Commissioner Of Income-Tax, Bihar And Orissa v. Dhaneshwardhar Misra Opposite Party.

Harries, C.J:— This is a reference under Section 66(2) of the Income-tax Act, made by the Commissioner of Income-tax. The question propounded by the Commissioner is as follows:

Whether the allowance made to the assessee in accordance with the order Ex. B and transfer, to him in accordance with the letter Ex. C, is agricultural income within the terms of Section 2(1) of the Income-tax Act.

2. The assessee is the adopted son of the late Mt. Moharmani Kuar. It appears that an ancestor of the assessee had in the past rendered some service to the Bettiah Raj. In consideration of these services the Raj had for many years given a thikadari lease of certain villages at a comparatively favourable rent to this ancestor and afterwards to his descendants. It appears that from time to time the lands had been temporarily resumed by the Raj and the rent had on occassions been slightly increased; but throughout a long period of years the Raj had recognized the claims of the descendants of the original lessee to favourable consideration. Mt. Moharmani Kuar as a widow succeeded to the thikadari lease then in existence in the year 1906 and that lease expired in the year 1919. In that latter year the Bettiah Estate was under the management of the Court of Wards, and the Court of Wards conceded that the widow as a member of this family had some indeterminate claim to consideration from the Raj.

3. The Court of Wards however were firmly of opinion that the widow was an undesirable lessee and at that time the present assessee was a minor, In those circumstances the Court of Wards decided that they would resume the lands and declined to give the widow a new lease; but in recognition of her claim to “consideration” the Court of Wards gave to the widow an annual allowance of Rs. 4500, which the Court thought to be the probable amount of profit-which she would have derived had she been given a renewal of the lease at the past rental levels. The order included an expression of opinion that when the widow's adopted son came of age he would be offered a renewal of the lease on similar favourable terms to those enjoyed hitherto. No application was ever made by the assessee for a new lease and in the year 1936 the widow died. Application was made by the assessee for payment of this allowance to him, and this was sanctioned. The income-tax authorities now claim to tax this annual sum of Rs. 4500, but the assessee claims that such sum is not liable to income-tax as it is in fact and in law agricultural income within the meaning of Section 2(1) of the Income-tax Act.

4. In my judgment this annual payment of Rs. 4500 made to the assessee cannot possibly be regarded as agricultural income, it is not derived from any lands. It is in fact an annual ex gratia payment made by the Bettiah Raj to the assessee in consideration of some services rendered by an ancestor of his in the remote past. In order to determine whether the income is agricultural income or not regard must be had to the source of such income. Mr. Majumdar, who has said all that can be said on behalf of the assessee, has urged that the source of this income is the land which had previously been the subject of thikadari leases. He has contended that though the last lease came to an end in 1919 the Court of Wards never resumed possession but only resumed management. It is clear from Ex. B which is the order granting this allowance that the Court of Wards declined to grant a new lease and entered into possession of the property, and the sum of Rs. 4500 per annum is granted to the widow in lieu of the profits which she would have made if she had continued as lessee. In the order of the Board of Revenue it is true that it is stated that the Court would resume khas management; but what is meant is that the Court was resuming possession on the expiry of the lease. Mr. Majumdar has referred the Court to a letter from the Manager of the Bettiah Estate to the Collector of Champaran, dated 30th July 1919, and that letter makes it clear that the intention of the Court of Wards was to resume possession and to give the lady a personal allowance as she was no longer a lessee. The source of the income in this order of the Board of Revenue, and in my view this annual sum is in the nature of an ex gratia payment and is not derived from land. In my view the annual sum is not agricultural income, and I would answer the question referred to this Court by the Commissioner of Income-tax in the negative. The assessee must pay the costs of this reference which we assess at Rs. 200. The sum of Rs. 100 already deposited in Court will go towards the sum of Rs. 200 awarded as costs.

Manohar Lall, J.:— I agree.

G.N/R.K

5. Answer accordingly.