Maharajadhiraja Sir Kameshwar Singh Vs.
Commissioner of Income-Tax, Bihar and Orissa  INSC 176 (25 October 1960)
CITATION: 1961 AIR 362 1961 SCR (2) 74
CITATOR INFO :
R 1965 SC1836 (12)
Income Tax- Exemption from taxation
Agricultural income from trust properties-Trustee's remuneration a Percentage
of such income and resting on trust deed-Remuneration, whether agricultural
income-Indian Income-tax Act, 1922 (11 of 1922), SS. 2(1),4(3)(viii)-
The appellant executed a deed of trust
settling some of his lands for the maintenance of certain temples and
Thakoorbaries. He was to be the trustee of the institutions and was to get 15%
of the net income of those lands as trustee's remuneration. Before the
income-tax authorities the appellant claimed that as the income received from
agricultural properties of the trust by him as trustee was agricultural income
in his hands and was by virtue of s. 4(3)(viii) of the Indian Income-tax Act,
1922, exempt from liability to pay tax, the remuneration which by the covenant
contained in the deed of trust he received was also exempt under that section
because, when he appropriated a fraction of the rent or revenue of agricultural
lands towards his remuneration, the original character of the income was not
Held, that the source of the right in which a
fraction of the net income of the trust was to be appropriated by the appellant
as his remuneration was not in the right to receive rent or revenue of agricultural
lands, but rested in the covenant in the deed to receive remuneration for
management of the trust, and the character of the income appropriated as
remuneration was not the same as the character in which it was received by the
appellant as trustee. Consequently, the remuneration not being received as rent
or revenue of agricultural lands under a title, legal or beneficial in the
property from which the income was received, it was not agricultural income
within the meaning of s. 2(1) of the Indian Income-tax Act, 1922, and was not
exempt from taxation under s. 4(3)(viii) of the Act.
Nawab Habibulla v. Commissioner of
Income-tax, Bengal, (1943) L.R. 7,D I.A. 14 and Premier Construction Co. Ltd.
Commissioner of Income-tax, Bombay City,
(1948) L.R. 75 I.A, 246, relied on.
Commissioner of Income-tax, Bihar and Orissa
v. Kameshwar Singh, (1935) L.R. 62 I.A. 215, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 357 of 1958.
Appeal from the judgment and order dated
April 24, 1957, of the Patna High Court in Misc. Judicial Case No. 57 of 1955.
A. V. Viswanatha Sastri and I. N. Shroff, for
K. N. Rajagopal Sastri and R. H. Dhebar, for
1960. October 25. The Judgment of the Court
was delivered by SHAH J.-The appellant executed a deed of trust settling
certain lands described in schedule " A " and the rents of lands
described in schedule " C " for the maintenance of certain temples
and Thakoorbaries. The material terms of the deed of trust are:
cl. 6:-" And whereas the declarant feels
that a Declaration of Trust should be made whereby the income of a part of the
Raj properties may be earmarked and specially devoted to the maintenance of the
aforesaid institutions as also the Declarant may as hitherto treat himself and
be treated by others as a legal Trustee of the said institutions and the
properties out of the income of which the said maintenance is being and will be
provided for." cl. 7:-" The declarant declares that henceforth he
holds and will hold the properties detailed at the foot thereof in Schedule
" A " in trust for religious purposes of maintaining the religious
institutions more fully described in Schedule " B " annexed here-to.
" cl. 8 : "The declarant further declares that in all lands now held
by him in the aforesaid properties as Bakast or proprietor's private lands as
in the schedule " C " which are in direct khas cultivation of the
Declarant shall henceforth be or continue to be his tenancy lands for which the
Declarant shall pay the rental as noted against such lands, annually to the
" trustee for the use and benefit of the aforesaid institutions and the
rights of the Declarant in them 76 shall be those of a rayat under the Bihar
Tenancy Act." The net income of all the lands set out in Schedule A'.'
after providing for the expenses of management and the taxes payable thereon
was estimated at Rs. 1,81,717 and the net rental of the properties described in
Schedule " C " was estimated at Rs. 10,208 and from the aggregate of
these two amounts after deducting 15% as trustee's remuneration, the balance of
the income estimated at Rs. 1,63,136-4-0 was to be utilised for the objects of
In the assessee's income determined by the
Income-Tax Officer for the assessment year 1950-51, Rs. 6,000 were included as
income from non-agricultural properties of the trust. In the view of the
Income-tax Officer, the trust was not a, public religious trust and the income
derived from properties not used for agriculture was not exempt from liability
to pay tax in the hands of the appellant. In appeal against the order of
assessment, the Appellate Assistant Commissioner held that the income coming to
the hands of the appellant from the trust properties was not taxable as private
income of the appellant, but in his view, the remuneration amounting to Rs.
21,274 computed at the rate of 15% on the net income of the trust properties in
the year in question not being agricultural income in the appellant's hands was
liable to be taxed. In appeal to the Income-tax Appellate Tribunal, Patna
Bench, Patna, the order passed by the Appellate Assistant Commissioner in so
far as it related to remuneration received by the appellant was affirmed. The
High Court of Judicature at Patna thereafter at the instance of the appellant directed
the Income-tax Appellate Tribunal to submit a statement of the case on five
questions set out in the order. The fifth question (which is the only question
material in this appeal) was as follows:
" Whether, in the facts and the
circumstances of the case, the amount of Rs. 21,274 being the amount paid to
the assessee in his character of a Shebait of the Trust properties should have
been held to be exempted from taxation on the ground that it is agricultural
income ?" 77 The High Court agreed with the Tribunal that the remuneration
was received by the appellant under a contract, and it was not agricultural
income, merely because the source of the money was agricultural income. The
High Court accordingly answered the fifth question " against the assessee".
This appeal is filed by the appellant with leave under s. 66A(2) of the Indian
Income-tax Act granted by the High Court limited to the question whether the
amount received by the appellant from the trust property in his character as a
shebait was exempt from liability to pay The material part of the definition of
" Agricultural income " in s. 2(1) is as follows:
" 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 such.
Agricultural income falling under cl. (a)
ought manifestly to be received as rent or revenue derived from land used for
agricultural purposes. The income received from agricultural properties of the
trust by the appellant as trustee was indisputably agricultural income in his
hands and it was by virtue of s. 4(3)(viii) exempt from liability to pay tax.
The appellant claims that the remuneration which by the convenant contained in
the deed of trust he has received is also exempt under s. 4(3)(viii) because,
when he appropriated a fraction of the rent or revenue of agricultural lands
towards his remuneration, the original character of the income was not altered.
The appellant has no beneficial interest in
the lands which are the subject-matter of the trust : nor is he given under the
trust a right to receive and appropriate to himself the income of the
properties or a part thereof in lieu of any beneficial interest in that income.
The source of the right in which a fraction of the net income of the trust is
to be appropriated by the appellant as his remuneration is not in the right 78
to receive rent or revenue of agricultural lands, but rests in the covenant in
the deed to receive remuneration for management of the trust. The income of the
trust appropriated by the appellant as remuneration is not received by him as rent
or revenue of land; the 'Character of the income appropriated as remuneration
due is again not the same as the character in which it was received by the
appellant as trustee. Both the source and character of the income are therefore
altered when a part of the income of the trust is appropriated by the appellant
as his remuneration, and that is so, notwithstanding that computation of
remuneration is made as a percentage of the income, a substantial part whereof
is derived from lands used for agricultural purposes. The remuneration not
being received as rent or revenue of agricultural lands under a title, legal or
beneficial in the property from which the income is received, it' is not income
exempt under s. 4(3) (viii).
We may briefly refer to the authorities which
illustrate the meaning of " agricultural income " in s. 2(1) of the
Income- tax Act.
In Nawab Habibulla. v. Commissioner of Income
Tax, Bengal(1), the Privy Council held that the remuneration received by a
mutwalli of a wakf estate, not depending on the nature of the properties or
assets which constitute the wakf nor on the amount of income derived from the
wakf estate, is not agricultural income within the meaning of s. 2(1) of the
Indian Income-tax Act even though the income derived by the wakf estate is from
properties used for agricultural purposes.
In Premier Construction Co., Ltd. v.
Commissioner of Income Tax, Bombay City (2), it was held by the Privy Council
that income received by an assessee not itself of a character to fall within the
definition of agricultural income does not assume the character of agricultural
income by reason of the source from which it is derived, or the method by which
it is calculated. But if the income received falls within (1) (1943) L.R. 70
(2) (1948) L.R. 75 I.A. 246.
79 the definition of agricultural income, it
earns exemption, in whatever character the assessee receives it. In that case,
the remuneration payable to a managing agent of a company in consideration of
services to be rendered was a minimum annual salary of Rs. 10,000 payable
irrespective of whether the company made. any profit; but if 10% of the profits
made by the company exceeded Rs. 10,000 the agent was to get an additional
remuneration calculated as a percentage upon the profits of the company without
regard to the source from which those profits were derived. One of the sources
of income of the company was agricultural income. It was held by the Privy
Council that the assessee received no agricultural income as defined by the Act:
he received remuneration under a contract for personal service calculated on
the amount of profits earned by the employer.
In Commissioner of Income Tax, Bihar and
Orissa v. Kameshwar Singh(1), income received by a mortgagee who went into
possession of properties mortgaged to him was held to be agricultural income;
but that was because under the deed of mortgage, the mortgagee was to be in
possession of the properties and in his relation to the cultivators of the
soil, he stood in the position of landlord dealing directly with them and
collecting the rents. The mortgagee had to pay Government revenue, cesses and
taxes and his name was registered in the Land Registration Department. He alone
was able to sue for rent whether current or arrears, to sue for enhancement or
for ejectment and was able to settle lands with raiyats and tenants in all the
properties, in fact, he was in a position to take all proceedings which the
mortgagor would have been able to take in the ordinary course if the lands
leased and mortgaged had remained in the mortgagor's possession. The mortgagee
received the income, because of the legal ownership vested in him and even
though under the covenant of the mortgage deed, he was required to appropriate
the income towards his dues, the income in his hands did not cease to be
In Kameshwar Singh's case (1), the court was
called upon to consider (1) (1935) L.R. 62 I.A. 215.
80 the nature of the primary receipt by the
mortgagee and not of the appropriation made under the coven. ant of the deed of
In K. B. Syed Mohammad Isa and another v.
Commissioner of Income Tax, Central and United Provinces (1), the assessee was
a mutwalli appointed under two deeds. Under both the deeds, he was to receive
agricultural and non-agricultural income and to utilise the same for purposes
of the trust.
Under one of. the two deeds of trust, the
balance was to be retained by the mutwalli for his personal expenses and in the
other in lieu of his services. It was held by the Allahabad High Court that the
residue of the amounts retained by the mutwalli under both the deeds of trust
was, as agricultural income, exempt from liability to pay tax.
In the view of the court, though the language
used in the two deeds of trust was different, the intention of the settler was
the same: the mutwalli was required to perform the functions of his office and
so long as he did so, he was entitled in consideration of this service to
appropriate the residue of the profits. But in each case, the mutwalli was a
beneficiary with an obligation attached to his enjoyment of the benefit, and
had therefore two capacities, one as mutwalli and the other as beneficiary. The
court on those facts held that the balance of the income from the zamindari
went" through the mutwalli " to the beneficiary by virtue of an
obligation imposed under the terms of the trust deed itself upon the income of
the property'. The mutwalli was the channel through which the beneficiary
received the money and the beneficiary was to all intents and purposes the
direct recipient of the income, and there was no change of source and no
alteration in the character of the income. It remained agricultural income
after it had passed into the hands of the beneficiary. In the present case, the
appellant has no beneficial interest in the trust property.
The appellant so far as his remuneration is
concerned is again not the direct recipient of the income of the (1) I,L.R.
 All. 425.
81 both altered when agricultural income is
appropriated under the covenant in the deed of trust as remuneration for
In this view, the appeal fails and is
dismissed with costs.