COMMISSIONER OF INCOME TAX Vs. RAJA BAHADUR KAMAKHAYA NARAYAN SINGH
HIGH COURT OF PATNA
COMMISSIONER OF INCOME-TAX
RAJA BAHADUR KAMAKHAYA NARAYAN SINGH
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(1.) There is a diversity of judicial opinion as to the correct answer to the question whether interest on arrears of rent payable for land used for agricultural purposes is "rent or revenue derived from land." The High Court of Calcutta (cf. In re Manager, Radhika Mohan Roy Ward's Estate (1941) A.I.R. (Cal.) 443) and the High Court of Madras (cf. Pethaperumal Chettiar v. Commissioner of Income-tax I.L.R.  M. 322) have answered this question in the negative. The High Court of Allahabad (cf. Sarju Bai v. Commissioner of Income-tax (1947) 15 I.T.R. 137) and the High Court of Patna (cf. Srimati Lakshmi Daiji v. Commissioner of Income tax (1944) 12 I.T.R. 309 and the cases here under review) have answered it in the affirmative. This difference of opinion is not surprising for, as Braund J. truly points out in Sarju Bai v. Commissioner of Income-tax (1944) 12 I.T.R. 309 the matter is almost one of first impression. The observation of Braund J. has as its background the fact that: none of the other provisions of the Income-tax Act throws any light on the construction or meaning of the definition. The point therefore lies within a very small compass. The conflicting points of view are put with clarity in the judgment of Braund J. in Sarju Bai v. Commissioner of Income-tax 15 I.T.R. 144-5 where he expresses himself as follows: "The argument on the one hand is that interest payable (whether by statute or not) on arrears of rent which have already become a debt due is not referable in any way to the agricultural relationship as landlord and tenant, but is attributable solely to their character as creditor and debtor it is said that interest is in its nature merely that commercial compensation which either the accepted practice of business or in some cases the legislature has adopted to see that a creditor does not suffer from the default of his debtor. That, it is said, has nothing whatever to do with the relationship of landlord and tenant and, therefore, is not in any way derived from the agricultural land which is the subject matter of the tenancy. That is one way of putting it. The other way of putting it is that interest on arrears of rent is some thing which in this case has been introduced by the United Provinces Tenancy Act as a condition of the relationship between landlord and tenant. Arguing from that, it is said that, whether or not such interest can be strictly classified as rent, if certainly can be classified as coming within the larger expression revenue which forms part of the definition of agricultural income. It will be remembered that the definition speaks of any rent or revenue derived from land Those who put it in this way say that such interest, when received, has its origin in the tenancy, because, if there had been no tenancy, there would have been no arrears of rent and if there had been no arrears of rent, there would have been no statutory interest. Following this sequence of causes, they say that it is obvious that interest in circumstances such as these, must be classified as 'revenue derived from land."
(2.) The interest clearly is not rent. Rent is a technical conception, its leading characteristic being that it is a payment in money or in kind by one person to another in respect of the grant of a right to use land. Interest payable by statute on rent in arrear is not such a payment. It is not part of the rent, nor is it an accretion to it, though it is received in respect of it. Equally clearly the interest on rent is revenue, but in their Lordships' opinion it is not revenue derived from land. It is no doubt true that without the obligation to pay rent-and rent is obviously derived from land-there could be no arrears of rent, and without arrears of rent there would be no interest. But the affirmative proposition that interest is derived from land does not emerge from this series of facts. All that emerges is that as regards the interest, land, rent and non-payment of rent stand together as cause sine quibus non. The source from which the interest is derived has not thereby been ascertained. The word "derived" is not a term of Article Its use in the definition indeed demands an inquiry into the genealogy of the product. But the inquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition. There is no commercial connexion between the interest and the rented land, an effective source-not land-has become apparent. These considerations supply a negative answer to the question posed, subject to an entirely different point taken by the respondents.
(3.) It was stated-and the statement was not disputed--that for a considerable period income-tax authorities had not treated interest on rent in arrears as taxable, and that in their manuals published from time to time this view was openly stated. In their view such interest fell within the definition of agricultural income. The Income-tax Act, 1922, had in that period been amended from time to time without a change in the definition of agricultural income. Their Lordships were asked to make the inference that the definition had thereby obtained the meaning attributed to it by the income-tax authorities and that the legislature must be taken to have adopted the definition in the sense in which the income-tax authorities had understood and applied it. The observations of Lord Macnaghten in Pemsel's case  A.C. 531, 591 and of their Lordships in Burah's case (1877) I.L.R. 3 C. 63 were relied on. Their Lordships are unable to accept this contention, for the reason that they are unable to draw from the facts brought to their attention the inference that the legislature had by the repetition of the debated phrase adopted the meaning attributed to it by the taxing authorities. There is, indeed, no evidence that the legislature was aware of the practice1, and their Lordships are not prepared to make the assumption that a practice purporting to give effect to a definition has resulted in the creation of such a generally received meaning embodying that practice as would justify the inference that the attributed meaning has been silently adopted by the legislature.;
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