TMI Blog1946 (8) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts from the sale of forest trees were capital and not revenue receipts; (b) that in assessing the net income from forest, expenses incurred in preceding years should have been allowed as deferred revenue expenditure; (c) that interest on arrears of rent and cess relating to agricultural lands was agricultural income within the meaning of Section 2(1) of the Act and, as such, exempt from tax under Section 4(3)(viii). (d) that the statutory notice under Section 22(1) of the Act (as amended in 1939) was not properly and validly issued; that, therefore, the notice issued under Section 22(2) was also not legal and proper; (e) that the Income-tax Officer, Special Circle, Patna, had no jurisdiction to make the assessment and that the whole assessment was liable to be set aside as ultra vires and without jurisdiction. 4. The first contention of the assessee was repelled by this Bench of the Tribunal (as it then was constituted) which held that the receipt from forest was 'income' and not the realisation of capital asset. The second objection relating to the disallowance of expenses incurred in past years as deferred revenue expenditure was also overruled on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Bihar v. Maharaja Pratap Udai Nath Sahi Deo[**] , that question (iv) is academic in view of the finding by the Bench that the assessee failed to furnish particulars and prove the expenditure, and question (v) is too vague and general and it does not arise out of the appellate order of the Bench, for no question of jurisdiction has been raised and decided by the Bench. 7. Similarly the Commissioner of Income-tax has applied under Section 66(1) asking us to refer the following question of law to the Hon'ble High Court:- 'Whether interest on arrears of rent is agricultural income within the meaning of Section 2 of the Income-tax Act?' 8. The assessee, who is respondent to this application, in his reply under rule 54 of the Appellate Tribunal Rules, contends that the Hon'ble High Court has already answered this question in the affirmative in the appellant's case for the charge year 1939-40; and, as such, it has ceased to be a referable question of law. 9. As both the applications arise out of the same order of the Tribunal and concern the same assessment, we propose to draw up one statement of the case which would govern both the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, according to the assessee, comes to ₹ 3,25,028. The establishment charges incurred during the relevant year of account as also a certain percentage of the gross receipts 'as incidental general management costs' were allowed. But the assessee's claim in regard to 'deferred revenue expenditure' was disallowed. The Income- tax Officer, in disallowing the claim, observed:- As to the alternative claim, what exactly the nature of such expenses in the past was and in what way they can be treated as a revenue expenditure, which will have any bearing on earning of this year's income, are not proved, as the accounts are said to be filed in Court. But from the explanations offered by the assessee's representatives, however, it appears that heavy development costs were incurred in the past, which, by no means could be classed as revenue expenditure. The assessee follows cash basis of accounting and only such deductions as are necessary for earning the income could be allowed. Capital expenses in past have to be excluded, and only revenue expenses to be deducted from gross receipts each year to see if there was profit or loss in the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. In these circumstances, we refuse to refer this question to the Hon'ble High Court. 13. The last question, as framed by the assessee, does not arise out of the order under Section 33. Before we deal with the implications inherent in this question we would like to set out the facts on which the assessee's contention appears to have been founded. By a notification dated the 14th September, 1940, the Commissioner of Income-tax created a Special Circle at Patna, and under Section 5(5) of the Act he directed that the Income-tax Officer in charge of that Circle should perform the functions of an Income-tax Officer (i) in respect of such income and such classes of persons in the area comprised in the Province of Bihar and Orissa as were assessable to excess profits tax under the Excess Profits Tax Act, 1940, and (ii) in respect of all persons and all classes of income liable to income- tax as well, whose income-tax assessment cases will be transferred to his charge by the Commissioner of Income-tax to the exclusion of any other Income-tax Officer or Income-tax Officers appointed in the said area. By a further notification dated the 11th of November, 1940, made under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs conducted after the issue of the notice under Section 22(2) were null and void and, therefore, the assessment was liable to be annulled. The question appears to have been raised in the grounds of appeal before the Appellate Assistant Commissioner but there is no discussion of this point in his order. It may be that the plea was later abandoned. Be that as it may, the question was reagitated before the Tribunal and the Bench dealt with the contention which formed the first premise, namely, whether the notice under Section 22(1) was validly issued. It came to the following conclusion:- It appears that the various Income-tax Officers have combined to issue a common notice and have specified the area within the jurisdiction of each one of the officers. The combined notice is merely for the sake of economy. The Income-tax Officer, the area under his jursidiction and the fact that the notice is by the respective Income-tax Officers against whom his jurisdiction is mentioned are all published and in substance the notice is by the Income-tax Officer under Section 22(1) as is mentioned in the notice itself. The other argument, therefore, that the notice under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iji v. Commissioner of Income-tax, Bihar and Orissa[#], and we would not ordinarily have referred the question once again for the opinion of the Hon'ble High Court, but as we are referring certain other questions at the instance of the assessee and as the question raised by the department arises out of the same order and as the whole case will thus be before the High Court, we desire to refer the question formulated by the Commissioner of Income-tax as well. It may here be mentioned that the Commissioner's point of view is to keep the assessment alive by making it the subject of a pending reference so that if in the meantime the Judicial Committee of the Privy Council were to decide the question in favour of the department the amount of interest now exempted might then be brought under assessment without any legal hitch. We, therefore, formulate the following question of law:- 'Whether interest on arrears of rent and cess relating to agricultural lands is agricultural income within the meaning of Section 2(1) of the Act and, as such, exempt from tax under Section 4(3)(viii).' 15. Under Section 66(1) of the Act we, therefore, refer the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee contended that the sale of the forest trees must necessarily result in the diminution of the value of the estate of the assessee and, therefore, the amount realised should be treated as a capital receipt. This argument has been unsuccessfully advanced on a number of occasions as pointed out above and is similar to the argument advanced on behalf of this very assessee that royalties from coal mine should not be assessed to income-tax as the amount received resulted in diminution of the value of the mine by extracting so much coal therefrom. In our opinion the Income-tax authorities have taken the correct view. With regard to the invalidity of the notice issued under Section 22(1) of the Income-tax Act, the facts are these. On the 22nd of April, 1942, the Commissioner of Income-tax issued a notice in pursuance of Section 22(1) of the Income-tax Act. It was contended that this was not a notice contemplated under Section 22(1) as the notice was not signed by the Income- tax Officer of the place having jurisdiction in a particular area. But it was not contended that the contents of the notice were not in the proper form or that the notice did not substantially comply with the ..... 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