SENAIRAM DOONGARMALL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) INCOME Tax Reference No. 1 and Civil Reference Nos. 83 and 84 of 1954 all arise from two assessments for the years 1945-46 and 1946-47 of Messrs. Senairam Doongarmall, who are petitioners in all the three cases. This order shall dispose of all the three cases. the petitioners constituted a Hindu undivided family firm. The firm had several sources of income, including the Sewpur Tea Estate. The factory buildings, bungalows, staff and labourers quarters of the tea estate were requisitioned by the military authorities under the Defence of India Rules in February, 1942. The tea garden or rather the land under tea cultivation was not requisitioned. the manufacture of tea however had to be suspended by reason of the occupation by the military of the factory buildings, bungalows, staff quarters, etc. The assesses were entitled under the Defence of India Rule to compensation for occupation of the property requisitioned. This compensation was awarded on the basis of the claim made by the assessees. The two accounting years for the two assessments are 1944 and 1945. In regard to compensation for the year 1944 the claim which was accepted by the Government was as follows :

(2.) THE assessment for 1946-47 was made under section 23(3) by another Income-tax Officer. THE total receipt in the accounting year so far as this estate was concerned was Rs. 2,46,794. Excluding a sum of Rs. 15,231 he treated the balance of Rs. 2,31,563 as income taxable under the provisions of the Income-tax Act (after deduction of admissible expenses). In his view no agricultural, manufacturing or selling process had been gone through. THE Appellate Assistant Commissioner hpheld the assessment for the year 1946-47, set aside t he assessment for the year 1945-56 and directed the Income-tax Officer to make a fresh assessment. THE orders of the Assistant Commissioner in both the cases were appealed from. THEse appeals were heard by the Calcutta Bench of the Tribunal. THE two members were agreed that the receipts from the Government were of the nature of revenue and contained an element of income. THE Judicial Member estimated compensation for use and occupation of lands by the Government at 20 per cent. of the total receipts in both the years. He also stated the other alternative if his view of the estimate of net income did not prevail. THE alternative was to assess 40 per cent. of the net receipts in both the years. THE Accountant Member held that the assessee was liable to pay tax at 40 per cent. of his receipts from the Government in both the years, after deduction of sums paid for repairs of the buildings and also of the expenses incurred by the assessee in tending the bushes etc. THE expenditure in tending the bushes etc. was estimated at Rs. 1,05,000 for the year 1945-46. An estimate of the expenditure according to him was to be made also for the assessment year 1946-47 . THE expenditure for the year 1946-47 which had not been determined then was directed to be estimated. THEre was thus a difference of opinion between the two members. THE orders of the two members were passed on June 19, 1952. THEse orders were communicated to the assessees. It would appear that the orders of the two members deal only with the other sources. THE copies of the two judgments were served on the assessees on October 30, 1952, under section 33(4) of the Income-tax Act. In consequence the Commissioner of Income-tax filed a petition under section 35 of the Income-tax Act asking for a filed a petition under section 66(2) of the Income-tax Act for rectification of certain incorrect statements of facts in the two judgments. THE petition of the Commissioner for a reference and of the assessees under section 35 were heard on January 12, 1955. It was then discovered that as there was difference of opinion between the two members, the case had to be heard by a third member. THE copies of judgments were found to have been sent to the assessees by inadvertence. THE applications were therefore rejected as premature. THE case was referred to a third member under section 5A(7) of the Income-tax Act. THE third member who heard the case was the President of the Tribunal. He agreed with the Accountant Member that the sum paid specifically for building repairs had to be deducted from the receipts of the assessees from the Government and the balance alone could be treated as trading receipts. Without specifically saying that the expenses claimed by the assessees for tending the bushes etc. could be allowed or not, he expressed his full agreement with the Accountant Member. He also observed that he was not quite sure whether the assessees were entitled to the benefit of rules 23 and 24 of the Income-tax Rules, but he refrained from expressing any definite opinion. THE order of the President was passed on April 4, 1953. On May 26, 1953, the two appeals for the assessment years in question were partially allowed by the original Tribunal in accordance with the opinion of the majority. THE view that prevailed was that the assessee were entitled to charge against compensation expenses incurred by them in maintaining the assets including the tea plants in such a condition that the business could be resumed as soon as the property was derequisitioned. All expenses which the appellants had incurred for the maintenance of the tea garden were therefore found deductible out of the receipts for the two years and 40% of the balance alone was declared assessable. THE cases were to go down for final disposal on the lines indicated in the order of the Accountant Member with whom the President agreed. On the application of the asssessee, the Tribunal has referred the following two questions of law for the decision of this Court :-

(3.) MR. Ghose has also relied on some observation of Sir George Lowndes bearing on the import of the expression income. Sir George Lowndes observed that "the object of the Indian Act is to tax income, a term which it does not define. It is expanded, no doubt, into income, profits and gains, but the expansion is more a matter of words than of substance. 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. Thus income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something, which is often loosely spoken of as capital." The learned counsel urges that the expression income connotes a periodical monetary return coming in with some sort of regularity or expected regularity from definite sources. He argues that the receipts in this case do not satisfy the requirements of the test laid down and therefore do not fall within the scope of the expression income. The decision in Shaw Wallaces case was followed in substance by Lord Russell of Killowen in Maharajkumar Gopal Saran Narain adotpedd the general definition given in that case but with an important amplification which was in these words :