Judgment-

HEGDE

( 1 ) THE common question of law which arises for decision in these appeals by certificate, is whether the interim payment received by a former holder of an estate under Section 50 (2) of the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948 (Madras Act 26 of 1948) (to be hereinafter referred to as the Act) whose Estate vested in the Government under Section 3 of the Act was of capital nature and not liable to tax?

( 2 ) THE material facts bearing on the point in issue are identical in all these appeals. Hence it would be sufficient if we set out the facts of Civil Appeals Nos. 1309 to 1312 of of 1968 which were filed by the same assessee. The assessee in those appeals is a Hindu Undivided Family and that family was the holder of the Estate of Devarkota and Challappalli. This Estate vested in the Government under the Act. During the assessment years 1953-54, 1954-55, 1956-57 and 1958-59, the assessee received some interim payments. The Income-tax Officer sought to include those payments in the assessment of the assessee in those years. The assessee contended that those receipts were not Revenue receipts and hence not taxable. He based his plea firstly on the ground that those receipts represented agricultural income or alternatively they were capital receipts and lastly on the ground that the income having been apportioned among the principal land-holder and the other persons referred to in sub-section (2) of S. 50 of the Act, the entire amount did not fall to be assessed in his hands. All these contentions were rejected by the Income-tax Officer. Before the Appelate Assistant Commissioner, the assessee repeated those contentions. But the Appellate Assistant Commissioner rejected them and upheld the order of the Income-tax Officer. On a further appeal to the Income-tax Appellate Tribunal, the Tribunal held that as those payments were made to the assessee as compensation for destroying his income producing assets they should be considered as capital receipts and hence not liable to be taxed. Thereafter, at the instance of the Commissioner of Income-tax, the Tribunal referred the question-

"where on the facts and in the circumstances of the case, the interim compensation of Rs. 80,843. 00; Rupees 40,422/ -. Rs. 1,21,146. 00 and Rupees 80,391/- received by the assessee under Section 50 of the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948 was of a capital nature and not liable to tax. "

UNDER Section 66 (1) of the Act for the opinion of the High Court. The High Court answered that question in favour of the Department. Following that decision, the High Court dismissed the Writ Petitions filed by Shri. V. V. V. R. K. Yachendra Kumar Raja raising the very question that was the subject matter of the References. The other appeals in this batch of appeals arise form the decision in those Writ Petitions.

( 3 ) FOR deciding the question whether the receipts with which we are concerned in these appeals are capital receipts, it is necessary to make a survey of the relevant provisions of the Act. But before doing so, it is necessary to mention that the former holders of Estates that had vested in the Government under the Act were entitled to receive four different kinds of payments. They are: (1) advance compensation under Section 54-A, (2) interim payments under S. 50 (2), (3) total compnesation under Section 41 and (4) additional compensation under Section 54-B. Now let us turn to the relevant provisions of the Act.

( 4 ) SECTION 3 of the Act provides in cl. (b) thereof that the entire Estate, including all interests detailed therein, shall stand transferred to the Government and vest in them free from all encumbrances with effect on and from the notified date. Clause (c) of that section put an end to all rights and interests created in or over the Estate before the notified date by the principal or any other land-holder. Clause (e) of that section is important. It reads:

"that principal or any