1985 (7) TMI 72

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....r lands) were resumed by the State of Rajasthan under the Rajasthan Land Reforms and Resumption of Jagirs Act, 1952 (Act No. VI of 1952) (for short " the Act "). On account of the resumption of the jagir lands, the assessee became entitled to receive compensation from the State of Rajasthan and an annuity in perpetuity in accordance with clause 7 of the Second Schedule appended to the Act. One contention raised on behalf of the assessee before the Income-tax Officer was that the annuity amount received during the aforesaid four assessment years, was capital receipt as it was on account of compensation in lieu of the resumption of the jagir lands. The Income-tax Officer in the four orders, passed on different dates, held that the annuity in perpetuity, received by the assessee was not a capital asset, but was compensation paid by the Government in lieu of the actual income from the jagir lands and, therefore, was a revenue receipt liable to tax. It may be stated that the Income-tax Officer further held that the annuity received by the assessee was not agricultural income as it was not rent or revenue derived from land by agricultural operations carried on by the assessee. The assess....

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....referred only the following question for the opinion of this court: " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the annuity received by the assessee in the previous years relevant to the assessment years 1970-71 to 1973-74 by way of compensation for the jagir of the assessee resumed by the State was a revenue receipt liable to tax ? " It is clear that we have to determine whether the annuity received by way of compensation on account of the resumption of jagir lands of the assessee by the Government is a capital receipt or revenue receipt which is liable to tax. In order to determine the nature of the annuity, it will be useful to refer to the relevant provisions of the Act and its Second Schedule. Section 21 of the Act deals with resumption of jagir lands. The consequences of the resumption have been laid down in section 22 of the Act. For the present purpose, we shall read the material part of section 22(1) of the Act: " 22. Consequences of resumption.-(1) As from the date of resumption of any jagir lands notwithstanding anything contained in any existing jagir law applicable thereto but ....

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....et income from such jagir lands in or for the basic year to the person, who is, or may hereafter be recognised in accordance with law as being charged for the time being with the duty of the maintenance of such institution or place of worship or the performance of such service. Explanation.-For the purpose of this clause, the net income of any jagir land shall, notwithstanding anything hereinbefore contained, be an amount equal to the gross income from such land calculated in accordance with the provisions of clauses (2) and (3) minus ten per cent. of such gross income to be deducted on account of expenses of the management of the land." A reading of clauses 5 and 7 abundantly makes it clear that compensation is payable after the resumption of the jagir lands. Under clause 5, the compensation payable to the jagirdar is seven times the net income which is to be calculated in accordance with the provisions contained in the Second Schedule. Clause 7 of the Second Schedule is applicable to charitable and educational institutions. This is an overriding clause, for, despite applicability of section 26 of the Act and clauses 5 and 6 of the Second Schedule (sic). In the case of jagir....

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....2 TC 427 (HL), which was affirmed in Van den Berghs Ltd. v. Clark [1935] 3 ITR (Eng. Cas) 17, quoted with approval, the following from the latter case (at p. 397 of 42 ITR) : "There is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the application of that test. " In this connection, their Lordships have expressed themselves as under (at p. 397): " This proposition is as sound as it is well-expressed, and has been followed in numerous cases under the Indian Income-tax Act and also by this 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. " (Emphasis added). In P. H. Divecha v. CIT [1963] 48 ITR (SC) 222, it was held as under (at p. 231),: " In determining whether this payment amounts to a return for loss of a capital asset or is income, profits or gains liable to income-tax, one must have regard to the nature and quality of the payment. If the payment was not received to compensate for a loss of profits of business, the receipt ....

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....nder section 50 of the said Act was also deposited. The Income-tax Officer issued notice for assessing the interim payment. An argument was raised that the interim payment was part of the compensation which he received for the loss of his estate and should, therefore, be regarded as capital and not income. In these facts, it was held that the terminology used in the Abolition Act was not conclusive in so far as the character of the payments for the purposes of the Indian Income-tax Act, 1922, falls to be considered. The important observations made are these (p. 869): "...that the interim payments were made to the landholders not as income or as interest on the undeposited portion of the compensation; these payments in so far as the scheme of the Act reveals their nature were clearly in addition to the compensation provided in section 39 of the Act to compensate for the deprivation of the estate and for the loss of an income producing asset of the landholders. They are accordingly of capital nature and not liable to income-tax. " The question pertaining to compensation for compulsory acquisition arose in Ukhara Estate Zamindaries P. Ltd. v. CIT [1979] 120 ITR 549 (SC). Tulzapu....