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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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