Judgement

Consolidated Appeal (No. 26 of 1947) from three decrees of the High Court (February 15, 1944) and from a fourth decree of the same court (December 14, 1944) whereby four separate references made to the court under s. 66, sub-s. 1, of the Indian Income-tax Act, 1922, as amended, were all answered in favour of the assessees, the respondents to the several appeals. The following introductory statement is taken from the judgment of the Judicial Committee All of these appeals k raised the question whether interest on arrears of rent payable in respect of land used for agricultural purposes was exempt from income tax as being agricultural income within the definition of that phrase contained in s. 2, sub-s. 1, of the Indian Income-tax Act. In the second appeal a further question was raised, namely, whether when a usufructuary mortgage was given by the debtor in satisfaction of any such arrears of interest the amount of such interest could then be treated as received, so as to become taxable under the Act. Under s. 4, sub-s. 3 (viii.) of the Indian Income-tax Act, 1922, agricultural income was exempt from assessment to income tax. Agricultural income was defined in s. 2 of the Act as follows

" (1.) agricultural income means—

" (a) any rent or revenue derived from land which is used " for agricultural purposes, and is either assessed to land " revenue in British India or subject to a local rate assessed " and collected by officers of the Crown as such ;

It is not necessary to state in detail the facts bearing on-ths first question. In each case there was included in the assessment of income made on the assessee interest in respect of arrears of rent payable for land which was used for agricultural purposes and was either assessed to land revenue or subject to-a local rate. That interest had been paid. The interest was it was understood, payable in all cases by virtue of various-statutes which prescribed that interest should be payable on rent in arrears. The point put baldly was therefore, " Is such " interest rent or revenue derived from land ?"

The High Court (Fazl Ali C.J., Manohar Lai and Beevor JJ.) (only the first two of whom heard the reference in the fourth of there appeals) answered the question common to all four references in the affirmative. They answered the second question, which arose only in the second reference, in the negative.

1948. May 11, 12, 13. Millard Tucker K.C. and Handoo for the appellant. The principal question is whether interest on arrears of rent, which rent is payable in respect of agricultural land, is itself agricultural income within the definition in s. 2, sub-s. 1, of the Indian Income-tax Act and exempt from assessment to income tax under s. 4, sub-s. 3 (viii.). It is submitted that it is immaterial whether the interest was payable under a statute or by agreement prior or subsequent. If it is held that interest on arrears of rent is not itself w rent or revenue " derived from land," then the second question is whether j when a creditor for any such interest takes a usufructuary mortgage in satisfaction of the interest, he has been paid and received interest within the meaning of the Act so as to become taxable. On the first question there are conflicting decisions in India. It was held in Commissioner of Income-tax, Madras v. Zamindar of Kirlampudi (( 1931) I.L.R. 55 M. 830.) that " interest due to a

Law. Rep. 75 Ind. App. 283 ( 1947- 1948) Commissioner of Income-Tax, v. Raja Bahadur Kamakhaya 179

Zamindar u under promissory notes taken by him from his ryots for the “amount of rent due by them with interest is not agricultural “ ‘income within the meaning of s. 2, sub-s. 1 (a) " of the Act. The main case relied on by the appellant is In re Manager, Radhika Mohan Roy Wards Estate (( 1941)

A.I.R. (Cal.) 443.), where it was held that interest on arrears of rent payable by statute is not agricultural income and is therefore assessable to income tax. Kumar Deba Prosad Garga v. Commissioner of