Raja Rameswara Rao Vs. Commissioner of
Income-Tax, Hyderabad  INSC 84 (4 April 1963)
04/04/1963 SARKAR, A.K.
GUPTA, K.C. DAS
CITATION: 1967 AIR 290 1964 SCR (2) 847
D 1972 SC 260 (19,21,22) E&D 1992 SC1495
Income Tax-Interim maintenance allowances and
commutation sum-Distinction-Interim maintenance allowances, whether income or
capital-Hyderabad (Abolition of Jagirs) Regulation, 1358F-Hyderabad Jagirs
(Commutation) Regulation, 1359F-Income-tax Act, 1922 (11 of 1922).
The Hyderabad (Abolition of Jagirs)
Regulation, 1358F, which abolished Jagirs, provided by s. 14 that the amount
payable to the Jagirdars under the Regulation "shall be deemed to be
interim maintenance allowances payable until such time as the terms of the
commutation for the Jagirs are determined." The Hyderabad Jagirs
(Commutation) Regulation, 1359F, by s. 3 laid down that commutation sum for a
Jagir would be a certain multiple of its basic annual revenue and by s. 6, that
the commutation sum for each Jagir would be distributable between the Jagirdar
and Hissedars in certain proportions. Sub-section (2) of s. 7 of the latter
Regulation stated that "payment to a Jagirdar of the commu- tation sum of
the Jagir shall constitute the final commutation as from the 1st April 1950, of
his rights in the Jagir and if any payment by way of an interim maintenance
allowance under the said Regulation," that is, the -Regulation of 1358F.,
"is made in respect of a 'period subsequent to the said date, the amount
of such payment shall be recovered from the recipient thereof by deduction from
.... his share in the commutation sum for the Jagir." Held that the
interim maintenance allowances paid under s. 14 of the earlier Regulation in
respect of a period prior to April 1, 1950, were revenue receipts on which
incometax can be imposed. They were intended to be quite distinct from the
commutation sum, mentioned in it which sum was ad- mittedly a capital receipt.
The words "final commutation" in s. 7 (2) of the Latter Regulation
did not show that the interim allowances were part of the commutation sum and,
therefore, 848 of the nature of capital receipts but they only meant that the
final commutation was the only commutation that the Jagirdar was to get in
respect of his rights in the Jagir.
The observation in Commissioner of Inland
Revenue v. Butterley & Co. Ltd. that such interim allowances were sui
generis and were neither income from property nor from investment nor did it
arise from the right to compensation but arose from the statute itself which
directed it to be paid, approved.
Shanmugha R Rajeswara Sethupathi v.
Income-tax officer, Karaikudi,  44 I.T.R. 853. Commissioner of Income-
tax v. Shaw Wallace & Co. (1932) L. R. 59 I. A. 206 and Commmissioner of
Inland Revenue v. Butterley & Co. Ltd., (1956) 36 T. C. 411, referred to.
CIVIL APPELLATE JURISDICTION :Civil Appeal
No. 420 of 1962.
Appeal from the judgment and order dated
April 3,1959 of the Andhra-Pradesh High Court in Writ Petition No. 17 of 1956
C. Krishna Reddy, A. V. V. Nair and P. Ram
Reddy, for the appellant.
K. N. Rajagopal Sastri and R. N. Sachthey,
for the respondent.
1963. April 4. The judgment of the Court was
delivered by SARKAR J.-The appellant was the proprietor of the Wanaparthy Jagir
in the former Indian State of Hyderabad. Certain payments described as interim
maintenance allowances were made to him under the Hyderabad (Abolition of
Jagirs) Regulation 1358 F, hereafter called the Abolition Regulation. These
payments were brought to tax under the Income-tax Act, 1922 as income. The
appellant contended that they were capital and not liable to be taxed. He took
various proceedings and eventually 849 a case was stated to the High Court of
Andhra Pradesh for decision of the following question :
"Whether the interim maintenance
allowances received by the assessee under the Hyderabad (Abolition of Jagirs)
Regulation, 1358 Fasli, are income and therefore liable to tax." The
question was answered against the appellant by the High Court and hence this
The point at issue is whether these payments
constituted capital or income. The answer to this question will have to be
found in the Abolition Regulation under which the payments were made and
another Regulation called the Hyderabed jagirs (Commutation) Regulation, 1359F
(hereafter called the Commutation Regulation) which was intended to be
supplementary to the earlier Regulation. The material provisions of these Regulations
may, therefore, be referred to at once.
We shall first take up the Abolition
Regulation. Under s. 6 of this Regulation, the jagirs were included in
"Diwani" (Government) as from the "appointed day" to be
fixed under s. 5 and thereupon the powers, rights and liabilities of the
Jagirdars in relation to the Jagirs ceased to be exercisable by or against
them. Section 3 provided for the appointment of an officer called the Jagir
Administrator. Section 8 provided for payment to Government of a specified percentage
of the gross revenue, which for practical purposes may be taken to be the total
realisation or income of the Jagir, for meeting the administration expenses.
Section 13 required a separate account in respect of each Jagir to be kept by
the Jagir Administrator. Section 10 provided for payment to the Jagirdar out of
the income of the jagir of a sum equivalent to half of 850 what he was getting
before the commencement of the Regulation, as remuneration for managing the
Jagir and for distribution of a like sum among the Hissedars (sharers in the
Jagir income with the Jagirdar) in a certain proportion.
Section 11 provided that the net income of
the Jagir calculated in the manner prescribed, would be distributed between the
Jagirdar and Hissedars in the proportion in which they were entitled to the
income under the law in force before the commencement of the Regulation.
Section 14 provided that the amounts payable to jagirdars under Regulation
"shall be deemed to be interim maintenance allowances payable until such
time as the terms for the commutation of Jagirs are determined." These are
the interim maintenance allowances with regard to which the question has arisen
in this case.
We turn now to the Commutation Regulation.
Section 3 of this Regulation provided that the commutation sum for a Jagir
would be a certain multiple of its basic annual revenue, the method of
calculation of which was laid down in s. 4. Section 5 stated that the
commutation sum for every Jagir would be determined by the Jagir Administrator.
Section 6 said that the commutation sum for
each Jagir would be distributable between the jagirdar and Hissedars in like
proportion as the income was distributable between them under s. 1 1 of the
Abolition Regulation subject to certain deductions to which it is unnecessary
It is not in dispute that as a result of the
Regulations the appellant's rights in his Jagir were extinguished. The
appellant contends that he was divested of the Jagir as from the
"appointed day" fixed under s. 5 which was, it is said, September 15,
1949. It appears that a somewhat different view was taken in Shanmugha
Rajeswara Sethupathi v. Income- tax officer, Karaikudi (1). We do not think (1)
 44 I,T.R. 853, 851 it necessary in the present case to fix the precise
point of time when the Jagir was taken away from the appellant and we will
proceed on the basis that the appellant's contention is the correct one.
As we have earlier said, the real point for
decision is whether the payments were of income nature or of the nature of
capital. If they were made as compensation for the deprivation of the Jagir,
they would undoubtedly be capital.
It may be stated that it is common case of
the parties that,-the commutation sum payable under the Commutation Regulation was
paid as such compensation.
The first thing that we wish to observe is
that the two Regulations made a clear distinction between the interim
maintenance allowances and the commutation sum. The allowances were paid under
the Abolition Regulation which said nothing about the right to the payment of
the commutation sum; that right was created only by the Commutation Regulation.
The allowances were measured as a fraction of the current income while the
commutation was a multiple of annual revenue. The allowances were recurring
payments for a certain time while the Commutation sum was a fixed sum payable
at once or by installments. Then we find that under s. 14 of the Abolition
Regulation the interim maintenance allowances were "payable until such
time as the terms for the commutation of Jagirs are determined". In other
words, after the terms for commutation are determined, the interim maintenance
allowances are to cease to be payable. It follows that when compensation begins
to be paid, the payments of the maintenance allowances have to stop.
Lastly, we find this distinction emphasised
in sub-sec. (2) of S. 7 of the Commutation Regulation. That provision is in
these terms :
852 "The payment to a Jagirdar or
Hissedar of his appropriate share in the commutation sum of the Jagir shall
constitute the final commutation as from April 1, 1950, of his rights in the
Jagir and if any payment by way of an interim maintenance allowance under the
said Regulation is made in respect of a period the whole or part of which is subsequent
to the said date, the amount of such payment or, as the case may be, the
appropriate proportion of such amount shall be recovered from the recipient
thereof by deduction from the first payment made to him on account of his share
in the commutation sum for the Jagir".
The words "said Regulation" in this
subsection refer to the Abolition Regulation.
It seems to us that though somewhat cumbrously
worded, the intention behind the sub-section is not in any serious doubt. Its
object was to provide that the date of determination of the terms of
commutation mentioned in s. 14 of the Abolition Regulation would be April 1,
1950 and no interim maintenance allowances would be paid in respect of any
period after that date but thereafter only commutation sum would be paid. Now
this commutation sum is the sum determined as provided in ss. 3 and 4 of the
Commutation Regulation. The interim maintenance allowances are no part of the
commutation sum so determined. Furthermore, the sub- section expressly provides
that if any interim maintenance allowance is paid in respect of a period
subsequent to April 1, 1950, that payment is to be recovered out of the
commutation sum payable under this, Regulation. Quite clearly, therefore, only
what was paid in respect' of the period prior to April 1, 1950 was to be
interim maintenance allowance, and what was thereafter paid was towards the
853 It was contended on behalf of the
appellant that the words ""final commutation" in the subsection
showed that the interim maintenance allowances were also part of the
commutation sum. It seems to us impossible to accept this contention for that
would make the two the same, which, as we have shown earlier, they could not
be. "'Final commutation" meant the only commutation that the Jagirdar
was to get in respect of his rights in the Jagir, that is to say, he was to get
no other commutation. In fact, as already stated, if any interim maintenance
allowance was paid after the commutation became payable, that was to be recovered
from and not added to the commutation.
We have earlier said that it is not in
dispute that the commutation sum was paid as compensation for the loss of the
Jagir and was, therefore, capital which was not liable to be taxed. We thus
find that the Regulations make a clear distinction between the commutation sum
or compensation and the interim maintenance allowances. These allowances were
obviously not intended to be compensation.
The question then arises, if these allowances
were not paid as compensation for the loss of the Jagir and were not of the
nature of capital as such, what was their nature ? We think that if we have
regard to the provisions of the Regulations under which they were paid, as we
must, there is no doubt that they were of the nature of income. No doubt they
were not income of any of the kinds that are commonly found, but are, as Lord
Radcliffe said in a case to which we shall later refer, Sui generis. We proceed
now to discuss why we think they were income.
These allowances, we notice, were treated by
the Regulations as something other than the compensation for the loss of the
Jagir. They were, therefore, 854 not treated as capital as representing
compensation for the Jagir. If they were not capital for the reason that they
were not compensation for the loss of the Jagir, we find no ground on which we
can say they were capital. It would follow that they must be income and taxable
as such. They were certainly not windfall for a right to them was created by,
the Abolition Regulation, a right which under s. 21 could be enforced in a
civil court. Then we find that these allowances were payable with a regularity
and were of a recurring nature, both of which are recognised as characteristic
of income : see the Commissioner of Income- tax v. Shaw Wallace & Co. (1).
Next. we observe that the Regulation advisedly called the payments
"maintenance allow- ances," a nomenclature peculiarly suited to
payments of the nature of income. Lastly, it may be pointed out that the
payments were made for the interim period between the time when the income of
the Jagir began to be collected by the Government through the Jagir
Administrator and April 1, 1950, when the compensation for the loss of the
Jagir first became payable. The payments were, therefore, by way of compensation
for the loss of income in the interim period.
In the words of Jenkins L. J. as will appear
later, they were "income-compensation" and therefore of the income
We think for all these reasons the interim
maintenance allowances were taxable income. If a source had to be found for
them, the Regulation had to be held to be the source.
A case very near to the one in hand and a
case that throws a great deal of light on the problem that faces us in the
Commissioner of Inland Revenue v. Butterley Co. Ltd. (2).
We think a detailed reference to it can be
very profitably made. That case was concerned with the English Coal Industry
(1) (1932) L.R. 59 I.A, 206.
(2) (1936) SOT,(], 411, 855 Nationalisation
Act, 1946, which nationalised the collieries and divested all owners of them
and the businesses concerning them. Under this Act and the Coal Industry (No. 2)
Act, 1949, the assessee company became entitled to compensation for the assets
transferred to the Government and to certain payments called "revenue
payments" and "interim income" for the period between what was
called the primary vesting date and the date on which compensation for the
assets taken away was fully satisfied. The question was with regard to these
payments. The assessee company had contended in the beginning that the payments
were not of income nature at all. In the Court of appeal however that
contention was abandoned and it was conceded that the payments were of income
nature. The only dispute was whether they were income chargeable to profits tax
as profits of a trade or business carried on by the assessee company. The
decision was that the payments were not income or profit of any trade or
We will first read from a part of the
judgment of Jenkins L. J. in the Court of Appeal. He said (p. 437), "The
Act of 1946 studiously avoids describing the interim income as interest on or
income of the compensation." Then the learned Lord justice pointed out
that the payments were to be calculated by reference to the past earning of the
concern and bore no relation at all to the amount of the compensation and
proceeded to observe, (p. 438), ,,I find it difficult to hold that the interim
income payable under these Acts, defined and measured in the way it is, can
properly be described as income of the compensation and there is, I think, much
to be said for the view that, albeit itself in the nature of income, it is not
income, of the compensation but rather income-compensation, if I may use that
expression, that is to say, a series of periodical payments an independent
right to 856 which is conferred by the Act by way of compensation for the loss
of income sustained in respect of the period between the primary vesting date
and the ascertainment and satisfaction of the compensation." We think
these observations can be applied in all their force to the payments with which
the present case is concerned. Here also the interim payments had no relation
to the commutation sum, that is, compensation for the loss of the Jagir. It is
clear that Jenkins L. J. was treating the payment as a species of income and we
also think that the payments in the present case cannot be treated otherwise.
There are some observations in speech of Lord
Radcliffe when he dealt with this case on appeal to the House of Lords which we
think may be usefully quoted here. He observed, (p. 449-50), "The Coal
Industry Nationalisation Act, 1946, legislated for a revolution in the coal
industry of this country.................. These interim income payments which
are now in question are the product of that disturbance and adjustment, and it
does not seem to me at all surprising that they cannot well be related to any
of those other kinds of receipt which normally come into the accounts of a
company conducting a trade or business. They are sui generis and it would, I
think, lead to confusion if they were described in any terms except those which
are strictly applicable to their own special circumstances.
Thus, they were paid because the
nationalisation Statute decreed that they should be paid. They would not have
been payable to the Respondents if they had not been conducting a colliery
business at the vesting date, and in that sense, of course, they were paid to
and received by the Respondents for no other reason than that they had been
owners of colliery assets and had been in the colliery trade. Equally of
course, the interim income payments that the Respondents got were fixed either
as a 857 proportion of the profits which they had been earning in the colliery
trade before the date of vesting or by a computation of interest at varying
rates upon sums received from time to time by way of capital compensation. But,
when all that is said, the fact remains that the only identifiable origin of
the payments was the Statute which authorised them and at the same time defined
their terms and methods of computing. It is natural enough that moneys paid in
this way, described by their instrument of creation as 'interim income', should
be regarded as inherently of an income nature when the question arises of
subjecting them to any tax that bears upon income as a chargeable subject. But
I do not think that in any proper use of the words can they be said to arise
from a source of income, in the sense that income or profits' for the moment I
am not concerned with any difference between the two terms can be said to arise
from a trade or a business or an investment or some other piece of property
that admits of use or enjoyments." He also observed, (451-52), "I
have already explained why they were not income from investments. By a similar
process of reasoning they were not, in my view, income from property.
It does not clear up the matter to say that
the right to compensation-and, for that matter, the right to interim
income--was a chose in action. The interim income payments did not arise from
the right to compensation as income arises from income-producing property. They
arose from the Statute itself which decreed that they were to be paid." We
venture to think that the observations that we have read from the English case
in the preceding paragraphs give the correct picture of the nature of the
payments. It was found unarguable that the interim payments under the English
Acts were not of income nature. The payments with which we are concerned were made
under statutory provisions 858 completely parimateria with those under
consideration in the English case. We, therefore, hold that the interim
payments to the appellant were income and liable to tax.
It appears that there were in this case four
payments totaling Rs. 1,47,857-4-0 of which the first was made on January 25, 1950 and the other three on April 10, 1950, July 3, 1950 and August 3, 1950, respectively. It does not appear to have been found whether the last three
payments, which it will be noticed had been made after April 1, 1950, were in respect of the commutation sum or interim maintenance. It was for that reason
that the Tribunal directed the Income-tax officer concerned to institute an
enquiry as to the nature of these three payments.
Apparently, the High Court approved of that
order. We also take the same view. We think that the question was answered
correctly by the High Court by saying that the interim maintenance allowance
received by the assessee which do not form part of the commutation amount are
income and are liable to be taxed and that the payments made subsequent to
April 1, 1950, towards commutation amount are not income and not liable to be
The result is that this appeal fails and is
accordingly dismissed with costs.