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Nawabzadi Meher Bano Khanum v. Secretary Of State For India In Council
Factual and Procedural Background
This is a Reference to the High Court under section 66(2) of the Income Tax Act, Act XI of 1922 made by the Commissioner of Income-tax. The central question referred was whether "mutation nazar" (also referred to as selami) — the amount paid to a landlord for recognising the transfer of a holding by one tenant to another — is agricultural income within the meaning of section 2, sub-section (1)(a) of the Indian Income Tax Act, XI of 1922, and hence exempt from assessment under section 4 (variously cited in the opinion as sub-sec. (3)(viii) and sub-sec. (1)(viii)) of that Act.
Procedurally, the Income-tax Officer assessed such payments as taxable, relying on the decision of this Court in Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Council. The assessee appealed; the Assistant Commissioner of the Dacca Range upheld the assessment. The Commissioner of Income-tax agreed with the assessing authority and referred the question to the Court for decision.
The land in respect of which nazar was paid formed part of a permanently-settled estate and was subject to road-cess. The earlier decision (Maharaja Birendrakishor Manikya) had been given under the Income Tax Act of 1918; parties conceded that the relevant provisions are identical for present purposes.
Legal Issues Presented
- Whether mutation nazar (selami) — the amount paid to a landlord for recognising the transfer of a holding from one tenant to another — is "agricultural income" within the meaning of section 2, sub-section (1)(a) (and as elsewhere cited, section 2(2)(a)) of the Indian Income Tax Act, XI of 1922.
- Whether such nazar/selami, being rent or revenue derived from land used for agricultural purposes, is exempt from assessment to income-tax under the relevant exemption provision of section 4 of the Act (cited in the opinion as sec. 4, sub-sec. (3)(viii) and later as sec. 4(1)(viii)).
Arguments of the Parties
Assessee's Arguments
- Counsel for the applicants (Babu Jogendrmiath Mukerjee with Babu Paresh Nath Mukerjee) argued that nazar is part of rent derived from land or, at least, part of "revenue" as defined in the Act. They relied on a dictionary definition of "revenue" (Murray's Oxford Dictionary) that describes revenue as a return from property and contended that nazar, even if not periodic rent, is a payment connected with title derived from the tenancy and therefore connected to the land.
- The assessee argued that whether nazar arises from settlement of waste land or from mutation/transfer, it is part of profit derived from land and thus falls within "agricultural income" under section 2(2)(a) (as cited in the opinion) and should be exempt from income-tax.
Crown / Standing Counsel's Arguments
- The Standing Counsel for the Secretary of State (Mr. B.L. Mitter, with other government pleaders) conceded that nazar is "revenue" in a general sense but argued that it is not "revenue derived from land" — rather it arises from the particular transaction of recognition of transfer and is an incident of the transfer, not an incident of tenancy or of the land itself.
- It was submitted that mutation nazar does not directly flow from land; it flows from the transaction between outgoing and incoming tenants and is payable because the transfer takes place (referring to Bengal Tenancy Act provisions, cited as sec. 18(6) of that Act). It was contrasted with other impositions or premiums previously held assessable (referring to the Birendrakishor Manikya decision where abwabs or illegal impositions were held assessable and to Partridge v. Mallandaine on assessability of betting profits).
- The Standing Counsel argued that nazar is a landlord's fee levied when one tenant transfers a non-transferable holding to another and therefore is connected to the transfer transaction rather than being a direct yield of the land.
Position Adopted by Assessing Authorities and Commissioner
- The Income-tax Officer and the Assistant Commissioner had held the nazar assessable to income-tax, following the reasoning of this Court in Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Council. The Commissioner agreed and formally referred the question to the Court for decision.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court in this Opinion |
|---|---|---|
| Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India (in Council) | In that earlier decision (under the Income Tax Act of 1918), the Court held that: (a) premiums paid for settlement of waste or abandoned holdings are not liable (i.e., not agricultural income), and (b) premiums (nazar/selami) paid for recognition of transfer of a non-transferable occupancy holding were held to be assessable to income-tax (i.e., not agricultural income). | This Full Bench considered that earlier decision closely: one Judge (Walmsley) adhered to it (minority), but the majority (led by Greaves, J., and concurred by others) disagreed with its conclusion insofar as it held that selami for recognition of transfer is not agricultural income. The Full Bench concluded that the earlier decision was incorrect in that respect and held that nazar/selami for recognition of transfer is rent/revenue derived from land and exempt. The judgment will be forwarded to the Commissioner. |
| Partridge v. Mallandaine | Cited for the proposition that certain profits (in that case, profits from betting) are assessable to income-tax — used by the Crown to support the broader point that impositions or profits arising from particular transactions can be taxable. | The case was cited by the Crown's counsel by way of analogy to argue that impositions and transaction-based receipts may be assessable. The Full Bench's decision does not adopt Partridge as determinative; it was referred to in argument on assessability of transaction-linked receipts. |
Court's Reasoning and Analysis
The Court's analysis focused on the statutory definition of "agricultural income" in section 2 of the Income Tax Act, 1922, which (as set out in the opinion) defines agricultural income as "rent or revenue derived from land which is used for agricultural purposes" and which is either assessed to land revenue or subject to a local Government rate. The land at issue was permanently settled and subject to road-cess, which placed it within the scope of the statutory definition.
The referring Judges and the authorities had relied on the earlier Council decision in Birendrakishor Manikya which had drawn a distinction between: (a) premiums for settlement of waste land (held to be revenue within the definition), and (b) premiums paid for recognition of transfers (held not to be revenue or rent of the land but payments to "purchase peace" and therefore not agricultural income).
Greaves, J., after reviewing the statutory definition and the dictionary meaning of "revenue" relied upon in the earlier decision, criticized the prior reasoning that treated transfer-recognition payments as not being returns or yields of the land. He reasoned:
- "Revenue" includes return, yield, or profit of land. A payment of nazar/selami, even if characterized as paid to "purchase peace" for a transfer, nonetheless comes to the landlord by virtue of his ownership of the land. Viewed in that light, it flows from the land or ownership thereof.
- Because it "comes to the landlord by virtue of the fact that he is the owner of the land," nazar/selami should be regarded as derived from land and therefore fall within the statutory expression "rent or revenue derived from land which is used for agricultural purposes."
- Consequently, nazar/selami for recognition of a transfer of a non-transferable holding should be considered agricultural income and exempt from income tax under the relevant provision of section 4 of the Act.
Walmsley, J., recorded that he remained of the opinion expressed in the earlier Birendrakishor Manikya judgment and adhered to it (i.e., he was in the minority on the Full Bench). The majority (Greaves, C.C. Ghose, B.B. Ghose, and Mukerji, JJ.) accepted Greaves' reasoning and conclusion.
Holding and Implications
Holding (core ruling): The Full Bench answered the referred question in the affirmative: nazar or selami paid by a tenant to a landlord for the recognition of the transfer of a non-transferable holding is "rent or revenue" within the meaning of section 2(1)(a) of the Indian Income Tax Act (Act XI of 1922) and is exempt from assessment to income-tax by virtue of the provisions of section 4 (as cited in the opinion).
Immediate consequences and implications (as stated in the opinion):
- The effect for the present parties is that the assessee is exempt from payment of income-tax on the nazar/selami at issue by reason of the provisions of section 4 (the opinion cites sec. 4(1)(viii) in the operative part).
- The Full Bench expressly stated that the decision in Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Council, insofar as it holds that nazar/selami paid for recognition of a transfer is not agricultural income, is not correct. The Full Bench's judgment will be forwarded to the Commissioner of Income-tax.
- No other broader policy or prospective administrative changes are discussed in the opinion; the stated steps are limited to (a) recognition of exemption for the assessee and (b) forwarding the judgment to the Commissioner for action in accordance with the reference.
This summary is drawn exclusively from the opinion provided and does not add information beyond the text of that opinion.
Greaves, J.:— This is a Reference under sec. 66(2) of the Income Tax Act, Act XI of 1922, made to us by the Commissioner of Income-tax. The point which arises is a very short one, namely, whether mutation nazar, that is, the amount paid to a landlord for recognising the transfer of a holding by one tenant to another, is agricultural income within the meaning of sec. 2, sub-sec. (1)(a) of the Indian Income Tax Act, XI of 1922, and as such is exempt from assessment to income-tax under sec. 4, sub-sec. (3)(viii) of the said Act. The Income-tax Officer held that such payments were assessable to income-tax having regard to the decision of this Court in the case of Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Conned. An appeal was preferred by the assessee against the assessment of the Income-tax Officer. The Assistant Commissioner of the Dacca Range rejected the appeal agreeing with the decision of the Income-tax Officer. Accordingly, an application was made to the Commissioner of Income-tax asking for a reference to this Court under the provisions of the section of the Act to which I have referred and the Commissioner has, accordingly, referred the question in the terms which I have indicated. He agrees with the Income-tax Officer that the assessment was rightly made and that the nazar is not agricultural income and is, therefore, not exempt from income-tax and he adopts as the grounds of his decision the reasoning of this Court in the case of Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Council to which I have just referred. The case of Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Council was decided under the Income Tax Act of 1918, but it is conceded that so far as the question now before us is concerned, that Act was identical with the present Act of 1922. The point, therefore, is covered by the decision in Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Council provided we agree with that decision. Before I refer to it I must refer shortly to the sections of the Income Tax Act of 1922 which bear upon the point. Sec. 4, sub-sec. (3) provides that the Act is not to apply to certain classes of income. Amongst these, is the agricultural income and in sec. 2 of the Act agricultural income is defined as rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in British India or subject to a local rate assessed and collected by Officers of Government as such. The land in respect of which the nazar was paid was a part of a permanent-settled estate which is also subject to road-cess.
Two points arose for decision in the reference to which the case of Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Council relates. The first point was whether the nazar or selami payable in respect of a tenancy of waste land was assessable to income-tax or exempt as being rent or revenue derived from land used for agricultural purposes within sec. 2, sub-sec. (1)(a) of that Act. The second question was the one which directly arises on the present reference, namely, whether the nazar or selami paid for the recognition of the transfer of a holding from one tenant to another was rent or revenue derived from land which was used for agricultural purposes within the meaning of sec. 2, sub-sec. (1)(a) of the then Income Tax Act. The learned Judges who heard the reference decided that nazar or selami paid in respect of waste land was revenue within the meaning of sec. 2, sub-sec. (1)(a). The reason for their so holding was that they thought that the amount fixed for periodical payment, that is, rent, was not independent of the nazar or selami and that the nazar or selami was a capitalised sum which taken with the periodical rent constitute in the aggregate the consideration for the grant. When, however, they came to consider the question of nazar or selami paid for recognition of the transfer they held that this was not revenue within the meaning of sec. 2(1)(a) because it was not a return, yield or profit of any land and further that it was not rent in any sense of the term but they held that such a payment was a payment to purchase peace in order that the landlord might not contest the validity of the transfer and they held that this was not a payment that came within the scope of the definition of agricultural income. With all respect to their Lordships who decided that case I feel some difficulty in accepting the reasoning upon which it is founded. The expression “revenue,” as they say in their judgment, includes return, yield or profit of any land and I find it very difficult to escape from the conclusion that a payment of this kind is not profit derived from the ownership of the land. If, therefore, revenue includes profit, as I think it does, then it seems to me that nazar or selami is really derived from land which is used for agricultural purposes within the meaning of the expression as it occurs in sec. 2(2)(a) of the Indian Income Tax Act of 1922.
The result is that, in my opinion, the assessee is exempt from payment of income-tax by reason of the provisions of sec. 4, sub-sec. (3)(viii) of the same Act. The question, therefore, which we refer for the decision of a Full Bench is whether the decision in Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Council as regards selami paid for the recognition of a transfer of a holding from one tenant to another is correct and the question which arises for the decision of the Full Bench is whether nazar or selami paid by a tenant to a landlord for the recognition of the transfer of a non-transferable holding is rent or revenue within the meaning of the expression as it occurs in sec. 2(2)(a) of the Indian Income Tax Act, XI of 1922. If the Full Bench hold that such nazar or selami is not assessable to income-tax, this judgment will be forwarded to the Commissioner. If, however, the Full Bench hold that the case of Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Council was rightly decided, the matter will come back to this Bench in order that we may deal with the other question which was raised before us by the assessee, namely, that having regard to the provisions of the Permanent Settlement no liability for assessment has been imposed by the Income Tax Act on nazar or selami.
Mukerji, J.:— I agree.
Babu Jogendrmiath Mukerjee (with Babu Paresh Nath Mukerjee) argued on behalf of the applicants that nazar was a part of rent derived from land. Admitting that it is no part of rent, it is a payment by one who had derived his title from the tenant which was in reference to land and not independent of land. Revenue is defined in Murray's Oxford Dictionary, Vol. VIII (Ed. 1910), p. 597, as a return from property or collective items or amount which constitute an income from possession of land. Therefore nazar, if it is not rent, is at least part of revenue as mentioned in the Income Tax Act, and whether it is derived from settlement of waste land or from mutation, is part of a profit derived from land. Such income is within the meaning of agricultural income as defined in sec. 2(2)(a) of the Act and therefore exempt from income-tax.
The Standing Counsel (Mr. B.L Mitter) with Babu Surendra Nath Gupta, Senior Government Pleader, and Mr. Nuruddin Ahmed, Junior Government Pleader, contended on behalf of the Crown that nazar, whether it is rent or revenue, does not touch the question: it must be derived from land, it must flow from land. Mutation nazar does not directly arise from land, it arises out of a particular transaction. It is not rent because the incidents of the tenancy continued as before. “Nazar” is not incident of the tenancy. Referring to sec. 18(6) of the Bengal Tenancy Act, it is a landlord's fee levied and paid when one tenant transferred a non-transferable holding to another. That money flowed from the transaction which intervened between the old and the new tenancy. It has been held in Maharaja Birendrakishor Manikya Bahadur v. Secretary of State for India in Council that abwabs or illegal impositions are assessable to income-tax. In Partridge v. Mallandaine(2), it was held that profits derived from betting were assessable. Therefore, impositions whether illegal or statutory were assessable. The question is, whether it was derived from land? Sec. ??? of the Bengal Tenancy Act provided for payment of a landlord's fee when a transfer of permanent tenure was sought to be registered. In order that the transfer be a valid one, the fee must be paid; it is an incident of the transfer and not an incident of the tenancy.
Nazar is similarly paid for recognition of the transfer. It might be revenue but not derived from land.
The Judgment of the Court was as follows:—
Walmsley, J.:— This Reference raises the question of the liability of mutation nazarana to income-tax.
The referring Judges are unable to agree with the view taken in the case of Birendrakishor Manikya v. Secretary of State for India. In that case it was held that the premium paid for the settlement of waste land or abandoned holdings is not liable, but that the premium paid for recognition of a transfer of a non-transferable occupancy holding from one tenant to another is liable.
I was one of the three Judges who delivered that decision, and I find that I am in a minority on this Bench. In the absence of any fresh arguments it is enough for me to say that I adhere to the opinion expressed in that judgment for the reasons there given.
Greaves, J.:— The question which arises for the decision of the Full Bench is, whether nazar or selami paid by a tenant to a landlord for the recognition of the transfer of a non-transferable holding is rent or revenue within the meaning of the expression as it occurs in sec. 2(1)(a) of the Indian Income Tax Act (Act XI of 1922). This question arose for the decision of the Court in the case of Birendrakishor Manikya v. Secretary of State for India, in Council and it was there decided that such payments were assessable to income-tax. Doubts having been raised as to the correctness of that decision the matter has been referred to the Full Bench. Agricultural income is not assessable to income-tax under the Income Tax Act, in which Act such income is defined as rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in British India or subject to a local rate assessed and collected by officers of Government as such and the land in the present case in respect of which nazar was paid was a part of a permanently settled estate which is subject to road-cess. It is admitted by the learned Standing Counsel who appeared for the Secretary of State that nazar is revenue but he argues that although it is revenue it is not revenue derived from land but from the transaction, that is, from the recognition of the transfer and that it is an incident of the transfer and not of the tenancy and therefore does not flow from the land.
In the case of Birendrakishor Manikya v. Secretary of State for India in Council the learned Judge who delivered the judgment of the Court referred to the definition of revenue in the Oxford Dictionary as “the return, yield, or profit of any land, property or other important source of income; that which comes into one as a return from property or possessions, specially of an extensive kind; income from any source specially of an extensive kind; income from any source but specially when large and not directly earned.”
The conclusion seems to me irresistible that if it is admitted, as I think it is rightly admitted, that nazar is revenue it is profit of the land and that it flows therefrom or from the ownership thereof but in Birendrakishor Manikya v. Secretary of State for India in Council it is said that this is not so and that it cannot be deemed the return, yield, or profit of any land but that it is money paid by the transferee to the landlord to purchase peace, so that he may not contest the validity of the transfer.
This no doubt is true but it seems to me to ignore another aspect altogether, namely, that it is money which comes to the landlord by virtue of the fact that he is the owner of the land. Viewed in this light it clearly is derived from the land and is agricultural income within the definition thereof contained in the Income Tax Act and as such exempt from assessment to income-tax under that Act.
I would therefore answer the question referred to the Full Bench by saying that nazar or selami paid by a tenant to a landlord for the recognition of a non-transferable holding is rent or revenue within the meaning of the expression as it occurs in sec. 2(1)(a) of the Indian Income Tax Act (Act XI of 1922) and that it is exempt from assessment to income-tax by virtue of the provisions of sec. 4(1)(viii) of the same Act.
It follows that in my view the decision in Birendrakishor Manikya v. Secretary of State for India in Council in so far as it holds to the contrary is not correct.
This judgment will be forwarded to the Commissioner of Income-tax.
C.C Ghose, J.:— I agree with my learned brother Mr. Justice Greaves in the view which he has taken.
B.B Ghose, J.:— I agree in the opinion expressed by my learned brother Mr. Justice Greaves.
Mukerji, J.:— I also agree in the judgment delivered by my learned brother Mr. Justice Greaves,
P.D
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