Usufructuary mortgagee receipts from tenants retain agricultural income character and remain exempt from income tax assessment.

Income directly collected by a usufructuary mortgagee from tenants of mortgaged agricultural land retains its character as agricultural income, even when appropriated towards mortgage interest. The presence of clauses for deduction of collection expenses, annual inspection by the mortgagor, or the absence of a fixed rate of interest did not alter the essential nature of the receipts. Following earlier Full Bench authority, such receipts were treated as exempt agricultural income and not assessable to income tax.

---

---

Issues: Whether the income received by a usufructuary mortgagee from the tenants of mortgaged land is agricultural income exempt from assessment under Section 4(3)(viii).

Analysis: The decisive consideration was who received the rent from the tenants. Where the mortgagee directly collected the rents from tenants under a usufructuary mortgage, the receipts retained the character of agricultural income, even if they were appropriated towards interest on the mortgage debt. Clauses providing for deduction of collection expenses, annual inspection by the mortgagor, or the absence of a fixed rate of interest did not alter the essential character of the receipts. The reasoning followed earlier Full Bench authority treating direct collections by the mortgagee from tenants as agricultural income.

Conclusion: The income was held not assessable to income tax and was treated as agricultural income exempt from assessment.

Ratio Decidendi: Income directly collected by a usufructuary mortgagee from tenants of agricultural land retains its character as agricultural income, and its subsequent appropriation towards mortgage interest does not change that character.

---