Agricultural income test: periodic allowance under an extinguishment arrangement was taxable revenue income, not land-derived income.

A periodic allowance paid under an 1837 arrangement was not agricultural income because its immediate and effective source was the arrangement extinguishing proprietary rights, not land or revenue derived from land. The fact that the amount varied by reference to land revenue collections did not change its source. The alternative contention that the payment was capital in nature also failed because there was no material showing that it was an instalment discharge of a capital sum for the transferred title; on the facts, it was an annuity-like revenue receipt. The receipt was therefore taxable revenue income and not an exempt capital receipt.

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Issues: Whether the allowance received by the assessee under the 1837 arrangement was agricultural income derived from land, and if not, whether it was a capital receipt rather than taxable revenue income.

Analysis: The allowance was held to arise from the arrangement by which the predecessor surrendered proprietary rights, and not from any subsisting interest in land or land revenue. Applying the settled test that agricultural income must be rent or revenue derived from land and that the enquiry stops at the immediate and effective source, the receipt could not be treated as income derived from land merely because it was measured by reference to land revenue collections. The variation in annual quantum did not alter the source of the receipt. The further contention that the payment was capital in nature also failed, as no material showed that the allowance represented instalments of a capital sum paid for the transferred title; on the facts it was an annuity-like periodical payment and not a capital receipt.

Conclusion: The allowance was not agricultural income and was taxable revenue income rather than exempt capital receipt.

Final Conclusion: The question referred was answered in the affirmative in favour of the Revenue, and the appeal succeeded.

Ratio Decidendi: A receipt is not agricultural income unless its immediate and effective source is land or revenue derived from land; a payment made periodically under an arrangement extinguishing proprietary rights is taxable revenue income if it is not shown to be a capital sum paid by instalments.

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