Russell, J. -
(1.) THE appellant appeals from a judgment of the High (Court of Judicature at Patna on a reference under Section 66 (2) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act ). THE question for decision may be stated to be whether the appellant is assessable to income-tax and super-tax in respect of an annual sum of Rs. 2,40,000 payable to him during his life pursuant to a covenant contained in the indenture hereinafter mentioned.
(2.) THE appellant was the owner of an estate in British India known as the Nine Annas Tekari Raj. He had a daughter who had married a son of Rani Bhubaneshwari Kuar (hereinafter referred to as the Rani ).
By an indenture, dated March 29, 1930, and made between the appellant of the one part and the Rani of the other part, the appellant conveyed the greater portion of his said estate to the Rani for the valuable consideration therein appearing. The indenture recites among other facts that the appellant was absolute owner of the estate, and that, for the purpose of discharging certain of his debts and of obtaining for himself an adequate income, he had agreed with the Rani for the absolute sale and transfer to her of that portion of his said estate described in the first schedule, in consideration of the Rani covenanting to pay the said debts (which amounted in fact to a sum of over Rs. 10,00,000) and to pay to him a sum of Rs. 4,73,063 in cash to meet the expenses of his daughter's marriage and other urgent necessities, and further covenanting to pay him annual sums during his lifetime of Rs. 2,40,000 in manner thereinafter appearing, such payment being secured by a charge upon the property thereby transferred. By the operative part of the indenture it was witnessed that in pursuance of the said agreement and in consideration of the sum of Rs. 4,73,063, paid to the appellant, and in further consideration of the covenant by the Rani for payment to the appellant during his lifetime of the annual sum of Rs. 2,40,000 by six instalments, and also in consideration of the covenant to pay and indemnify the appellant in respect of the said debts, the appellant assigned the hereditaments therein described unto the Rani absolutely. The indenture contained a covenant by the Rani with the appellant for payment to him, during his lifetime, of the yearly sum of Rs. 2,40,000 by six equal instalments, with interest at twelve per cent, per annum on any overdue instalment, and to pay the said debts and to keep the appellant indemnified against all suits, actions and proceedings whatsoever in respect of the said debts or any of them.
This indenture does not itself contain any charge on the estate of the annual sums covenanted to be paid ; but their Lordships were informed and the case proceeded upon the footing that the stipulated security had been given by a separate document.
(3.) THE taxing authorities in assessing the appellant in respect of the year 1931-1932 included in his assessable income the following item :-" Other sources, annuity, Rs. 2,40,000," being the sum received by him in pursuance of the Rani's covenant. THE appellant contends that no part of this receipt should be included, (1) because, being merely an instalment of the purchase price payable on the sale of his estate, it is not an annuity but a capital sum ; alternatively (2) because even if it be an annuity it is not taxable, because it does not fall within the description of what is taxable under the Act; and in the further alternative (3) because even if it would otherwise fall within such description, it is " agricultural income " and as such specifically excepted from the operation of the Act.
The relevant provisions of the Act are the following : 2.In this Act, unless there is anything repugnant in the subject or context, (1) 'agricultural income' means (a) any 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 ;. . . 3. Where any Act of the Indian Legislature enacts that income-tax shall be charged for any year at any rate or rates applicable to the total income of an assessee, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of all income, profits and gains of the previous year of every individual, Hindu undivided family, company, firm and other association of individuals. 4. i) Save as hereinafter provided, this Act shall apply to all income, profits or gains, as described or comprised in section 6, from whatever source derived, accruing, or arising, or received in British India, or to be deemed under the provisions of this Act to accrue, or arise, or to be received in British India. (2 ). (3) This Act shall not apply to the following classes of income : (viii) Agricultural income. 6. Save as otherwise provided by this Act, the following heads of income, profits and gains, shall be chargeable to income-tax in the manner hereinafter appearing, namely ; (i) Salaries. (ii) Interest on securities. (iii) Property. (iv) Business. (v) Professional earnings. (vi) Other sources. 7.(1) The tax shall be payable by an assessee under the head 'salaries' in respect of any salary or wages, any annuity, pension or gratuity, and any fees, commissions, perquisites, or profits received by him in lieu of, or in addition to, any salary or wages, which are paid by or on behalf of Government, a local authority, a company, or any other public body or association, or by or on behalf of any private employer :. 12.(1) The tax shall be payable by an assessee under the head ' Other sources' in respect of income, profits and gains of every kind and from every source to which this Act applies (if not included under any of the preceding heads ). (2) Such income, profits and gains shall be computed after making allowance for any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of making or earning such income, profits or gains, provided that no allowance shall be made on account of any personal expenses of the assessee.;