SRI RAMCHANDRA DEV Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) This is a reference under Section 66(3), Indian Income-tax Act, made by the Commissioner of Income-tax, Bihar and Orissa.

(2.) The assessee in the case is Sri Ramchandra Dev, the Zamindar of Bodokhemidi, which is an impartible estate. The assessee has income from a number of sources, and one of the main sources is agriculture. This agricultural income is, of course, exempt from income-tax by reason of the provision of the Indian Income-tax Act. In the accounting year in question, which ended on the 31 March 1938, the assessee was assessed to income-tax on a sum of Rs. 4,034 which represented interest on arrears due from various mustajars. The assessee claimed that this interest formed part of his agricultural income and was not assessable to income-tax. The taxing authorities, however, came to e conclusion that this interest on arrears was in no sense rent and could not be regarded as agricultural income. The Income-tax Officer, therefore, assessed this sum to tax, and his decision was affirmed by the Assistant Commissioner. The Commissioner in review proceedings took the same view and declined to refer the question to this Court under Section 66(2), Indian Income-tax Act. Application, however, was made to this Court, ad this Commissioner was directed under Section 66(2), Indian Income-tax Act, to state a case on the following question :- "Whether the sum of Rs. 4,034 represents interest on rent and is agricultural income and, therefore, not assessable under the Indian Income-tax Act? "

(3.) The learned commissioner has forwarded the statement of the case to this Court and had has expressed his opinion that the question should be answered in the negative. It appears that in the Zamindari of Bodokhemidi a large number of tenants pay produce rent. The Zamindar appears to collect cash rents direct from tenants but in the case of land let on produce rent he does not himself collect the rent. This is done by mustajars. The granting of rights to mustajars is done by auction and by subsequent execution of certain documents. The right to collect produce rent from various tenants of villages is put up to auction, and the right is given to the highest bidder. Documents are then executed by which the person granted the right agrees to pay a certain u in instalments and further agrees to interest on such sums if they are to paid on due date, By these documents the mustajars are given the right to collect the landlordss share of the produce rent and of course, to retain the same for their own use. In short the mustajar is a farmer of rents and very much in the position of a thikadar. He is given and interest in land for which he pays the Zamindar an annual sum,. The interest which he is given in the land entitles him to demand and to recover the produce rents from the tanants. The view I take of this lease is fully supported by the definitions given in Wilsons Glossary of the term "Mustajir" and "Mustajiri"."Mustjir" is defined as a farmer, a renter, one who holds lands under a proprietor at a stipulated rates; also a farmer of revenue appointed to make the collections on the pare of a Zamindar or proprietor, on condition of paying a fixed sum." "Mustajiri" is defined as renting, farming, holding in farm, settlement in farm. A " Mastajiri lease" is, in my view, a lease which creates an interest in land. The proprietor give up his right to collect the rents from the tenants and grants the same to the mustajir in return for a fixed payment. That fixed payments is, in my view, the which the proprietor reserves under mustajir lease.