Interim maintenance allowances received by a Jagirdar under the Hyderabad (Abolition of Jagirs) Regulation, 1358 F. are income and liable to tax and are not exempt under Section 4 (3) (vii) of the Indian Income-tax Act.

( 1 ) THIS petition arises on a reference made by the Income-tax Appellate Tribunal (Bombay Bench) under Section 66 (1) of the Indian Income-tax Act.

( 2 ) THE assessee is one Rameswar Rao, the Proprietor of the Samasthan of Wanaparti, one of the big Jagirs in the Hyderabad State. This Jagir as other jagirs was abolished after the coming into force of the Hyderabad (Abolition of Jagirs) Regulation, 1358 F. , and the administration of the Jagir was transferred to the Government on and from a particular date fixed by the Military Governor. The Jagir was made over to the Government by the Jagirdar and after the administration came into the hands of the Government, payments were made to the erstwhile Jagirdar in accordance with the provisions mentioned in Sections 10 to 14 of the aforesaid Regulation. In this case the petitioner received the following sums on the particular dates shown as against them :25-1-1950-- Rs. 49,285-12-010-4-1950. . . Es. 49,285-12-03-7-1050. . . Rs. 24. 642-14-03. 8-1950. . . RS. 24,642-14-0. The Income-tax Officer, who made the assessment for the years 1951-52 included in the assessess total income, the aggregate amount of Rs. 1,47,857-4-0. The assessee contended before the Income-tax Officer that these payments were on account of maintenance allowance given to the Jagirdar and as such were not liable to tax. The Income-tax Officer overruled these objections whereupon the assessee preferred an appeal to the Appellate Assistant Commissioner who also dismissed the appeal. Thereafter an appeal was taken to the Appellate Tribunal and before the Appellate Tribunal ft was contended that all these items were not liable to tax or at any rate in the alternative the allowances received after 1-4-1950 were not liable to tax. The Tribunal held that only the interim maintenance allowances payable under the Hyderabad (Abolition of Jagirs) Regulation, 1358 F. , were liable to tax and further made a direction that the Income-tax Officer do find out as to what period these four payments related and opined that if any payment related to the period after or subsequent to 1-4-1950 that payment could not be taxed and would be treated as capital receipt. As it was not definite and clear as to whether the payments received on 10-4-1950, 3-7-1950 and 3-8-1950 were in respect of the period subsequent to 1-4-1950 the Income-tax Officer was directed to institute an enquiry. The appellate Tribunal framed the following questions of law for determination by the High Court : "1. 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? 2. Whether the receipt of maintenance allowances is exempt under Section 4 (3) (vii) of the Indian Income-tax Act?" The argument of the learned counsel appearing for the petitioner is that these amounts must be treated as capital receipts for the reason that the right of the petitioner in the jagir was extinguished on 15-9-1949 when the Samasthan was taken over by the Government under the provisions of the Regulation and these amounts must be deemed to have been paid to the erstwhile Jagirdar in substitution of his right or interest in the jagir; these amounts the learned counsel contended could only be regarded as solatium paid for the deprivation of the jagir of the petitioner. It was urged that the property vested in Government and amounts paid initially as interim allowances and latterly the total compensation payable to the Jagirdar were in substitution of the rights that he lost. It was also argued that if the commutation amount could not be taxed then the interim allowance also, which partakes of the same nature, could not be taxed.

( 3 ) THE question whether a particular receipt should be treated as a capital receipt or revenue receipt has frequently come up for consideration before courts. Various principles have been laid down as affording a guidance for the determina