S. R. Y. Sivaram Prasad Bahadur Vs.
The Commissioner of Income Tax Hyderabad [1971] INSC 208 (19 August 1971)
HEGDE, K.S.
HEGDE, K.S.
GROVER, A.N.
CITATION: 1972 AIR 260 1972 SCR (1) 220 1971
SCC (3) 726
CITATOR INFO :
RF 1973 SC 515 (10) E&R 1992 SC1495 (13,16,19,29,30)
ACT:
Income-Tax-Capital and Revenue-Interim
payment received under s. 50(2) of Madras Estates (Abolition of Conversion into
Ryotwari) Act, 28 of 1948 whether capital receiptWhether in lieu of interest on
compensation.
HEADNOTE:
The assessee was a Hindu Undivided Family.
Its estate vested in the State Government of Madras under the Madras Estates
(Abolition and Conversion into Ryotwari) Act 1948.
It received interim payments under s. 50(2)
of the Act. The question in the Income-tax proceedings was whether the payment
so received was a capital or a revenue receipt. The Income-tax Officer and the
Appellate Assistant Commissioner held that it was revenue. The Tribunal held
that the payments were made to the assessee as compensation for destroying its
income producing assets and therefore must be considered as capital receipts.
The High Court decided that question in favour of the Department.. The assessee
appealed to this Court by certificate.
HELD:While it is true that the terminology
used by the legislature in respect of a payment is not conclusive of the true
character of the payment, it would be proper to proceed on the basis that the
legislature knew what it was saying.
The word compensation must be given its
normal and natural meaning. In cl. (e) of s. (3) of the Act the legislature
definitely says that the holder or holders of the Estate falling within cl. (b)
and (c) of s. 3 "shall be entitled only to compensation from the
Government as provided in this Act". From this it follows that all
payments made to them under the Act are compensation payable to them for taking
over their Estates. [325 D-F] Moreover the final determination of the
compensation under s. 39 was made years after the Estate vested in the
Government, though some advance compensation was paid.
Hence there was force in the contention of
the assessee that the interim payments made were given as compensation for
depriving the assessees of the income that they would have got from their
agricultural lands, which income would not have been assessable to tax under
the Act. The quantum of interim payments payable to the former holders of those
estates was determined by taking into consideration the income that the former
owners would have received had they continued to be the owner of those Estates.
This prima facie showed that the Government was compensating the former holders
for taking away their income producing assets. [325 H-326 C].
The contention that the interim payment was
in lieu of interest on the compensation payable overlooked the fact that the
liability of the Government to pay the compensation excepting to the extent
provided in s. 54A arose only after the compensation payable was finally
determined under s. 39.
The interim payments were not fixed on the
basis of estimated compensation. They were fixed on the basis of loss of income
to the former owners. Under these circumstances it was not possible to accept
the contention that the interim payments were paid in lieu of interest or even
that they represented compensation for loss of interest (326 D-E] 321
Sub-section (8) of s. 50 instead of assisting the Department supports the case
of the assessee. AR that the provision says is that the interim payments made
under s. 50(2) are not to be considered as compensation which the Government is
required to deposit under s. 41(1) or to any extent 8 to be in lieu of such
compensation. That section does not say that the interim payments are not
compensation. It only says that it is no part of the compensation required to
be deposited under s., 41 or to any extent in lieu of compensation. That does
not mean that it cannot be compensation for the recurring loss caused to the
owner because of the taking away of an income producing asset without payment
of compensation. [327 D-E] Dr. Sham Lal v. Commissioner of Income-tax, Punjab,
53 I.T.R. 151, Senairam Doongarmall v. Commissioner of Income Tax, Assam, 42
I.T.R. 392 and Simpson (H.M.Inspector of Taxes) v. Executors of Bonner Maurice
as, Executor of Edward Kay, (1929) 14 T.C. 580, relied on.
Raja Rameshwara Rao v. Commissioner of
Income-tax, Hyderabad, [1964] 2 S.C. R. 847 and Chandroji Rao v.Commissioner of
Income-tax, Madhya Pradesh, 77 I.T.R. 743, distinguished, Kumara Rajah of
Venkatagiri & Ors. v. Income-tax Officer, AWard, Nellore & Ors. 64
I.T.R. 264, disapproved.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 1309 to 1312 of 1968.
Appeals from the judgment and order dated
August 2, 1967 of the Andhra Pradesh High Court in Case Referred No. 35 of
1963; and Civil Appeals Nos. 1257, 1260, 1262, 1313, 1314 and 1374 Of 1968.
Appeals from the judgment and order dated
August 2, 1967 of the Andhra Pradesh High Court in Writ Appeals Nos. 34 of 1966
etc. etc.
Vedantha Chari, K. C. Rajappa and A. Subba
Rao, for the appellant (in C.As. Nos. 1409 to 1312 of 1968).
B.Sen, P. L. luneja, R. N. Sachthey and B. D.
Sharma, for the respondent (in C.As. Nos. 1309 to 1312 of 1968).
V. Vedantha Chari, K. C. Rajappa, K. Rajendra
Chawdhary and Hari Singh, for the appellants (in C.As. Nos. 1257, 1260, 1262,
1313, 1314 and 1374 of 1968).
R. N. Sachthey, for the respondents (in C.As.
Nos. 1257, 1260, 1262, 1313 and 1314 and 1374 of 1968).
P. Ram Reddy, T. A. Ramachandran and A. V.
Nair, for the interveners.
The Judgment of the Court was delivered by
Hegde, J. The common question of law which arises for decision in these appeals
by certificate, is whether the interim payment received by a former holder of
an estate under S. 50(2) 3 22 of the Madras Estates (Abolition and Conversion
into Ryotwari) Act 1948 (Madras Act 26 of 1948) (to be hereinafter referred to
as 'the Act') whose Estate vested in the Government under s. 3 of the Act was
of capital nature and not liable to tax.
The material facts bearing on the point in
issue are identical in all these appeals. Hence it would be sufficient if we
set out the facts of Civil Appeals Nos. 1309 to 1312 of 1968 which were filed
by the same assessee.
The assessee in those appeals is a Hindu
Undivided Family and that family was the holder of the Estate of Devarkota and
Challappalli. This Estate vested in the Government under the Act. During the
assessment years 1953-54, 195455, 1956-57 and 1958-59, the assessee received
some interim payments. The Income-tax Officer sought to include those payments
in' the assessment of the assessee in those years.
The assesses contended that those receipts
were not Revenue receipts and hence not taxable. He based his plea firstly on
the ground that those receipts represented agricultural income or alternatively
they were capital receipts and lastly on the ground that the income having been
apportioned among the principal landholder and the other persons referred to in
subs. (2) of s. 50 of the Act, the entire amount did not fall to be assessed in
his hands. All these contentions were rejected by the Income-tax Officer.
Before the Appellate Assistant Commissioner, the assessee repeated those
contentions; but the Appellate Assistant Commissioner rejected them and upheld
the order of the Income-tax Officer. On a further appeal to the Income-tax
Appellate Tribunal, the Tribunal held that as those payments were made to the
assessee as compensation for destroying his income producing assets they should
be considered as capital receipts and hence not liable to be taxed. Thereafter,
at the instance of the Commissioner of income-tax, the Tribunal referred the
question"Where on_the facts and in the circumstances of the case, the
interim compensation of Rs. 80,843; Rs. 40,422, Rs. 1,21,146 and Rs. 80,391
received by the assessee under section 50 of the Madras Estates (Abolition and
Conversion into Ryotwari) Act, 1948 was of a capital nature and not liable to
tax." under S. 66(1) of the Act for the opinion of the High Court.
The High Court answered that question in
favour of the Department. Following that decision, the High Court dismissed the
Writ Petitions filed by Shri V. V. V. R. K. Yachendra Kumar Raja raising the
very question that was the subject matter of the References. The other appeals
in this batch of appeals arise from the decision in those Writ Petitions.
323 For deciding the question whether the
receipts with which we are concerned in these appeals are capital receipts, it
is necessary to make a survey of the relevant provisions of the Act. But before
doing so, it is necessary to mention that the former holders of Estates that
had vested in the Government under the Act were entitled to receive four
different kinds of payments. They are: (1) advance compensation under s. 54-A;
(2 ) interim payments under s. 50(2); (3) total compensation under s. 41; and
(4) additional compensation under s. 54-B. Now let us turn to the relevant
provisions of the Act.
Section 3 of the Act provides in cl. (b)
thereof that the entire Estate, including all interests detailed therein, shall
stand transferred to the Government and vest in them free from all encumbrances
with effect on and from the notified date. Clause , (c) of that section put an
end to all rights and interests created in or over the Estate before the
notified date by the principal or any other landholder. Clause (e) of that
section is important. It reads :
"That principal or any other landholder
and any other person whose rights stand transferred under clause (b) or cease
and determine, under clause (c), shall be entitled only to compensation from
the Government as provided in this Act." Section 21 provides for the
survey and settlement of Estates for effecting Ryotwari settlement. The manner
of effecting the Ryotwari Settlement of the Estate vested in the Government is
prescribed in sub-sections 2, 3, and 4 of s.
22. Sections 24 to 27 prescribe the manner of
determining the compensation payable for the Estates taken over. The scale of
compensation is laid down in s. 37. Section 39 provides for determination of
basic annual sum and of total compensation. Section 4 lays down that the
Government shall deposit in the office of 'the Tribunal, the amount of
compensation in respect of each Estate as finally determined under s. 39, in
such form and manner and at such time or times and in one or more installments
as may be prescribed by the rules made under s. 40. Then, we come to s. 50. Two
clauses of that section relevant for our present purpose are: sub-section (2)
and (8) of that section. Sub-section (2) says:
"After the notified date and until the compensation
is finally determined and deposited in pursuance of this Act, interim payments
shall be, made by the Government every fasli year prior to the fasli year in
324 which the said deposit is made, to the principal landholder and to the
other persons referred to in section 44, sub-section (1), as follows........
Sub-section (8) of s. 50 reads :
"No interim payment made under this
section shall be deemed to constitute any part of the compensation which the
Government are liable to deposit under section 41, subsection (1), or to any
extent to be in lieu of such compensation." Section 54-A provides for
advance payment of compensation and its apportionment etc. That section
provides that "in the case of every estate not governed by section 38, the
Government shall estimate roughly the amount of the compensation payable in
respect of the estate, and deposit one-half of that amount within six months
from the notified date in the office of the Tribunal, as advance payment on
account of compensation." Section 54-B, provides for the payment of
additional compensation and its apportionment. Evidently the Government had
estimated the total compensation payable to the holders of all Estates that
vested in it at 12-1/2 crores of rupees.
Section 54-B provides that if the total
compensation paid to the holders falls short of that sum, the balance will be
distributed between the holders of the Estates abolished, in proportion to the
amount of compensation as finally determined in respect of each of them under
s. 39. The only other provision to which reference may be made is subsection
(7) of s. 50 which in one of its clauses provides for payment of interest under
certain circumstances.
From the provisions of the Act, it is clear
that the legislature must have been satisfied that the enquiries relating to
the determination of the compensation of the Estates abolished was bound to
take considerable time. In the very nature of things, those enquiries were
bound to be prolonged. We have earlier seen that the Estates abolished vested
in the Government as soon as the notification contemplated in section 3 was
issued. But the compensation payable to the Estate holders became due only when
the same was finally determined under section 39. In other words, the liability
of the Government to pay the compensation finally determined arose only after
the same was determined under s. 39 though the Act provided for payment of half
the amount of compensation on the basis of a rough estimate within six months
from the date of vesting. It may \also be noted that there is no provision in
the Act providing for payment of interest on the compensation payable as from
the date of vesting.
325 Now we shall proceed to consider the
question whether the interim payments made under the Act under s. 50(2) are
revenue receipts or capital receipts. It was urged on behalf of the assessee
that those receipts were capital receipts. In support Of that contention,
reliance was placed on clause (e) of section 3 as well as on the circumstance
that though the Estate abolished vested in the Government on the notified date,
compensation became payable to them only after the same was determined under s.
39. On the other hand, it was urged on behalf of the Department that the
legislature deliberately made a distinction between the compensation and
interim payment; the compensation for abolished Estate were firstly paid as
advance compensation, neatly as total compensation and-lastly as additional compensation;
the interim payments had nothing to do with compensation; they were recurring
payments and they were made in lieu of the interest payable on the total
compensation While it is true that the terminology used by the legislature in
respect of a payment is not conclusive of the true character of that payment, it
would be proper to proceed on the basis that the legislature knew what it was
saying. The word 'compensation' is a well known expression in law. When the
legislature says that all payments made under the Act are in respect of the
compensation payable to the former holders, unless there are clear and
convincing circumstances to show that one or more items of payment do not form
part of the compensation payable, we must hold that those payments are what
they are said to be by the statute.
We must give the word
"compensation" its normal and natural meaning. As seen earlier, in
clause (e) of section 3 of the Act the legislature definitely says that the
holder or holders of the Estate failing within clauses (b) and (c) of section 3
"shall be entitled only to compensation from the Government as provided in
this Act". From this it follows that all payments made to them under the
Act are compensation payable to them for taking over their Estates Statutes
which take away others property, by and large, provide for payment of
compensation as from the date of taking. In the generality of those statutes,
if immediate payment is not made at the time of taking, provision is made for
payment of interest on the compensation payable as from the date of taking. In
the Act, there is no provision for payment of compensation at the time of the
vesting of the Estates in the Government. Nor is there any provision for
payment of interest on the compensation payable, as from the date of taking.
The compensation determined has to be deposited only after the enquiry under s.
39 was over. We are told at the bar that the final determination of the
compensation under s. 39 was made years after the Estate vested in the
Government, though some advance compensation was paid. Hence there is 3 26
force in the contention advanced on behalf of the assessee that the interim
payments made were given as compensation for depriving the assessees of the
income that they would have got from their agricultural lands, an income which
would not have been assessable to tax under the Act if it had been received as
agricultural income. The quantum of interim payments payable to the former
holders of those Estates was determined by taking into consideration the income
that the former owners would have received had they continued to be the owners
of those Estates. This prima facie shows that the Government was compensating
the former holders for taking away their income producing assets. The interim
payments do not appear to have any relationship with the compensation
ultimately payable. On the other hand, it takes note of the loss of income
incurred by the former owners due to the abolition of the Estates. The
contention that it was in lieu of interest on the compensation payable
overlooks the fact that the liability of the Government to pay the compensation
excepting to the extent provided in section 54-A, arose only after the
compensation payable was finally determined under s. 39. The interim payments
were not fixed on the basis of the estimated compensation. They were fixed on
the basis of the loss of income to the former owners. Under these
circumstances, it is not possible to accept the contention-that interim
payments were paid in lieu of interest or even that they represented
compensation for loss of interest. If the legislature intended that the interim
payments were to be mad-, in lieu of the payment of interest on the
compensation payable, nothing would have been easier than to say so in the Act.
The term 'interest' is a familiar term in law. In this very Act, the
legislature had prescribed payment of interest under certain circumstances. As
observed by this Court in Dr. Sham Lal v.
Commissioner of Income-tax, Punjab(,'), the
interest is a payment to be made by the debtor to the creditor when money was
due to the creditor but was not paid or in other words was withheld from the
creditor by the debtor after the time when the payment should have been made.
Proceeding further, this Court observed in that case that interest whether it
was statutory or contractual represented the profit the creditor would have
made if he had the use of the money to which he was entitled to. In the cases
before us, the assessees were not entitled to any compensation till the same
was determined under s. 39. Therefore, no amount, to which they were entitled
to. were, withheld from them.
Hence on that account they were not entitled
to any compensation in lieu of interest.
It is true that while the Act calls the
payments made under S. 54-A, 54-B and 41. as compensation, the payments made
under
53. I.T.R. p. 151 327 section 50(2) is called
interim payments. This circumstance by itself will not be of much significance
because, as seen earlier, s. 3 proceeds on the basis that all payments made
under the Act are in the nature of compensation. Possibly the legislature
wanted to make a distinction between compensation paid for the loss of income
and that for the loss of assets. Much reliance was placed on behalf of the
Department on sub-section (8) of s. 50 which as seen earlier, says "No interim
payment made under this section shall be deemed to constitute any part of the
compensation which the Government are liable to deposit under section 41,
sub-section (1), or to any extent to be in lieu of such compensation." In
our opinion, this sub-section, instead of assisting the Department, support the
case of the assessees. All that provision says is that the interim payments
made under s.
50(2) are not to be considered as
compensation which the Government is required to deposit under s. 41 (1) or to
any extent to be in lieu of such compensation. That section does not say that
the interim payments are not compensation.
It only says that it is no part of the
compensation required to be deposited under s. 41 or in lieu of such
compensation.
That does not mean that it cannot be
compensation for the recurring loss caused to the owner because of the taking
away of an income producing asset without payment of compensation. It is not
the contention of the assessees that the interim payments made are part of the
total compensation payable for the acquisition of the Estates.
According to them, it is a compensation for
the destruction or taking away of an income producing asset of theirs till the
assets taken from them are compensated.
Now we shall proceed to consider the decided
cases. We shall first take up the cases relied on by the appellants.
The appellants placed great deal of reliance
on the decision of the Madras High Court in Shanmugha Rajeswara Sethupathi v.
Income-tax Officer,Karakudi. (1) The question that arose for decision therein
was the very question that we are considering in these appeals. As a result of
Madras amendment after Reorganization of States on November 1, 1956, cl. (e) of
s. 3 as in force in Madras reads "The principal or any other landholder
and any other person whose rights stand transferred under clause (b) or cease
and determine under clause (c) shall be entitled only to such rights and
privileges as are recognised or conferred on him by or under this Act."
(1)44, I.T. R. p.853 328 Despite this change the Madras High Court came to the
conclusion that an interim payment made under section 50(2) was compensation
and as such was a capital receipt. The same view was taken by the Madras High
Court in M., S. Chockalinga Chettiar and Ors. v. Navaneethakrishna
Sivasubramania Hirudalaya Marudappa Pandayanand Ors. (1) as well as in
Ramachandran v. A. N. Krishnamoorthy Iyer.(2) The Andhra Pradesh High, Court
has taken a contrary view in the judgments under appeal and in another judgment
to which we shall refer presently.
In Senairam Doongarmall v. Commissioner of
Income-tax, Assam(1) this Court was called upon to consider the nature of the
payment made to the assessee which owned a tea estate consisting of tea
gardens, factories and other buildings, for the purpose of growing and
manufacturing tea. The factory an d other buildings on the estate were
requisitioned for defence purposes by the military authorities.
The assessee was paid compensation for the
years 1944 and 1945 under the Defence of India Rules calculated on the basis of
the out-turn of tea that would have been manufactured by the assessee during
that period. The question was whether the amounts of compensation were revenue
receipts taxable in the hands of the assessee. The Court held that the receipts
were capital receipts and hence not liable to be taxed. It is true that in that
case the question for decision was whether the assessees carried on business or
not in the years 1944 and 1945 and not whether the.
receipts in question were taxable income.
But all the same, some of the observations
made therein are of assistance in deciding the point in issue in these appeals.
In that case this Court ruled that the amounts of compensation received by the
assessee were not revenue receipts and did not comprise any element of income.
In the course of the judgment Mr. Justice Hidayatullah, J. (as he then was)
speaking for the Court observed :
"The compensation which was paid in the
two years was no doubt paid as an equivalent of the likely profits in those
years; but, as pointed out by Lord Buckmaster in Glenbig Union Fireclay Co.
Ltd. v. Commissioner of Inland Revenue and affirmed by Lord Macmillan in Van
den Berghs Ltd. v. Clark : "there is no relation between the measure that
is used for the purpose of calculating a particular result and the quality of
the figure that is arrived at by means of the application of that test."
(1) [1964] 1, Madras Law Journal p. 340;
(2) [1964] 1, Madras Law Journal p. 153;
(3) 42, I.T.R. P. 392 329 This proposition is
as sound as it is wellexpressed, and has been followed in numerous cases under
the Indian Income-tax Act and also by this Court. It is quality of the payment
that is decisive of the characters of the payment and not the method of the
payment or its measure, and makes it fall within capital or revenue."
Again at pages 407 and 408 of the Report, the learned Judge observed :
"Now, when the payment was made to
compensate the assessee, no doubt the measure was the outturn of tea which
would have been manufactured; but that has little relevance.
The assessee was not compensated for loss or
destruction of or injury to a capital asset.
The buildings were taken for the time being,
but the injury was not so much to the fixed capital as to the business as a
whole." Now reference may be made to some of the observations of Rowlatt
J. in Simpson (H.M. Inspector of Taxes) v. Executors of Bonner Maurice as
Executor of Edward Kay(1). In that case a naturalised British subject had at
various dates deposited securities, stocks and shares in banks in Germany. He
died during the war. After the peace Treaty was signed claims of his
representatives were admitted by the Mixed Arbitral Tribunal in I respect of
amounts representing partly capital of securities realised by sale or
redemption, partly interest and dividends and interest thereon, partly
compensation under the Treaty computed on the basis of interest on certain
amounts. The question was whether the compensation computed on the basis of
interest was not income for the purposes of income-tax.
The award of the Tribunal was made in respect
of these claims and part of the compensation was a sum calculated on the basis
of interest in respect of funds consisting of dividends which had been held as
an alien property under the German law. Dealing with the question whether the
compensation computed on the basis of interest was or was not income for the
purposes of income-tax, the learned judge observed :
"The question is whether it is income at
all. It is called compensation, but the mere word in the Award, CC
compensation", does not decide the matter, one must look at the substance
of what it was, and if it is annual profits and gains or income...... arising
from a foreign possession, then it is to be taxed. The foreign Possession must
have been the fund in the hands of the Treuhander, and the Crown's case is that
this has been (1)[1929] 14, T.C. 580.
3 3 0 transmuted into sterling at the pre-war
rate Of exchange and awarded with, annual interest ab initio. The Treuhander
did not receive this money subject to any liability to hold it at interest. No
doubt the German law recognised it as remaining the property of Mr. Kay, but
not so as to bear interest. The treaty did not give Mr. Kay any right to
interest, nor did it declare the Treuhander a trustee so as to found any
consequential claim for interest; it did not empower the Tribunal to give
interest as such, or to make any declaration as to the character of the purpose
for which the Treuhander had held the money. The Treaty gave compensation, and
the tribunal which assessed the principal sum has assessed it on the basis of
the interest. I think this sum first came into existence by the Award, and no
previous history or anterior character can be attributed to it. It is exactly
like damages for detention of a chattel and unless it can be said that damages
for detention of a chattel can be called rent or hire, for the chattel during
,the period of detention, I do not think this compensation can be called
interest. I therefore think the Crown fails on this point." In the appeal
court Lord Hanworth, M. R. while confirming the judgment of Rowlatt J.,
observed "The duty to pay compensation was imposed upon them by the
Treaty. The Statute does not apply it, and the root of the payment is the duty
to pay compensation........ For withholding this sum, for preventing Mr. Kay,
or his executors, exercising the power of disposition over his property, the
Germans have been compelled to pay compensation. The way to estimate that
compensation or damages-the sensible way no doubt-would be by calculating a sum
in terms of what interest it would have earned. That has been done, but the sum
that was paid has not been turned into interest so as to attach Income-tax to
it. It remains compensation and, for these reasons, it appears to me that it is
not a sum which attracts or attaches Income Tax to The above observations
undoubtedly support the case of the appellants.
On the side of the Department reliance was
placed on the decision of this Court in Raja Ranuuhwara Rao v. Commissioner of
Income-tax. Hyderabad.(1) Therein this Court was called (1)[1964] 2, S.C.R.
847.
33 1 upon to decide the nature of the payment
made under s. 14 of The Hyderabad, (Abolition of Jagirs) Regulation, 1358F
under which the management of Estates was taken over. Section 14 of that
Regulation provided that the amount payable to Jagirdars and Hissedars under
that Regulation "shall -be deemed to be interim maintenance allowances
payable until such time as the terms for the commutation of Jagirs are
determined". Section 3 of The Hyderabad Jagirs (Commutation) Regulation,
1359F laid down that commutation sum for a Jagir would be a certain multiple,
of its basic annual revenue. Section 6 of that Regulation provided that the
commutation sum for each Jagir would be distributable between the Jagirdar and
Hissedars in certain proportions.
Subsection (2) of s. 7 of that Regulation
stated that payment to a Jagirdar of the commutation 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 former Regulation, 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. On an interpretation of s. 14 of the Regulation
of 1358 F, this Court held that the interim maintenance allowances paid under
that section were revenue receipts on which income-tax can be imposed. Some of
the observations found in that judgment undoubtedly support the case of the
Department. But we must see under what circumstances those observations were
made.
In order to understand the ratio of that
decision, we must bear in mind the provisions of the two Regulations referred
to hereinbefore. The first Regulation provided for the taking over of the
management of the Estates and the second Regulation prescribed the mode of
determining the commutation sum in respect of each jagir and for its payment.
The character of the receipt which this Court was called upon to consider was
the maintenance allowance paid under s. 14 of the first of the two Regulations.
Under that Regulation, the Administrator of Jagirs took over the management of
the Estates pending making provision for determination of the commutation
amount. Provision in that regard was made under the second Regulation. Till the
payment of the commutation sum, the Administrator merely managed ,the Estates
on behalf of the former owners of those Estates. This is clear from ss. 5, 8,
11, 12, 13 and 14 of the first Regulation. Under s. 5 thereof the quantum
Jagirdars were required to hand over the possession of their Estates to the
Jagir Administrator. Section 8 required the former Jagirdars to pay to the
Government ,the administration expenses of their Estates. Section 11 provided
for distribution of net income of an Estate between the Jagirdar 332 and his
Hissedars who were entitled to a share in the income of the Estate. Section
12(1) says "From the amount payable to any person under section 11, there
shall be deducted the amount of any maintenance allowance which under
subsection (2) is debitable to the share of that person." Section 13 required
the Jagir Administrator to maintain separate account in respect of each Jagir
and afford the concerned Jagirdar and Hissedar reasonable facilities for the
inspection of the same. Section 14 reads :
"The amounts payable to Jagirdars and
Hissedars under the Regulation shall be deemed to be interim maintenance
allowances payable until such time as the terms for the commutation of jagirs
are determined." It is the character of the payments made under s. 14 that
came up for consideration before this Court in Rameshwar Rao's case(1). Quite
clearly the maintenance allolwances paid were revenue receipts. Hence that
decision has no bearing on the question of law under consideration in the
present case. The observations made by this Court in that decision must be read
in the light of the facts of that case.
The decision of Mr. Justice' P. Jaganmohan
Reddy (as he then was) in Kumara Rajah of Venkatagiri and ors. v. Income-tax
Officer, A-Ward-Nellore and anr. ( 2 ) sitting singly proceeded on the basis
that the ratio of the decision of this Court in Raja Rameshwar Rao's case is
equally applicable to payments under s. 50(2) of the Act. The same view was
taken by the judges of the High Court who rendered the decisions under appeal.
For the reasons mentioned earlier both those decisions must be held to have
proceeded on an erroneous view of the decision of this Court.
On behalf of the Revenue, reliance was placed
on the decision of this Court in Chandroji Rao v. Commissioner of Income-tax,
Madhya Pradesh(3). To that decision both of us were parties. The question for
decision in that case was whether ',he payments of interest made under s. 8(2)
of the Madhya Bharat Abolition of Jagirs Act, 1951 was a Revenue receipt or a
capital receipt. That section provided for the payment of interest on the
compensation payable to the Jagirdars by the Government under s. 8(1) for
resumption of their Jagir lands. 'Ms Court held that the receipt of interest
under s. 8 (2) of that Act was a taxable (1) [1964] 2 S. C. R. 847.
(3) 77, I.T.R. 743.
(2) 64, I.T.R. 264.
3 33 income. The Court observed that there
was a clear distinction between the compensation payable under s. 8(1) and the
interest payable under sub-s. (2) of s. 8. The payment under s. 8(2) was given
to the Jagirdar for his being kept out of the compensation amount to which he
was entitled for a period of ten years and that it was not a payment for the
acquisition of the Jagir. Therein the Court explained the distinction between
the payment made for depriving the use of a money to which a person is entitled
and that made for the destruction or taking away his property, the former being
a revenue receipt and the latter a capital receipt.
For the reasons mentioned above these appeals
are allowed.
In those cases where the question of law
mentioned earlier was referred to the High Court for its opinion, the answer
given by the High Court is discharged and in its place we answer the question
in favour of the assessee. So far as the writ petitions are concerned the order
of the High Court is set aside, the writ petitions are allowed and the
concerned Income-tax Officers are prohibited from including the interim
payments received by the petitioner under s. 50(2) of the Act in his
assessment. The appellants shall be entitled to their costs in these appeals
both in this Court as well as in the High Court. In this Court only one hearing
fee is allowed.
G.C. Appeals allowed.
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