COMMISSIONER OF INCOME-TAX Vs. SIR KAMESHWAR SINGH

JUDGEMENT

(1.) THE present appeal arises from an assessment to income-tax made upon the respondent for the year 1929-30, and the only question before their Lordships relates to an item of Rs. 91,283 included in the assessment. THE appellant maintains that this item, the receipt of which is admitted, forms part of the taxable profits or gains of the business of moneylending carried on by the respondent; the respondent maintains, and the High Court has held, that it is "agricultural income " within the meaning of the Indian Income-tax Act and consequently exempt from income-tax.

(2.) IN order to determine which of these contentions is right, it is necessary to describe briefly the transaction out of which this item of receipt arose. It appears that in 1929 the respondent's father, who carried on an extensive moneylending business, made a loan of eighteen and a half lacs of rupees, with the sanction of the High Court at Patna, to Thakurain Kusum Kumari, widow and administratrix of the late proprietor of the estate of Lachmipur. The transaction was embodied in two indentures both dated February 3, 1929. The respondent's father died on July 3, 1929, and the respondent has succeeded him as his eldest son and heir and as his successor in business.

(3.) THE legal position occupied by the respondent's father and now by the respondent in relation to the Lachmipur properties, as the result of the transaction embodied in the two indentures, is thus stated by the learned Chief Justice (Courtney Terrell): THE mortgagee lessee was to be in possession of both properties, and, in his relation to the cultivators of the soil he stood in the position of landlord, dealing directly with them and collecting the rents. He had moreover to pay the Government revenue, cesses and taxes and his name was registered in the Land Registration Department. He alone was able to sue for rent whether current or arrears, to sue for enhancement or for ejectment and was able to settle lands with raiyats and tenants in all the properties, in fact he was in a position to take all proceedings which the mortgagor would have been able to take in the ordinary course if the lands leased and mortgaged had remained in her khas possession. It was not indeed disputed that the rents payable in respect of both properties were rents " 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 rents thus come within the definition of "agricultural income" in Section 2 (1) (a) of the Indian Income-tax Act:, and the "thika profits " or profit rental of Rs. 91,283, forming part of the rents, are therefore " agricultural income " within the statutory meaning. That being so, the respondent relies on Section 4 (3) of the Indian Income-tax Act which in terms provides that "this Act shall not apply to the following classses of income. . . (viii) agricultural income. "