Harries, C.J:— This is a case stated by the Bihar Board of Agricultural Income-tax in which answers to the following questions are requested:—
“(1) Whether in view of paragraph 21 of the Will of the late Maharaja Sir Badha Prasad Singh, the direction to spend the sum of Rs. 32,400 for certain charitable and religious objects constitutes a binding trust within the meaning of section 8, Bihar Agricultural Income-tax Act, upon all holders of the Dumraon Raj including the assessee.
(2) Whether the amount of interest charged on arrears of rent is rent within the meaning of the Bihar Agricultural Income-tax Act so as to entitle the assessee to claim a deduction as provided under section 6(c) of the Act.”
The assessee is the Maharaja Bahadur Ram Ran Vijay Prasad Singh, who is the present holder of the Dumraon Raj, which is an impartible estate.
On the 17th day of December, 1890, the then holder of the Dumraon Raj, Maharaja Sir Radha Prasad Singh Bahadur, made a Will by which he appointed his wife and the Dewan of the estate Executrix and Executor thereof. At the date of this Will the Maharaja had no son, and in the event of no son being born to him he empowered his wife, if she survived him, to adopt a son. He left the property subject to certain legacies to his wife for life with the remainder to the son to be adopted by her. The wife survived the Maharaja and purported to adopt a son; but on her death this adoption was challenged by the nearest reversioner who claimed the estate on failure of the Will. The question was litigated and was compromised. By the compromise decree the adoption was held to be invalid and the child who had been so adopted was given a large sum of money. The reversioner, who challenged the adoption, therefore, obtained possession of the estate. The present assessee is a son of the reversioner who so acquired possession of the estate. The present assessee, therefore, does not hold the property under the terms of the Will.
It appears that the late Maharaja Sir Radha Prasad Singh and his predecessors had from time to time established various religious, charitable and educational institutions, and the Maharaja like his predecessors was maintaining these institutions at the time of his death. By paragraph 21 of his Will the testator provided as follows:—
“My predecessors and I have from time to time established and I at present support various religious and charitable and educational institutions in various parts of the country and it is my wish and I direct my Executrix and Executor and whoever may be in the enjoyment of my property either as my heir or under the provisions of this my Will, do preserve and maintain and support such institutions in the manner I am doing and to avoid all difficulty in the matter I have annexed hereto a schedule giving the names of the institutions aforesaid and the amount which I spend yearly for their respective support.”
Annexed to the Will is schedule B giving a list of such religious, charitable and educational institutions. In this list certain institutions are expressly named, and the sums annually granted to them are set out. Other institutions are described generally and the total amount granted to them is stated. Under the heading of “Dispensaries” there is an item “Other dispensaries” without further specification for which a sum of Rs. 600 was annually granted. Under the heading “Educational Institutions” is an item “Subscriptions to other schools” amounting to Rs. 1,200. There is also another general item “Other charities” for which a sum of Rs. 3,000 was granted.
It is found that the present assessee does maintain the religious, charitable and educational institutions named in the schedule and does in fact spend more on these institutions than the total sum stated in the schedule to have-been spent by the testator, namely, Rs. 32,400.
The present Maharaja claimed before the Income-tax authorities that the sums spent by him on these religious and charitable purposes were exempt from agricultural income-tax by reason of section 8, Bihar Agricultural Income-tax Act. He contended that this income was derived from land held by him on trust for public purposes of a charitable or religious nature. The Income-tax authorities have come to the conclusion that the direction in the Will to which I have referred does not create a trust but is only an expression of a pious hope or wish of the testator. That being so, the taxing authorities have refused to exempt from taxation the actual sum spent by the Maharaja on these institutions or indeed any sum expended on such institutions. These are the facts which give rise to the first question set out in the case.
It will be convenient to deal with these questions separately, and I will first deal with the question whether the assessee is entitled to exemption from taxation on the amount spent by him in accordance with the terms of the Will.
Exemption from taxation is claimed under section 8, Bihar Agricultural Income-tax Act, 1938, which is in these terms:—
“(1) Where the assessee is a trustee and the trust under which he holds is a trust, created before the commencement of this Act, for public purposes of a charitable or religious nature, any income applied, or finally set apart for application, to any public purpose of a charitable or religious nature in accordance with the terms of the trust subject to which he holds the property from which such agricultural income is derived, shall not be included in the total agricultural income of such assessee.
(2) In this section purposes of a charitable nature include relief of the poor, education, medical relief and advancement of any other object of general public utility.”
From this section it is clear that the assessee is only exempt from taxation if he is a trustee of a trust created before the commencement of the Act and if such trust is for public purposes of a charitable or religious nature. In the present case the assessee alleges that he is such a trustee, and, therefore, the income which he applies to charitable and religious objects is exempt from taxation under this section.
On behalf of the Income-tax authorities it was contended that the Maharaja is not a trustee and does not hold under a trust.
A trust is defined in section 3 of the Indian Trusts Act (Act II of 1882) in these terms
“A ‘trust’ is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.”
The question to be determined is whether clause 21 of the Will, which I have already set out, creates a trust. By that clause the testator directs his executrix and executor and whoever may be in the enjoyment of his property either as his heir or under the provisions of the Will, to preserve, maintain and support the charitable and religious institutions which are set out in schedule B to the Will. It is to be observed that no land is set apart for the maintenance and support of these institutions. Neither is the income from any particular property earmarked for such objects. Paragraph 21 of the Will merely enjoins the executrix and the executor or others who may enjoy the property to perform the obligations which had been performed by the testator's predecessors and which were being performed by the latter at the date of the Will. The actual words used by the testator are:
“it is my wish and I direct my Executrix and Executor and whoever may be in the enjoyment of my property either as my heir or under the provisions of this my Will, do preserve and maintain and support such institutions in the manner I am doing………….”
The Income-tax authorities have held that this clause is merely an expression of a pious wish of the testator that those following him should carry on the charitable and religious work which he had been and was actually doing. In my judgment, the view of the Income-tax authorities cannot be assailed.
According to the definition in the Indian Trusts Act, a trust is an obligation annexed to the ownership of property, and in my view paragraph 21 of the Will does not annex any obligation to the ownership of the Dumraon Raj or to any portion thereof. Had the income from any specific property been set aside for the maintenance of the charitable and religious institutions referred to in the Will, it could be said that an obligation to maintain such institutions was annexed to the ownership of that particular property. If this paragraph creates a trust, then it must be held that the owner of the Dumraon Raj for the time being holds the whole of the Raj property in trust to maintain and support these institutions; but in my view such a construction cannot be placed on the Will. The other paragraphs of the Will make it clear that the devisees were intended to take the property absolutely, and apart from paragraph 21 there is no suggestion that they were to take the property as trust property. It is true that a grantor or a testator need not use the word “trust” to create a valid trust; but in order to create such a trust words must be used which make it clear that the land granted or devised is to be held by the grantee or devisee on trust. In other words, the terms of the grant or Will must make it clear that an obligation is actually annexed to the ownership of the land. Taking the Will as a whole, I am unable to hold that it was the testator's intention that the beneficiaries under the Will should hold the whole Raj in trust for these religious and charitable objects.
Mr. P.R Das has urged that the use of the words “I direct” by the testator indicates that he was expressing something more than a mere pious wish. A word like “direct” may, in certain circumstances, actually create a trust, but the phrase actually used is “it is my wish and I direct” and the word “direct” cannot be divorced from its context. Unless the Will can be construed as devising the whole estate upon trust, which, in my view, it cannot, then paragraph 21 amounts only to a pious wish of the testator which has been scrupulously observed by the assessee, the present Maharaja.
Mr. P.R Das relied upon a passage in Underhill's Law of Trusts and Trustees, Eighth Edition, at page 17, in which the learned author observed:—
“(1) No technical expressions are needed for the creation of an express trust. It is sufficient if the settlor indicates an intention to create a trust, and points out with reasonable certainty—
(a) the trust property;
(b) the beneficiaries; and
(c) the purpose of the trust.
(2) Whether an intention to create a trust is sufficiently indicated is in each case a question of interpretation, and may even be inferred from the context.”
In the present case the purpose of the alleged trust is indicated with reasonable certainty and certainly a number of the beneficiaries are so indicated. In my view, however, no trust property is indicated with reasonable certainty or at all, and that being so, it cannot be said that the Will creates a binding trust. In my judgment, therefore, the assessee is not a trustee holding under a trust, and that being so, the income in question is not entitled to exemption under section 8(1), Bihar Agricultural Income-tax Act.
On behalf of the Taxing authorities it was contended that even if a trust had been created by this Will it was not a trust for public purposes of a charitable or religious nature, though it might be a trust for a charitable or religious nature. It was also contended that the present assessee could not possibly be bound by the trust if indeed there was one because he was holding not under the Will but as a successor to the nearest reversioner on failure of the provisions of the Will. Holding as I do that the Will does not create a trust, it is unnecessary to consider further these questions raised by the learned Advocate-General.
For the reasons which I have given, I would answer the first question submitted in the negative.
The second question raises the question as to what is meant by “rent”. The question arises in this way. In the return in question made by the assessee he claimed a deduction of Rs. 1,73,911-1-7 on account of collection charges under section 6(c), Bihar Agricultural Income-tax Act, which provides that a sum equal to 12½ per cent, of the total amount of the rent which accrued due in the previous year may be deducted in respect of the charges for collecting the same. The assessee had claimed a deduction of 12½ per cent, not only on the rent which had accrued due in the previous year but also on interest which had accrued on such rent. The Income-tax authorities allowed a deduction of 12½ per cent, on the actual amount of rent which fell due in the previous year and disallowed any percentage on the interest thereon. Accordingly Rs. 1,66,508 was allowed as collection charges as against Rs. 1,73,911-1-7 claimed by the assessee. The question to be determined is whether the word “rent” as used in section 6(c), Bihar Agricultural Income-tax Act, includes interest which has accrued thereon.
Mr. P.R Das who appeased for the assessee contended that in Bihar the word “rent” means not only the actual rent fixed but also interest thereon. He has pointed out that by section 67, Bihar Tenancy Act, an arrear of rent shall bear simple interest at the rate of six and a quarter per centum per annum and that such interest shall be payable, in the case of a money rent, from the expiry of that quarter of the agricultural year in which the instalment falls due, and shall be payable up to the date of payment or of the institution of a suit, Whichever date is earlier. The contention for the assessee was that by reason of section 67, Bihar Tenancy Act, the actual agreement by a tenant is to pay on the due date the amount actually fixed as rent; but if he does not do so, he agrees to pay not only that sum but interest thereon, and when he actually pays, what he does pay is rent in the true sense and not the actual money rent fixed with interest thereon.
Mr. Das pointed out that there is no distinction drawn in the Bihar Tenancy Act between “rent” and “interest”. Section 65 of the Bihar Tenancy Act provides that
“where a tenant is a permanent tenure-holder, a raiyat holding at fixed rates or an occupancy raiyat, he shall not be liable to ejectment for arrears of rent, but his tenure or holding or part of his holding shall be liable to sale in execution of a decree for the rent of the tenure or holding, and the rent shall be a first charge on the tenure or holding.”
Mr. Das argued that a holding is liable to be sold not only for the actual rent fixed but for such rent with interest thereon, and a decree obtained for such is in the true sense a rent decree, though part of the decretal sum may consist of interest. Mr. Das also pointed out that under section 169, Bihar Tenancy Act, the decree-holder on sale of the holding obtains not only the rent but interest thereon, and, therefore, according to Mr. Das interest must be regarded as part of the rent.
Great reliance was placed on behalf of the assessee on the case of Ram Lal Das v. Bandiram Mukhopadhya in which it was held that as soon as rent falls due and is not paid, it becomes an arrear under section 54, Bengal Tenancy Act, and carries interest under section 67 of the Act. The money payable as interest, therefore, became part of the rent, and the Legislature could never have intended in section 169(1)(c) to exclude interest accruing upon the rent and to put the decree-holder under the necessity of bringing a fresh suit for interest only.
Section 169(1)(c), Bihar Tenancy Act, provides that if there is a balance after payment to the decree-holder of the costs and the decretal amount there shall also be paid to the decree-holder therefrom any rent which may have fallen due to him in respect of the tenure or holding between the institution of the suit and the date of the confirmation of the sale. The Calcutta Bench decision to which I have referred held that the decree-holder was entitled under section 169(1)(c) not only to the actual rent which had fallen due to him between the institution of the suit and the date of the confirmation of the sale but also interest upon such rent as provided by the statute. Mr. Das contended that this decision is a clear authority for the proposition that rent does include interest.
It must be observed that there is no definition of “rent” in the Bihar Agricultural Income-tax Act, and the word must, therefore, be given its ordinary meaning. Mr. Das urged that it must be given the meaning which it has in the Bihar Tenancy Act, because the Agricultural Income-tax Act is an Act applicable to Bihar, and it must be assumed that the Legislature intended to give the word “rent” the same meaning in the Income-tax Act as it has in the Bihar Tenancy Act. This is a somewhat dangerous argument because it must be remembered that in this province two Tenancy Acts are applicable. In Chota Nagpur there is the Chota Nagpur Tenancy Act, whereas the Bihar Tenancy Act applies to the remainder of the province. Fortunately for Mr. Das's argument there is little difference between the definitions of “rent” contained in the two Acts, but they might have been very different. In such a case would the Court give to the word “rent” the meaning given to it in the Bihar Tenancy Act or in the Chota Nagpur Tenancy Act? It is to be observed that though “rent” is defined in the Bihar Tenancy Act it is only defined for the purposes of that Act. In my judgment, the word “rent” appearing in section 6(c), Bihar Agricultural Income-tax Act, must be given its ordinary meaning.
The Shorter Oxford Dictionary gives the meaning of “rent” as follows:—
“The return or payment made by a tenant to the owner or landlord, at certain specified or customary times, for the use of lands or houses.”
From this definition it is clear that interest does not form part of the rent. What is rent is the return or payment made by a tenant to the owner or landlord, at certain specified or customary times, for the use of lands or houses. That return or payment is fixed by agreement, and what is to be paid at certain specified or customary times is the rent. If the amount is not paid on due date, there may be an agreement for payment of interest or a statute might allow interest to be charged; but such, in my view, would not alter what was actually payable as rent. The interest charged is the return which the landlord receives for being deprived of his money when it had become due and payable to him. Where a contract or statute provides that interest is payable on an arrear of rent, that cannot mean that the rent is actually increased. It merely means that the tenant must pay an additional sum for being allowed to retain the money which has become due as rent to the landlord.
It is frequently provided in mercantile transactions that any sum due by a purchaser to a seller should bear interest if such sum is not paid on due date. Can it be said that if the purchase price of an article is not paid on due date, the price increases because of the provision as to payment of interest? In my view, it cannot. Neither can it be said that the rent of a holding increases by reason of the failure of the tenant to pay his dues at the proper time. If the ordinary definition of “rent” be accepted, it is, in my view, clear that it does not include any interest which a contract or statute may provide in case of non-pay-ment on due date.
Even if the word “rent” as used in the ‘Agricultural Income-tax Act, be given the same meaning as that given to it in the Bihar Tenancy Act, yet the word would not, in my view, include interest.
For the purposes of the Bihar Tenancy Act “rent” is defined in section 3, sub-section (5), in these terms:—
“‘rent’ means whatever is lawfully payable or deliverable in money or kind by a tenant to his landlord on account of the use or occupation of the land held by the tenant:
In sections 53 to 67, both inclusive, sections 72 to 75, both inclusive, Chapter XII, Chapter XIII and Schedule III of this Act, “rent” includes also money recoverable udder any enactment for the time being in force as if it was rent;”
It will be seen from this definition that “rent” includes also money recoverable under any enactment for the time being in force as if it was rent. It was suggested that as interest on arrears of rent is recoverable under the Bihar Tenancy Act as rent it must be treated as rent.
In my view, however, when the various provisions of the Act are considered, it is clear that rent does not include interest. It is true that section 67, Bihar Tenancy Act, provides that an arrear of rent shall bear simple interest at the rate of 6 per cent, per annum; but it does not say that such interest will form part of the rent. In fact a later provision makes it abundantly clear that interest on arrears does not form part of the rent. Section 161 is a definition section for the purposes of Chapter XIV, Bihar Tenancy Act, which deals with sales for arrears under a decree, and sub-section (c) of that section provides that the terms “arrears” and “arrears of rent” shall be deemed to, include interest decreed under section 67. The very fact that the term shall be deemed to include interest conclusively establishes that but for that sub-section it would not include interest. In short, it is only by reason of sub-section (c) of section 161 that a holding can be sold under a rent decree for rent and interest. This sub-section makes it abundantly clear that “interest” does not in fact form part of the arrears of rent but is only deemed to be so for the purposes of the Act. That being so, even if the word “rent” is given the meaning attributed to it in the Bihar Tenancy Act, yet it will not include interest. The view, which I have taken, is the view which has been accepted in a number of cases under the Bengal Tenancy Act which is similar to the present Bihar Tenancy Act. In Kaylash Chandra De v. Tarak Nath Mandal it was held that rent did not include interest, and the same view was taken by another Bench of the Calcutta High Court in Sheikh Eusuf v. Jitendra Nath Roy in which it was held that interest payable on rent either under a contract or under the law is not rent as defined in the Bengal Tenancy Act and a separate suit for interest only is not maintainable as a rent suit under the Bengal Tenancy Act. A similar view was taken by a Bench of the Calcutta High Court in a very recent decision in Manager, Radhika Mohan Roy Wards Estate, In re in which it was held that interest on arrears of rent realised under section 67, Bengal Tenancy Act, was not agricultural income within the meaning of section 2(1)(a), Indian Income-tax Act. It is neither ‘rent’ nor ‘revenue’ derived from land. In Bihar it has been held that interest on rent may be revenue derived from land; but in my view there is no doubt whatsoever as to the correctness of this decision that interest on arrears of rent is not rent.
The case of Ram Lal Das v. Bandiram Mukhopadhya relied upon by the assessee is really not an authority for the proposition that ‘rent’ includes interest. It merely held that in section 169, clause (c), the word ‘rent’ must include interest, and it is to be observed that the Bench, in arriving at the decision it did, placed reliance upon section 161, clause (c), which provided that the terms ‘arrear’ and ‘arrears of rent’ shall be deemed to include interest decreed under section 67.
In my view, the word ‘rent’ appearing in section 6(c), Bihar Agricultural Income-tax Act, means rent only and does not include interest, and, therefore, an assessee is only entitled to deduct in respect of collection charges twelve and a half per cent, of the total amount of the rent which accrued due in the previous year and in arriving at that total all interest must be excluded.
For these reasons I would answer the second question submitted in the negative.
The answers to the two questions submitted being in the negative and contrary to the contentions of the assessee, the latter must pay the costs of these proceedings, and I would assess the hearing fee at ten gold mohurs.
Fazl Ali, J.:— I agree.
Manohar Lall, J.:— I agree.
S.A.K
Answer accordingly.
section 169(1)(c)