PETITIONER:
MAHARAJADHIRAJ SIR KAMESHWAR SINGH
Vs.
RESPONDENT:
THE STATE OF BIHAR
DATE OF JUDGMENT:
15/05/1959
BENCH:
HIDAYATULLAH, M.
BENCH:
HIDAYATULLAH, M.
DAS, SUDHI RANJAN (CJ)
BHAGWATI, NATWARLAL H.
CITATION:
1959 AIR 1303 1960 SCR (1) 332
ACT:
Agricultural lncome-tax-Power of Agricultural Income-tax
Office -If can revise his own order of exemption--Bihar
Agricultural Income-tax Act, 1938 (Bihar Vlf Of 1938) s.
26.
HEADNOTE:
In his return of agricultural income for the assessment year
I944-45 the appellant showed a sum of Rs. 2,82,192, which he
had paid to the Tekari Rai for two lease-hold properties
taken on Zarpeshgi lease, as one of the items of the total
amount of deduction claimed by him as capital receipt. The
Agricultural Income-tax Officer accepted his claim and
exempted the amount from Payment of agricultural income-tax.
The Assistant Commissioner of Agricultural Income-tax
affirmed the decision. A demand notice was issued and the
assessee paid two instalments. Thereafter, the Agricultural
Income-tax Officer served on the assessee a notice under S.
26 of the Bihar Agricultural Incometax Act, 1938, to the
effect that income from the said Zarpeshgi lease had escaped
assessment and after he appeared, passed a
333
supplementary assessment order and assessed Rs. 39,5I2-6-o
as tax. The assessee appealed. The Commissioner of
Agricultural Income-tax reversed the said decision. The
Province of Bihar moved the Board of Revenue and the two
questions it referred to the High Court under S. 25(1) Of
the Act were, (1) whether in the facts and circumstances of
the case, the Agricultural Income-tax Officer had
jurisdiction to revise his own order under S. 26 of the Act
and (2) if so, whether the income from the Zarpeshgi lease
was taxable under the Act. The High Court answered both the
questions in favour of the State of Bihar. Hence this
appeal by the assessee by special leave.
Held, that under S. 26 of the Bihar Agricultural Income-tax
Act, 1938, the Agricultural Income-tax Officer had the power
to revise his own order and assess an item of income which,
even though shown in the return, he had earlier omitted to
tax under a misapprehension that it was not taxable.
The use of the words " any reason " in S. 26 of the Act made
the section wider than S. 34 Of the Indian Income-tax Act by
dispensing with the conditions which circumscribed the
section.
Kamal Singh v. Commissioner of Income-tax, Bihar & Orissa,
A.I.R. 1959 S.C. 257, applied.
Messrs. Chatturam Hoyilyam Ltd. v. Commissioner of Income-
tax, Bihar and Orissa, [1955] 2 S.C.R. 290, distinguished.
Case-law discussed.
Since the appellant had failed to prove his case that the
income in question was income from his money-lending
business or that the payment made to the lessor was not by
way of premium but as a loan, the income from the lease-hold
property which was admittedly agricultural in character,
must be held to be liable to tax under the Act, irrespective
of the character of the recipient.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 254 of 1954.
Appeal by special leave from the judgment and order dated
February 19, 1952, of the Patna High Court in Misc. Judl.
Case No. 244 of 1949.
B. Sen, S. K. Majumdar and I. N. Shrojj, for the
appellant.
M. C. Setalvad, Attorney-General for India, B. K. Saran
and R. C. Prasad, for the respondent.
1959. May 15. The Judgment of the Court was delivered by
HIDAYATULLAH J.-This appeal, with the special leave of this
Court, has been filed by Maharajadhiraja
334
Sir Kameshwar Singh of Darbhanga (hereinafter referred to as
the assessee) against the judgment of the High Court of
Patna dated February 19, 1952, by which the High Court
answered in the affirmative the following: two questions
referred to it under s. 25(1) of the Bihar Agricultural
Income-tax Act, 1938:
(1) ” Whether in view of the circumstances of the case, and
particularly the manner in which, after due consideration,
the learned Agricultural Incometax Officer in his first
judgment dated the 5th January, 1946, had held that the
assessee was not liable to be assessed for the receipt on
account of the zarpeshgi lease, the learned Agricultural
Incometax Officer has jurisdiction to revise his own order
under s. 26 of the Act; and
(2) Whether if he had the jurisdiction to revise his own
order, under section 26 of the Act, the income from the
zarpeshgi lease of the assessee was taxable under the Act.”
The facts of the case lie within a very narrow com. pass.
For the assessment year 1944-45 which corresponded to the
year of account 1351 Fasli, the assessee returned Rs.
37,43,520 as his agricultural income. He claimed a
deduction of Rs. 9,42,137-3-10 1/2 on account of land
revenue, rent etc., including a sum of Rs. 2,82,192 shown to
have been paid to the Tekari Raj from which two leasehold
properties were taken on zarpeshgi lease by indentures dated
August 15, 1931, and January 31, 1936, respectively. The
amount was sought to be deducted as a capital receipt.
The Agricultural Income-tax Officer of Darbhanga by his
order dated December 28, 1945 accepted this contention, and
exempted the amount from payment of agricultural income-tax.
He observed:
” Out of Rs. 9,42,137-3-10 1/2 claimed on account of Land
Revenue and rent, Rs. 2,82,192 is shown as payment to Tekari
Raj and then taken towards the realisation of Zarpeshgi Loan
to self. I have gone through the bond of Gaya Zarpeshgi
Lease. This payment is allowed to the assessee, as it is a
capital income according to the terms of the bond. At the
335
same time, I think, this amount of Rs. 2,82,192 should be
treated as income to Tekari Raj and assessed in Gaya Circle
along with other income of Tekari Raj as it is credited to
that Raj by the assessee -and then set off against the
Zarpeshgi loan advanced to Tekari Raj.”
The assessment was approved by the Assistant Commissioner of
Agricultural Income-tax on January 4, 1946, and on the day
following, the Income-tax Officer passed his formal order
and issued a demand notice.
The assessee paid two instalments out of three, when on
March 22, 1946, the Agricultural Income-tax Officer recorded
the following order :-
” It appears that some agricultural income from Gaya
Zarpeshgi lease which should have been taxed for the year
1944-45 (1351 Fasli) has escaped assessment. Issue notice
under section 26 fixing the 20th May 1947.”
After the assessee appeared, a supplementary assessment
order was passed and Rs. 39,512-6-0 were assessed as tax on
Rs. 2,52,879.
In deciding the matter, the Agricultural Income-tax Officer
gave the following reasons:
According to the terms of the lease the assessee is to
remain in possession and enjoy the usufruct of the lands
given in lease for a fixed number of years on payment of an
annual thica rent of Rs. 1,000 to the lessor and thus
satisfy himself for the entire amount of consideration money
of the zarpeshgi lease in question. In fact, by this
zarpeshgi lease the assessee has been given the grant of
lands for a fixed term on a fixed rent. Whatever income is
derived from these lands during the tenure of this lease, is
the income of the assessee and as such it should be taxed in
the hands of the assessee and not in the hands of the
lessor.”
The Agricultural Income-tax Officer purported to act under
s. 26 of the Bihar Agricultural Income-tax Act, 1938
(hereinafter referred to as the Act).
The assessee appealed. The Commissioner of Agricultural
Income-tax reversed the decision. He pointed
336
out that the agricultural income from Tekari Raj property
was returned by the assessee but was held to be exempt and
thus could not be said’ to have escaped assessment so as to
bring the case within s. 26 of the Act. The Province of
Bihar (as it was then called) ,moved the Board of Revenue,
Bihar which by a resolution dated February 7, 1948, referred
the two questions to the High Court of Patna. The Board did
not express any opinion on the two questions. In the High
Court, both the questions were answered in favour of the
State of Bihar. Leave having been refused by the High
Court, the assessee applied for, and obtained special leave
from this Court.
Section 26 of the Act, under which the Agricultural Income-
tax Officer purported to act is substantially the same as s.
34 of the Indian Income-tax Act, prior to its amendment.
Necessarily, therefore, the rulings on the interpretation of
the latter section were freely cited by the contending
parties. Section 26 of the Act reads as follows:
” If for any reason any agricultural income chargeable to
agricultural income-tax has escaped assessment for any
financial year, or has been assessed at too low a rate, the
Agricultural Income-tax Officer may, at any time within one
year of the end of that financial year, serve on the person
liable to pay agricultural income-tax on such agricultural
income or, in the case of a company, on the principal
officer thereof, ” a notice containing all or any of the
requirements which may be included in a notice under
subsection (2) of section 17, and may proceed to assess or
re-assess such income, and the provisions of this Act shall,
so far as may be, apply accordingly as if the notice were a
notice issued under that subsection:
Provided that the tax shall be charged at the rate at which
it would have been charged if such income had not escaped
assessment or full assessment, as the case may be. ”
For facility of reference, the previous s. 34 before the
amendment in 1948 of the Indian Income-tax Act may likewise
be quoted here. It read:
337
If in consequence of definite information which has come
into his possession the Income-tax Officer discovers that
income, profits or gains chargeable to income-tax have
escaped assessment in any year, or have been under-assessed,
or have been assessed at too low a rate, or have been the
subject of excessive relief under this Act the Income-tax
Officer may, in any case in which he has reason to believe
that the assessee has concealed the particulars of his
income or deliberately furnished inaccurate particulars
thereof, at any time within eight years, and in any other
case at any time within four years of the end of that year,
serve on the person liable to pay tax on such income,
profits or gains, or in the case of a company, on the
principal officer thereof, -a notice containing all or any
of the requirements which may be included in a notice under
sub-section (2) of section 22, and may proceed to assess or
re-assess such income, profits or gains, and the provisions
of this Act shall, so far as may be, apply accordingly as if
the notice were a notice issued under that sub-section:
Provided that the tax shall be charged at the rate at which
it would have been charged had the income, profits or gains
not escaped assessment, or full assessment, as the case may
be:……..
The short question is whether income which was returned but
was held to be exempt from tax could be said to have ”
escaped assessment ” so that the Agricultural Income-tax
Officer could exercise his powers under s. 26 of the Act to
tax it. This question arising under s. 34 of the Indian
Income-tax Act has been considered on many an occasion by
the High Courts and also by the Privy Council and this
Court. The Patna-High Court has correctly pointed out that
the preponderance of opinion is in favour of holding that
such income can be said to have escaped assessment.
The High Court in deciding that the Agricultural Income-tax
Officer had jurisdiction to revise his earlier assessment
referred to the opening words of s. 26, namely, ” for any
reason ” and observed that it was
43
338
not necessary to give a restricted meaning to the word
“escaped “, and that if an item of income was not charged to
tax due to a mistake or oversight on the part of the taxing
authorities, that item could well come within the term ”
escaped “. According to the High Court, the phrase ” escaped
assessment ” was not confined to cases where there had been
an inadvertent omission, but in view of the later part of
the section “where income … has been assessed at too low a
rate”, included a case where there was a deliberate action.
Learned counsel for the assessee contends that the
generality of the words ” any reasonhas no bearing upon
the construction of the wordsescaped assessment “, that the
word ” assessment “does not connote the final determination
to tax income but the entire process by which the result is
reached, and that inasmuch as the income was actually
returned and held to be exempt, there was no question of an
“escaped assessment ” because it passed through the
processing of income. He also contends that the later part
of the section which deals with assessment at too low a rate
cannot be called in aid to decide when income can be said to
have escaped assessment. He submits that the section has no
application to cases where income is returned but is held to
be not liable to tax and relied upon the following cases;
Maharaja Bikram Kishore v. Province of Assam (1),
Commissioner of Income-tax v. Day Brothers (2), Madan Mohan
Lal v. Commissioner of Income-tax (3) (per Dalip Singh, J.)
and Chimanram Motilal (Gold and Silver), Bombay v.
Commissioner Of Income-tax (Central), Bombay (4) (per Kania,
J., as he then was).
The learned Attorney-General drew the attention of the Court
to other cases in which the view has been taken that even if
income is returned and deliberately not charged to tax, the
condition required for the application of the section is
fulfilled. He cited the following cases in support of his
contention: AngloPersian Oil Co. (India) Ltd. v.
Commissioner of IncometaX (5), P. C. Mullick and D. 0. Aich,
In re(‘), The
(1)[1949] 17 I.T.R. 220.
(2)[1936] 4 I.T.R. 209.
(3)[19351 3 I.T.R. 438.
(4) (1942) I.L.R. 1943 BOM. 206.
(5) [1933] [ I.T.R. 129.
(6) [1940] 8 I.T.R. 236.
339
Commissioner of Income-tax v. Raja of Parlakimedi (1)
Chimanram Moti Lal (Gold and Silver), Bombay v. Commissioner
of Income-tax (Central), Bombay (2) and Madan Mohan Lal v.
Commissioner of Income-tax (3). The learned Attorney-
General also relied strongly upon a recent decision of this
Court in Kamal Singh v. Commissioner of Income-tax, Bihar
and Orissa (4), where Gajendragadkar, J., after a review of
all the authorities, held that s. 34 of the Indian Income-
tax Act was applicable to a case where an item of income was
returned but deliberately and after consideration, was held
to be not liable to tax. Learned counsel for the assessee
contends that the point was left open in that case, and
refers to Messrs. Chatturam Horilram Ltd. v. Commissioner
of Income’-tax, Bihar and Orissa(5) as having held the
contrary.
Before referring to the other authorities of the High
Courts, it will be proper to see if the two cases of the
Supreme Court are in point or not, and if so, which of them.
In Kamal Singh’s case (4), the point arose under the
following circumstances. The father of the appellant in
that case was assessed to income-tax for the year 1945-46.
The total income assessed to incometax was Rs. 1,00,000
which included a sum of RE;. 93,604 received by him on
account of interest on arrears of rent due to him after
deduction of collection charges. It was urged before the
Income-tax Officer that this interest was not assessable to
income-tax being agricultural “income, in view of the
decision of the Patna High Court in Kamakshya Narain Singh
v. Commissioner of Income-tax(6). The Income-tax Officer
did not accept this contention on the ground that an appeal
was pending against the Patna High Court’s decision, before
the Privy Council. On appeal, the Appellate Assistant
Commissioner held that the Income-tax Officer was bound to
follow the decision of the High Court, and he set aside the
order and directed the Income-tax Officer to make a fresh
assessment. The Income-tax Officer thereupon deducted the
amount
(1) (1926) I.L.R. 49 Mad. 22.
(2) (1942) I.L. R. 1943 Bom. 206.
(3) [1935] 3 I.T.R. 438.
(4) A.I.R. 1959 S.C. 257.
(5) [1955] 2 S-C.R. 290.
(6) [I946] 14 I.T.R. 673.
340
and brought only the remaining income (after some minor
adjustments) to tax. His order was passed on August 20,
1946. In the year 1948, the Privy Council reversed the
Patna High Court’s decision. The judgment of the Privy
Council is reported in Commissioner of Income-tax v.
Kamakshya Narain Singh(‘). The Income-tax Officer then
issued a notice under s. 34 of the Indian Income-tax Act,
and after hearing the party assessed the sum of Rs. 93,604.
After sundry procedure which it is not necessary to detail,
the matter reached this Court, and the question which was
before it was ” whether in the circumstances of the case,
the assessment order under s. 34 of the Act of the interest
on arrears of rent is legal.”
Two questions were involved. The first was whether the word
” information ” was wide enough to include knowledge about
the state of the law or about a decision on a point of law.
With that point we are., not concerned in this case. The
second was, when income could be said to have escaped
assessment. Emphasis was laid on the word ” assessment ” in
the arguments, and it was contended that it denoted not
merely the order of assessment, but included ” all steps
taken for the purpose of levying of tax and during the
process of taxation. ” It was also contended that ” escaped
” meant that the income must have eluded observation, search
etc., or, in other words, eluded the notice of the Income-
tax Officer. Gajendragadkar, J., however, did not confine
the phrase to such a narrow meaning. He
observed;
” Even if the assesse has submitted a return of his income,
cases may well occur where the whole of the income has not
been assessed and such part of the income as has not been
assessed can well be regarded as having escaped assessment.
In the present case, the rents received by the assessee from
his agricultural lands were brought to the notice of the
Income-tax Officer; the question as to whether the said
amount can be assessed in law was considered and it was
ultimately held that the relevant decision of the Patna High
Court ‘Which was binding on
(1)[1948) 16 I.T.R. 325.
341
the department justified the assessee’s claim that the said
income was not liable to be assessed to tax. There is no
doubt that a part of the assessee’s income had not been
assessed and, in that sense, it has clearly escaped
assessment. Can it be said that, because the matter was
considered and decided on’ the merits in the light of the
binding authority of the decision of the Patna High Court,
no income has escaped assessment when the said Patna High
Court decision has been subsequently reversed by the Privy
Council? We see no justification for holding that cases of
income escaping assessment must always be cases where income
has not been assessed owing to inadvertence or oversight or
owing to the fact that no return has been submitted. In our
opinion, even in a case where a return has been ,submitted,
if the Income-tax Officer erroneously fails to tax a part of
assessable income, it is a case where the said part of the
income has escaped assessment. The appellant’s attempt to
put a very narrow and artificial limitation on the meaning
of the word “escape’ in s. 34(1)(b) cannot therefore
succeed.”
The assessee seeks to distinguish that case on the ground
that this Court,laid down the law in the special
circumstances where’ a new interpretation to the law was
given, and that it was not a case of the Incometax Officer
changing his mind. He contends that there was at least some
information which had come to the Income-tax Officer, on
which his subsequent action could be rested. The learned
counsel argued that Gajendragadkar, J., had expressly left
the question open, where there was no information but the
Incometax Officer merely changed his mind without any
information from an external source. Reference in this
connection is made to the following observations in the
judgment:
” It appears that, in construing the scope and effect of the
provisions of s. 34, the High Courts have had occasion to
decide whether it would be open to the Income-tax Officer to
take action under a. 34 on the ground that he thinks that
his original decision in making the order of assessment was
342
wrong without any fresh information from an external source
or whether the successor of the Income-tax Officer can act
under s. 34 on the ground that the order of assessment
passed by his predecessor was erroneous, and divergent views
have been expressed on this point. Mr. Rajagopala Sastri,
-for the respondent, suggested that under the provisions of
s. 34 as amended in 1948, it would be open to the Income-tax
Officer to act under the said section even if he merely
changed his mind without any information from an external
source and came to the conclusion that, in a particular
case, he had erroneously allowed an assessee’s income to
escape assessment. We do not propose to express any opinion
on this point in the present appeal.”
We may say at once that the words of s. 26 of the Act do not
involve possessing of or coming by some fresh information.
The section says:
” If for any reason any agricultural income chargeable to
agricultural income-tax has escaped assessment for any
financial year the Agricultural Income-tax Officer may
proceed to assess such income
The use of the words “any reason” which are of wide import
dispenses with those conditions by which s. 34 of the Indian
Income-tax Act is circumscribed. The point which was thus
left over by Gajendragadkar, J., cannot arise in the context
of the Act we are dealing with.
In view of this clear opinion, it is hardly necessary for us
to consider again the cases which Preceded the decision of
this Court. The most important of them are considered in
the judgment of Gajendragadkar, J. Most of the cases are
also considered in the judgment of Harries, C. J., and
Mukherjea, J. (as he then was) in Maharaja Bikram Kishore v.
Province of Assam (1). In all the cases where a contrary
view was taken, reliance was placed upon the decision of the
Privy Council in Rajendra Nath Mukerjee v. Income-tax
Commissioner(‘) particularly a passage wherein it was
observed:
(1) [1949] 17 I.T.R. 220,
(2) (1933) L.R. 61 I.A. 10, 16.
343
“The fact that s. 34 requires a notice to be served calling
for a return of income which had escaped assessment strongly
suggests that income which has already been duly returned
for assessment cannot be said to have ‘escaped’ assessment
within the statutory meaning.”
The facts of the case were entirely different. The income
was returned, and was not yet processed when the notice
under s. 34 was issued. The key to the case is furnished by
the approval by their Lordships of the observations of
Rankin, C.J., in In re: Lachhiram Basantlal (1) that:
” Income has not escaped assessment if there are pending at
the time proceedings for the assessment of the assessees’
income which have not yet terminated in a final assessment
thereof.”
Their Lordships held that the expression “has escaped
assessment” should not be read as equivalent to “has not
been assessed” because so to do “gives too arrow a meaning
to the word ‘assessment’ and too wide a meaning to the word
escaped’.”
That those observations were related to the facts then
before their Lordships is clear from the following passage:
” To say that the income of Burn & Co., which in January,
1928, was returned for assessment and which was accepted as
correctly returned, though it was erroneously included in
the assessment of Martin & Co.’, has escaped’ assessment in
1927-28 seems to their Lordships an inadmissible
reading…..
Their Lordships find it sufficient for the disposal of the
appeal to hold, as they do that the income of Burn & Co.,
did not ‘escape assessment’ in the year 1927-28 within the
meaning of s. 34.”
It was in the context of the pendency of assessment
proceedings that the remarks were made, and the matter is
decisively cleared of any doubt by the following passage:
” It may be that if no notice calling for a return
under s. 22 is issued within the tax year then s. 34
(1)(1930) I.L.R. 58. Cal. 909, 912.
344
provides the only means available to the Crown of remedying
the omission, but that is a different matter.”
In our opinion, the error in the cases relied upon by the
assessee arises in using the dicta in the above case, shorn
of the context in which they were made and applying them to
facts, where they cannot. The judgment of Gajendragadkar,
J., has dealt with the matter, if we may say so
respectfully, very adequately and we do not consider it
necessary to cover the same ground again. The preponderance
of opinion in the High Courts is also to accept the contrary
view, and we think rightly.
The learned counsel for the assessee argued that the
decision of this Court in Messrs. Chatturam Horilram Ltd.
v. Commissioner of Income-tax, Bihar& Orissa (1) discloses a
different view, and that we should follow it in preference
to the later view of Gajendragadkar, J. We do not think that
in the case last cited the point was the same. The same
case was relied upon before the Bench of Venkatarama Aiyar,
Gajendragadkar and Sarkar, JJ., and Gajondragadkar, J.,
distinguished it This is what he observed:
Mr. Sastri has also relied on the decision of this Court in
Messrs. Chatturam Horilram Ltd. v. Commissioner of Income-
tax, Bihar & Orissa (1) in support of his construction of s.
34. In Chatturam’s case (1) the assessee had been assessed
to income-tax which was reduced on appeal and was set aside
by the Income Tax Appellate Tribunal on the ground that the
Indian Finance Act of 1939, was not in force during the
assessment year in Chota Nagpur. On a reference the
decision of the tribunal was upheld by the High Court.
Subsequently the Governor of Bihar promulgated the Bihar
Regulation IV of 1942 and thereby brought into force the
Indian Finance Act of 1939, in Chota Nagpur retrospectively
as from March 30, 1939. This ordinance was -assented to by
the Governor-General. On February 8, 1944, the Income Tax
Officer passed an order in pursuance of which proceedings
were taken against
(1)[1955] 2 S.C.R. 290.
345
the assessee under the provisions of s. 34 and they resulted
in the assessment of the assessee to incometax. The
contention which was raised by the assessee in his appeal to
this Court was that the notice issued against him under s.
34 was invalid. This Court held that the income, profits or
gains sought to be assessed were chargeable to income-tax
and that it was a case of chargeable income escaping
assessment within the meaning of s. 34 and was not a case of
mere non-assessment of income-tax. So far as the decision
is concerned, it is in substance inconsistent with the
argument raised by Mr. Sastri. He, however, relies on the
observations -made by Jagannadhadas, J., that ‘the
contention of the learned counsel for the appellant that the
escapement from assessment is not to be equated to non-
assessment simpliciter is not without force’ and he points
out that the reason given by the learned Judge in support of
the final decisions was that though earlier assessment
proceedings had been taken they had failed to result in a
valid assessment owing to some lacuna other than that
attributable to the assessing authorities notwithstanding
the chargeability of income to the tax. Mr. Sastri says
that it is only in cases where income can be shown to have
escaped assessment owing to some lacuna other than that
attributable to the assessing authorities that s. 34 can be
invoked. We do not think that a fair reading of the
judgment can lead to this conclusion. The observations on
which reliance is placed by Mr. Sastri have naturally been
made in reference to the facts with which the Court was
dealing and they must obviously be read in the context of
those facts. It would be unreasonable to suggest that these
observations were intended to confine the application of s.
34 only to cases where income escapes assessment owing to
reasons other than those attributable to the assessing
authorities. Indeed Jagannadbadas J., has taken the
precaution of adding that it was unnecessary to lay down
what exactly constitutes escapment from assessment and that
it would be sufficient to place their decision on 44
346
the narrow ground to which we have just referred. We are
satisfied that this decision is of no assistance to the
appellant’s case.”
For the reasons we have given, we are of opinion that the
Agricultural Income-tax Officer was competent under s. 26 of
the Act to assess an item of income which he had omitted to
tax earlier, even though in the return that income was
included and the Agricultural Income-tax Officer then
thought that it was exempt. The answer given by the High
Court was therefore correct.
This brings us to the second question. The income was
received from the leasehold properties, and was agricultural
income. The contention of the assessee is that it may be
agricultural income in the hands of the Tekari Raj but -in
his hands it was capital receipt and in repayment of the
loan of about Rs. 17,00,000 paid to Ram Bhuwaneshwari Kuer.
The State of Bihar, however, denies that there was a loan or
a mortgage at all. The assessee, it is contended, was
placed in possession for a number of years on a rent of Rs.
1,000 per year and the amount paid was premium and not a
loan.
The documents in question are two. They are plainly
indentures of lease between the Rani and the. assessee.
From these documents it is clear that in consideration of a
payment of Rs. 17,16,000 the lessee was placed in possession
of the leasehold property for 28 years. There is no express
term which makes the sum a loan returnable either by
repayment or by the enjoyment of the usufruct. There is no
interest fixed or right of redemption granted. There is no
provision for any Personal liability in case any amount
remained outstanding at the end of the term of 28 years.
These are the tests to apply to find out whether the
transaction was one of zarpeshgi lease or a lease with a
mortgage. See Mulla’s’ Transfer of Property Act, 4th
Edition, page 352.
The learned counsel for the assessee in his careful argument
took us through the two documents and endeavoured to prove
that the relation of debtor and creditor subsisted between
the parties. He referred
347
us to cl. 4, which embodies a provision entitling the lessee
to deduct 12 1/2 per cent. of the gross aggregate amount
payable by the mokarraridars as expenses of collection and
other charges incidental thereto after payment of rent
reserved to the I lessor’ and to appropriate to himself the
remainder. He submitted that the payment to the lessor was
not a premium but a loan and the intention was that the
lessee or creditor would be thus repaid.
The clause by itself may admit of diverse constructions, and
possibly one such construction may be the one suggested, but
that is not the true purport of the clause read in the
context of the rest of the instrument. To interpret this
clause the instrument must be read as a whole, and when so
viewed, it is found that it provides for an exemption of the
lessor from the liability for collection charges. It places
beyond doubt that the collection charges were not to be
debited to the lessor but were to be borne by the lessee.
Unless such a provision was included in the instrument, it
might have been a matter of some dispute as to who was to be
responsible for this expenditure.
The learned counsel for the assessee next drew our attention
to the last clause of the instrument of January 31, 1936.
That, however, was a special covenant, and the provision
therein was in relation to matters not covered by the
instrument.
That the income from this leasehold property which was land,
would fall within the definition of ” agricultural income ”
was not seriously contested before us. The case of the
assessee rests upon the claim that this was a money-lending
transaction and the receipts represented a capital return.
If, however, the payment to the lessor was premium and not a
loan, the income, being agricultural, from these leasehold
properties was assessable under the Act. We are of opinion
that it was so, and that the Agricultural Income-tax Officer
was right when he assessed it to agricultural income-tax.
The income was not the income of money-lending, and this
does not depend upon the character of the recipient. The
Thika
348
profits were clearly agricultural income being actually
derived from land. The answer to the question by the High
Court was thus correct.
The result is that the appeal must fail, and it is
accordingly dismissed with costs.
Appeal dismissed.