TMI Blog1948 (7) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... s (as defined in Section 12 of the Act) three separate items as follows:- 1.Forest, ₹ 25,144. 2.Malikana, ₹ 6,967. 3.Annuity and interest, ₹ 1,07,000. These items will be explained later, but it is convenient here to state that the assessee having appealed against this assessment, the first item was reduced to ₹ 21,040 by the Assistant Commissioner of Income-tax and was at this figure upheld by the Income-tax Appellate Tribunal and the Chief Court of Oudh, that the second item has throughout been upheld at the figure of ₹ 6,967 less 10 per cent. for expenses, i.e., ₹ 6,271, and that the third item was in the first place reduced by the Assistant Commissioner to ₹ 61,797, that from his decision the assessee appealed, but the Commissioner did not, that the Appellate Tribunal allowed the assessee's appeal and that its decision was affirmed by the Chief Court. The appeals therefore to their Lordships' Board are by the assessee against assessments in respect of the first item at ₹ 21,040 and the second item at ₹ 6,271 and by the Commissioner against an order quashing an assessment in respect of the third item in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed to land revenue or not and have both found it is not so assessed, and from this finding there has been no dissent, there appears to be little justification for raising the hypothesis in the question referred to the Court. The Chief Court has, however, been content to entertain a question thus referred and their Lordships, since they concur in the conclusion reached by the Court, will take the same course. As appears from the form of the question, the income under the first head was derived from the sale of trees described as forest trees growing on land naturally and the case has throughout proceeded upon the footing that there was nothing to show that the assessee was carrying on any regular operations in forestry and that the jungle from which trees had been cut and sold was a spontaneous growth. Upon these facts the question is whether such income is [within Section 2(1)(a) of the Act] rent or revenue derived from land which satisfies two conditions, (a) that it is used for agricultural purposes, and (b) that it is either assessed to land revenue or etc. , or alternatively (as, notwithstanding the form of the question, counsel for the assessee was allowed to argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding of fact by the Appellate Assistant Commissioner as to the source and true nature of this sum. In its order the Tribunal said:- This due is stated by the Appellate Assistant Commissioner to be peculiar to the Utraula (the assessee's) Estate, and distinguishable frcm the (haq) malikana due which is payable by the under-proprietors to the superior proprietors. The nature of this due is thus described in the revenue papers (meaning the appellate order of the Appellate Assistant Commissioner made on the assessee's appeal):- During the days of the Nawabs of Oudh the Raja of Utraula was recognised as the Pargana lord and as such retained the right to a small feudal tribute and to manorial dues. From the beginning of the 19th century till the annexation, the Rajas of Utraula could not manage their estate properly on account of the continued warfare between the neighbouring estates. During this period they transferred, made grants of or sold a large number of villages to certain persons for monetary consideration. In doing so they surrendered all their zamindari and proprietary rights and lost all their title to real property in respect of those villages. They, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annuity money and is as such not assessable to income-tax. But, as was pointed out by the Chief Court and is admitted by the Commissioner, the first of these questions ignores the fact that the assessment under this head was reduced by the Appellate Assistant Commissioner to ₹ 61,797 and no appeal was preferred against this reduction. As has been already stated, the Chief Court has held that this sum is agricultural income and exempt from tax accordingly and against its decision the Commissioner has preferred this appeal. The facts in regard to the annuity and interest now to be considered which are somewhat complex are set out at length in the statement of case referred to the Chief Court. Their Lordships think it unnecessary to repeat what is there stated. For the question now to be determined depends not on the historical origin of the payment but upon its present quality and incidents. It is sufficient then to say that the present payment, which is made under and by virtue of two documents to be presently stated, represents a compromise of a long-standing dispute between the Nanpara Estate and the Utraula Estate. It had been agreed between the parties that as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement and the costs incurred in any suit relating to the premises, and (iii) apply the balance, first to the liquidation of all sums payable as interest under the mortgage and the remainder in satisfaction of the principal money secured by the mortgage. By the lease the lessor as mortgagee in possession demised by way of theka the mortgaged property for a term of 10 years from the 1st July, 1937, at a yearly rent of ₹ 1,45,862 payable annually on the 31st May, the first payment to be made on the 31st May, 1938, and it was thereby provided that lessee should pay all Government revenue and cesses assessed or imposed on the demised premises and he undertook not to assign or sublet without the lessor's consent. Thus the assessee went into possession of the property and as mortgagee in possession leased it to the mortgagor. He did not thereby cease to be a mortgagee in possession. In respect of the annual rent of ₹ 1,45,862 payable on the 1st May, 1938 (which date fell within the previous year for the purposes of the 1939-40 income-tax assessment), the mortgagor paid various sums amounting in all to ₹ 1,07,000. It is the sum of ₹ 61,797, part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income in his hands and, when it passes from his hands, it is not. Similarly if the mortgagee collects it from the tenants, it is agricultural income in his hands. The view of the law thus expressed receives confirmation from the decision of the Board in Commissioner of Income-tax v. Maharajah of Darbhanga [1935] 3 ITR 305 . That was a case of usufructuary mortgage: but the language used by Lord Macmillan in delivering the judgment of the Board is equally applicable to the present case. The exemption , he said, is conferred, and conferred indelibly, on a particular kind of income and does not depend on the character of the recipient. And again the result in their Lordships' opinion is to exclude 'agricultural income' from the scope of the Act howsoever or by whomsoever it may be received. Enough has been said to show that the distinction sought to be made between rent received by a mortgagee in lieu of interest and rent received by him but applicable by him, inter alia, in satisfaction of interest cannot be maintained. It is, however, proper to refer to a case much relied on by the Commissioner. In Commissioners of Inland Revenue v. Paterson [1924] 9 Tax Cas. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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