tax Act, 1922. Their Lordships accordingly agree with the negative answer which has been given to question 1. For the reasons given their Lordships are of opinion that this appeal fails and should be dismissed, and they will humbly advise His Majesty accordingly. There will be no order as to the costs of this appeal.