Effective source test bars agricultural income treatment where payment arises from statutory obligation, not land.

Malikana received from the Government under Regulation VII of 1822 was held not to be agricultural income. The payment was characterised as a subsistence or compensatory allowance arising from the Government's statutory obligation to pay the dispossessed proprietor, not as rent. Applying the effective-source test, the court held that the immediate source of the receipt was the Governmental obligation, not land used for agricultural purposes. The revenue also failed to prove that the land originally linked to the allowance was agricultural land. Accordingly, malikana was not assessable to agricultural income-tax.

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Issues: Whether malikana received from Government under Regulation VII of 1822 constituted agricultural income assessable to agricultural income-tax.

Analysis: Malikana was held not to be rent, but a subsistence or compensatory allowance arising from Government's statutory obligation to pay the dispossessed proprietor. The decisive test was whether the receipt was income derived from land used for agricultural purposes. Applying the principle that the enquiry into derivation stops at the effective source, the immediate source of malikana was not the land but the Governmental obligation to pay it. The revenue also failed to establish that the land in respect of which the allowance was originally fixed was land used for agricultural purposes, especially where no present trace of the lands or their use was available.

Conclusion: Malikana was not agricultural income and was not assessable to agricultural income-tax.

Ratio Decidendi: A receipt is not agricultural income unless its immediate and effective source is land used for agricultural purposes; a payment arising from a statutory obligation, even if historically connected with land, is not income derived from land.

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