Severability and Permanent Settlement principles upheld Bihar agricultural income tax against constitutional and settlement-based challenge.

The Bihar Agricultural Income-tax Act, 1938 was examined against the constitutional definition of agricultural income and the Permanent Settlement Regulation, 1793. The Court treated any overlap with the constitutional definition as at most confined to particular classes of income and held that such a possible excess did not invalidate the Act as a whole, applying severability. It further held that the Permanent Settlement secured fixity of jama and tenure, but did not exempt permanently settled estates from a general tax on income; the levy was therefore not a breach of the Settlement. Objections based on prior sanction and reservation were also rejected, and the challenge to the notices and proposed assessment failed.

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Issues: Whether the Bihar Agricultural Income-tax Act, 1938, was ultra vires in whole or in part for want of legislative competence or for inconsistency with the definition of agricultural income in the Government of India Act, 1935; whether the Act infringed or repealed the rights assured under the Permanent Settlement Regulation, 1793, so as to be invalid or inapplicable to permanently settled estates; and whether the impugned notices and proposed assessment could validly proceed against the plaintiffs.

Analysis: The definition of agricultural income in the Bihar Act was examined against the corresponding definition in the Government of India Act and the Indian Income-tax Act. The Court held that mere narrowing of the definition did not invalidate the Act, and that any excess, if present, was confined to particular cases such as revenue-free municipal lands. Applying severability, the Act was not to be struck down as a whole merely because one class of income might fall outside the constitutional definition. On the Permanent Settlement point, the Court held that Regulation 1 of 1793 assured fixity of the jama and tenure, but did not confer immunity from a future general tax on income. The agricultural income tax was treated as a tax on income, not an augmentation of the land revenue or jama, and therefore did not amount to a breach of the Permanent Settlement. The Court further held that Regulation 1 of 1793 was not an Act of Parliament, and even otherwise the Governor's assent cured any defect based on prior sanction. The supposed want of reservation under the Instrument of Instructions did not invalidate the enactment.

Conclusion: The Bihar Agricultural Income-tax Act was upheld in substance, the challenge to its applicability to permanently settled estates failed, and the suit was dismissed.

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