1940 (8) TMI 36 - HC - Income Tax

Court orders further investigation on land settlement funds, rules Rs. 2,000 from Mukarraridars taxable.

Rani Bhubneshwari Kuar Versus Commissioner of Income Tax, Bihar & Orissa.

The court referred the first issue back to the Commissioner for further investigation to ascertain the facts regarding the Rs. 158 received for the ... - Issues Involved:1. Whether the sum of Rs. 158 received by the assessee for the settlement of lands is assessable to Income Tax or is it agricultural income within the meaning of section 2, Indian Income Tax Act, 1922.2. Whether the sum of Rs. 2,000 received by the assessee for certain lands and other sources connected therewith from the Mukarraridars or permanent lease-holders is assessable to Income Tax or is it agricultural income within the meaning of section 2, Indian Income Tax Act, 1922.Detailed Analysis:Issue 1: Rs. 158 Received for Settlement of LandsThe primary issue is whether the sum of Rs. 158, received by the assessee as 'nazrana' or 'salami' for the settlement of lands, should be considered taxable income or agricultural income under section 2 of the Indian Income Tax Act, 1922. The Income Tax authorities and the Commissioner viewed these payments as income arising from a non-agricultural source and thus taxable.The Commissioner relied on precedents such as Birendra Kishore Manikya v. Secretary of State for India, Meher Bano Khanum v. Secretary of State for India, and Probhat Chandra Barua v. King Emperor to argue that salami or nazrana should be considered as rent and hence as revenue. However, the court found that these precedents did not apply directly to the nature of the payments in this case.The court referred to the case of Commissioner of Income Tax v. Maharajadhiraj Kumar Visheshwar Singh, which established that salami representing the whole or part of the price of the land is a capital receipt and not income. This case emphasized that the nature of salami must be determined based on the specific facts and circumstances of each case.The court noted that the Income Tax authorities had assumed the payments were advance rent without fully investigating the facts. It was unclear whether the leases were for indefinite periods, what rents were payable, or the extent of the property involved. Thus, the court concluded that it was impossible to determine whether the Rs. 158 was a capital receipt or income without further investigation.The court also addressed the argument that even if the payments were income, they were not taxable because they constituted income derived from agricultural sources. The court found that the Income Tax authorities had consistently held that the settlements were for non-agricultural purposes, making the income taxable.The court decided to refer the case back to the Commissioner under Section 66 (4) of the Income Tax Act for further investigation to ascertain the facts relating to these settlements.Issue 2: Rs. 2,000 Received from MukarraridarsThe second issue concerns whether the sum of Rs. 2,000 received by the assessee from Mukarraridars, or permanent lease-holders, is assessable to Income Tax or is agricultural income under section 2 of the Indian Income Tax Act, 1922.The Income Tax authorities determined that a substantial part of the land leased to Mukarraridars was used for non-agricultural purposes. Although the rent payable by the Mukarraridars was a lump sum, the authorities concluded that Rs. 2,000 of this rent represented income from non-agricultural land and was therefore taxable.The court addressed the argument that there was no evidence to support the finding that Rs. 2,000 represented income from non-agricultural sources. The court noted that this issue was not seriously contested before the Income Tax authorities and the Commissioner, and thus, there was no basis for this contention.The court also dismissed the argument that taxing the assessee on this sum would result in double taxation. The court clarified that the assessee received rent for both agricultural and non-agricultural land, and the non-agricultural portion was taxable. The Mukarraridar would be taxed on the non-agricultural income received by him, less the amount paid to the landlord.The court concluded that the Rs. 2,000 represented income from non-agricultural sources and was therefore taxable. The court answered the second question affirmatively, stating that the sum is assessable to Income Tax and is not agricultural income within the meaning of Section 2 of the Indian Income Tax Act.ConclusionThe court referred the first issue back to the Commissioner for further investigation to ascertain the facts. For the second issue, the court affirmed that the Rs. 2,000 received by the assessee is assessable to Income Tax and is not agricultural income.