TaxTMI 
TaxTMI 
TaxTMI 
1967 (8) TMI 128
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....sted in the Government. The total compensation payable to the assessee has not yet been determined. However, as contemplated under section 54A of the Abolition Act, the assessee was paid the following amounts towards interim compensation in the years noted against them from the Estates Abolition Tribunal under section 50 of the Abolition Act. 4. In the court of the assessment proceedings for the assessment years 1956-57 and 1958-59 the assessee contended before the Income Tax Officer that the aforesaid amounts were agricultural income as defined in section 2(1) of the Income Tax Act. He also took an alternative plea that the amounts were receipts of capital nature and as such did not fall to be taxed. 5. A further contention was also raised that, as the compensation received was to be apportioned among the principal landholder and the other persons referred to in section 50(2) of the Abolition Act, the entire amount did not fall to be assessed in the hands of the assessee alone. All these contentions were rejected by the Income Tax Officer who held that the amounts in question were not agricultural income as those were paid to him not only for the lands which were under cultivati....
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.... the assessment of the assessee alone but should be in the individual assessments of the coparceners constituting the Hindu undivided family. The Tribunal, without dealing with the other contentions, held that the receipts were of a capital nature and were not liable to tax because the interim payments which had been made to the assessee were not because of loss of any income but were mainly made for the reason that a particular source of income which was an income-producing asset of the assessee had been lost to him. The Tribunal relied on the decision of the Madras High Court in the case of Shanmugha Rajeswara Sethupathi v. Income Tax Officer, Karaikudi. 7. In respect of the appeals for the assessment years 1953-54, 1954-55 and 1958-59, the Tribunal for the reasons recorded in its order for the assessment year 1956-57 held that the said amounts being of capital nature, are not liable for inclusion in its assessment. Shri C. Kondaiah, the learned counsel for the department, contends that the Madras case referred to by the Tribunal has been wrongly decided. The approach of the learned judges of the Madras High Court was to find whether interim payments made under section 50 of the....
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....ioner of Income Tax and contented that it is provisions of the Act which will have to be considered for purposes of ascertaining the nature of payment made under the particular Act. He further contended that the Supreme Court in Raja Rameshwar Rao v. Commissioner of Income Tax held that the payments made to the ex-jagirdars of Hyderabad under the Hyderabad (Abolition of Jagirs) Regulation, were income receipts in view if the special provisions of the said Regulation which had clearly denoted that those payments were by way of income. He laid particular stress on the expression "interim maintenance allowance" used in the Abolition of Jagirs Regulation and also that this interim maintenance allowance was paid as the balance of income of the jagirs for a particular year after deducting the expenses payable to the Government for administration and after payment of haq-e-malikana and guzara-yabs. As regards the decision of this court in Kumara Rajah of Venkatagiri v. Income Tax Officer, Nellore his argument was that various provisions of the Act relied upon, do not lead to the conclusion that the interim payments were income receipts and not capital receipts. There is no basis....
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....Jagirs) Regulation, 1358 Fasli, is income and, therefore, liable to tax, has observed at page 145 : "The point at issue is whether these payments constituted capital or income. The answer to this question will have to be found in the Abolition Regulation under which the payments were made and another Regulation called the Hyderabad Jagirs (Commutation) Regulation, 1359 F. (hereinafter called the Commutation Regulation), which was intended to be supplementary to the earlier Regulation." 11. It is, therefore, not disputed by both the sides that it is the provisions of the Abolition Act that will have to be considered to ascertain whether the interim payments made under the said Act constituted capital or income. 12. It is, therefore, necessary to refer to the provisions of the Abolition Act. The Abolition Act was enacted in 1948, when the Government of India Act, 1935, was in force. By section 3(b) of the said Act, the entire estate, all communal lands and poramboke, other non-ryoti lands, waste lands, pasture lands, lanka lands, forests, mines and minerals, quarries, rivers and streams, tanks and irrigation works, fisheries and ferries, stood transferred to the Governm....
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....determined under section 39, in such form and manner and at such time or times and in one or more instalments as may be prescribed by the rules. Sections 42 and 43 provide for entertainment of claims to the compensation deposited and the decision of these claim by the Tribunal. The Tribunal by virtue of section 44 has to apportion compensation among the principle landholder and any other person whose rights or interest in the estate stand transferred to the Government. Section 49 provides for the devolution of interest in compensation. Section 54A was inserted by the Amending Act XXIV of 1958 which provides : "In the case of every estate not governed by section 38, the Government shall estimate roughly the amount of the compensation payable in respect of the estate, and deposit one half of that within six months from the notified date in the office of the Tribunal, as advance payment on account of compensation." 15. Sub-Section (2) of that section entitles the Government to deduct one half of all the moneys referred to in the proviso to section 41(1) and one half of the basic annual sum referred to in sub-section (3) of section 50, it the deposit in pursuance of this s....
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....ied date and before the compensation has been finally determined and paid in pureness of this Act, interim payments shall be made by the Government every Fasli year to the principal landholder and to the other persons referred to in section 44, sub-section (1), in the manner laid down in the said section. From this it very clear that these interim payments are for a period intervening between the notified date and the final determination and payments of compensation under the provision of the Abolition Act. By virtue of sub-section (3), the persons entitled to interim payments will be entitled, in respect of the Fasli year in which the estate is notified, to such amount as the Government may on a rough calculation determine to be the basic annual sum if the deposit in pursuance of section 54A has not been already made and to an amount equal to one half of the basic annual sum so calculated if deposit has already been made. The proviso to this sub-section makes provisions for the deduction that can be made while making interim payments. This provision very clearly shows that the amount of interim payments is related to the deposit of advance compensation under section 54A of the Abo....
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....to any extent to be in lieu of such compensation." 19. It will thus seen that section 50 makes in itself a complete provision for the deposit of amount of interim payment, determination and apportionment thereof. These provisions in themselves were sufficient to hold that the interim payments made under section 50 were not part and parcel of the total compensation to be determined under section 37 of the Abolition Act. That position was made absolutely clear by enacting sub-section (8) of section 50 which did not form part of the original bill. Even without the provisions of sub-section (8) it could be held that the interim payments under section 50 cannot be taken into account while paying the total compensation as determined under section 37 of the Abolition Act. The only purpose of enacting sub-section (8) was to put it beyond any possible doubt that the interim payments do not form part of the total compensation. Both the sides agree that by virtue of the provisions of the Act and, especially, by virtue do sub-section (8) it is beyond the pale of any doubt that the interim payments do not form part of the total compensation to be determined under the provisions of the Abo....
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.... rights and privileges as are recognised or conferred on him by or under this Act." His contention is that by this amendment the Madras legislature has laid down that such persons are entitled not only to compensation but also such right and privileges as are recognised or conferred by or under the Abolition Act. The expression "such rights and privileges" will also take in compensation, advance compensation, additional compensation, interim payments under section 50 and other provisions of the Act wherein certain rights to such persons have been created for obtaining pattas of the lands and also in buildings standing in the estate. It might, therefore, be argued that by virtue of this amendment the interim payments can also be considered as payment for loss of capital asset. That is the view taken by the Madras High Court in Shanmuga Rajeswara Sethupathi v. Income Tax Officer, Karaikudi. At page 863 the Division Bench observed : "Under clause (e) the landholder became entitled only to such rights and privileges as are recognised or conferred upon him by and under the Act and one of such rights and privileges which he became entitled to was to receive these in....
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....n for determination of such compensation. That section does not lay down that the property holder will not be entitled to income in addition to the compensation. Any law which does not provide for payment of compensation will be void because of the provisions of section 299 of the Government of India Act. From this it cannot be postulated that all the amounts paid under the provisions of an Act which provides for acquisition of the capital assets. 22. It is pertinent to see that the legislature has used the following expressions in regard to payments to be made under the Abolition Act. Those expressions are : compensation, tasdik allowance under section 38, interim payments and additional compensation. If it was the intention of the legislature to term the interim payments made under the Act as interim compensation, they would have done so and would have in addition to that provided that such interim compensation would not form part or would not be in lieu of compensation to be determined under section 37 of the said Act. There is no dispute that compensation provided for under section 37 of the said Act and also under section 54B is for the loss of capital asset. The same phraseo....
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.... 54A the expression "additional compensation" has been used so that there may not be any conflict with the provisions of sections 37 and 54A. 23. We may now refer to Kumara Rajah of Venkatagiri v. Income Tax Officer Nellore, a judgment delivered by Jaganmohan Reddy J. (as he then was). After exhaustively dealing with various provisions of the Abolition Act and distinguishing Shanmugha Rajeswara Sethupathi v. Income Tax Officer, Karaikudi, the learned judge clearly held on page 278 : "... they are, in my view, in lieu of consequential loss to the land holder for the non-receipt of compensation which, had it been received immediately on his being deprived of his estate, he would have earned as income therefrom." 24. Further, on the same page, he has held : "None the less, these interim payments are in the nature of revenue amounts payable for the non-payment of compensation on the abolition of the estate, on which date, ordinarily, the landholder would be entitled to it." 25. We are in full agreement with the aforesaid observations. 26. We also adopt the reasoning of the learned judge for arriving at the aforesaid conclusion and the reasons given....
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....or the reason that they were not compensation for the loss of the jagir, we find no ground on which we can say they were capital. It would follow that they must be income and taxable as such. They were certainly not windfall, for a right to them was created by the Abolition Regulation a right which under section 21 could be enforced in a civil court. Then we find that these allowances were payable with a regularity and were of a recurring nature, both of which are recognised as characteristic of income : see Commissioner of Income Tax v. Shaw Wallace & Co. Next, we observe that the Regulation advisedly called the payments maintenance allowance, a nomenclature peculiarly suited for payments of the nature of income. Lastly, it may be pointed out that the payments were made for the interim period between the time when the income of the jagir began to be collected by the Government through the jagir administrator and April, 1, 1950, when the compensation for the loss of the jagir first became payable. The payments were, therefore, by way of compensation for the loss of income in the interim period. In the words of Jenkins L.J., as will appear later, they were "income compensation&....
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....ssees. During the possession of the military, though the assesses looked after the tea garden, there was absolutely no manufacture of tea during that period. Under the Defence of India Rules, the military authorities paid compensation, the measure being the out-turn of tea which would have been manufactured by the assessees during that period. The question that arose was whether the compensation paid by the military authorities was profits of a business which could be taxed. On the facts of the case, the Supreme Court held : "The payments in question could not be treated as partaking the character of profits because business not having been done during the two years, no question of profits taxable under section 10 arose. The whole of the amount received by the assessees was, therefore, not assessable." 32. The learned counsel for the assessees relied on this observation of the Supreme Court : "It is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue." and contends that because the measure for payment of interim payment is the annual basic ....