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Province of Bihar Versus Maharaja Pratap Udai Nath Sahi Deo of Ratugarh and another

[1941] 9 ITR 313 - Dated:- 17-4-1941 - Harries (CJ), Fazl Ali And Manohar Lall, JJ. For the Province of Bihar : Baldeo Sahay, Advocate-General and Phulan Prasad Varma For the Assessees : Sir Sultan Ahmad, P. R. Das, B. C. De, P. K. Banarji, K. K. Banarji, H. R. Kazimi, A. H. Akbari and J. M. Qhosh JUDGMENT Harries, CJ. These are two references made by the Board of Agricultural Income-tax, Bihar, under Section 25(2), Bihar Agricultural Income-tax Act (Act VII of 1938). The two references raise pr .....

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e on a net income of ₹ 1,42,743-8-7?. The assessee being dissatisfied with this assessment appealed to the Commissioner of Agricultural Income-tax, who by an order dated the 20th of September, 1939, dismissed the appeal and confirmed the assessment. The assessee then petitioned the Board of Agricultural Income-tax, Bihar; but his petition was rejected by an order dated the 21st of February, 1940. The facts giving rise to Miscellaneous Judicial Case No. 48 of 1940 are very similar :- The as .....

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ct was ultra vires and that neither assessee was liable to be assessed in respect of his agricultural income. Secondly, it was urged that the cess collected by the assessee from their tenure holders and raiyats did not form part of their agricultural income and, therefore, could not be included in the sum to be assessed to agricultural income-tax. Thirdly, it was contended that payments in the nature of premia or salami formed no part of the income of the assessees and that such had been wrongly .....

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premia or salami received by the assessees and income from phalkar, lahkar, and bankar had been rightly assessed to tax. As the cases involved difficult questions of law, the Bihar Board of Agricultural Income-tax was asked to state cases for the opinion of this Court, and the Board stated cases under Section 25(2), Bihar Agricultural Income-tax Act, and these cases formulate four questions:- (1) Whether agricultural income of the assessee can be assessed under the Bihar Agricultural Income-tax .....

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s derived by the assessee is agricultural income as defined in the Act? It will be convenient to consider each of these questions separately. Question (1).-Whether agricultural income of the assessee can be assessed under the Bihar Agricultural Income-tax Act (Act VII of 1938)? The assessee wished to contend that the whole of the Bihar Agricultural Income-tax Act was ultra vires the powers of the Bihar Provincial Legislature or in the alternative that the Act was ultra vires in so far as it purp .....

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vires cannot be urged before a tribunal which owes its very existence and jurisdiction to the Act itself. Realising the difficulties, Counsel informed the Court that they did not press for an answer to this question as, in their view, the matter could be more appropriately and effectively raised in a suit challenging an assessment. That being so, no further argument was addressed to us upon this question, and I would, there fore, make no answer to it. Question (2).-Whether the cess as imposed by .....

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unt payable by the said Maharaja under the Cess Act amounted to ₹ 1,62,757-2-10. In the case of Raja of Panchkote the amount of cess actually collected from the tenure-holders and tenants is not clearly stated, but there can be no question that it was a substantial amount. The amount of cess paid by the said Raja amounted to ₹ 78,705-13-7. There can be no question that the cess payable by the assessees under the provisions of the Cess Act are proper deductions from their gross income .....

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r tenure-holders and raiyats formed no part of their agricultural income and could not be included in the same representing their gross income. It was conceded that there was no justice or equity in this contention; but it was urged that on the plain words of the Act cess collected by the assessees formed no part of their income. "Agricultural income" is defined in Section 2(a) as, inter alia, "any rent or income derived from land which is used for agricultural purposes, and is ei .....

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to them under Section 100 and Schedule 7, List II, Item 41, Government of India Act. By reason of these provisions a Provincial Legislature is empowered to impose taxes on agricultural income. The latter term is defined in Section 311(2), Government of India Act, as meaning agricultural income as defined for the purposes of the enactments relating to Indian Income-tax, Section 2 of the present enactment relating to Indian Income-tax defines "agricultural income" as any rent or revenue .....

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reas in the Bihar Agricultural Income-tax Act it consists of any rent or income derived from agricultural land. In my judgment there is no real difference between the words "revenue" and "income" used in these two Acts. In the Indian Income-tax Act the word "revenue" is clearly used to cover payments in the nature of income other than rent derived from the land. The definitions in the two Acts also differ as to the description of the agricultural land contemplated. .....

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sh to contend that the whole Act was ultra vires by reason of the fact that the definition of "agricultural income" in the Bihar Act differed from that in the Government of India Act. Counsel, possibly, could have argued that the Act was ultra vires in so far as the definition in the Bihar Agricultural Income-tax extended to cases not covered by the definition in the Government of India Act. Such an argument, however, could not avail the assessees in the present case, because both the .....

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raiyats formed part of their income though he did not regard the cess as part of the rent payable by the tenure-holders or raiyats as the Income-tax Officer appears to have thought. The Bihar Board of Agricultural Income-tax, however, came to the conclusion that cess formed part of the rent and was, therefore, liable to assessment as part of the assessees' agricultural income. The contention of the Income-tax authorities was that the definition of "rent" given in the Chota Nagpur T .....

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r parts of this province. In my judgment the cess received by the assessees cannot be regarded as part of the rent for the purposes of the Agricultural Income-tax Act and, therefore, taxable. It can only be assessed if it can be regarded as part of the agricultural income of the assessees. Cess is imposed by Section 5 of the Bengal Cess Act which is in these terms:- "From and after the commencement of this Act in any district or part of a district, all immovable property situate therein, ex .....

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Act provided, less a deduction to be calculated at one-half of the said rate for every rupee of the revenue entered in the valuation roll of such estate as payable in respect thereof: (2) every holder of a tenure shall yearly pay to the holder of the estate or tenure within which the land held by him is included, the entire amount of the local cess calculated on the annual value of the land comprised in his tenure at the rate which may have been determined for such cess for the year as in this .....

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cess on all the land held by him and the tenure-holders or raiyats under the proprietor have to pay cess to the latter in respect of the lands held by them. The landlord's liability to pay cess is not conditional upon the collections of cess made by him from his tenure-holders or raiyats and the landlord is bound to pay the cess payable by him whether he is able or not to collect the cess due to him from persons holding from him. Section 41 of the Act makes it clear that the liability of the .....

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merely collecting agents of this cess, then it could be urged that the amounts collected by them formed no part of theirincome. However, if such was the case, the assessees could not claim a deduction of the cess payable by them in respect of lands actually held by tenure-holders and raiyats under Section 6 (b), Bihar Agricultural Income-tax Act, because such cess would not be paid by the assessees but paid by the tenure-holders and raiyats through the hands of the assessees. The fact that the .....

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s payable by the tenureholders and raiyats. In my judgment it is clear that the cess received by the assessees from tenure-holders and raiyats does form part of their income. When they receive the payments they are absolutely entitled to them and can retain them even if they themselves were able to avoid payment of their cess to the local authorities. The payments from the tenure-holders and raiyats are received regularly and are clearly within the definition of "Income" given by Sir G .....

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e, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, or the crop of a field." As the assessees receive this cess regularly year by year and appropriate it to their own use it is clearly part of their income. The question, however, still remains whether it is income derived from land used for agricultural purposes, because it must, to be taxable, be deri .....

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tor and tenure-holders or proprietor and raiyat exists. When the proprietor ceases to be a proprietor, he no longer has any right to the cess and similarly when the interest of the tenure- holder or raiyat cease, their liability to pay cess comes to an end. The liability to pay and right to receive cess is so closely connected with the land that it can truly be said that it is income derived from the land. The cess was received by the assessees by virtue of the fact that they were the proprietor .....

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ence whether the money is received by reason of an agreement or by reason of a right given by statute. Rent is payable by the tenant or the tenure-holder as the result of agreement. The Cess Act imposes a further liability on the tenure-holder and the tenant and gives the proprietor a right to something more than the rent which was fixed as the result of agreement. Both the payments are made by the tenure-holders of raiyats by virtue of the fact that they hold interest in land from the proprieto .....

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ment of agricultural land at the time of granting of a lease can be held to be income within the meaning of the Act? The learned Commissioner was of opinion that such premia or salamis were not capital payments but were revenue receipts and therefore, taxable. In his judgment he observed:- "The amount of salami to be paid is and must necessarily be taken into account by the would-be-lessee in estimating what rent he can afford to pay for the tenancy and I consider therefore that salami of t .....

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n for any deterioration of the landlord's estate and are, in my opinion, income pure and simple." The Bihar Board of Agricultural Income-tax also came to the conclusion that these salamis formed part of the assessee's agricultural income. The Board relied upon the decision in Birendra Kishore Manikya v. Secretary of State for India [1920] 48 Cal. 766; 1 I.T.C. 67 and declined to follow a decision of this Court in Commissioner of Income-tax v. Maharajadhiraj Kumar Visheshwar Singh [1 .....

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ections of the Chota Nagpur Tenancy Act. I have, so I think, invariably seen that whenever a landlord has settled zirat, bakasht or nilami lands with tenants and has accepted a salami it has been always because of the imposition of a lower rate of rent than would have been the case if such salami had not been taken. I am of opinion that this has been the uniform practice in such cases coming before the Board throughout the province and on this consideration I cannot do anything else but hold tha .....

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prietor's income. The case of Birendra Kishore Manikya v. Secretary of State for India [1920] 48 Cal. 766; 1 I.T.C. 67 now overruled on the main question which it decided does support the views of the Commissioner and the Board, but it is to be observed that this Court has not accepted the law as laid down in that case. In Raja Shiva Prasad Singh v. The Crown [1924] 5 P.L.T. 497; 1 I.T.C. 384 this Court refused to follow the view of the Calcutta High Court that salami paid on the settlement .....

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nguishable. In so far as rent and royalty are reserved, he is founding an annual increment to the income of the Raj for himself and his successors, but with regard to salami it is the price he demands for parting with his direct enjoyment of the property by himself and his successors for a period of 999 years. He is parting with the capital to persons, who whilst not purchasers of the fee simple, are undoubtedly purchasers of a large interest therein. The purchase price is presumably not based u .....

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ere appear to be any reason why we should extend the exception made in the case of rent and royalty to the case of a non-recurring payment made to cover a long period." This case was distinguished by the learned Commissioner on the ground that it related to royalties; but the case was approved and followed by a Bench of this Court in Commissioner of Income- tax v. Maharajadhiraj Kumar Visheshwar Singh [1939] 7 I.T.R. 536; 18 Pat. 805, which was a case not connected with minerals but was a c .....

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stated that it was impossible to lay down a hard and fast rule that a salami can in no case be taxable. The question in each case would depend on the facts and circumstances of that particular case. The same view was taken by another Bench of this Court of which I was a member, in the case of Rani Bhubneshwari Kuar v. The Commissioner of Income-tax, Bihar [1940] 8 I.T.R. 550; 192 I.C. 316. These two recent cases make it clear that salami cannot be regarded as income as a matter of law. Salami ma .....

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lami is not income, and it is impossible upon the facts as stated to say that the salamis received by either assessee in this case con- stitute part of their income, and, therefore, assessable to agricultural income-tax, I would therefore, answer this third question in the negative. I think it only right to draw the attention of the Agricultural Income-tax Authorities to Section 25(6), Bihar Agricultural Income-tax Act. They must in future regard cases decided by this Court under the Act as bind .....

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on income from some if not all the sources, though the actual amounts received from the various sources are not set out in the order of the Income-tax Officer or in either the judgments of the Commissioner or the Bihar Board of Agricultural Income-tax. Further, no details of any kind are given in the cases stated as to the precise nature of the sources of this income. All that can be gathered is that income from bankar, lahkar and phalkar has been taxed, and the contention of the assessees is th .....

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n that case, however, the learned Judges appear to have thought that income from forests and fisheries might be regarded as agricultural income, though they pointed out that it was not necessary to deter- mine whether such was the case or not. Another case supporting the view of the learned Commissioner is the case of Pavadi Pathan v. Ramasami Chetty [1922] 45 Mad. 710 in which it was held that a lease of land for growing casuarina trees is a lease for an agricultural purpose within the meaning .....

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"The learned Commissioner has given his reason for thinking that virgin forest is a crop and all I will say is that for the purposes of these proceedings I will not differ from him." Bankar is income derived from the sale of wood from jungles, whereas Lahkar is income from letting lands and trees for cultivation of lac. Phalkar is income from the fruit of jungle trees and bushes. The question which has to be determined is whether the income from these sources can be said to be derived .....

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Bankar, lahkar and phalkar separately. Bankar.-It appears that this head of income was derived from virgin jungles or jungle land not actually cultivated. A few forest guards appear to have been employed to protect the property, but it cannot be said that the trees have grown as the result of cultivation. They appear to have grown naturally in the jungles without the intervention of human agency, and in my view the growth of these trees cannot be said to result from the cultivation of the soil. .....

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x under the Indian Income-tax Act. In short, the income was not derived from land used for agricultural purposes and, therefore, not within the exception in the Indian Income-tax Act. In this case, however, it does not appear to have been seriously contended that income derived from the sale of such trees was income derived from land used for agricultural purposes or from agriculture. In Srimath Jagathguru Sringeri Sri Satchitanantha Chandrasekara Bharati Swamigal v. C.P. Duraiswami Naidu [1931] .....

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his view was approved of in appeal by their Lordships of the Privy Council in the case of Kesho Prasad Singh v. Sheo Pragash Ojha [1924] 46 All. 831 in which their Lordships stated expressly that they agreed with High Court that land held for the purposes of a grow was not land used for agricultural purposes. In my judgment it has not been established in this case that the income referred to as bankar is derived from agricultural land or from agriculture and, therefore, it cannot be assessed und .....

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