TMI Blog1944 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to us at her instance by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act. Section 2(1) of the Income-tax Act with which we are concerned at present, includes within the definition of agricultural income, (a) any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land revenue in British India or subject to a local rate assessed and collected by officers of the Crown as such. It is not disputed that if interest on rent is agricultural income within this definition it is exempt from taxation. In Sri Sri Ramachandra Dev v. The Commissioner of Income-tax, Bihar and Orissa [1942] 10 I.T.R. 141, it was held that interest on arrears of mustajiri rent forms part of the Zamindar's agricultural income and is, therefore, not taxable under the Income-tax Act, 1922. The mustajiri is a farmer of rent or a person who acquires from the proprietor the right to collect rent from his tenants in lieu of a certain sum of money which he agrees to pay to the proprietor annually and which is called mustajiri rent. It is not disputed that the case of Sri Sri Ramachandra Dev (supra) is a direct auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rive the income by reason of his having parted with any part of his interest in the land, but because of default on the part of the tenant in paying the rent within the fixed period, which he could have invested in some profitable manner. The yield is not of the landlord's proprietary right in the land but of the debt which comes into existence as soon as there is default on the part of the tenant to pay the rent at the stipulated dates . In Al.Vr.V.D. Pethaperumal Chettiar v. Commissioner of Income-tax, Madras [1943] 11 I.T.R. 532, the learned Chief Justice of the Madras High Court and another Judge came to the same conclusion as the Calcutta High Court and observed that interest on rent is not rent, nor can it be classified as revenue derived from land, its source being the tenant's default in the performance of his contract. The learned Chief Justice after citing with approval the decision of the Calcutta High Court in In re Manager, Radhika Mohan Roy Wards Estate [1940] 8 I.T.R. 460 (supra) referred to two of the decisions of this court in these words:- The Patna High Court followed this decision in Maharaja Bahadur Ram Ran Vijay Prasad Singh v. The Province of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source. Income, as was observed by the Privy Council in Commissioner of Income-tax, Bengal v. Shaw Wallace and Company [1932] 59 Cal. 1343, has been pictorially likened to the fruit of a tree or the crop of a field, and, if I may say so, the picture will not be a complete or correct picture if we sever the rent which bears interest from the interest which accrues on or grows out of it and characterise them as products of separate trees or crops of two different fields. The mere fact that rent is payable by contract and interest on arrears of rent is payable under a statutory provision does not, in my opinion affect the nature or the source of the income, because interest would not be payable at all if no rent is payable. I also find considerable difficulty in accepting the view that while the source of rent is the land, the source of interest is the tenant's default in the payment of rent. Rent is often recovered by means of a suit and the suit is brought on account of the tenant's default in paying the rent at the proper time. Could it then be said that it is the default of the tenant and not the land which is the source of such rent? We have really to look to the essence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Again in the Chota Nagpur Tenancy Act which is administered within the Chota Nagpur division of this province the definition of rent is wide enough to include anything which is recoverable under any enactment for the time being in force as if it was rent. Even assuming that the definition of rent as given in these Acts does not include interest, there are a number of provisions in both these Acts to show that once interest has accrued, it becomes part of rent and is recoverable as if it was rent. The matter however, need not be pursued, because, it must be conceded that for the purpose of construing the Income-tax Act we are not to draw upon the definition of rent in any of the Tenancy Acts but upon the accepted sense in which that term is used. The Oxford Dictionary defines rent as:- The return or payment made by a tenant to the owner or landlord, at certain specified or customary times, for the use of lands or houses . Revenue is defined in Wharton's Law Lexicon as- Income, annual profits received from land or other funds . In Province of Bihar v. Maharaja Pratap Udai Nath Sahi Deo(3) (I.L.R. 20 Patna, 699) it was pointed out that the word revenue as used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r with each successive re-enactment . Though Lord Macnaghten did not ultimately base the judgment of the case he was dealing with upon this principle, yet the principle has been reiterated by eminent Judges on a number of occasions and it cannot be entirely overlooked. It was relied on by Sir Richard Garth in Burah's case (I.L.R. 3 Calcutta 63) and his view was approved by the Privy Council when the matter went before them. Also the following observations made by Sir Abdur Rahim in Board of Revenue, Madras v. Ramanadhan Chetty (I.L.R. 43 Madras 75) which was a case under the Income-tax Act are on the same lines. If we look at the history of this enactment the case sought to be made on behalf of the Crown appears to be still more untenable. The Provisions of Act VII of 1918, so far as the present question is concerned, is practically in the same words as that of the Income-tax Act of 1886. There the word income used in the Act is defined as income and profits accruing and arising or received in British India and the present Act says that it shall apply to all income if it accrues or arises or is received in British India . Whether there is any difference intended at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the reasons and the conclusions arrived at by my Lord, and it is unnecessary for me to express the same conclusions in words of my own. I only desire to emphasise that in the case of Sri Sri Ramchandra Dev v. The Commissioner of Income-tax, Bihar and Orissa [1942] 10 I.T.R. 141 ; 21 Pat 461, we never adopted the view taken by the Calcutta High Court in In re Manager, Radhika Mohan Roy Ward's Estate [1940] 8 I.T.R. 460 that interest on rent is not agricultural income. We followed that case only in so far as it decided that interest was not rent but distinctly pointed out that in Bihar interest on rent may be revenue derived from land. BEEVOR J.-The question referred to us is Whether interest on arrears of rent is part of the assessee's agricultural income within the meaning of Section 2(1)(a) of the Indian Income-tax Act. There is no dispute that the rent in question is agricultural income and it is not contended that the interest in question is not income. Section 2(1)(a) of the Indian Income-tax Act includes in the definition of agricultural income any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. He pointed out that the source of the income from rent is the landlord's superior interest in the agricultural land. In dealing with interest he stated as follows:- The interest, however, which the tenant pays under Section 67 is a sort of a statutory recompense which is allowed to the landlord for being deprived of the use of the money which is payable as rent by the tenant. The landlord does not derive the income by reason of his having parted with any part of his interest in the land, but because of default on the part of the tenant in paying the rent within the fixed period, which he could have invested in some profitable manner. The yield is not of the landlord's proprietary right in the land but of the debt which comes into existence as soon as there is default on the part of the tenant to pay the rent at the stipulated dates. In Kumar Deba Prosad Garga v. Commissioner of Income-tax, Bengal [1943] 11 I.T.R. 546, the Calcutta High Court followed the previous decision. In this case no further reasons for holding that such interest was not agricultural income were given, but reliance was placed on the fact that a Full Bench of this Court in Maharaja Bahadur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Judicial Committee of the Privy Council in Commissioner of Income-tax, Bengal v. Shaw Wallace Company [1932] 59 Cal. 1343 delivered by Sir George Lowndes wherein he stated with reference to the Indian Income-tax Act:- Income, their Lordships think, in this Act connotes a periodical monetary return 'coming in' with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall . I think it is difficult to recognise a default in payment as coming within this description. Under the Indian Income-tax Act it is income which is taxed and not the person: vide Section 6 of the Act and the question put by Lord Macmillan during the argument in Income-tax Commissioner, Bihar and Orissa v. Maharajadhiraj of Darbhanga [1935] 3 I.T.R. 305 ; 62 I.A. 215 at p. 217 and the answer given by Dunne, K.C. Even in the case of income from property it appears that some transaction between two parties is essential before any income is created. Even the owner of a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the transaction to be considered in determining the source of any item of income is the transaction which creates that income and not any transaction which merely decides which of one of more persons shall receive the income. In Commissioner of Income-tax v. Captain Maharaj Kumar Gopal Saran Narayan Singh [1934] I.L.R. 13 Pat. 661; 2 I.T.R. 264, a Full Bench of this Court had to consider a transaction in which the assessee executed a deed whereby he transferred his whole interest in his estate in favour of B, the consideration for the transfer being the payment by the transferee of the assessee's debts amounting to a considerable sum, the further payment of the expenses of his daughter's marriage and an annual payment of ₹ 2,40,000 during the life of the assessee. After holding that the annuity payable to the assessee was income and not capital, the Full Bench held that in the absence of any provision in the deed that the annual payment was to be made out of the income of the estate the income was not agricultural within the meaning of Section 4 of the Indian Income-tax Act, 1922. It was pointed out in the judgment of Courtney Terrell, C.J., page 678, that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62 I.A. 207; 3 I.T.R. 237]. Subject to these exceptions or explanations it seems to me that if the existence of an interest in such land as is described in Section 2(1)(a) of the Indian Income-tax Act is inherent in the transaction by which the income is created, then the income so created is agricultural income within the meaning of the Indian Income-tax Act. I note that the proposition just stated does not directly answer the question which was left open by their Lordships of the Judicial Committee in Nawab Habibulla v. Commissioner of Income-tax, Bengal [1943] 70 I.A. 14; 11 I.T.R. 295, namely, the question whether the mutwalli's remuneration would have been agricultural income had it been by way of fractional part of the income of the wakf estate or by percentage as commission, though my proposition may suggest the way in which this question may be solved should it arise for decision. Before returning to the direct consideration of the question before us, I wish to consider a little more closely the reasons given by their Lordships of the Calcutta High Court in the case, In re Manager, Radhika Mohan Roy Wards Estate [1940] 8 I.T.R. 460 ; A.I.R. 1941 Cal. 443, for hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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