Interest on Arrears of Rent treated as agricultural income and therefore not taxable under income tax law.

Whether interest on arrears under a mustajiri lease constitutes agricultural income: the article reasons that a mustajiri grant confers an interest in land equivalent to a farming/thika lease and the fixed payment is rent; contractual provision for twelve percent on overdue instalments is therefore interest on arrears of rent. Classification under tenancy law does not alone define "agricultural income" for tax purposes; historical practice treats interest payable by cultivating tenants as agricultural income. Conclusion: interest on arrears of mustajiri rent is agricultural income and not assessable to income tax in favour of the assessee.

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Issues: Whether the sum of Rs. 4,034 represents interest on rent and is agricultural income and therefore not assessable under the Income-tax Act?

Analysis: The Court examined the nature of the mustajiri arrangement, holding that a mustajiri lease grants an interest in land to the mustajir equivalent to a farming or thika lease, and the fixed annual payment under the mustajiri lease is rent for that interest in land. The lease stipulates that overdue instalments incur interest at twelve percent, which constitutes interest on arrears of rent. The Court considered precedent distinguishing interest under tenancy law but concluded that classification under the Bengal Tenancy Act does not determine the meaning of "agricultural income" under the Income-tax Act; historical practice and authority support treating interest on arrears of rent payable by cultivating tenants as agricultural income. By parity, interest on arrears of mustajiri rent must likewise be regarded as agricultural income.

Conclusion: The question is answered in favour of the assessee; the sum of Rs. 4,034 is interest on arrears of rent and forms part of agricultural income and is not assessable to income tax.

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