Compensation for requisitioning agricultural land, even when paid by the state, qualifies as agricultural income exempt from income tax.

1 The only question for consideration in this appeal is whether the compensation received by the respondent, on its agricultural land being requisitioned, was exempt from the levy of income tax or not.

2 The respondent is a Company having tea estates in Assam. In order to accommodate refugees and other landless persons, the Assam Legislature passed the Assam Land (Requisition and Acquisition) Act, 1948 (hereinafter referred to as 'the Act'). S.3 of this Act provided for requisitioning of land and according to S.4 the requisitioned land could be used or dealt with in such manner as may seem expedient to the State Government. The land could also be acquired by the State Government after necessary notice. S.7 of the Act sets out the principles of determining compensation for acquisition or requisition of land. Sub-s.(3) of S.7 provides that where any land is requisitioned then every person interested in such land is to be paid such compensation as may be agreed upon in writing between the person interested and the Collector. Compensation is also payable in respect of any damage which may be done to the land during the period of requisition. The maximum amount of compensation which may be payable is also stipulated.

3 The respondent's land were in Singrimiari and were requisitioned under S.3(1) of the Act in January and May, 1949. The respondent got Rs. 1,24, 638/- as compensation.

4 The claim of the respondent during the assessment year 1958 - 59, with which we are concerned in this appeal, was the amount of compensation received was exempt from levy of income tax as this amount represented the respondent's agricultural income. The Income tax Officer did not accept this claim. On appeal, however, the Appellate Assistant Commissioner found that the respondent was using the requisitioned land for agricultural purposes at the time of requisition and also earlier to that. He therefore, held that the compensation received by the respondent was its agricultural income and, therefore, not liable to tax. The department then filed an appeal before the Tribunal, but without success. Upholding the order of the Appellate Assistant Commissioner, the Tribunal found as a fact that after requisition the Government of Assam had given that land to refugees who continued to cultivate the same. In other words, the finding of fact of the Tribunal was that the land in question was being used by the respondent for agricultural purposes in the relevant accounting year, and also in the earlier years, and the said land even after requisition, was being cultivated by the refugees. Therefore, the agricultural character of the land did not undergo any change.

5 The appellant then filed an application under S.66(1) of the Income Tax Act, 1922 for stating the case but the same was rejected. Its application under S.66(2) of the Income Tax Act, 1922 was allowed and the Tribunal thereupon stated the case and referred the following question of law to the High Court :
"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1,24,638/- was exempt from tax."

6 The High Court answered the aforesaid question of law in favour of the respondent and came to the conclusion that the source of compensation was the land itself and though the payment was discharged of the statutory liability, none the less, it was the liability which arose directly from the requisition of the agricultural land. It concluded that the amount of compensation paid under the Act was agricultural income and, therefore, exempt from tax.

7 The High Court, therefore, granted leave, hence this appeal.

8 It is has been contended by the learned counsel for the appellant that the compensation paid for requisitioning of the agricultural land was not agricultural income and the same was liable to tax.

9 In support of this contention, the learned counsel relied upon the decision of Andhra Pradesh High Court in the case or Pydah Suryanarayana Murthy v. Commr.