Maharajadhiraj Sir Kameshwar Singh Vs.
The State of Bihar  INSC 88 (15 May 1959)
DAS, SUDHI RANJAN (CJ) BHAGWATI, NATWARLAL H.
CITATION: 1959 AIR 1303 1960 SCR (1) 332
Agricultural lncome-tax-Power of Agricultural
Income-tax Office -If can revise his own order of exemption--Bihar Agricultural
Income-tax Act, 1938 (Bihar Vlf Of 1938) s. 26.
In his return of agricultural income for the
assessment year I944-45 the appellant showed a sum of Rs. 2,82,192, which he
had paid to the Tekari Rai for two lease-hold properties taken on Zarpeshgi
lease, as one of the items of the total amount of deduction claimed by him as
capital receipt. The Agricultural Income-tax Officer accepted his claim and exempted
the amount from Payment of agricultural income-tax.
The Assistant Commissioner of Agricultural
Income-tax affirmed the decision. A demand notice was issued and the assessee
paid two installments. Thereafter, the Agricultural Income-tax Officer served
on the assessee a notice under S.
26 of the Bihar Agricultural Incometax Act,
1938, to the effect that income from the said Zarpeshgi lease had escaped
assessment and after he appeared, passed a 333 supplementary assessment order
and assessed Rs. 39,5I2-6-o as tax. The assessee appealed. The Commissioner of
Agricultural Income-tax reversed the said decision. The Province of Bihar moved
the Board of Revenue and the two questions it referred to the High Court under
S. 25(1) Of the Act were, (1) whether in the facts and circumstances of the
case, the Agricultural Income-tax Officer had jurisdiction to revise his own
order under S. 26 of the Act and (2) if so, whether the income from the Zarpeshgi
lease was taxable under the Act. The High Court answered both the questions in
favour of the State of Bihar. Hence this appeal by the assessee by special
Held, that under S. 26 of the Bihar
Agricultural Income-tax Act, 1938, the Agricultural Income-tax Officer had the
power to revise his own order and assess an item of income which, even though
shown in the return, he had earlier omitted to tax under a misapprehension that
it was not taxable.
The use of the words " any reason "
in S. 26 of the Act made the section wider than S. 34 Of the Indian Income-tax
Act by dispensing with the conditions which circumscribed the section.
Kamal Singh v. Commissioner of Income-tax,
Bihar & Orissa, A.I.R. 1959 S.C. 257, applied.
Messrs. Chatturam Hoyilyam Ltd. v.
Commissioner of Income- tax, Bihar and Orissa,  2 S.C.R. 290,
Since the appellant had failed to prove his
case that the income in question was income from his money-lending business or
that the payment made to the lessor was not by way of premium but as a loan,
the income from the lease-hold property which was admittedly agricultural in
character, must be held to be liable to tax under the Act, irrespective of the
character of the recipient.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 254 of 1954.
Appeal by special leave from the judgment and
order dated February 19, 1952, of the Patna High Court in Misc. Judl.
Case No. 244 of 1949.
B. Sen, S. K. Majumdar and I. N. Shrojj, for
M. C. Setalvad, Attorney-General for India,
B. K. Saran and R. C. Prasad, for the respondent.
1959. May 15. The Judgment of the Court was
delivered by HIDAYATULLAH J.-This appeal, with the special leave of this Court,
has been filed by Maharajadhiraja 334 Sir Kameshwar Singh of Darbhanga
(hereinafter referred to as the assessee) against the judgment of the High
Court of Patna dated February 19, 1952, by which the High Court answered in the
affirmative the following: two questions referred to it under s. 25(1) of the
Bihar Agricultural Income-tax Act, 1938:
(1) " Whether in view of the
circumstances of the case, and particularly the manner in which, after due
consideration, the learned Agricultural Income-tax Officer in his first
judgment dated the 5th January, 1946, had held that the assessee was not liable
to be assessed for the receipt on account of the zarpeshgi lease, the learned
Agricultural Income-tax Officer has jurisdiction to revise his own order under
s. 26 of the Act; and (2) Whether if he had the jurisdiction to revise his own
order, under section 26 of the Act, the income from the zarpeshgi lease of the
assessee was taxable under the Act." The facts of the case lie within a
very narrow com. pass.
For the assessment year 1944-45 which
corresponded to the year of account 1351 Fasli, the assessee returned Rs. 37,43,520
as his agricultural income. He claimed a deduction of Rs. 9,42,137-3-10 1/2 on
account of land revenue, rent etc., including a sum of Rs. 2,82,192 shown to
have been paid to the Tekari Raj from which two leasehold properties were taken
on zarpeshgi lease by indentures dated August 15, 1931, and January 31, 1936,
respectively. The amount was sought to be deducted as a capital receipt.
The Agricultural Income-tax Officer of
Darbhanga by his order dated December 28, 1945 accepted this contention, and
exempted the amount from payment of agricultural income-tax.
" Out of Rs. 9,42,137-3-10 1/2 claimed
on account of Land Revenue and rent, Rs. 2,82,192 is shown as payment to Tekari
Raj and then taken towards the realisation of Zarpeshgi Loan to self. I have
gone through the bond of Gaya Zarpeshgi Lease. This payment is allowed to the
assessee, as it is a capital income according to the terms of the bond. At the
335 same time, I think, this amount of Rs. 2,82,192 should be treated as income
to Tekari Raj and assessed in Gaya Circle along with other income of Tekari Raj
as it is credited to that Raj by the assessee -and then set off against the
Zarpeshgi loan advanced to Tekari Raj." The assessment was approved by the
Assistant Commissioner of Agricultural Income-tax on January 4, 1946, and on
the day following, the Income-tax Officer passed his formal order and issued a
The assessee paid two installments out of
three, when on March 22, 1946, the Agricultural Income-tax Officer recorded the
following order :- " It appears that some agricultural income from Gaya
Zarpeshgi lease which should have been taxed for the year 1944-45 (1351 Fasli)
has escaped assessment. Issue notice under section 26 fixing the 20th May
1947." After the assessee appeared, a supplementary assessment order was
passed and Rs. 39,512-6-0 were assessed as tax on Rs. 2,52,879.
In deciding the matter, the Agricultural
Income-tax Officer gave the following reasons:
According to the terms of the lease the
assessee is to remain in possession and enjoy the usufruct of the lands given
in lease for a fixed number of years on payment of an annual thica rent of Rs.
1,000 to the lessor and thus satisfy himself for the entire amount of
consideration money of the zarpeshgi lease in question. In fact, by this
zarpeshgi lease the assessee has been given the grant of lands for a fixed term
on a fixed rent. Whatever income is derived from these lands during the tenure
of this lease, is the income of the assessee and as such it should be taxed in
the hands of the assessee and not in the hands of the lessor." The
Agricultural Income-tax Officer purported to act under s. 26 of the Bihar
Agricultural Income-tax Act, 1938 (hereinafter referred to as the Act).
The assessee appealed. The Commissioner of
Agricultural Income-tax reversed the decision. He pointed 336 out that the
agricultural income from Tekari Raj property was returned by the assessee but
was held to be exempt and thus could not be said' to have escaped assessment so
as to bring the case within s. 26 of the Act. The Province of Bihar (as it was
then called) ,moved the Board of Revenue, Bihar which by a resolution dated
February 7, 1948, referred the two questions to the High Court of Patna. The
Board did not express any opinion on the two questions. In the High Court, both
the questions were answered in favour of the State of Bihar. Leave having been
refused by the High Court, the assessee applied for, and obtained special leave
from this Court.
Section 26 of the Act, under which the
Agricultural Income- tax Officer purported to act is substantially the same as
s. 34 of the Indian Income-tax Act, prior to its amendment.
Necessarily, therefore, the rulings on the
interpretation of the latter section were freely cited by the contending
parties. Section 26 of the Act reads as follows:
" If for any reason any agricultural
income chargeable to agricultural income-tax has escaped assessment for any
financial year, or has been assessed at too low a rate, the Agricultural
Income-tax Officer may, at any time within one year of the end of that
financial year, serve on the person liable to pay agricultural income-tax on
such agricultural income or, in the case of a company, on the principal officer
thereof, " a notice containing all or any of the requirements which may be
included in a notice under subsection (2) of section 17, and may proceed to
assess or re-assess such income, and the provisions of this Act shall, so far
as may be, apply accordingly as if the notice were a notice issued under that
Provided that the tax shall be charged at the
rate at which it would have been charged if such income had not escaped
assessment or full assessment, as the case may be. " For facility of
reference, the previous s. 34 before the amendment in 1948 of the Indian Income-tax
Act may likewise be quoted here. It read:
337 If in consequence of definite information
which has come into his possession the Income-tax Officer discovers that
income, profits or gains chargeable to income-tax have escaped assessment in
any year, or have been under-assessed, or have been assessed at too low a rate,
or have been the subject of excessive relief under this Act the Income-tax
Officer may, in any case in which he has reason to believe that the assessee
has concealed the particulars of his income or deliberately furnished
inaccurate particulars thereof, at any time within eight years, and in any
other case at any time within four years of the end of that year, serve on the
person liable to pay tax on such income, profits or gains, or in the case of a
company, on the principal officer thereof, -a notice containing all or any of
the requirements which may be included in a notice under sub-section (2) of
section 22, and may proceed to assess or re-assess such income, profits or
gains, and the provisions of this Act shall, so far as may be, apply
accordingly as if the notice were a notice issued under that sub-section:
Provided that the tax shall be charged at the
rate at which it would have been charged had the income, profits or gains not
escaped assessment, or full assessment, as the case may be:........
The short question is whether income which
was returned but was held to be exempt from tax could be said to have "
escaped assessment " so that the Agricultural Income-tax Officer could
exercise his powers under s. 26 of the Act to tax it. This question arising
under s. 34 of the Indian Income-tax Act has been considered on many an
occasion by the High Courts and also by the Privy Council and this Court. The
Patna-High Court has correctly pointed out that the preponderance of opinion is
in favour of holding that such income can be said to have escaped assessment.
The High Court in deciding that the
Agricultural Income-tax Officer had jurisdiction to revise his earlier
assessment referred to the opening words of s. 26, namely, " for any
reason " and observed that it was 43 338 not necessary to give a
restricted meaning to the word "escaped ", and that if an item of
income was not charged to tax due to a mistake or oversight on the part of the
taxing authorities, that item could well come within the term " escaped
". According to the High Court, the phrase " escaped assessment
" was not confined to cases where there had been an inadvertent omission,
but in view of the later part of the section "where income ... has been
assessed at too low a rate", included a case where there was a deliberate
Learned counsel for the assessee contends
that the generality of the words " any reasonhas no bearing upon the
construction of the words escaped assessment ", that the word "
assessment "does not connote the final determination to tax income but the
entire process by which the result is reached, and that inasmuch as the income
was actually returned and held to be exempt, there was no question of an
"escaped assessment " because it passed through the processing of
income. He also contends that the later part of the section which deals with
assessment at too low a rate cannot be called in aid to decide when income can
be said to have escaped assessment. He submits that the section has no
application to cases where income is returned but is held to be not liable to
tax and relied upon the following cases;
Maharaja Bikram Kishore v. Province of Assam
(1), Commissioner of Income-tax v. Day Brothers (2), Madan Mohan Lal v.
Commissioner of Income-tax (3) (per Dalip Singh, J.) and Chimanram Motilal
(Gold and Silver), Bombay v. Commissioner Of Income-tax (Central), Bombay (4)
(per Kania, J., as he then was).
The learned Attorney-General drew the
attention of the Court to other cases in which the view has been taken that
even if income is returned and deliberately not charged to tax, the condition
required for the application of the section is fulfilled. He cited the
following cases in support of his contention: AngloPersian Oil Co. (India) Ltd.
v. Commissioner of IncometaX (5), P. C. Mullick and D. 0. Aich, In re('), The
(1) 17 I.T.R. 220.
(2) 4 I.T.R. 209.
(3)[19351 3 I.T.R. 438.
(4) (1942) I.L.R. 1943 BOM. 206.
(5)  [ I.T.R. 129.
(6)  8 I.T.R. 236.
339 Commissioner of Income-tax v. Raja of
Parlakimedi (1) Chimanram Moti Lal (Gold and Silver), Bombay v. Commissioner of
Income-tax (Central), Bombay (2) and Madan Mohan Lal v.
Commissioner of Income-tax (3). The learned
Attorney- General also relied strongly upon a recent decision of this Court in
Kamal Singh v. Commissioner of Income-tax, Bihar and Orissa (4), where
Gajendragadkar, J., after a review of all the authorities, held that s. 34 of
the Indian Income- tax Act was applicable to a case where an item of income was
returned but deliberately and after consideration, was held to be not liable to
tax. Learned counsel for the assessee contends that the point was left open in
that case, and refers to Messrs. Chatturam Horilram Ltd. v. Commissioner of
Income'-tax, Bihar and Orissa(5) as having held the contrary.
Before referring to the other authorities of
the High Courts, it will be proper to see if the two cases of the Supreme Court
are in point or not, and if so, which of them.
In Kamal Singh's case (4), the point arose
under the following circumstances. The father of the appellant in that case was
assessed to income-tax for the year 1945-46.
The total income assessed to income-tax was
Rs. 1,00,000 which included a sum of RE;. 93,604 received by him on account of
interest on arrears of rent due to him after deduction of collection charges.
It was urged before the Income-tax Officer that this interest was not
assessable to income-tax being agricultural "income, in view of the
decision of the Patna High Court in Kamakshya Narain Singh v. Commissioner of
Income-tax(6). The Income-tax Officer did not accept this contention on the
ground that an appeal was pending against the Patna High Court's decision,
before the Privy Council. On appeal, the Appellate Assistant Commissioner held
that the Income-tax Officer was bound to follow the decision of the High Court,
and he set aside the order and directed the Income-tax Officer to make a fresh
assessment. The Income-tax Officer thereupon deducted the amount (1) (1926)
I.L.R. 49 Mad. 22.
(2) (1942) I.L. R. 1943 Bom. 206.
(3)  3 I.T.R. 438.
(4) A.I.R. 1959 S.C. 257.
(5)  2 S-C.R. 290.
(6) [I946] 14 I.T.R. 673.
340 and brought only the remaining income
(after some minor adjustments) to tax. His order was passed on August 20, 1946.
In the year 1948, the Privy Council reversed the Patna High Court's decision.
The judgment of the Privy Council is reported in Commissioner of Income-tax v.
Kamakshya Narain Singh('). The Income-tax
Officer then issued a notice under s. 34 of the Indian Income-tax Act, and
after hearing the party assessed the sum of Rs. 93,604.
After sundry procedure which it is not
necessary to detail, the matter reached this Court, and the question which was
before it was " whether in the circumstances of the case, the assessment
order under s. 34 of the Act of the interest on arrears of rent is legal."
Two questions were involved. The first was whether the word " information
" was wide enough to include knowledge about the state of the law or about
a decision on a point of law.
With that point we are., not concerned in
this case. The second was, when income could be said to have escaped
assessment. Emphasis was laid on the word " assessment " in the
arguments, and it was contended that it denoted not merely the order of
assessment, but included " all steps taken for the purpose of levying of
tax and during the process of taxation. " It was also contended that
" escaped " meant that the income must have eluded observation,
search etc., or, in other words, eluded the notice of the Income- tax Officer.
Gajendragadkar, J., however, did not confine the phrase to such a narrow
meaning. He observed;
" Even if the assesse has submitted a
return of his income, cases may well occur where the whole of the income has
not been assessed and such part of the income as has not been assessed can well
be regarded as having escaped assessment.
In the present case, the rents received by
the assessee from his agricultural lands were brought to the notice of the
Income-tax Officer; the question as to whether the said amount can be assessed
in law was considered and it was ultimately held that the relevant decision of
the Patna High Court 'Which was binding on (1)[1948) 16 I.T.R. 325.
341 the department justified the assessee's
claim that the said income was not liable to be assessed to tax. There is no
doubt that a part of the assessee's income had not been assessed and, in that
sense, it has clearly escaped assessment. Can it be said that, because the
matter was considered and decided on' the merits in the light of the binding
authority of the decision of the Patna High Court, no income has escaped
assessment when the said Patna High Court decision has been subsequently
reversed by the Privy Council? We see no justification for holding that cases
of income escaping assessment must always be cases where income has not been
assessed owing to inadvertence or oversight or owing to the fact that no return
has been submitted. In our opinion, even in a case where a return has been
,submitted, if the Income-tax Officer erroneously fails to tax a part of
assessable income, it is a case where the said part of the income has escaped
assessment. The appellant's attempt to put a very narrow and artificial
limitation on the meaning of the word "escape' in s. 34(1)(b) cannot
therefore succeed." The assessee seeks to distinguish that case on the
ground that this Court laid down the law in the special circumstances where' a
new interpretation to the law was given, and that it was not a case of the
Income-tax Officer changing his mind. He contends that there was at least some
information which had come to the Income-tax Officer, on which his subsequent
action could be rested. The learned counsel argued that Gajendragadkar, J., had
expressly left the question open, where there was no information but the Income-tax
Officer merely changed his mind without any information from an external
source. Reference in this connection is made to the following observations in
" It appears that, in construing the
scope and effect of the provisions of s. 34, the High Courts have had occasion
to decide whether it would be open to the Income-tax Officer to take action
under a. 34 on the ground that he thinks that his original decision in making
the order of assessment was 342 wrong without any fresh information from an
external source or whether the successor of the Income-tax Officer can act
under s. 34 on the ground that the order of assessment passed by his
predecessor was erroneous, and divergent views have been expressed on this
point. Mr. Rajagopala Sastri, -for the respondent, suggested that under the
provisions of s. 34 as amended in 1948, it would be open to the Income-tax
Officer to act under the said section even if he merely changed his mind
without any information from an external source and came to the conclusion
that, in a particular case, he had erroneously allowed an assessee's income to
escape assessment. We do not propose to express any opinion on this point in
the present appeal." We may say at once that the words of s. 26 of the Act
do not involve possessing of or coming by some fresh information.
The section says:
" If for any reason any agricultural
income chargeable to agricultural income-tax has escaped assessment for any
financial year the Agricultural Income-tax Officer may proceed to assess such
income The use of the words "any reason" which are of wide import
dispenses with those conditions by which s. 34 of the Indian Income-tax Act is
circumscribed. The point which was thus left over by Gajendragadkar, J., cannot
arise in the context of the Act we are dealing with.
In view of this clear opinion, it is hardly
necessary for us to consider again the cases which Preceded the decision of
this Court. The most important of them are considered in the judgment of
Gajendragadkar, J. Most of the cases are also considered in the judgment of
Harries, C. J., and Mukherjea, J. (as he then was) in Maharaja Bikram Kishore
v. Province of Assam (1). In all the cases where a contrary view was taken,
reliance was placed upon the decision of the Privy Council in Rajendra Nath
Mukerjee v. Income-tax Commissioner(') particularly a passage wherein it was
(1)  17 I.T.R. 220, (2) (1933) L.R. 61
I.A. 10, 16.
343 "The fact that s. 34 requires a
notice to be served calling for a return of income which had escaped assessment
strongly suggests that income which has already been duly returned for
assessment cannot be said to have 'escaped' assessment within the statutory
meaning." The facts of the case were entirely different. The income was
returned, and was not yet processed when the notice under s. 34 was issued. The
key to the case is furnished by the approval by their Lordships of the
observations of Rankin, C.J., in In re: Lachhiram Basantlal (1) that:
" Income has not escaped assessment if
there are pending at the time proceedings for the assessment of the assessees'
income which have not yet terminated in a final assessment thereof." Their
Lordships held that the expression "has escaped assessment" should not
be read as equivalent to "has not been assessed" because so to do
"gives too arrow a meaning to the word 'assessment' and too wide a meaning
to the word escaped'." That those observations were related to the facts
then before their Lordships is clear from the following passage:
" To say that the income of Burn &
Co., which in January, 1928, was returned for assessment and which was accepted
as correctly returned, though it was erroneously included in the assessment of
Martin & Co.', has escaped' assessment in 1927-28 seems to their Lordships
an inadmissible reading.....
Their Lordships find it sufficient for the
disposal of the appeal to hold, as they do that the income of Burn & Co.,
did not 'escape assessment' in the year 1927-28 within the meaning of s.
34." It was in the context of the pendency of assessment proceedings that
the remarks were made, and the matter is decisively cleared of any doubt by the
" It may be that if no notice calling
for a return under s. 22 is issued within the tax year then s. 34 (1)(1930)
I.L.R. 58. Cal. 909, 912.
344 provides the only means available to the
Crown of remedying the omission, but that is a different matter." In our
opinion, the error in the cases relied upon by the assessee arises in using the
dicta in the above case, shorn of the context in which they were made and
applying them to facts, where they cannot. The judgment of Gajendragadkar, J.,
has dealt with the matter, if we may say so respectfully, very adequately and
we do not consider it necessary to cover the same ground again. The
preponderance of opinion in the High Courtís is also to accept the contrary
view, and we think rightly.
The learned counsel for the assessee argued
that the decision of this Court in Messrs. Chatturam Horilram Ltd.
v. Commissioner of Income-tax, Bihar&
Orissa (1) discloses a different view, and that we should follow it in
preference to the later view of Gajendragadkar, J. We do not think that in the
case last cited the point was the same. The same case was relied upon before
the Bench of Venkatarama Aiyar, Gajendragadkar and Sarkar, JJ., and
Gajondragadkar, J., distinguished it This is what he observed:
Mr. Sastri has also relied on the decision of
this Court in Messrs. Chatturam Horilram Ltd. v. Commissioner of Income- tax,
Bihar & Orissa (1) in support of his construction of s.
34. In Chatturam's case (1) the assessee had
been assessed to income-tax which was reduced on appeal and was set aside by
the Income Tax Appellate Tribunal on the ground that the Indian Finance Act of
1939, was not in force during the assessment year in Chota Nagpur. On a
reference the decision of the tribunal was upheld by the High Court.
Subsequently the Governor of Bihar
promulgated the Bihar Regulation IV of 1942 and thereby brought into force the
Indian Finance Act of 1939, in Chota Nagpur retrospectively as from March 30,
1939. This ordinance was -assented to by the Governor-General. On February 8,
1944, the Income Tax Officer passed an order in pursuance of which proceedings
were taken against (1) 2 S.C.R. 290.
345 the assessee under the provisions of s.
34 and they resulted in the assessment of the assessee to incometax. The
contention which was raised by the assessee in his appeal to this Court was
that the notice issued against him under s. 34 was invalid. This Court held
that the income, profits or gains sought to be assessed were chargeable to
income-tax and that it was a case of chargeable income escaping assessment
within the meaning of s. 34 and was not a case of mere non-assessment of
income-tax. So far as the decision is concerned, it is in substance
inconsistent with the argument raised by Mr. Sastri. He, however, relies on the
observations -made by Jagannadhadas, J., that 'the contention of the learned
counsel for the appellant that the escapement from assessment is not to be
equated to non- assessment simpliciter is not without force' and he points out
that the reason given by the learned Judge in support of the final decisions
was that though earlier assessment proceedings had been taken they had failed
to result in a valid assessment owing to some lacuna other than that
attributable to the assessing authorities notwithstanding the chargeability of
income to the tax. Mr. Sastri says that it is only in cases where income can be
shown to have escaped assessment owing to some lacuna other than that
attributable to the assessing authorities that s. 34 can be invoked. We do not
think that a fair reading of the judgment can lead to this conclusion. The
observations on which reliance is placed by Mr. Sastri have naturally been made
in reference to the facts with which the Court was dealing and they must
obviously be read in the context of those facts. It would be unreasonable to
suggest that these observations were intended to confine the application of s. 34
only to cases where income escapes assessment owing to reasons other than those
attributable to the assessing authorities. Indeed Jagannadbadas J., has taken
the precaution of adding that it was unnecessary to lay down what exactly
constitutes escapment from assessment and that it would be sufficient to place
their decision on 44 346 the narrow ground to which we have just referred. We
are satisfied that this decision is of no assistance to the appellant's case."
For the reasons we have given, we are of opinion that the Agricultural
Income-tax Officer was competent under s. 26 of the Act to assess an item of
income which he had omitted to tax earlier, even though in the return that
income was included and the Agricultural Income-tax Officer then thought that
it was exempt. The answer given by the High Court was therefore correct.
This brings us to the second question. The
income was received from the leasehold properties, and was agricultural income.
The contention of the assessee is that it may be agricultural income in the
hands of the Tekari Raj but -in his hands it was capital receipt and in
repayment of the loan of about Rs. 17,00,000 paid to Ram Bhuwaneshwari Kuer.
The State of Bihar, however, denies that
there was a loan or a mortgage at all. The assessee, it is contended, was
placed in possession for a number of years on a rent of Rs. 1,000 per year and
the amount paid was premium and not a loan.
The documents in question are two. They are
plainly indentures of lease between the Rani and the. assessee.
From these documents it is clear that in
consideration of a payment of Rs. 17,16,000 the lessee was placed in possession
of the leasehold property for 28 years. There is no express term which makes
the sum a loan returnable either by repayment or by the enjoyment of the
usufruct. There is no interest fixed or right of redemption granted. There is
no provision for any Personal liability in case any amount remained outstanding
at the end of the term of 28 years.
These are the tests to apply to find out
whether the transaction was one of zarpeshgi lease or a lease with a mortgage.
See Mulla's' Transfer of Property Act, 4th Edition, page 352.
The learned counsel for the assessee in his
careful argument took us through the two documents and endeavoured to prove
that the relation of debtor and creditor subsisted between the parties. He
referred 347 us to cl. 4, which embodies a provision entitling the lessee to
deduct 12 1/2 per cent. of the gross aggregate amount payable by the
mokarraridars as expenses of collection and other charges incidental thereto
after payment of rent reserved to the I lessor' and to appropriate to himself
the remainder. He submitted that the payment to the lessor was not a premium
but a loan and the intention was that the lessee or creditor would be thus
The clause by itself may admit of diverse
constructions, and possibly one such construction may be the one suggested, but
that is not the true purport of the clause read in the context of the rest of
the instrument. To interpret this clause the instrument must be read as a
whole, and when so viewed, it is found that it provides for an exemption of the
lessor from the liability for collection charges. It places beyond doubt that
the collection charges were not to be debited to the lessor but were to be
borne by the lessee.
Unless such a provision was included in the
instrument, it might have been a matter of some dispute as to who was to be
responsible for this expenditure.
The learned counsel for the assessee next
drew our attention to the last clause of the instrument of January 31, 1936.
That, however, was a special covenant, and
the provision therein was in relation to matters not covered by the instrument.
That the income from this leasehold property
which was land, would fall within the definition of " agricultural income
" was not seriously contested before us. The case of the assessee rests
upon the claim that this was a money-lending transaction and the receipts represented
a capital return.
If, however, the payment to the lessor was
premium and not a loan, the income, being agricultural, from these leasehold
properties was assessable under the Act. We are of opinion that it was so, and
that the Agricultural Income-tax Officer was right when he assessed it to
The income was not the income of
money-lending, and this does not depend upon the character of the recipient.
The Thika 348 profits were clearly agricultural income being actually derived
from land. The answer to the question by the High Court was thus correct.
The result is that the appeal must fail, and
it is accordingly dismissed with costs.