Apportionment of annuity on mixed estate income limits agricultural tax deduction to the agricultural share only.

An annuity charged on a zamindari yielding both agricultural and non-agricultural income was not wholly agricultural income merely because it was payable out of the estate. The Patna HC held that, under the Bihar Agricultural Income Tax Act, 1938, deduction is available only to the extent the annuity is attributable to agricultural income, because the Act is a machinery provision and does not deem the entire annuity to be the recipient's agricultural income. As the governing instrument did not direct payment from one source alone, the annuity had to be apportioned in the same ratio as agricultural income formed part of the total estate income. The claim therefore succeeded only for the agricultural share.

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Issues: Whether an annuity charged on a zamindari containing both agricultural and non-agricultural income was wholly excluded from the assessee's income so as to permit deduction of agricultural income tax, or whether only the proportion attributable to agricultural income could be treated as agricultural income and deducted under the Bihar Agricultural Income Tax Act, 1938.

Analysis: The annuity was not founded on any personal covenant of the appellant and was payable directly out of the estate. The Court applied the principle that a payment which is merely charged on land does not become agricultural income for that reason alone, and relied on the distinction drawn in the Privy Council authorities between a personal liability secured on land and a charge which is part of the arrangement under which the beneficiary receives income from the estate. Section 11 of the Bihar Agricultural Income Tax Act, 1938 permits deduction only where the recipient is a beneficiary entitled to a portion of agricultural income derived from the land. The explanation to that section was construed broadly, and the Act was held to be a machinery provision for collection of tax rather than a rule deeming the entire annuity to be the holder's own income. Since the estate yielded both agricultural and non-agricultural income and no direction in the will allocated the annuity to one source alone, the proper course was to apportion the annuity according to the proportion in which agricultural income formed part of the total estate income.

Conclusion: The annuity was not wholly agricultural income, but the assessee was entitled to deduct the agricultural income tax attributable to the agricultural proportion of the annuity. On the agreed facts, that proportion was one-half, so the claim succeeded to that extent only.

Final Conclusion: The appeal succeeded only in part, with the deduction confined to the agricultural share of the annuity and the remainder of the claim rejected.

Ratio Decidendi: Where an annuity is charged on an estate yielding mixed agricultural and non-agricultural income, and the governing instrument does not direct payment from a particular source, only the agricultural proportion of the annuity is treated as agricultural income for tax-deduction purposes under the charging and collection provisions of the agricultural income tax law.

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