Interim maintenance allowances received under the Hyderabad (Abolition of Jagirs) Regulation 1358-F are income and liable to tax.

Judgment

SARKAR, J. : The appellant was the proprietor of the Wanaparthi Jagir in the former Indian State of Hyderabad. Certain payments described as interim maintenance allowances, were made to him under the Hyderabad (Abolition of Jagirs) Regulation 1358-F, hereafter called the Abolition Regulation. These payments were brought to tax under the Income-tax Act, 1922 as income. The appellant contended that they were capital and not liable to be taxed. He took various proceedings and eventually a case was stated to the High Court of Andhra Pradesh for decision of the following question :

"Whether the interim maintenance allowances received by the assessee under the Hyderabad (Abolition of Jagirs) Regulation 1358 Fasli, are income and therefore liable to tax."

The question was answered against the appellant by the High Court and hence this appeal.

2. 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 Jagir (Commutation) Regulation, 1359-F (hereafter called the Commutation Regulation) which was intended to be supplementary to the earlier Regulation. The material provisions of these Regulations may, therefore be referred to at once.

3. We shall first take up the Abolition Regulation. Under S. 6 of this Regulation the Jagirs were included in the "Diwani" (Government) as from "appointed day" to be fixed under S. 5 and thereupon the powers rights and liabilities of the Jagirdars in relation to the Jagirs ceased to be exercisable by or against them. Section 3 provided for the appointment of an officer called the Jagir Administrator. Section 8 provided for payment to Government of a specified percentage of the gross revenue, which for practical purposes may be taken to be the total realisation or income of the Jagir, for meeting the administration expenses. Section 13 required a separate account in respect of each Jagir to be kept by the Jagir Administrator. Section 10 provided for payment to the Jagirdar out of the income of the Jagir of a sum equivalent to half of what he was getting before the commencement of the Regulation, as remuneration for managing the Jagir and for distribution of a like sum among the Hissedars (sharers in the Jagir income with the Jagirdar) in a certain proportion. Section 11 provided that the net income of the Jagir calculated in the manner prescribed, would be distributed between the Jagirdar and Hissedars in the proportion in which they were entitled to the income under the law in force before the commencement of the Regulation. Section 14 provided that the amounts payable to Jagirdars under the Regulation "shall be deemed to be interim maintenance allowances payable until such time as the terms for the commutation of Jagirs are determined." These are the interim maintenance allowances with regard to which the question has arisen in this case.

4. We turn now to the Commutation Regulation. Section 3 of this Regulation provided that the commutation sum for a Jagir would be a certain multiple of its basic annual revenue, the method of calculation of which was laid down in S. 4. Section 5 stated that the commutation sum for every Jagir would be determined by the Jagir Administrator. Section 6 said that the commutation sum for each Jagir would be distributable between the Jagirdar and Hissedars in like proportion as the income was distributable between them under S. 11 of the Abolition Regulation subject to certain deductions to which it is necessary to refer.

5. It is not in dispute that as a result of the Regulations the appellant s rights in his Jagir were extinguished. The appellant contends that he was divested of the Jagir as from the "appointed day" fixed under S.5 which was, it is said, September 15, 1949. It appears that a somewhat different view was taken in Shanmagha Rajeswara Sethupathi v. Income-tax Officer, Karaikudi, 1962-44