State of Punjab & ANR Vs. M/S.
Devans Modern Brewaries and ANR  INSC 218 (23 November 1960)
CITATION: 1961 AIR 487 1961 SCR (2) 598
Income Tax--Agricultural income--Acquisition
of land forming part of permanently settled estate--Redemption of liability to
pay land revenue by Payment of lump sum--Agricultural income from the
land--Liability to income tax-Indian Income-tax Act, 1922 (11 of 1922), S.2(1).
By a notification dated November 2, 1864, a
piece of land forming part of the Panchannagram Estate which was permanently
settled under Regulation 1 of 1793, was acquired by the Government of Bengal at
the instance of the justices of the Peace for the Town of Calcutta, which was a
corporation established under the provisions of the Calcutta Municipal Act,
1863, and the justices were required to pay the compensation payable to the
proprietor of the Estate.
After the acquisition, the proprietor of the
Estate was granted abatement of land revenue assessed on the Estate to the
extent of Rs. 386-7-1, being the proportionate land revenue on the land
acquired. On October 27, i865, the Government called upon the justices to pay a
sum of Rs. 7,728-13-8, which represented the amount capitalised at 20 years'
purchase of land revenue attributed to the area acquired. On December 5, i870,
the Secretary of State executed in favour of the justices of the Peace a
conveyance of the land acquired, which stated, inter alia, that it was
"ever free and clear and for ever discharged from all Government land
revenue whatever or any payment or charge in the nature thereof to the end and
intent that the said land may be used for a public purpose, namely, for the
conservancy of the town." On January 23, 1880, a lease of the land was
granted by the Justices to the predecessors-in title of the appellant, under
which the lessee had the right to carry on cultivation with the aid of sewage.
Before the income-tax authorities the
appellant claimed that the agricultural income derived by him from the land was
not liable to income-tax, but the claim was rejected on the ground that on the
payment of a lump-sum in 1865 the liability to pay land revenue was redeemed
and no land revenue was demanded thereafter; consequently, the income derived
from the land was not agricultural income within the meaning of S. 2(1) of the
Indian Income-tax Act, 1922, and was not, therefore, exempt from tax. The
appellant's contention was that the redemption only saved the justices from
liability for payment but did not affect the assessability of the land to
revenue under Regulation 1 of 1793.
599 Held, that by the down payment of a lump
sum in 1865 the entire land revenue to be recovered from the land was redeemed
and the land became free from land revenue assessment in perpetuity, as
completely as if there was no assessment. Thereafter, the land could not be
said to be assessed to land revenue within the meaning of S. 2(1) of the Indian
Income-tax Act, 1922, and, consequently, the income derived there from could
not be considered to be agricultural income under that section.
The Collector of Bombay v. Nusserwanji
Rattanji Mistri and others,  1 S.C.R. 1311, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 405 of 1957.
Appeal from the judgment and order dated May
15, 1956, of the Calcutta High Court in I.T.R. No. 20 of 1953.
S. Mitra, B. Das and S. N. Mukherjee, for
appellants Nos. 2 to 41.
A. N. Kripal and D. Gupta, for the
1960. November 23. The Judgment of the Court
was delivered by HIDAYATULLAH, J.-The point involved in this appeal is a very
short one; but it requires a long narration of facts to reach it. The appeal is
against the judgment and order of the High Court of Calcutta dated May 15,
1956, arising out of an Income-tax Reference.
By the Calcutta Municipal Act VI of 1863,
there was established a Corporation under the name of "The Justices of the
Peace for the Town of Calcutta". By a notification issued on November 2,
1864, one square mile of land forming part of the Panchannagram Estate was
acquired by the Government of Bengal at the instance of the Justices.
Section CXII of the Municipal Act provided
that the Justices might "agree with the owners of any land for the
absolute purchase thereof............ for any other purpose whatever connected
with the conservancy of the Town". Under s.
CXIII, it was provided that if there was any
hindrance to acquisition by private treaty, the Government of Bengal upon the
representation of the Justices would compulsorily acquire the land and vest 600
such land in the Justices on their paying compensation awarded to the
proprietor. The action which was taken by the notification was under s. CXIII
of the Municipal Act, and the acquisition was under Act VI of 1857, an Act for
the acquisition of land for public purposes.
The Panchannagram Estate was permanently
settled under Regulation 1 of 1793. After the acquisition, the proprietor of
Panchannagram Estate was granted abatement of land revenue assessed on the
Estate to the extent of Rs. 386-7-1.
This represented the proportionate land
revenue on the land acquired.
In August, 1865, the Justices were required
to pay Rs. 54,685-2-10 as compensation payable to the proprietor and to other
persons holding interest in the land. Another piece of land which is described
as an open level sewer, was also acquired about the same time, and separate
compensation was paid for it. With the amount of conveyance charges, the total
compensation thus paid by the Justices was Rs. 57,9658-10. On October 27,1865,
the Government called upon the Justices to pay a further sum of Rs. 7,728-13-8.
This order has not been produced in the case; but from other correspondence, it
is easy to see that the amount represented an amount capitalized at 20 years'
purchase of land revenue attributed to the area acquired, which, as has been
stated above, came to Rs. 386-7-1. This payment was made on or about January
12, 1866. Similarly, another amount was paid in July of the same year for
redemption of the land revenue in respect of the strip of land for the open
On December 5, 1870, a conveyance was
executed by the Secretary of State in favour of the Justices of the Peace.
It was there stated, inter alia:
"Whereas the Honourable the Lieutenant
Governor of Bengal hath thought fit that the said land so acquired as aforesaid
would be vested in the said Justices of the Peace for the Town of Calcutta a
Corporation created by and authorised to hold land under the said Act No. VI of
1863 of the Council of the Lieutenant Governor of Bengal to the end and intent
601 that the said land may be held by the said Justices for a public purpose,
namely, for the conservancy of the Town......... and subject in every way to
the same' Act but free and discharged from all payment of land revenue, land
tax and all and every tax or imposition in the nature of revenue derivable from
land payable to Government in respect thereof; NOW THIS IN-DENTURE
WITNESSETH.......to hold the said pieces of land, here ditaments and premises
intended to be conveyed with the appurtenances except as aforesaid unto the
said Justices of the Peace for the Town of Calcutta and their successors for
ever free and clear and forever discharged from all Government land revenue
whatever or any payment or charge in the nature thereof to the end and intent
that the said land may be used for a public purpose namely for the conservancy
of the town upon the trusts and subject to the powers, provisions, terms and
conditions contained in the said Act No. VI of 1863 of the Council of the
Lieutenant Governor of Bengal and to the rules heretofore passed or hereafter
to be passed by the Government of Bengal under the said last mentioned
On January 23, 1880, a temporary lease of the
land known as the 'Square Mile' was granted by the Justices of the Peace to the
predecessors-in-title of the appellant (assessee), Srish Chandra Sen who has,
since the filing of the appeal, died, leaving behind 40 legal representatives
who have been shown in the cause title of the appeal. The lease was renewed for
further periods, and the rent was also progressively increased. The conservancy
arrangements for which the land 'was held were carried out, but, the lessee had
the right to carry on cultivation with the aid of sewage.
The assessee derived from this land various
kinds of income, some being purely agricultural and some, non-agricultural.
For the assessment year 1942-43, the total
agricultural income was computed at Rs. 99,987-9-6, and non-agricultural income,
at Rs. 12,503-8-0. Agricultural income-tax was charged by the State of Bengal
under the Agricultural Income602 tax Act, on the agricultural income less
expenses. For the assessment years, 1943-44, 1944-45, 1945-46 and 1946-47, the
assessments were made along similar lines. In 1947, the Income-tax Officer
reassessed the income for the assessment year, 1942-43 after reopening the
assessment under s. 34 of the Income-tax Act on the ground that the so-called
agricultural income had escaped assessment to income-tax under the Indian
Income-tax Act. Assessments for the other years, 1943-44, 1944-45, 1945-46 and
1946-47 were also reopened, and the income in those years wag also similarly
reassessed. The assessee appealed to the Appellate Assistant Commissioner
against all these orders of the Income-tax Officer, but his appeals failed.
Against the orders of the Appellate Assistant Commissioner, appeals were filed
before the Income-tax Appellate Tribunal (Calcutta Bench). The Tribunal dealt
with the assessment for 1942-43 separately, and allowed the appeal as regards
assessment for that year. It held that the reassessment was improper under s.
34 of the Income-tax Act, because the Income-tax Officer had not proceeded on
any definite information but in the course of a "roving enquiry". The
Tribunal also held that the income was exempt from taxation to income-tax under
4(3)(viii) of the Act, inasmuch as this
income was derived from land used for agricultural purposes, which continued to
be assessed to land revenue.
In the appeals arising out of assessments for
the subsequent years, a common order was passed by the Tribunal, remanding the
appeals to the Appellate Assistant Commissioner for a rehearing. The Tribunal
stated that the appellants had filed a number of documents to establish that
land revenue was assessed on the land which, the Department contended, proved
the contrary. The Tribunal felt that the matter should be reconsidered by the
Appellate Assistant Commissioner, and hence remanded the cases. The Appellate
Assistant Commissioner in the rehearing held that the land in question
continued subject to land revenue, and that the lump sum payment was merely
payment of revenue in advance.
He accordingly allowed the appeals, and
ordered exclusion of the income 603 from the assessments for the four years in
question. On appeal by the Department, the Tribunal changed its opinion, and
came to the conclusion that the' payment of a lump sum was not a payment in
advance of the land revenue due from year to year but was land revenue
capitalised. It referred to the deed by which the proprietorship in the land
was vested in the Corporation by the Secretary of State, and stated that by the
document and the capitalisation of land revenue, the demand for land revenue was
extinguished forever. It accordingly allowed the appeals, and restored the
orders of assessment made by the Income-tax Officer.
The assessee next moved the Tribunal for a
reference setting out a number of questions which, he contended, arose out of the
Tribunal's order. The Tribunal referred the following question of law for the
opinion of the High Court:
"Whether on the facts and in the
circumstances of this case the Tribunal's conclusion that the land was not
assessed to land revenue within the meaning of s. 2(1)(a) of the Indian
Income-tax Act is justified?" The reference was heard by Chakravarti, C.
J., and Sarkar, J., (as he then was). In an elaborate judgment, the learned
Chief Justice upheld the conclusions of the Tribunal, and answered the question
in the affirmative. Sarkar, J., in an equally elaborate order expressed his
doubts about the correctness of the Chief Justice's reasons, but declined to
disagree with him.
The question that arises in this case, as we
have stated in the opening of this judgment, is a very short one. It is an
admitted fact that by payment of' a lump sum the liability to pay land revenue
was redeemed and no land revenue was demanded or was ever demandable from the
Justices or their assigns in perpetuity. The contention of the assessee is that
this redemption saved the Justices from the liability for payment but did not
affect the assessability of the land to revenue under Regulation I of 1793.
Unless, it is contended,. there was a cancellation of the assessment, a,% is to
be found in the 604 Land Tax and Tithe Redemption Acts in England, the
liability must be deemed% to continue and land would still be assessed to land
revenue for purposes of s. 2(1)(a) of the Indian Income-tax Act. That section
reads as follows:
"2(1) 'Agricultural income' means(a) any
rent or revenue derived from land which is used for agricultural purposes, and
is either assessed to land revenue in (the taxable territories) or subject to a
local rate assessed and collected by Officers of (the Government) as
It is not denied that both the conditions,
namely, "used for agricultural purposes" and "is either assessed
to land revenue or subject to a local rate.............. have to coexist. It is
admitted by the Department that there is no question of subjection to a local
rate assessed and collected, in this case. The income derived from the land was
from its use for agricultural purposes, and the first condition is thus
satisfied. The dispute centers round the point whether the land .can be said to
be assessed to land revenue, in spite of the lump sum payment in 1865.
In the High Court, the matter was examined
from three different points of view. The first was the effect of acquisition of
the land by Government upon the continued assessability of the land to land
revenue. The learned Chief Justice held that by the acquisition the assessment
ceased to subsist. The second was the effect of the redemption of land revenue
by the Justices by a lump sum payment. The learned Chief Justice was of opinion
that it had the effect of cancelling the assessment. The last was the effect of
the grant free from land revenue, about which the learned Chief Justice was of
opinion that it freed the land from assessment to land revenue. Sarkar, J.,
agreed as to the first, but expressed doubts about the second and third
propositions. According to the learned Judge, the acceptance of a lump sum
payment in lieu of recurring annual payments was more a matter of agreement
than a cancellation of assessment to land revenue.
The matter has been argued before us from the
605 argument about the interpretation to be placed on the, conveyance by the
Secretary of State which, according to him, only freed the Justices from
'payment' of the assessed land revenue but -did not cancel the assessment.
No Act of Legislature bearing upon the power
of Government to accept a Iump sum payment in lieu of the annual demands for
land revenue has been brought to our notice. Counsel admitted that they were
unable to find any such legislative provision. We have thus to proceed, as did
the High Court, without having before us the authority of a legislative
enactment. The only materials to which reference was made are: an extract from
the explanatory notes in the Revenue Roll of the Touzi which shows that an
abatement of land revenue pro tanto was granted to the proprietor of
Panchannagram Estate, and a despatch from the Secretary of State for India
(Lord Stanley)-No. 2 (Revenue) dated December 31, 1858-recommending redemption
of land revenue by an immediate payment of a sum of equivalent value, together
with a Resolution of Government (Home Department No. 3264 (Rev) dated October
17, 1861) on permission to redeem the existing land revenue by the immediate
payment of one sum equal in value to the revenue redeemed. By the resolution,
it was provided that such redemption would be limited to 10 per cent of the
total revenue in the Collectorate and the price to be paid was to be fixed at
20 years' purchase of the existing assessment. It may be mentioned that in
Despatch No. 14 dated July 9, 1862, the Secretary of State for India (Sir
Charles Wood) did not agree with the earlier policy, but did not cancel it.
It may thus be assumed that what was done was
under the authority of the Crown, which was then paramount, which paramountcy
included the prerogative to free land from the demand of land revenue with or
without conditions. We have, therefore, to examine three things: the effect of
acquisition on the continuance of the assessment to land revenue, the effect of
redemption by a down payment on the same, 77 606 and the effect of the grant,
free from land revenue, to the Justices.
The acquistion was under Act VI of 1857. That
Act provided in B. XXVI as follows:
"When any land taken under this Act
forms part of an estate paying revenue to Government, the award shall specify
the net rent of the land including the Government Revenue, and the computed
value of such rent: and it shall be at the discretion of the Revenue
authorities either to pay over the whole of such value to the owner of the
estate on the condition of his continuing to pay the jumma thereof without
abatement; or to determine what proportion of the net rent shall be allowed as
a remission of revenue, in which case a deduction shall be made from the said
value proportionate to the value of such remission." This provision only
saved the Estate assessed to land revenue from liability to pay land revenue
proportionately falling upon the land acquired compulsorily, subject to a like
proportionate reduction in the amount of compensation payable to the proprietor
of the estate, but the provision cannot be stretched to mean that the liability
of the land actually acquired, to land revenue in the hands of grantees from
the Government also ceased. Be that as it may, it is hardly necessary to view
the present case from this angle at all, because, whether the land acquired
continued to be subject to an assessment or must be deemed to be reassessed as
a separate estate, the result would be the same if Government demand still
subsisted on it, as, in fact, it did. There could have been no redemption of
the liability by a down payment if no land revenue could have been demanded.
The fact that the recurring liability was redeemed by a lump sum payment itself
shows that in the view of Government as well as of the Justices, the 'Square
Mile' was still subject to the recurring demand and was thus still assessed to
land revenue. It is, therefore, not profitable to investigate the effect of
acquisition on the continued liability of the land to land revenue between the
time there was acquisition and the vesting of the land in the Justices.
-For the above reason, we need not examine at
607 length the case in Lord Colchester v. Kewnoy where the acquisition by the
Crown was held not to make, the area acquired immune from land-tax, because the
burden of the tax would then have fallen upon the remaining land situated in
the unit from which it was acquired and on which unit a quota of the land-tax
was chargeable. Such a position does not arise here, because the Panchannagram
Estate was given abatement and a lump sum was paid to free the land acquired
from the liability to land revenue. Similarly, the decision of this Court in
The Collector of Bombay v. Nusserwanji Rattanji Mistri and Others (2), where on
the acquisition of some Foras lands held under Foras Land Act (Bombay Act VI of
1851) the Foras tenure was declared to have come to an end and on the same
lands being resold by Government as freehold, they were declared not to be subject
to assessment to which they were previously subject, is not very helpful.
There do not appear to be any rules prior to
1875, which were framed under the Land Acquisition Act of 1870 (Act X of 1870)
and which are to be found in the Calcutta Gazette of July 7, 1875, p. 818. If
there were, they have not been brought to our notice. But a practice similar to
the rules seems to have obtained under s. XXVI of the Act of 1857.
That Act also did not contain any provision
for making rules, as are to be found in the subsequent Acts for compulsory
acquisition of land. In the absence of any statutory law or rules, we must take
the facts to be that after acquisition the Panchannagram Estate was given
abatement of land revenue, and the demand for land revenue was transferred to
the land acquired and granted to the Justices. At that stage, the liability to
assessment remained, and it was that liability which was redeemed by a down
We next consider the effect of redemption.
Learned counsel for the appellant contends that redemption in this connection
means that by a single payment, the liability for periodical payments is saved
but the assessment on the land remains uncancelled. He has cited Wharton's Law
Lexicon to show the meaning of (1) (1866) L.R. 1 Exch. 368.
(2)  1 S.C.R. 1311.
608 the word "redemption", which is
"commutation or the substitution of one lump payment for a succession of
annual ones: e.g. See the Land Tax and the Tithe Redemption Acts and many other
statutes". Redemption is the act of redeeming which in its ordinary
meaning is equal to bringing off a charge or obligation by payment. To what
extent this redemption freed the land or its holder from the obligation depends
not so much upon what the obligation was before redemption as what remained of
that obligation after it.
Here, the payment itself was meant to be
"an immediate payment of one sum equal in value to the revenue
redeemed" (vide the Resolution of Government dated October 17, 1861).
By the down payment, the entire land revenue
to be recovered from that land was redeemed. The payment was equal to the
capitalised value of the land revenue. When such a payment took place, it
cannot be said that the assessment for land revenue remained. The land was
freed from that assessment as completely as if there was no assessment.
Thenceforward, the land would be classed as revenue-free, in fact and in law.
In The Land-Law of Bengal (Tagore Law Lectures, 1895) p. 81 S. C. Mitra
described these revenue-free lands as follows:
"There is another class of revenue-free
lands which comes within these rules laid down in the Registration and Tenancy
Acts, namely, lands of which Government has, in consideration of the payment of
a capitalised sum, granted proprietary title free in perpetuity from any demand
of land-revenue." That this is what had happened here is quite apparent
from the conveyance by the Secretary of State vesting the land in the Justices.
It is significant that there is no mention of the payment of Rs. 7,728-13-8,
nor of the assessability of the lands to land revenue. On the other hand, the
deed of conveyance merely reaffirmed the position, which existed before by
"...to hold the said pieces of land,
hereditaments and premises intended to be conveyed with the appurtenances except
as aforesaid unto the said Justices of the Peace for the Town of Calcutta and
their successors for ever free and clear and forever discharged 609 from all
Government land revenue whatever or any payment or charge in the nature
thereof." There can be no doubt that the land revenue was forever
extinguished and the land became free from land revenue, assessment in
perpetuity. It cannot thereafter be said that the land was still assessed to
Mr. Mitra made a great effort to construe the
operative part quoted above with the aid of the recital in the deed, where it
"...but free and discharged from all
payment of land revenue, land tax and all and every tax or imposition in the
nature of -revenue derivable from land payable to Government......
He drew attention to the word 'payment', and
contended that what was saved was payment of land revenue. He argued that in
case of ambiguity it was permissible to construe the operative portion of a
deed in the light of the recitals, and cited Halsbury's Laws of England, 3rd
Edn., Vol. XI, p. 421, para. 680, Gwyn v. Neath Canal Co. (1) and Orr v. Mitchell
(2). If there was any ambiguity in the operative portion of the deed, we may
have taken the aid of the recitals. But there is no ambiguity in the deed. The
history of redemption is a matter of record, and it is plain that Government
was accepting a down payment and freeing land from land revenue. This is
precisely what was done, and the result of the down payment is set out with
great clarity in the deed itself, and it is that there was no land revenue
assessed on or demandable from that land. In fact, no demand or payment or
charge in the nature of land revenue could ever be made on it. In view of this,
it is, in our judgment, quite satisfactorily established that this land was not
assessed to land revenue and the income from it did not fall within s. 2(1)(a)
of the Income-tax Act. The answer given by the High Court was thus correct.
In the result, the appeal fails, and will be
dismissed with costs.
(1868) L R. 3 Exch. 209.
Appeal dismissed (2)  A. C. 238, 254.