Panchapakesa Ayyar, J.:-This is a case referred to us under section 66 (1)of the Indian Income-Tax Act, 1922, by a Bench of the Income-Tax Appellate Tribunal, Madras Bench. At the instance of the Commissioner of Income-Tax, the Tribunal has referred to this Court for decision the following question:

“Whether on the facts and circumstances of the case set out above, the sum of Rs. 3,000 received by the respondent as remuneration for acting as an arbitrator under section 234 of the Madras Local Boards Act of 1920 was a receipt exempt from assessment under section 4(3)(vii) of the Indian Income-Tax Act?.”

The undisputed facts are briefly these: The assessee, Mr. V.P. Rao, was a member of the Indian Civil Service and a Judge of the Madras High Court before he retired from service in June, 1941. He was also a Barrister but never practised at the Bar. After retirement he had also no whole time profession, vocation or occupation. When he was leading the life of a pensioner, in September, 1941, some three and a half months after his retirement, the Madras Government asked him whether he would find it convenient to serve as an arbitrator for enquiring and reporting about a dispute which had arisen between the District Boards of Krishna, and West Godavari in the matter of apportionment of the sale proceeds of the Bezwada-Masulipatam railway, as the Government proposed to take action under section 234 of the Madras Local Boards Act, 1920, and to refer the dispute to an arbitrator for enquiry and report. He was also informed that he would be paid a lump fee of Rs. 3000 for the work and travelling allowance, on the scale admissible for High Court Judges. He replied at once agreeing to serve as an arbitrator, and he was appointed arbitrator by a G.O. dated 23rd September, 1941 which also fixed his lump sum remuneration at Rs. 3000 and travelling allowance on the scale admissible for High Court Judges. He then worked as an arbitrator. Even according to him, the work was quasi-judicial, and the parties to the dispute appeared by learned Counsel, the late Mr. Govindarajachari appearing for the Krishna District Board and the Advocate-General for the West Godavari District Board. Mr. V.P. Rao, received the written statements on both sides, heard evidence and arguments and submitted his report to the Government and was paid the sum of Rs. 3000, the remuneration promised to him for the work, besides the travelling allowance drawn by him on the scale admissible for High Court Judges. He showed this Rs. 3000, in his return of annual income for the year of assessment 1942-43, along with other income of Rs. 29,444, got as salary for the period he had worked as High Court Judge, pension for the remaining period and income from securities debentures, and other investments. He claimed exemption under section 4(3) (vii) of the Indian Income-tax Act regarding the Rs. 3000, got as remuneration or fee for the arbitration work. The Income-tax Officer held that he was not entitled to exemption from assessment under section 4(3)(vii) and that the Rs. 3000 were taxable. The assessee appealed, and the Appellate Assistant Commissioner held that the amount was taxable as salary or remuneration and was not a casual and non-recurring receipt. The respondent then appealed to the Income-tax Appellate Tribunal. The tribunal held, mainly relying on a ruling of a Bench of this Court reported in Commissioner of Income-Tax v. Ahmed Badsha Sahib1, the facts of which they held to be not distinguishable from the facts in this case, that the said sum of Rs. 3000 would fall within the purview of section 4(3)(vii) and would not be taxable, and directed that the total income of the assessee should be reduced by the said Rs. 3000. The Commissioner of Income-tax thereupon applied for the case being referred to this court under Section 66 (1)of the Income-Tax Act.

During the pendency of that application Mr. V. P. Rao died, and his legal representatives were brought on record. They wante

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