The main legal principle established in the judgment is that a sale for penal assessment and penalty imposed under the Madras Land Encroachment Act III of 1905 passes the property free of all encumbrances, based on the interpretation of Section 9 equating the penal assessment to land revenue and providing for its recovery as land revenue.

Somayya, J.

1. The question involved in this second appeal is whether a sale held for recovery of penal assessment imposed under the Madras Land Encroachment Act III of 1905 prevails over prior encumbrances.

2. A sum of Rs. 1,182 and odd was the assessment and penalty imposed by the Government for the encroachments on certain lands belonging to the Government by one Venkata Satteyya. The plaintiff in the suit had obtained two mortgages from Satteyya on his properties and had filed a suit and obtained a final decree on foot of those mortgages. As the Government was bringing the property to sale under the provisions of Madras Act III of 1905 read with Madras Act II of 1864 the plaintiff protested that the land should be sold subject to his mortgages. But the Government ordered the sale to be held free of all prior encumbrances. The plaintiff then paid the amount under protest and filed the present suit for recovery of the sum. If a sale for penal assessment and penalty imposed under Madras Act III of 1905 does not prevail over prior encumbrances of the defaulters properties, then the plaintiff is entitled to recover the sum which he paid under protest in order to save the property from being sold for such penal assessment and penalty. Section 9 of Madras Land Encroachment Act III of 1905 lays down:

The amount of assessment and penalty imposed under this Act on any person unauthorisedly occupying any land shall be deemed to be land-revenue and may be recovered from him as arrears of land-revenue under the provisions of the Madras Revenue Recovery Act, 1864, or the Madras City Land Revenue (Amendment) Act, 1867, as the case may be.

This section provides that the amount of assessment and penalty imposed under this Act should be deemed to be land revenue and it provides further that such amount may be recovered as arrears of land revenue under the provisions of the Madras Revenue Recovery Act. Where the Legislature says that the amount of penalty and penal assessment shall be deemed to be land revenue, though it is not in reality land revenue, we must take it that it is land revenue for the purposes of the Act. The Judicial Committee had to consider a similar case under the Indian Income Tax Act. By Section 43 of the Act:

Any person employed by or on behalf of a person residing out of British India, or having any business connection with such person, or through whom such person is in the receipt of any income, profits or gains upon whom the Income-lax Officer has caused a notice to be served of his intention of treating him as the agent of the non-resident person shall, for all the purposes of this Act, be deemed to be such agent.

The Judicial Committee say this in Commissioner of Income Tax, Bombay Presidency v. Bombay Trust Corporation, Ltd.:

Now when a person is deemed to be something, the only meaning possible is that whereas he is not in reality that something the Act of Parliament requires him to be treated as if he were.

Therefore though the penal assessment and penalty are not in fact land revenue, we must take them to be land revenue. The next portion of Section 9 makes the matter further clear by providing that the amount may be recovered as arrears of land revenue under the provisions of the Madras Revenue Recovery Act. Thus, the amount is to be and revenue and may be recovered as arrears of land revenue.

This being so, it is difficult to escape the conclusion that all the consequences which result in the case of a sale under the Revenue Recovery Act for arrears of land revenue strictly so called also result in the case of a sale for recovery of penal assessment and penalty levied under Madras Act III of 1905.

3. Reliance is placed by Mr. Raghava Rao upon various decisions of this Court which have considered the effect of sales under the Abkari Act or the Income Tax Act--whether they pass the property free of prior encumbrances or only subject to the encumbrances then existing. The earliest of these cases is the case of Ram