NAWABZADI MEHAR BONO KHANUM Vs. SECRETARY OF STATE

JUDGEMENT

(1.) This is a Reference under Section 66 (2) of the Income-tax Act, Act XI of 1922, made to us by the Commissioner of Income-tax. The point which arises is a very short one, namely, whether mutation nazar, that is, the amount paid to landlord for recognising the transfer of a holding by one tenant to another, is agricultural income within the meaning of Section 2, Sub- section (1) (a) of the Indian Income-tax Act XI of 1922, and as such is exempt from assessment to Income-tax under Section 4, Sub-section (3) (viiii) of the said Act. The Income- tax officer held that such payments were assessable to income-tax having regard to the decision of this Court in the case of Maharaja Birendrakishor Manikya Bahadur V/s. Secretary of State A.I.R. 1921 Cal 262. An appeal was preferred by the assessee against the assessment of the Income-tax officer. The Assistant Commissioner of the Dacca Range rejected the appeal agreeing with the decision of the Income-tax officer. Accordingly an application was made to the Commissioner of Income-tax asking for a reference to this Court under the provisions of the section of the Act to which I have referred, and the Commissioner has, accordingly, referred the question in the terms which I have indicated. He agrees with the Income-tax officer that the assessment was rightly made and that the nazar is not agricultural income and is, therefore, not exempt from income tax and he adopts as the ground of his decision the reasoning of this Court in the case of Maharaja Birendrakishor Manikya Bahadur V/s. Secretary of State A.I.R. 1921 Cal 262 to which I have just referred. The case of Maharaja Birendrakishor Manikya Bahadur V/s. Secretary of State for India in Council A.I.R. 1921 Cal 262 was decided under the Income-tax Act of 1918, but Id is con-ceded that, so far as the question now before us is concerned, that Act was identical with the present Act of 1992. The point, therefore, is covered by the decision in Maharaja Birendrakishor Manikya Bahadur v. Secretary of State A.I.R. 1921 Cal 262 provided we agree with that decision. Before I refer to it I must refer shortly to the sections of the Income-tax Act of 1922 which bear upon the point. Section 4, Sub-section (3) provides that the Act is not to apply to certain classes of income. Amongst these is the agricultural income, and in Section 2 of the Act agricultural income is defined as 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 Government as such. The land in respect of which the nazar was paid was a part of a permanent-settled estate which is also subject to road-cess.

(2.) Two points arose for decision in the reference to which the lease of Maharaja Birendrakishor Manikya Bahadur V/s. Secretary of State A.I.R. 1921 Cal 262 relates. The first point was whether the nazar or salami payable in respect of a tenancy of waste land was assessable to income-tax or exempt as being rent or revenue derived from land used for agricultural purposes within Section 2, Sub-section (1) (a) of that Act. The second question was the one which directly arises on the present reference, namely whether the nazar salami paid for the recognition of the transfer of a holding from one tenant to another was rent or revenue derived from land which was used for agricultural purposes within the meaning of Section 2, Sub-section (1) (a) of the then Income Tax Act. The learned Judges who heard the reference decided nazar or selami paid in respect of waste land was revenue within the meaning of Section 2, Sub-section (1) (a). The reason for their so holding was that the amount fixed for periodical payment, that is, rent, was not independent of the nazar or salami and that the nazar or salami was a capitalised sum which taken with the periodical rent constitute in the aggregate the consideration for the grant. When, however, they came to consider the question of nazar or salami paid for recognition of the transfer they held that this was not revenue within the meaning of Section 2 (1) (a) because it was not a return, yield or profit of any land, and further that it was not tent in any sense of the term, but they held that such a payment was a payment to purchase peace in order that the landlord might not contest the validity of the transfer and they held that this was not a payment that came within the scope of the definition of agricultural income. With all respect to their Lordships who decided that case I feel some difficulty in accepting the reasoning upon which its is founded. The expression " revenue " as they say in their judgment, includes return, yield or profit of any land and I find it very difficult to escape from the conclusion that a payment of this kind is not profit derived from the ownership of the land. If, therefore, revenue includes profit, as I think it does, then it seems to me that nazar or salami is really derived from land which is used for agricultural purposes within the meaning of the expression as it occurs in Section 2 (1) (a) of the Indian Income-tax Act of 1922.

(3.) The result is that, in my opinion, the assessee is exempt from payment of income-tax by reason of the provisions of Section 4, Sub-section (3) (viii) of the same Act. The question, therefore, which we refer for the decision of a Full Bench is whether the decision in Maharaja Birenirakishor Manikya Bahadur V/s. Secretary of State A.I.R. 1921 Cal 262 as regards salami paid for the recognition of a transfer of a holding from one tenant to another is correct and the question which arises for the decision of the Full Bench is whether nazar or salami paid by a tenant to a landlord for the recognition of the transfer of a non transferable holding is rent or revenue within the meaning of the expression as it occurs in Section 2 (1) (a) of the Indian Income Tax Act, XI of 1922. If the Full Bench hold that such nazar or salami is not assessable to income tax, this judgment will be forwarded to the Commissioner. If, however, the Full Bench hold that the case of Maharaja, Birendrakishor Manikya Bahadur V/s. Secretary of State A.I.R. 1921 Cal 262 was rightly decided, the matter will come back to this Bench in order that we may deal with the other question which was raised before us by the assessee, namely, that having regard to the provisions of the Permanent Settlement no liability for assessment has been imposed by the Income-tax Act on nazar or salami. Mukerji, J.