Shri Chatrasinghji Kesari Singhji
Thakore Vs. Commissioner of Income-Tax, Bombay [1965] INSC 231 (28 October
1965)
28/10/1965 SHAH, J.C.
SHAH, J.C.
SUBBARAO, K.
SIKRI, S.M.
CITATION: 1966 AIR 928 1966 SCR (2) 440
ACT:
Income Tax-Mining lease-Local cess payable
under terms of lease by lessee--Sums in excess of local cess paid to
lessor-Excess whether of 'income' of lessor.
HEADNOTE:
The appellant gave certain mines on lease to
a Syndicate in lieu of rents and royalty. By cl. 1 Part VII of the indenture of
lease the Syndicate was also required to discharge all public demands in
respect of the mines made by the State Government, or the local authority,
except land revenue. In compliance with the said clause the Syndicate paid
certain sums for the periods ending July 31, 1951 and July 31, 1952 to the
appellant as 'Local Fund Cess'. This Cess was calculated by the Syndicate as a
percentage of the rent and royalties paid for the mines whereas under the
relevant law the cess had to be a percentage of the land revenue, and therefore
the sums paid were much larger than due. For the assessment years 1952-53 and
1953-54 the Income-tax Officer having jurisdiction over the area treated the
amounts so paid 10 the appellant as part of his income.
The appellant filed an appeal before the
Appellate Assistant Commissioner and contended that the two sums were not tax-
able because they represented Local Fund Cess collected by him on behalf of the
State Government or Local Board, and also because they were receipts "of a
casual and non- recurring nature." These contentions were accepted by the;
Appellate Assistant Commissioner but the
Tribunal and the High Court in a reference under s. 66 of the Income-Tax Act
upheld the view of the Income Tax Officer. The appellant came to this Court
with certificate.
HELD : (i) The Syndicate was not an inferior
holder under the appellant. It was the appellant who was the holder, and the
liability to pay the local fund cess under the Bombay Land Revenue Code was
his. Under the terms of Part VII cl.
1 of the indenture of lease the Syndicate had
agreed to pay to the appellant the amount of local fund cess which the latter
had to pay to the Government. But by collecting the amount from the Syndicate
under the terms of his contract, the appellant was not constituted an agent of
the Government for recovering the cess. [446 A-C] (ii) The Syndicate merely
sought to discharge what it believed was its contractual obligation under the
lease and in doing so it made payments which exceeded the local fund cess
payable by the appellant. The amounts so paid had a quality, if not identical,
closely similar to rents and royalty. It was immaterial that if the true
position had.
been appreciated the, Syndicate might not
have paid the amounts. They were in fact paid by the Syndicate and were
received and appropriated by the appellant as if he was entitled to receive
them. The difference between the amounts which the appellant received and the
amounts for which he could under the terms of the lease claim reimbursement
must therefore 441 be regarded as income within the meaning of the Indian
Income-tax Act, and unless specially exempted, liable to tax. [445 E-G, H]
(iii) There is nothing in the Income-tax Act which prevents the Revenue
authorities from determining the quantum of the amount which is payable by the
appellant as local fund cess, when that question properly arises before them in
the course of proceedings for assessment. [446 D] (iv) the fact that the
Syndicate had filed suits to recover the excess amounts paid to the appellant
as local fund cess did not affect the issue. The appellant had received certain
amount under a contract with the Syndicate and if that amount was income the
fact that the person who paid it might claim refund would not deprive it of its
character of income in the year in which it was received. [447 G-H] (v)
Assuming that the amounts sought to be included as income were paid as a result
of some mistake on the part of the Syndicate, they had not the characteristic
of casualness and it was not suggested that they were non- recurring. [420 A-B]
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 148 and 149 of 1964.
Appeal by special leave from the judgment and
order dated April 14, 1960 of the Bombay High Court in Income-tax Refer- ence
No. 85 of 1957.
Bishan Narain, J. B. Dadachanji, 0. C. Mathur
and Ravinder Narain, for the appellant.
A. V. Viswanatha Sastri, R. Ganapathy Iyer,
R. H. Dhebar and R. S. Sachthey, for the respondent.
The Judgment of the Court was delivered by
Shah, J. On December 11, 1947 the appellant granted to the Shivrajpur Syndicate
Ltd. rights for mining manganese ore from lands in two villages Shivrajpur and
Bhat. The following are the material terms of the indenture of lease " and
agreements by and in these presents and in the Schedule hereunder written,
reserved and contained and on the part of the Lessee to be paid, observed and
performed, the Lessor hereby grants and demises unto the Lessee All Those the
mines, beds, veins, and seams of Manganese Ore situate lying and being in and
under the land . . .
Lessee for the term of twelve years which
shall be deemed to have commenced from the first 442 day of December One
thousand nine hundred and fortyfive yielding and paying therefore unto the
Lessor the several rents and royalties mentioned in Part V of the Schedule at
the respective times herein specified subject to the provisions contained, in
Part VI of the said Schedule." In parts II, -III and IV. of the Schedule
liberties, powers, privilege as, restrictions and conditions enjoyed by the
lessee were set out. By Part V the Syndicate agreed to pay annually Rs.
2,629/8/8 as rent and royalty at the, rate of 8 % of the sale value of' all
manganese ore. By cl. 1 of Part VII it was agreed that :
"The lessee -shall pay the. rents and
royalty reserved by this lease at the time and in the manner provided in Parts
V and VI and shall also pay and discharge all taxes, rates, assessments and
impositions whatsoever being in the-nature of public demands which shall from
time to time be charged, assessed or imposed upon or in respect of the mines or
works of the lessee or any part thereof by authority of the Government of India
or the ..Government of Bombay or otherwise except demands for land revenue The
appellant received from the Syndicate, besides rents and royalty, Rs. 16,309 in
the year ending July 31, 1951 and Rs. 39,515 in the year ending July 31, 1952,
being 3/16th of the amount of rent and royalty payable to the appellant in
accordance with the terms of Part V of the 'lease. The Syndicate described this
payment as "Local Fund Cess". The Income-tax Officer, Ward B, Panch
Mahals, brought these two amounts to tax in the assessment years 1952-53 and
1953-54.
In appeal to the Appellate Assistant
Commissioner of Income- tax, Baroda Range it was maintained by the appellant
that the two sums were not taxable, because they represented Local Fund Cess
collected by him on behalf of the Government of Bombay or the Local Board,
Panch Mahals, and in any event because they were receipts " of a casual
and non-recurring nature". The Appellate Assistant Commissioner upheld'
those contentions of the appellant and directed that the said sums be excluded
from the total income of the appellant.
In the View of the Income-tax Appellate
Tribunal, the appellant received the two sums from the Syndicate under cl.
1 of 443 Part VII of the lease agreement and
not - as Local Fund Cess on behalf of the Government of Bombay or of the Local
Board Panch Mahals, and the amounts were not receipts "of a casual and
nonrecurring nature". The Tribunal submitted a consolidated statement of
the case under s. 66(2) of the Income-tax Act - in respect of the two years of
assessment and submitted the following questions for the opinion of the High
Court of Bombay "(i) Whether the sum of Rs. 16,309 received by the
---------- Rs. 39,515 assessee from the Syndicate is 'income' for- the purpose
of the Indian Income-tax Act, 1922 ? (ii) If the answer to the above question
is in the affirmative, whether the income-receipt is exempt under section 3
(vii) of the Act by reason of its being of a casual and nonrecurring
nature,?" In compliance with an order of the High Court, the Tribunal
submitted a supplementary statement of. -the case observing that the lands in
question which were allienated - villages" between August 1, 1950 and
August 15, 1950 had ceased to be alienated villages in consequence of the
application of the Bombay Taluqdari Abolition Act 62 of 1949, that the total
amount of assessment payable in respect of these villages was Rs. t,222.92 and
the local fund cess due in respect of the lands was Rs. 270.45 nP., that the
total Jama payable by-the appellant was Rs. 504.45 nP., and that the appellant
had under the Bombay Local Boards Act, 1923 to pay the cess as a percentage of
land revenue and not of the Jama. The High Court, in- the light of the
supplementary statement of the case, recorded its answer on the first question
in the affirmative, subject to the reservation that "the amount of cess
which the appellant was legally liable to pay under the Bombay Local Boards Act
was not subject. to income-tax" and answered the second question in the
negative. With certificate granted by the High Court, these appeals have been
preferred.
The relevant statutory provisions bearing on
the questions referred to by the Tribunal may be summarised., By the Bombay
Taluqdari Tenure Abolition Act 62 of 1949, all the incidents of the Taluqdari
tennure attaching to the lands comprised in the appellant's estate were
extinguished and all Taluqdari lands were declared liable to payment of land
revenue in accordance with the provisions of the Bombay Land Revenue Code,
1879, or Jama under an agreement, or settlement recognised or declaration made
444 under the Gujarat Talukdars' Act. Under the Bombay Land Revenue Code by S.
3(13) "superior holder" is defined as meaning a landholder entitled
to receive rent or land revenue from other landholders, whether or not he is
accountable for such rent or land revenue or any part thereof to the Provincial
Government, and a "tenant" is defined in S. 3 (14) as meaning a
lessee, whether holding under an instrument, or under an oral agreement, and
includes a mortgagee of a tenant's rights with possession.
By s. 45 all lands, whether applied to
agricultural or other purposes, and wherever situate, are liable to pay land
revenue to the Government according to the rules enacted under the Code, except
such as may be wholly exempted under the provisions of any special contract
with the Government or any law for the time being in force. Under the Bombay
Land Revenue Code, liability to pay land revenue is imposed upon the
landholder. Under the Bombay Local Boards Act 6 of 1923 the State Government is
authorised to levy, on the conditions and in the manner described, a cess at
the rate of three annas on every rupee of- (a) every sum payable to the State
Government as ordinary land revenue, (b) every sum which would have been
assessable on any land as land-revenue, had there been no alienation of land
revenue, or (c) every sum which would have been assessable on any land as
land-revenue, had the land not been talukdari land.
By S. 96 of Act 6 of 1923 it is provided that
the cess described in s. 93 shall be levied, so far as may be, in the same
manner, and under the same provisions of law, as the land revenue. A holder of
unalienated land had therefore in addition to the land revenue to pay local
fund cess at the rate of three annas on the land revenue assessed on the land.
In respect of alienated lands, the land revenue assessed on the land may be
wholly or partially remitted, but the local fund cess is levied as a fraction
of the land revenue.
Under the terms of the lease with the
Syndicate it was stipulated that the Syndicate shall pay all taxes, rates,
assessments and impositions of a public nature. The effect of the covenant was
that the Syndicate will reimburse the appellant for local fund cess and other
taxes paid by him.
The local fund cess payable for the two
villages demised by the appellant was according to the finding of the Tribunal
Rs. 270 45 being 3/16th of Rs. 1,222.92 the 445 amount of land revenue assessed
on the lands. But the amounts, paid by the Syndicate for the two years in
question considerably exceeded the local fund cess payable in respect of the lands.
The Syndicate believed that it was liable to pay to the appellant under cl. 1
of Part VII of the indenture of lease cess computed at the. rate of three annas
on a rupee of the amount of rent and royalty..
Transactions relating to property and contracts
are of infinite variety and it is difficult to devise a precise definition of
the expression "income" liable to tax under the Income-tax Act,
without excluding some important categories thereof. The definition, of
"income" in s. 2 (6C) of the Income-tax Act, 1922 is an inclusive
definition : it is devised for the purpose of the Act and includes diverse
heads which in the normal connotation of the expression "income"
would not be included. We have no desire in this case to enter upon the difficult
task of devising an accurate definition of the expression "income".
The observation of the Judicial Committee in
Gopal Saran Narain Singh v. Commissioner of Income-tax, Bihar & Orissa(1)
at p. 213 that "Anything which can properly be described as income, is
taxable under the Act unless expressly exempted" gives an indication of
the difficulties of the problem.
It is common ground that the rent and royalty
under the mining lease are income taxable under the Act, and an amount which is
paid under a covenant directly related to the payment of rent and royalty
would, in our judgment, also be taxable as income. The amounts paid have the
quality which is, if not identical closely similar to rents and royalty.
It is immaterial that if the true position
were appreciated, the Syndicate may not have paid the amounts. The amounts have
in fact been paid by the Syndicate, and have been received and appropriated by
the appellant as if he was entitled to receive them. The difference between the
amounts which the appellant received and the amounts for which he could under
the terms of the lease claim reimbursement, must therefore be regarded as
income within the meaning of the Indian Income-tax Act, and unless specially
exempted, liable to tax. The appellant did not purport to collect local fund
cess on behalf of' the State Government : nor did the Syndicate pay the amount
to him as an agent of the Government. The Syndicate merely sought to discharge
what it believed was it s contractual obligation under the indenture of lease, and
in doing so, it made payments which, exceeded the local fund cess payable by
the appellant.
(1) L.R. 62 I.A. 207.
446 We are unable to hold that the Syndicate
was an inferior holder under the appelant.The appellant was the holder of the
land and he had granted a lease in respect of the land to the Syndicate ,and
our attention has not been invited to any provision of the Bombay Land Revenue
Code,.
1879 which imposes liability to pay local
fund cess upon the lessee who holds land under a lease from the landholder.
Liability to pay land revenue and the local
fund 'cess is imposed -by the Bombay Land Revenue Code upon the appellant.
Under the terms of Part VII cl. 1 of the
indenture of lease , the Syndicate had agreed to pay to the appellant the
amount of land revenue and local fund cess which the latter may have to pay to
the Government. But by collecting the amount from the Syndicate under the terms
of his contract, the appellant was not consisted an gent of the Government for
recovering either the land revenue or local fund cess which the latter may have
to pay to the Government. But by collecting the amount from the Syndicate under
the terms of his contract , the appellant was not constituted an agent of the
Government for recovering either the land revenue or local fund cess.
There is nothing in the Income-tax Act which
prevents the, Revenue authorities from determining the quantum of the amount
which is payable by the appellant as local fund cess, when that question
properly arises before them in the course of proceedings for assessment. The
Income tax Officer is within the limits assigned to him under the Act a
tribunal of exclusive jurisdiction for the purpose of assessment of income tax.
He has under Act to decide whether a particular receipt is income, and it is
not predicated that he must make some person or body other than the assessee
who may be e concerned with that receipt as a party to preceding before. he
decides that question.- As between the State and the assessee it. is his
function alone to determine whether the receipt is income and is taxable. - The
determination by, the Income-tax Officer may be questioned in proceedings
before superior tribunals which are permitted by the Act,but the Income-tax
Officer cannot be prevented from determining a question which properly arises
before him for the purpose of assessment of tax merely because his
determination may not bind some other body or person qua the assessee.
It is maintained by counsel for the appellant
that in the "Manual of Revenue Accounts "issued under the authority
of the Government of Bombay it is recorded that the local fund in respect of
land held under a mining lease is a fraction of the aggregate amount of rent
and royalties under the lease. This plea is based upon a complete misconception
of what is stated in the Manual of Revenue Accounts , 1951. Under the head
"Miscellaneous Land Revenue 447 entries to be made in the Tharavband in
respect of "miscellaneous fluctuating revenue". The Manual after
setting out heads of fixed revenue proceeds to set out the following heads of
fluctuating revenue (i) Carrying Local Fund, and (ii) Free of Local Fund.
Under the head fluctuating revenue
"Carrying Local Fund" are non-agricultural 'rent or revenue from
agriculturally assessed or unassessed lands for back years, for broken periods,
or short periods less than five years and fees for brick kilns and lime kilns
erected on Government waste lands; (2) Lump commutation payments not being
commutations in perpetuity of land revenue for building or any-other non-
agricultural purpose, including assessment for unauthorised occupation, and
fine when levied for non-agricultural uses with permission, but not including
fines levied as penalties, and "2(A) Rent and royalties under mining lease
(usually collected at T)." But these are mere instructions to the village
officers relating to the heads of revenue which are "to pass through the
Tharavband". By the instructions it is not sought to be conveyed that
local fund cess in respect of nonagricultural incomes subject to local fund
such as rent and royalties is to be levied at a rate different from the rate
prescribed by the statute. The Bombay Local Boards Act, 1923 expressly provides
that local fund cess is to be levied on land revenue whether the land is used
for purposes agricultural or non-agricultural at the prescribed rate and by
executive instructions the Act cannot be modified and has not been modified.
It was said that the Syndicate may seek to
recover from the appellant the excess amounts paid by it-towards local fund
cess. We were told at the Bar that after the proceeding for assessment in these
appeals reached the High Court, the Syndicate has filed a suit in the Civil
Court against the appellant to recover the amounts paid by it. We are not in this
case concerned with the merits of that claim. The appellant has received
certain amount under a contract with the Syndicate, and if that amount was
income, the fact that the person who paid it may claim refund will not deprive
it of its character of income in the year in which it was received.
The contention that this income was of a
"casual and non- recurring nature" was abandoned before the Tribunal.
It cannot Sup.CI/66 -15 448 be said that the receipt was produced by change or
was accidental fortuitous or from unforeseen sources of income.
Assuming that the amounts sought to be
included as income were paid as a result of some mistake on the part of the
Syndicate, they have not the characteristic of casualness, nor is it suggested
that they are non-recurring.
The appeals therefore fail and are dismissed
with costs.
One hearing fee.
Appeals dismissed.
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