TMI Blog1998 (2) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Reference No. 195 of 1982 relates to the assessment years 1973-74 to 1975-76, while the Income-tax Reference No. 326 of 1983 relates to the assessment year 1977-78. The assessee belongs to the erstwhile ruling family of Wankaner. The ex-Ruler of Wankaner, by his order No. 28 of Samvat year 2004 (i.e., dated February 2, 1948), granted "Kapal Giras" to the assessee who was his grandson, as per the custom prevalent in the State. Under this "Kapal Giras" the assessee was given the villages of Wankia and Ratidevdi. As per the Revenue survey, the total area of village Wankia was 1904 acres and 10 guntas and the relevant portion of the village Ratidevdi was above 1991 acres and 24 guntas. The total area was thus 4,895 acres and 34 guntas. The land has been described throughout this order as "jagir" given to the assessee under this grant. It was ordained that the name of the assessee should be entered in the record of rights and that possession of the said jagir should be handed over to him. The Revenue Department was directed to prepare a separate title deed of the said jagir in favour of the assessee and take the necessary steps to implement the order. The revenue of the current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendation of the elected representatives of the people of these territories. The province was thus brought under one Government. The Government of the State of Saurashtra was, by section 3 of the said Ordinance, empowered to make notified orders directing that the grant shall be deemed to have been invalid and have no effect whatever, or directing the grant to be resumed or cancelled, either forthwith or from a specified date, and was also authorised to give supplemental, incidental and consequential directions as it thought fit in the circumstances of the case by the same notified order or any subsequent order. The effect of orders made under section 3 was, as provided in section 4, that the land comprised in the grant in respect of which the notified order was made, was deemed to vest in and belong to the Government and any right, title or interest which the grantee or any person claiming through him may have had or claiming therein was to determine. Thus, on issuance of the notified order resuming the grant, the rights of the grantee stood extinguished. As provided by section 5, no notified order made by the Government under section 3 of the Ordinance could be called in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the appeals of the assessee holding that the cash annuity of Rs. 22,501 received by him from the Government was an income which was chargeable to tax. The assessee did not carry the matter further and offered the cash annuity for tax in each of the assessment orders up to assessment year 1972-73. However, at the hearing before the Income-tax Officer in respect of the assessment year 1973-74, the assessee's authorised representative put in writing by letter dated July 28, 1975, the contention of the assessee that the cash annuity of Rs. 22,501 was not an income and that it was a capital receipt. It was also submitted that the said amount was received by the assessee in the nature of compensation granted by the Government in lieu of taking over the villages from the assessee. The Income-tax Officer negativing the assessee's contention held that the cash annuity which was payable during the lifetime of the assessee could not be treated as compensation and that the assessee had in fact exchanged the capital asset for a life annuity of Rs. 22,501 per annum, which was in the nature of income. It was held that the case was fully covered by the decision of the Privy Council in Maharajk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is grandson, as per the tradition and this grant was known as "Kapal Giras". The expression "Kapal Giras" as defined in Bhagvatgomandal means, "jagir given to the Princes or 'Bahayats' for their maintenance". The contention that the assessee had received the grant as a member of the family, found favour with the Tribunal on the basis of a mention of the family tradition, as per which "Kapal Giras" was to be given to the grandson, in the first paragraph of the grant. In this connection, it will be noted that the Appellate Assistant Commissioner had disallowed the claim of the assessee on the ground that at the material time, the villages had already been given to the assessee and that what section 10(2) of the Act exempted, was only the sum paid out of the income of the estate belonging to the family and that as the source itself was parted with by the family in favour of the assessee, the income derived out of that source accrued to the assessee and not to the impartible estate belonging to the family. The Tribunal, however, noted that the case of the assessee did not depend upon the exemption under section 10(2) of the Act, but what he contended was that the annuity income in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal. This was a very material feature of the case, which did not attract the attention of the Tribunal. Even in the decision of this court in Pari Mangaldas Girdhardas v. CIT [1977] CTR (Guj) 647 (sic), on which reliance was placed on behalf of the assessee by his learned counsel, the court, while holding that the principle of reprobate and the bar of estoppel, cannot be invoked against an assessee and the assessee can change his stand, in terms, held that the conduct of the assessee in relation to past years would be relevant if he fails to furnish any satisfactory explanation. The assessee undoubtedly would be entitled to give an explanation as to its earlier conduct and to urge that he had taken a stand that he committed a mistake or error. In the present case, however, the assessee who for over a period of two decades had shown his receipts as individual receipts, while suddenly during the course of argument for the relevant year raising a question in a letter through his representative, did not at all explain his conduct of all those years of treating these receipts as his individual receipts. The Tribunal was, in our opinion, therefore, in error in holding that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prasad Bahadur v. CIT [1971] 82 ITR 527, Padmaraje R. Kadambande v. CIT [1992] 195 ITR 877, on the decision of the Rajasthan High Court in the case of Eklingji Trust v. CIT [1986] 158 ITR 810 and the decision of the Bombay High Court in H. H. Maharani Shri Vijaykuverba Saheb of Morvi v. CIT [1963] 49 ITR 594. Learned counsel appearing for the Revenue argued that the grant which was made in favour of the assessee by the ex-Ruler, was intended for his maintenance and there was no capital asset transferred to the assessee under that grant. It was submitted that the use of the expression "cash annuity" in the resumption order was conclusive and the word "annuity" clearly suggested that what the assessee was to get, was an yearly income during his lifetime. It was submitted that the capital asset if any, was transferred for a life annuity and, therefore, the receipt of life annuity was an income. It was submitted that cash annuity which was given, was not relatable to the quantum of value of the capital asset and these amounts cannot, therefore, be treated as payment of a capital sum in instalments. Reliance was placed by learned counsel in support of his submissions on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been converted into an annuity." Therefore, if the annual income is purchased in return for the capital, such annual payment would be taxable. However, if it is a payment of capital sum, it would not be taxable, except where there are capital gains. In annuity, the annuitant pays the consideration of a sum of money or property as the price of the annuity. It partakes of the character of an investment on which a person receives a fixed payment for a lifetime or a specified number of years. Such an annuity which has no colour of capital would be exigible to income-tax. The income-tax law would be concerned with this meaning of the word annuity, which stipulates purchase of income for a sum of money or property. The word "annuity" has a simpler meaning also and it is defined in the Concise Oxford Dictionary also to mean "a yearly grant or allowance" or "a sum payable in respect of a particular year". The question therefore is whether the word "annuity" in the resumption grant is used in its classic sense relatable to the provisions of the Income-tax Act, or simply so as to mean an annual payment which has nothing to do with any purchase of income in exchange of a sum of money or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for incidental and consequential matters. In this background, it can never be said that the assessee had purchased an income by surrendering his capital asset, viz., "jagir", under the said grant. The said grant was resumed and it was simultaneously decided to pay cash annuity in lieu thereof, with effect from January 1, 1950. On a true construction of the resumption order, the cash annuity was being paid to the assessee because his grant of the two villages was resumed and there was no question of the assessee purchasing any annual income. Such resumption had the effect of the capital asset of the assessee, which was an income producing estate, being lost to the assessee and in lieu of such capital loss, the reimbursement was being made by providing for payment of a determined amount only during the lifetime of the assessee. This payment was clearly intended to compensate for the loss to the assessee, which was caused by virtue of his capital estate being taken over under the resumption order warranted by the Saurashtra Grants (Resumption) Ordinance, 1949. These annual instalments though described as cash annuity, were, when the substance of the transaction is looked at, not inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except as capital gains and any tax on such capital receipts would amount to taxing the capital, which was not the intention of the income-tax law. Where a voluntary payment is made entirely without consideration and is not traceable to any source which a practical man may regard as a real source of income, but depends entirely on the whim of the donor, such payment cannot fall in the category of income. Therefore, even if, for the sake of argument, the amount was paid under the resumption order voluntarily and without any consideration and was not traceable to any real source of income depending entirely on the pleasure of the Government, such payment would not fall in the category of income. However, as held by us hereinabove, we are clearly of the view that the amount of cash annuity payable under the resumption order to the assessee was by way of compensation for loss of his income-producing asset, namely, the jagir, consisting of two villages given to him under the grant, which was resumed by the Government. We draw light for our aforesaid conclusion from the decisions of the Supreme Court in the case of S. R. Y. Sivaram Prasad Bahadur [1971] 82 ITR 527 and Padmaraje R. Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR (SC) 144, held on an interpretation of section 14 of the Regulation that the interim maintenance allowances paid under that section were revenue receipts on which income-tax could be imposed. It was observed that the administrator of jagirs took away the management of the estate pending the making of the provision for determination of the commutation amount and till the payment of the commutation sum, the administrator merely managed the estates on behalf of the former owners of those estates, which appeared to be the position, as noted by the Supreme Court, from sections 5, 8, 11 to 14 of the first Regulation. In S. R.Y. Sivaram Prasad Bahadur's case [1971] 82 ITR 527, the Supreme Court for these reasons held that the observations made in Raja Rameshwara Rao's case [1963] 49 ITR (SC) 144 should be read in the light of the facts of that case. Therefore, Raja Rameshwara Rao's case [1963] 49 ITR (SC) 144 cannot assist the Revenue. In Padmaraje R. Kadambande's case [1992] 195 ITR 877, the Supreme Court was concerned with the question whether certain amounts received by the assessee by way of compassionate payment under clause (d) of section 15(1) of the Bombay Merged Territories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time being with the duty of the maintenance of the institution or place of worship or performance of such service." The High Court, relying upon the decisions of the Supreme Court in S. R. Y. Sivaram Prasad Bahadur's case [1971] 82 ITR 527, P. H. Divecha's case [1963] 48 ITR 222 (SC) and Ukhara Estate Zamindaries P. Ltd. v. CIT [1979] 120 ITR 549 (SC), found that the compensation paid was for resumption of jagir lands, i.e., for taking away the estate and so it was a capital receipt. In view of the above discussion, it becomes clear that the cases referred to on behalf of the Revenue which were decided in the context of annuities properly so called, cannot assist the Revenue in the present case in which the annual payments were intended to be compensation for loss of the income-producing asset. In Maharajkumar Gopal Saran Narain Singh's case [1935] 3 ITR 237, the Privy Council was concerned with the item of annuity and the facts show that these annual payments were purchased for a greater portion of the estate by the assessee. There, the source of the life annuity was the covenant and the Privy Council found that the life annuity was the produce of one of the items, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g away of the income-producing assets and, therefore, were in the nature of compensation for that capital asset ; 3. When payment is made simultaneously while resuming a grant, there would be a presumption that the payment was by way of compensation in the absence of any statutory provision to the contrary. 4. A grant of villages described as a jagir in the order was not a mere right to collect the revenue, but it was coupled with the status as a "Girasdar" with possessory rights over the villages granted, including the right to recover the revenue. Therefore, the taking away of such grant resulted in loss of a capital asset to the assessee which was reimbursed by fixing an annual amount by way of compensation to be debited under the head "Miscellaneous compensation" by the Government ; 5. The annual payments of the compensation amount for life to the assessee in lieu of resumption of grant which consisted of a jagir of two villages known as "Kapal Giras" did not amount to any payment taxable as annuity under the Income-tax Act ; 6. The annual payment for life, in lieu of the resumed grant of the two villages, was clearly a capital receipt in the hands of the assessee. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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