1980 Supreme(All) 278

IN THE HIGH COURT OF ALLAHABAD
C. S. P. Singh and R. R. Rastogi, JJ.
COMMISSIONER OF INCOME-TAX - Appellant
Versus
GAURI SHANKAR AGRAWAL - Respondents
Income-tax Reference 1130 Of 1977
Decided On : 07/07/1980

The effective source of the income and whether it is directly associated with land has to be ascertained to determine whether the income is agricultural income.

Headnote:

INCOME TAX - AGRICULTURAL INCOME - EXEMPTION - AMOUNT RECEIVED BY ASSESSEE AS COMPENSATION FOR BEING KEPT OUT OF POSSESSION OF AGRICULTURAL LAND - HELD, EXEMPT AS AGRICULTURAL INCOME - INTEREST ON DEPOSITS NOT EXEMPT.

Fact of the Case:

The assessee, a lawyer by profession, also owned agricultural land. In 1950, he and his wife took agricultural land in villages, Sandkhera and Berkhera Rajput in Kashipur Tahsil and Nainital District. The leases had been taken out from the zamindars, who owned the land, and were granted for agricultural purposes. The income which is claimed to be agricultural income had accrued from the land situate in village, Berkhera Rajput, the area of which was 385.89 acres. The assessee had obtained a permanent lease of this land from its zamindar, Raja hari Chand Raj Singh, by a registered deed dated September 6, 1950, which was in favour of a firm, Gauri Shankar Agrawal and Co., of which the assessee and his wife were partners. The land which the assessee had taken was at that point of time being claimed by Bachan Singh and four others. These persons alleged that they were lessees of the land, and they had obtained lease from the Punjab Farmers Association, which in turn obtained a lease in 1946 from the court of wards of the zamindar. The court of wards, however, had not formalised the lease by a written deed in favour of the Punjab Farmers Association, as the estate of Raja Hari Chand Raj Singh was released from its custody. Thereafter one Kashi Nath, the agent of the Raja executed a lease. As a result of these conflicting claims to the land, protracted litigation between the assessee and bachan Singh and others took place. It began by proceedings under Section 145 of the Cr. P. C. but the assessee did not succeed in that. He, thereafter instituted a suit under Section 180 of the u. P. Tenancy Act on 17th October, 1951, on Bachan Singh and four others, for possession of the land. The suit was dismissed on May 29, 1962, by the Assistant Collector. An appeal filed before the Assistant Commissioner succeeded and the suit for ejectment was decreed on 26th June, 1964, but that for damages was rejected. Bachan Singh and others then preferred a second appeal to the Board of Revenue, but that was dismissed on February 24, 1965. Thereafter Bachan Singh and others filed Writ Petition No. 928 of 1965 in this court and asked for a stay of the order of ejectment. Ex parte stay order was granted by this court on May 11, 1965, which was in the following terms: "we further order that during the pendency of this application execution of the decree for delivery of possession shall be stayed, but on condition that the applicant deposit Rs. 10,000 annually, beginning with April 1, 1965, in two instalments, each payable by the end of April, and october. If there is any default in payment of any instalment this order staying the execution of the decree shall stand cancelled. The deposited amount may be invested in Defence Savings certificates. The amount together with the accruing income shall be paid to opposite parties Nos. 4 and 5 if the petition is dismissed and shall be refunded to the applicant if the petition is allowed and the decree is cancelled. Dt. 11-3-65. Sd. M. C. D. Sd. S. C. M. " THIS ex parte order was modified after hearing both the parties. The final order being: "i have heard learned counsel for the parties. During the pendency of the writ petition the petitioners shall be entitled to continue in possession of the property in dispute provided they deposit an amount of Rs. 30,000 annually with the judicial officer, Kashipur the payment to be made in two equal instalments, one instalment to be deposited on or before the seventh day of october and other on or before the seventh-day of April. The first deposits, however, may be made on or before November, 1965. The deposits may be made in the form of Defence Savings certificates. In case of default in payment of any instalment, the respondents Nos. 4 and 5 shall be entitled to execute their decree and this order shall stand automatically vacated. In case the writ petition is allowed the amount deposited by the petitioners shall be returned to them, but if the petition is dismissed the amount so deposited shall be made over to the respondents Nos, 4 and 5. Dt. 19-7-65. Sd. R. S. P. " THE writ petition filed by Bachan Singh and others was allowed on 13th July, 1967, by a single judge of this court, but a letters patent appeal filed against it, succeeded, as the Division bench by its order dated 28th August, 1969, upheld the decision of the Board of Revenue. Special appeal preferred against this order was dismissed by the Supreme Court on 26th March, 1971. To return to the ;monies deposited under the stay order, Bachan Singh and others had deposited an amount of Rs. 1,25,000 in compliance with the orders of this court, which had been invested in Defence Savings Certificates, and an amount of Rs. 9,675 had accrued as interest thereon. Thus, a total sum of Rs. 1,34,675 had accumulated, which was to be distributed to the assessee and his brothers. He received an amount of Rs. 67,337 as his share, and the dispute in the present reference is as to whether this amount represents the agricultural income of the assessee, and as such was exempt from tax.

Finding of the Court:

The Tribunal accepted the assessees contention that the income was agricultural income, but did not agree with the other contention that it was a receipt of a casual and non-recurring nature so as to be exempt from tax. We are, in this reference, as such, concerned only with the question as to whether the income was agricultural income, and not with the other contention as to whether the income was of a casual and non-recurring nature so as to be exempt from tax.

Issues: Whether the amount of Rs. 67,337 received by the assessee was exempt as agricultural income under Section 2 (1) of the Income-tax Act, 1961?

Ratio Decidendi: The assessee received the money as a result of the stay order passed by this court, which led to the amount in question being deposited by the persons who were litigating against him, in order that they should not be ejected from the land. It was suggested that the money was deposited by Bachan Singh and others out of the agricultural income received by them from the land, and as they were cultivating the land under orders of the court, the cultivation of the land by them, and the income derived from that should be taken to be that of the assessee. The argument is far-fetched, as there is no evidence that the money deposited under the orders of the court was from income derived from the agricultural land. We are then left with Sub-clause (a ). Under Sub-clause (a) it is only rent or revenue which is derived from land used for agricultural purpose which will qualify for being treated as agricultural income. The Privy Council in CIT v. Kamakshya Narayan Singh [1948] 16 ITR 325 has held that rent is a technical conception, its leading characteristic being that it is a payment in money or in kind by one person to another in respect of the grant of a right to use the land. The assessee did not grant any right to Bachan Singh and others to use the agricultural land. They did so under the orders of the court. Thus, the receipt is not rent. We are then left with the question as to whether it is revenue. Now assuming, that the word "revenue" is a term of wider import than rent, the revenue must be derived from the land. The Privy Council in Kamakshya Narayan Singhs case [1948] 16 ITR 325 has held that the word "derive" is not a term of Article It requires an inquiry into the genealogy of the product, and if the effective source from which the income accrues was not land, the fact that there is some nexus between the land and the income received would not convert it into agricultural income.

Final Decision: The question as reframed is answered in the affirmative, in favour of the assessee and against the department. The assessee is entitled to its costs which are assessed at Rs. 200.