S.K. Mal Lodha, J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as "the Tribunal"), has referred an important question of law which has arisen out of its common order dated September 9, 1977, relating to the four assessment years 1970-71 to 1973-74,
(2.) THE controversy is whether the amounts received by the assessed in the previous years relating to the aforesaid assessment years by way of compensation for the jagir lands of the assessee resumed by the State are capital receipt or revenue receipt. The assessee, Shri Eklingji Trust, Udaipur, is a religious trust. It was established by a deed of trust dated April 12, 1955. The trust is in respect of various temples and funds. There were certain jagir lands of the various temples and the funds comprising the trust. They (jagir lands) were resumed by the State of Rajasthan under the Rajasthan Land Reforms and Resumption of Jagirs Act, 1952 (Act No. VI of 1952) (for short "the Act"). On account of the resumption of the jagir lands, the assessee became entitled to receive compensation from the State of Rajasthan and an annuity in perpetuity in accordance with Clause 7 of the Second Schedule appended to the Act. One contention raised on behalf of the assessee before the Income-tax Officer was that the annuity amount received during the afore- said four assessment years, was capital receipt as it was on account of compensation in lieu of the resumption of the jagir lands. The Income-tax Officer in the four orders, passed on different dates, held that the annuity in perpetuity, received by the assessee was not a capital asset, but was compensation paid by the Government in lieu of the actual income from the jagir lands and, therefore, was a revenue receipt liable to tax. It may be stated that the Income-tax Officer further held that the annuity received by the assessee was not agricultural income as it was not rent or revenue derived from land by agricultural operations carried on by the assessee. The assessee filed appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner agreed with the Income-tax Officer and held that the compensation received was not agricultural income. He, however, agreed with the contention raised on behalf of the assessee that the amount of compensation received by the assessee was a capital receipt. The material part of the order of the Appellate Assistant Commissioner is as under ; "...I am of the view that it must succeed, because the annual amounts received are in fact nothing but compensation for resumption of jagirs and this compensation had the same character as the compensation for resumption of jagirs in case of other jagitdars such as individuals. I also agree with the A/Rs. that in the case of religious institutions, Government devised the system of annual payment lasting over an indefinite period, because the Government had really a high concern for the proper management and running of such public religious institutions and, therefore, it wanted to make it sure that large amount of funds of such institutions was not placed in the hands of their management, and they could not be wasted away by the persons incharge of management within a short period. Thus, as a result of this, Government took a wise decision in deciding to make payments of a part of the amount of compensation annually so that that could be annually utilised for the running and maintenance of such institutions. " The Department went in appeal to the Tribunal. The Tribunal was of the opinion that the Goveirnment paid compensation for the jagir lands and the amount paid is not a capital sum representing the value of the asset and that the amount paid had no reference to the value of the asset at all. According to the Tribunal, the result of the resumption of jagir lands has been that a regular source of income has come into existence from which the assessee was to derive for all time to come a definite amount with assured regularity and, consequently, such receipts are income liable to tax. The Tribunal, therefore, cancelled the order of the Appellate Assistant Commissioner and restored that of the Imcome-tax Officer. Four questions were proposed by the assessee in its application under Section 256(1) of the Income-tax Act, 1961 (No. XLIII of 1961) (hereinafter referred to as "the Income-tax Act"). The Tribunal has, however, referred only the following question for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the annuity received by the assessee in the previous years relevant to the assessment years 1970-71 to 1973-74 by way of compensation for the jagir of the assessee resumed by the State was a revenue receipt liable to tax ?" It is clear that we have to determine whether the annuity received by way of compensation on account of the resumption of jagir lands of the assessee by the Government is a capital receipt or revenue receipt which is liable to tax. In order to determine the nature of the annuity, it will be useful to refer to the relevant provisions of the Act and its Second Schedule.
(3.) SECTION 21 of the Act deals with resumption of jagir lands. The consequences of the resumption have been laid down in SECTION 22 of the Act. For the present purpose, we shall read the material part of SECTION 22(1) of the Act: "22. Consequences of resumption.--(1) As from the date of resumption of any jagir lands notwithstanding anything contained in any existing jagir law applicable thereto but save as otherwise provided in this Act- (a) the right, title and interest of the jagirdar and of every other person claiming through him in his jagir lands, including forests, trees, fisheries, wells, tanks, ponds, water channels, ferries, pathways, village sites, huts, bazars and mela grounds and mines and minerals, whether being worked or not, shall stand resumed to the Government free from all encumbrances." After resumption, the right, title and interest of the jagirdar comes to an end and the jagir lands stand resumed to the Government free from all encumbrances. It has been made incumbent on the Government to pay to every jagirdar, whose jagir land is resumed, under Section 21 of the Act, such compensation which is to be determined in accordance with the principles laid down in the Second Schedule. In passing, we may also notice Section 27, which deals with the amount of maintenance. The Jagir Commissioner has been empowered to fix the amount of maintenance to a person who was entitled to maintenance allowance out of the income of any jagir, out of the compensation and rehabilitation grant payable to the jagirdar. Section 26 makes reference to the Second Schedule. Material clauses of the Second Schedule are clauses 5, 6 and 7 which are as under: "5. Amount of compensation money.--The compensation payable under Section 26 to a jagirdar shall be seven times his net income calculated in accordance with the provisions hereinbefore contained. 6. Compensation for customs duties.--In addition to the compensation payable in accordance with Clause 5, the Government shall continue to pay to the jagirdar, the compensation, if any, received by or due to the jagirdar from the Government in or for the basic year in respect of customs duties: Provided that the amount of such compensation shall be reduced in the same proportion in which the customs duties levied by the Government are reduced. 7. Charitable and educational institutions.--Notwithstanding anything contained in Section 26 or in clauses 5 and 6 of this Schedule where any jagir lands are held, whether directly or as a grant from a jagirdar for the maintenance of an institution for educational or charitable purpose, or of any place of religious worship or for the performance of any religious service, the Government shall pay by way of compensation an annuity in perpetuity equal in amount to the net income from such jagir lands in or for the basic year to the person, who is, or may hereafter be recognised in accordance with law as being charged for the time being with the duty of the maintenance of such institution or place of worship or the performance of such service. Explanation.--For the purpose of this clause, the net income of any jagir land shall, notwithstanding anything hereinbefore contained, be an amount equal to the gross income from such land calculated in accordance with the provisions of Clauses (2) and (3) minus ten per cent, of such gross income to be deducted on account of expenses of the management of the land." A reading of Clauses 5 and 7 abundantly makes it clear that compensation is payable after the resumption of the jagir lands. Under Clause 5, the compensation payable to the jagirdar is seven times the net income which is to be calculated in accordance with the provisions contained in the Second Schedule. Clause 7 of the Second Schedule is applicable to charitable and educational institutions. This is an overriding clause, for, despite applicability of Section 26 of the Act and Clauses 5 and 6 of the Second Schedule (sic). In the case of jagir lands held for the purposes specified therein, which in this case is maintenance of charitable institution, the compensation is to be paid as an annuity in perpetuity. The manner and mode of payment of compensation is annuity in perpetuity which is equal in amount to the net income from such jagir lands in or for the basic year to the person who is under duty to maintain such institution or place of worship or performance of such service. It is, thus, clear that in Clause 7, the compensation is payable in the shape of an annuity in perpetuity and for the quantum, the criterion has been laid down in it. The Tribunal was alive to the fact that the amount paid was compensation but, according to it, that amount had no reference to the value of the asset for all times to come, which the assessee had earned from the jagir lands in the basic year. The view taken by the Tribunal is that the result of resumption of jagir lands is a regular source of income and it is being ensured to the assessee. It, therefore, concluded that such receipts are revenue in nature and not a capital asset. Thus, the Tribunal has taken the manner, mode and measure, as relevant factors for determining whether the amount received by the assessee is a capital receipt or a revenue receipt. Soundness of this view is to be judged. ;