TMI Blog1961 (4) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... n the remaining writ petitions-W. P. Nos. 419 to 424 and 1236, 1237 of 1960-the ex-zamindar of Sivaganga is the petitioner. He prays for writs of prohibition as the assessments in those cases have not yet proceeded beyond the stage of the issue of notices under section 34 of the Indian Income-tax Act. Since the question calling for determination in all these petitions is identical in so far as it relates to the assessability to tax of the interim payments, the details of one petition will be set out. In W. P. No. 343 of 1960, the ex-landholder (zamindar) of the Ramnad zamindari estate is the petitioner. The estate was taken over on September 7, 1949, and an amount of Rs. 19,74,144 was deposited by way of advance compensation under section 54A of the Act. For each of the faslis from fasli 1359, the Government also deposited a sum of Rs. 1,60,470 as interim payment under section 50 of the Act. In due course, the Tribunal adjudicated upon the claim of the several persons entitled to these amounts and the petitioner received his share thereof. In July, 1959, the Income-tax Officer issued a notice to the petitioner calling for his objections to the assessment to income-tax of the interi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination of the final compensation and its payment to the landholder. While under the Act the Government took immediate possession of the estates, since the landholder was deprived of the possession of the estate and the income therefrom without any actual payment of the compensation to him on such dispossession, it was provided that an annual and recurring payment was to be made to him pending the final payment and that this should, therefore, be regarded as a measure to provide an income to the landholder during the period referred to. The department's claim is accordingly that the interim payment is in the nature of a substituted annual income and that in any event it could be regarded as interest on the compensation amount remaining payable to him. The further contention was that unless this receipt could be brought within any of the exempting provisions of the Indian Income-tax Act, it cannot escape assessment. Before we proceed to examine the respective contentions on either side, it is desirable to set out the relevant provisions of the Abolition Act in so far as they serve to provide any clue to the nature of these interim payments. Section, 3 of the Act provided in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basic annual sum, section 37 of the Act laid down the scale of compensation in respect of any estate, excepting those held by religious, educational and charitable institutions, for which section 38 and 38(a) provided otherwise. In the case of zamindari and inam estates, the total compensation was fixed on a sliding scale. It was to be so many multiples of the basic annual sum as determined in respect of that estate, the multiples varying according as the basic annual sum was above or below certain figures. Under section 40 of the Act, compensation payable by any person under the Act was to be paid in such form or manner and at such time or times and in one or more instalments as may be prescribed by rules made by the Government. The Act itself made further provisions for the deposit and apportionment of the compensation amount. Under section 41, the Government had to deposit in the office of the Tribunal the compensation in respect of each estate as finally determined under section 39 by applying the earlier provisions referred to in such form and manner, and at such time or times and in one or more instalments, as may be prescribed by the rules made under section 40, Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the other persons referred to in section 44, sub-section (1) as follows : (3) In respect of the fasli year in which the estate is notified, they shall together be entitled to such amount as the Government may, on a rough calculation, determine to be the basic annual sum referred to in section 26, if the deposit in pursuance of section 54A has not been already made, and to an amount equal to one-half of the basic annual sum as so calculated, if the deposit aforesaid has been already made (4) In respect of each subsequent fasli year, they shall together be entitled to the amount estimated under sub-section (3) to be one half of the basic annual sum, unless data for the better calculation thereof have since become available, in which case the amount to be paid shall be revised by the Government with reference to such data ...... It is seen from these provisions that half of the estimated total compensation has to be deposited in the office of the Tribunal within six months of the notified date. For that fasli year in which the estate is notified, the landholder and other persons are entitled to an interim payment equal to the basic annual sum, if the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill no doubt provided for interim payments, but, it was not quite clear whether such interim payments would be adjusted against the compensation to be paid finally, the passed Act provided for the deposit of advance compensation under section 54A of the Act, and further made it clear by section 50, sub-clause (8), that no interim payment made under this section shall be deemed to constitute any part of the compensation which the Government are liable to deposit under section 41, sub-section (1), or to any extent to be in lieu of such compensation. This provision forms the main support of the department's contention. Its scope will be considered in due course. The petitioner, however, claims that the compensation which the landlord has to receive for the deprivation of his estate, really consisted of the advance compensation deposited under section 54A, of the final compensation determined under section 39 and deposited in the manner provided by section 41(1), and the total of the interim payments made up to the day of deposit of the final compensation, as also the further compensation payable under section 54B. It is pointed out by the petitioner that the several provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n provides that if the total compensation computed under section 39 in respect of estates shall fall short of Rs. 12+ crores the Government shall distribute the difference to the various estates in specified proportions. Admittedly, this sum of Rs. 121 crores does not appear to include the interim payments. But what the learned counsel for the petitioner argues is that the intention of the Government in making the various payments was only to compensate the landholder for the deprivation of the estate and the particular nomenclature employed by the Government in giving effect to their intention is not conclusive of the character of the sum in question. While the learned counsel for the petitioner seeks to base his contention that interim payment is no less compensation than any other sum so specifically described, the learned Advocate-General, appearing for the department, claims that there is a sharp distinction between the compensation and the interim payment. Wherever the expression compensation is used in the Act, it refers to that amount as ascertained by the application of section 39 of the Act to be dealt with under section 41 thereof. Interim payments are, according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivileges. We are unable to accept the argument of the learned AdvocateGeneral that solely for the reason that compensation so styled under the Abolition Act is to be determined in accordance with the provisions contained in sections 24 to 39 (leaving out sections 38 and 38A, which relate to-religious, educational and charitable institutions) and because section 39 makes pointed reference to the total compensation and section 41 directs the deposit of such compensation as determined under section 39, compensation for the loss of the estate is solely left to be provided by the above provisions of the Act, and that any payment that is directed to be made under other provisions such as section 50 of the Act does not form part of the compensation for the loss of the estate. This argument is rested more or less upon the wording employed in the Abolition Act. We may state at once that the terminology used in the Abolition Act is not conclusive in so far as the character of the payments for purposes of the Indian Income-tax Act falls to be considered. Under section 3, clause (b) of the Act, the entire estate stood transferred to the Government and vested in them free of all encumbrances wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation under section 41. We have pointed out that the quantum of these interim payments is computed on the basis of the basic annual sum determined under section 26 and it is payable. to the landholder for every fasli following the notification in the manner provided in section 50. If no part of the compensation is deposited as required by section 54A of the Act, for that fasli the landholder is entitled to an amount equal to the basic annual sum, and after the deposit of the advance payment of compensation, which is one half of the total amount of compensation as roughly estimated, the landholder is entitled to interim payment of one half of the basic annual sum. At first blush it might, therefore, appear that since the basic annual sum itself is linked to the annual ryotwari demand, and may roughly be taken to represent the net annual income which the landholder would but for the abolition of the zamindari have realised from the estate, the interim payments were so specifically provided for the purpose of making available to the landholder, who was deprived of his estate but who had not yet been paid the compensation, an amount which might be equated to the net annual re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation is also liable in enforcement of claims of persons so entitled under section 44 of the Act. The learned Advocate-General, however, argued that no inference of similarity of character between compensation and interim payments should be made and that the above argument is at best inconclusive. We cannot treat this argument isolated from the rest of the features that we have referred to. In so far as the Abolition Act was concerned, the entire scheme of the Act would certainly support the conclusion that the interim payment was regarded as no different from the compensation that was payable for the deprivation of the estate ; it was in fact one of the items of compensation. The learned Advocate-General appeared to place great reliance upon section 50, sub-section 8, which reads thus : No interim payment made under this section shall be deemed to constitute any part of the compensation which the Government are liable to deposit under section 41, sub-section (1) or to any extent to be in lieu of such compensation. It seems to us that this provision cannot be given the very extended interpretation which the learned Advocate-General seeks to place upon it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of the provisions of the Indian Income-tax Act, we cannot accept the nomenclature used in the State enactment as conclusive. Whatever differences might exist in the character of final compensation and interim payment, in so far as the Abolition Act is concerned, they cannot be taken bodily over into the scheme of the Indian Income-tax Act. It is not necessary to examine at length the further argument that these payments might be regarded as interest on the undeposited portion of the compensation. Clearly, there is no such intention on the part of the Government to make these payments as interest. That is sufficient to dispose of this argument. The argument that unless the petitioner can place reliance upon any of the exempting provisions of the Indian Income-tax Act, he, cannot avoid the liability of this amount to assessment is one which we are unable to accept. The Indian Income-tax Act is obviously a measure to tax an income receipt. It was not designed to tax capital and if the receipt of an amount is of a capital nature, it obviously goes outside the purview of the Indian Income-tax Act. No specific exemption contained in the Act is required to enable the petitioner to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st and dividends and interest thereon and partly compensation under the treaty computed on the basis of interest on certain amounts. The question arose whether the compensation computed on the basis of interest was or was not income for purposes of income tax. It appears that an award by the Mixed Arbitral Tribunal was made in respect of these claims and the compensation was a sum calculated upon the basis of interest in respect of a fund consisting of dividends which had been held as alien property under the German law. Rowlatt J. observed : The question is whether it is income at all. It is called compensation, but the mere word in the Award, ' compensation ', does not decide the matter ; one must look at the substance of what it was, and if it is annual profits and gains or income . arising from a foreign possession, then it is to be taxed. The foreign possession must have been the fund in the hands of the Treuhander and the Crown's case is that this has been transmuted into sterling at the pre-war rate of exchange and, awarded with annual interest. The Treuhander did not receive this money subject to any liability to hold it at interest. No doubt t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. R. 576). That was a case which arose under the Hyderabad (Abolition of Jagris) Regulation 1358F, which provided a scheme for the abolition of jagris. Until such time as the Government m-as in a position to fix the commutation payable ,in respect of each jagir, the jagirdar was to be paid an interim allowance equal to the net income that used to be derived from the jagir less file, expenses of the management. The question arose whether these amounts were income assessable to income-tax. A Bench of the Andhra Pradesh High Court held that these interim allowances partook of the nature of income and did not form part of the commutation amount and were also not casual and non-recurring receipts, and that payments subsequent to the determination of the commutation were not liable to taxation. We have examined the relevant provisions of the Hyderabad Regulation referred to. Under the scheme of that Regulation, administration of the jagirs was transferred to the Government and the management of the jagirs was, therefore, in the hands of the Government through duly appointed managers. There was no provision in that Regulation analogous to section 3(b) and (c) of the Abolition Act, and o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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