1925 (7) TMI 2 - HC - Income Tax

Nazar Payments: Exempt from Income Tax as Agricultural Revenue

Mehar Bono Khanum and Ors. Versus The Secretary of State

The Full Bench unanimously held that mutation nazar payments made by a tenant to a landlord for recognizing the transfer of a holding constitute rent or ... - Issues:1. Whether mutation nazar, the amount paid to a landlord for recognizing the transfer of a holding by one tenant to another, is agricultural income exempt from assessment to Income Tax.2. Whether nazar or salami paid for the recognition of the transfer of a holding from one tenant to another is rent or revenue derived from land used for agricultural purposes under the Income Tax Act of 1922.Analysis:1. The case involved a Reference under Section 66(2) of the Income Tax Act, 1922, regarding the taxability of mutation nazar as agricultural income. The Income Tax officer assessed such payments as taxable income based on a previous court decision. The Commissioner of Income Tax agreed with the assessment, citing a similar decision. The issue revolved around whether nazar constituted agricultural income exempt from taxation under the Act.2. The judgment referred to a previous case involving the liability of nazar or salami paid for the recognition of a transfer of a holding from one tenant to another. The court in the previous case held that such payments were not revenue within the meaning of the Act. However, the current judge expressed difficulty in accepting this reasoning, arguing that nazar should be considered profit derived from land used for agricultural purposes. The judge concluded that nazar should be exempt from Income Tax under Section 4(3)(viii) of the Act.3. The matter was referred to a Full Bench to determine the correctness of the previous decision. The judge highlighted the definition of revenue as the return, yield, or profit of any land. The judge disagreed with the previous interpretation that nazar was not derived from the land, asserting that it indeed constituted agricultural income exempt from taxation. The judge concluded that the previous decision was incorrect in holding otherwise and forwarded the judgment to the Commissioner of Income Tax.4. Another judge on the panel expressed agreement with the decision reached by the primary judge, emphasizing that nazar should be considered rent or revenue derived from land and therefore exempt from Income Tax. The unanimous agreement among the judges reinforced the interpretation that nazar payments were agricultural income not subject to taxation under the Act.5. The Full Bench's decision clarified that nazar or salami paid by a tenant to a landlord for recognizing the transfer of a non-transferable holding should be considered rent or revenue derived from land, falling within the exemption from Income Tax as provided by the Act. The judgment highlighted the connection between nazar payments and the ownership of the land, emphasizing that such payments were indeed derived from the land and should be exempt from assessment.