BRAUND, J. - (1.) -
(2.) WE have before us three references by the Income-tax Appellate Tribunal under Section 66 of the Indian Income-tax Act. The three references raise between them two questions and we need not for this purpose distinguish between the three references. It is sufficient to say that the references relate to a lady called Mst. Sarju Bai, who apparently lived at Jhansi and there owned a very considerable area of land situated in the civil station. It is out of her transactions in respect of this property that these questions have arisen in relation to the assessment year 1939-40 and 1940-41. I propose to deal with the two questions quite separately. The first one is a very simple question indeed. In the assessment of the year 1939-40 the Income-tax Officer included as against the assessee a sum of Rs. 365 in respect of interest on arrears of rent due by the assessees agricultural tenants. It is common ground that such interest was charged and was received and the only question is whether it constituted "agricultural income" within the meaning of the definition contained in Section 2 (1) (a) of the Indian Income-tax Act. Of that definition there are only six material words, as far as we are concerned, and those are the words "rent or revenue derived from land," within which in this case the interest in question would have to come if it is to stand any chance of being classified as agricultural income and, therefore, being held to be exempt from income-tax. The Income-tax Officer assessed her to tax on this sum and the Assistant Income-tax Commissioner up held the assessment. In due course she appealed to the Income-tax Tribunal which held that the sum of Rs. 365 in question was "agricultural income." Finally a question was framed and submitted to us in this form :- "Whether the sum realized by the assessee on account of interest on arrears of rent of agricultural land is agricultural income within the meaning of Section 2 (1) of the Income-tax Act and as such exempt from tax under Section 4 (3) (vii) of the said Act." It has to be observed that under the United Provinces Tenancy Act by Section 146 it is made a statutory attribute of arrears of rent that they shall carry interest. It can, therefore, be said, for what it may be worth, that if is statutorily inherent in the character of rent under the United Provinces Tenancy Act is that it shall carry interest when in arrear. That is a material consideration since it and similar provisions of other relevant Acts have formed the basic of discussion in a good many of the cases to which we have been referred. 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 something 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, it 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." The case is almost one of first impression, although a number of Courts have exercised their minds in this matter. There are at least two decisions of the High Court at Patna which take a view favourable to the assessee and hold that interest on arrears of rent can be classified as agricultural income. The first of these case is that of Sri Ramchandra Dev v. Commissioner of Income-tax, Bihar and Orissa. This was decided in 1942 and the learned Chief Justice and Mr. Justice Manohar Lall of the Patna High Court, considering the question in relation to the same section of the Indian Income-tax Act as I am now dealing with, took the view that interest on arrears of mustajiri rent received in default of punctual payment, formed part of the agricultural income of the assessee. The second of the two cases is the still more recent one of Srimati Lakshmi Daiji v. Commissioner of Income-tax in which again the same question was considered and decided in the same way. In this case, however, the learned Judges took the rather wider view, which with great respect I am inclined to think is the right view, that interest in a case like this falls to be considered not as rent but as revenue derived from the land on the ground that it has its source in the agricultural tenancy itself inasmuch as but for that no question could ever have arisen of it being paid. I see no reason to put a limited meaning on the word "derived" appearing in Section 2 (1) (a) of the Income-tax Act. It is not a term of art and, as was said by Lord Davey in the privy Council in the case of Commissioners of Taxation v. Kirk :- Their Lordships attach no special meaning to the word derived, which they treat as synonymous with arising or accruing Lord Davey then went on in a very well known judgment to trace how out of the various processes of manufacture between the time of the extraction of the ore from the ground to the receipt of the money derived from its ultimate sale many of theses can be properly described as being derived from the original source. I see no reason, therefore, why the word "derived" in the definition in the Indian Income-tax Act should not properly be used to cover something which can be traced back to a beginning from which it can reasonably be said to spring and without which it never would have existed at all. It seems to me quite logical to say on this line of reasoning that the interest which a defaulter pays on his arrears of rent can be traced back to the lease itself which gave rise to the rent of which the default was made on which the interest has by statute been imposed. It seems to me that that interest can properly be said to have been "derived" from the rent, which rent itself issued out of the agricultural land.
(3.) IT is noticeable that, although there are cases in the High Court at Calcutta in which the same view has been taken, there are others in which a completely opposite view has prevailed. In the case of In re Manager, Radhika Mohan Roy Wards Estate, Sir Harold Derbyshire and Mr. Justice Mukherjee have held in 1940 that interest on arrears of rent realized under Section 67 of the Bengal Tenancy Act of 1885 is not agricultural income within the meaning of Section 2 (1) (a) of the Indian Income-tax Act. And they have gone somewhat out of their way to way that it is neither rent nor revenue. They have traced the origin of the Interest exclusively to that "statutory recompense which is allowed to the landlord for being deprived of the use of the money which is payable as rent by the tenant." With great respect, it is my view that, while no doubt, it does serve the purpose of being that statutory recompense which they say it is, it may none the less be derived from the land in the sense that I have endeavoured to explain above. I do not feel that its purpose as statutory recompense is inconsistent with its being derived from the land for the reason that the occasion for the recompense itself arises out of the land. The only other case on which I desire to say one word is the Full Bench Bihar case of Maharaja Bahadur Ram Ran Vijay Prasad Singh v. The province of Bihar, in which three of the learned Judges of that Court expressed an uncompromising dissent to the view I have ventured to express above. I do not desire to say more than that having read that case with some care, I do not think it really constitutes an authority to the detriment of the view that interest on arrears of rent may constitute agricultural income for the purposes of the definition of that term in the Indian Income-tax Act. What was being dealt with in this Full Bench case was the Bihar Agricultural Income-tax Act; and, as I understand it (though the Act has not been produced) the only word there to be construed was the word "rent". With great respect I should concede that it would be difficult to hold that interest on arrears of rent was itself rent. There was, I am told, no such word as "revenue" as is found in the definition in the Indian Income-tax Act and there is a passage in the judgment itself which would appear to afford some indication that had the learned Judges been considering the word "revenue", they might not have expressed so strong a view. They say :- A similar view was taken by a Bench of the Calcutta High Court in a very recent decision in In re Manager, Radhika Mohan Roy Wards Estate in which it was held that interest on arrears of rent realized under Section 67, Bengal Tenancy Act, was not agricultural income within the meaning of the Section 2 (1) (a), Indian Income-tax Act. It is neither rent for 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." ;