COMMISSIONER OF INCOME TAX Vs. THAKORE C K

JUDGEMENT

(1.) THE question which has been referred to this Court under S. 66(1) of the Indian IT Act, 1922, reads as follows:

(2.) THE assessee, who is an ex Talukdar of Shivraj pur Estate in the State of Gujarat, had granted a lease for mining manganese ore from the lands at Shivrajpur and Bhat, originally on 11th December, 1947, and on the expiry of that lease, a new lease was granted for twelve years thereafter. It is not necessary to refer in detail to all the terms of the lease which have been extensively quoted in the decision in Chhatrasinhji Kesarisinhji Thakore vs. CIT (1962) 45 ITR 512 (Bom), which decision arose out of a dispute with regard to certain amounts received by the assessee during the asst. yrs. 1952 53 and 1953 54 in terms of the said lease of 1947. Under the lease, the Shivrajpur Syndicate Ltd. (hereinafter referred to as "the Syndicate "was to pay annually a sum of Rs. 2,6298 88 as rent and royalty at the rate of 8per cent of the sale value of manganese ore. Clause (i) of Part VII of the lease of 1947 read as follows:

(3.) IT is at this stage convenient, to refer to the assessment proceedings in respect of the asst. yrs. 1952 53 and 1953 54 because in respect of the asst. yrs. 1954 55 to 1959 60, the assessment has proceeded on the position of law as determined in respect of the asst. yrs. 1952 53 and 1953 54 during which period the assessee had recovered two sums of Rs. 16,309 and Rs. 39,515 calculated at the rate of three annas per rupee on the amount of rents and royalties, describing the payments as being in respect of local fund cess. In respect of those assessment years, the Tribunal had found that a local fund cess leviable under the Bombay Local Boards Act in respect of the village lease was only Rs. 270 per year and the question was whether the sums of Rs. 16,309 and Rs. 39,515 received from the lessee were income of this assesses. In the reference which came to the High Court and the decision of which is reported in Chhatrasinhji Kesarisinhji Thakore vs. CIT (supra), it was held that the amounts received by the assesses were liable to be taxed as income of the assesses except to the extent of the local fund cess that was in fact payable by the assessee in respect of the villages leased. While setting out the legal position, the High Court pointed out that if there is a legal liability imposed upon the assesses to pay to the local board in respect of local cess these two amounts, than those two amounts cannot and do not represent income. But the liability of the assesses is in respect of only part of this amount, then to the extent of the surplus, even though the lessee might have paid it for payment of tax or cess, the excess would be income in the hands of the assesses and the question whether the local board collected the amounts or the assesses paid the amounts to the board was irrelevant. The decision in the reference, therefore, held that the assessee had recovered more amount than what he was entitled to from the Syndicate. The assessee had carried the matter to the Supreme Court and the decision of the Supreme Court, a detailed reference to which will be made later, is Chhatrasinhji Kesarisinhji Thakore vs. CIT (1966) 59 ITR 562 (SC). For the present it will suffice to say that the view taken by the High Court, was confirmed and the appeals filed by the assesses came to be dismissed. Resuming the course of assessment proceedings for the assessment years in question, the ITO, relying upon the decision of the Tribunal in respect of the earlier years, held that the rents and royalties as well as the local fund cess received by the assessee constituted his income. The AAC confirmed the order of the ITO. The matter was taken in appeal by the assesses to the Tribunal. At this stage, it is necessary to refer to the fact that in view of the decision of the High Court in the reference for the asst. yrs. 1952 53 and 1953 54 that the assessee had recovered more than what he was entitled, the Syndicate filed a Special Civil Suit No. 9 of 1961 in the Court of the Civil judge, Senior Division, Godhra, on 20th September, 1961, for a declaration that the assessee was not entitled to collect and recover from it any amount by way of local fund cess at the rate of 3 annas per rupee by royalty and for a permanent injunction restraining him from collecting the same. A claim for refund of a sum of Rs. 7,04,501.91 received by the assessee for the period from 1st December, 1949, to 31st December 1958, was also made in the suit. The suit was decreed against the assessee and the civil Court held that the assessee was not entitled to recover any sum by way of local fund cess beyond Rs, 204 7 3, which was the actual amount payable by him every year as local fund cess to the State Government. A decree for Rs. 7,02,664.85, arrived at after deducting Rs. 1,840.06, being the actual amount of local fund cess for nine years at the rate of Rs. 204 7 3 from the total amount paid, i.e., Rs. 7,04,504.91, was passed against the assessee. The decree in Suit No. 9 of 1961 as a part of the statement of facts is Annexure "C"