Income received by the mortgagee from the tenants under a usufructuary mortgage qualifies as agricultural income and is exempt from tax.

Ramesam, J.

1. This matter comes on before us on a reference by the Commissioner of Income Tax under Section 66(2), Income Tax Act. The facts of the case are these. The assessee, Janab Hajee Mohammad Sadak Khoyee Sahib, carries on money-lending business in Vizianagaram within the jurisdiction of the Income Tax Officer, Vizagapatam circle. In the course of his money-lending business he advanced a sum of Rs. 1,50,000 to the Zamindar of Salur in the Vizagapatam District and obtained a mortgage-deed which is Ex. A dated 8th November 1928. The document directs the amount of consideration to be paid to various creditors of the mortgagor. It provides for payment of interest at one per cent. per mensem at the end of the year. If the interest is not fully discharged at the end of the year, overdue interest will be added to the principal and will carry compound interest. The principal amount was to be paid within ten years. At the end of ten years if the amount is not paid, the mortgagee may file a suit for sale. Possession of 10 out of 21 Jeroyati villages in Schedule A attached to the document was delivered to the mortgagee. The other eleven villages were then in the possession of the Maharajah of Vizianagaram who was one of the creditors intended to be paid off from the consideration of this mortgage. The mortgagee himself is to pay off the debt and to take possession of those 11 villages. Certain other villages and inam lands were also mortgaged but without possession. So that the document is a mixture of a usufructuary mortgage and a simple mortgage. It is also provided that the mortgagee may take five per cent of the gross receipts for establishment charges. After meeting the expenses necessary for repairs and after payment of peishkush due to Government the balance is to be credited towards the interest on the bond. If there is any surplus it should be credited towards the principal. No objection is to be raised to the accounts kept by the mortgagee. The peishkush to be paid by the mortgagee is to be the proportionate peishkush.

2. The mortgagor reserves to himself the right of leasing out waste lands and unauthorized cultivations and also resumption of subsequent inams. But the mortgagee is to have the benefit of the additional income so realized. Mining leases may also be issued by the mortgagor but the royalty should go to the mortgagee, and both should have the right of scrutinising the accounts of the mining leases. "The mortgagor is to be allowed once a year inspection of the D.C.B. irrigation etc., accounts, the muchilikas and other records that may be maintained by the mortgagee, and if the mortgagor requires a copy of any of those documents, it should be given. The mortgagor undertakes to deliver all records such as muchilikas, D.C.B. accounts and other records that are with the Maharajah of Vizianagaram. Whenever the debt is paid off the villages are to be put back in the possession of the mortgagor. Under this document the mortgagee has entered into possession. He has also been recognized as the limited proprietor of the estate under the Limited Proprietors Act 4 of 1911. In the year of account the assessee received Rs. 17,393, slightly less than one years interest.

3. On these facts the Commissioner of Income Tax wanted to assess the income on the ground that it is not agricultural income. The assessee claimed exemption under Section 4(3) (viii) of the Act. In Commissioner of Income Tax v. Ibrahimsa Routher 1928 3 ITC 33, a Full Bench of five Judges of this Court held that the profit derived from land under the usufructuary mortgage of that case was exempt from Income Tax on the ground that it is agricultural income. In that case the profit of the land was to be enjoyed by the mortgagee in lieu of interest, no particular rate of interest being specified. Except this fact there is no other difference between that case and this case. However it is argued before us that that case is distinguishable from this.

4. It w