Local cess receipts are income only to the extent they exceed the assessee's legal liability; casual receipt exemption fails.

Amounts received from a lessee towards local cess were not income to the extent they matched the assessee's legal liability under the Bombay Local Boards Act, 1923, because the relevant test was the amount legally payable, not whether the local board had demanded or collected it. Any excess retained over the cess lawfully payable constituted taxable income as surplus in the assessee's hands. The claim to exemption under section 4(3)(vii) of the Indian Income-tax Act, 1922 failed because the receipts were not shown to be casual or non-recurring in the statutory sense. The result was that only the cess component lawfully payable was excluded from income.

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Issues: (i) Whether the amounts received by the assessee from the lessee towards local cess constituted income for the purposes of the Indian Income-tax Act, 1922. (ii) Whether the receipts were exempt under section 4(3)(vii) of the Indian Income-tax Act, 1922 as being of a casual and non-recurring nature.

Issue (i): Whether the amounts received by the assessee from the lessee towards local cess constituted income for the purposes of the Indian Income-tax Act, 1922.

Analysis: The receipts could not be treated as income to the extent that they represented sums which the assessee was legally bound to pay as cess under the Bombay Local Boards Act, 1923. Under the statutory scheme, the cess was levied with reference to the assessment of the village, and the relevant inquiry was the extent of the assessee's legal liability, not whether the district local board had made a demand or had actually collected the cess. Any amount received in excess of the cess legally payable represented a surplus in the assessee's hands and was income. The distinction between assessment, levy, and collection was material, and non-collection by the local board did not affect the existence of the liability.

Conclusion: The receipts were income only to the extent that they exceeded the amount of cess legally payable by the assessee; the legally payable cess portion did not constitute income.

Issue (ii): Whether the receipts were exempt under section 4(3)(vii) of the Indian Income-tax Act, 1922 as being of a casual and non-recurring nature.

Analysis: The receipts arose from the lease arrangement and the liability to collect and pass on amounts towards cess was not shown to possess the character of a casual or accidental receipt. The exemption depended on the statutory character of the receipt, and the excess amount retained by the assessee did not answer that description.

Conclusion: The exemption under section 4(3)(vii) was not available.

Final Conclusion: The receipts were taxable as income except to the extent that they represented cess lawfully payable by the assessee under the local boards law, and the assessee succeeded only in excluding that limited portion from income.

Ratio Decidendi: Amounts received for discharge of a legal tax or cess liability are not income to the extent of that liability, but any excess retained beyond the legally payable amount is taxable income; exemption for casual and non-recurring receipts is unavailable where the receipt does not bear that statutory character.

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