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PETITIONER: SHRI CHATRASINGHJI KESARI SINGHJI THAKORE

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, BOMBAY

DATE OF JUDGMENT: 28/10/1965

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SUBBARAO, K. SIKRI, S.M.

CITATION:  1966 AIR  928            1966 SCR  (2) 440

ACT: Income  Tax-Mining lease-Local cess payable under  terms  of lease  by  lessee--Sums  in excess of  local  cess  paid  to lessor-Excess whether of ’income’ of lessor.

HEADNOTE: The appellant gave certain mines on lease to a Syndicate  in lieu  of  rents  and royalty.  By cl.  1  Part  VII  of  the indenture  of  lease  the Syndicate  was  also  required  to discharge all public demands in respect of the mines made by the  State Government, or the local authority,  except  land revenue.   In compliance with the said clause the  Syndicate paid  certain sums for the periods ending July 31, 1951  and July  31, 1952 to the appellant as ’Local Fund Cess’.   This Cess was calculated by the Syndicate as a percentage of  the rent  and  royalties paid for the mines  whereas  under  the relevant  law  the cess had to be a percentage of  the  land revenue,  and therefore the sums paid were much larger  than due.   For  the  assessment years 1952-53  and  1953-54  the Income-tax Officer having jurisdiction over the area treated the amounts so paid 10 the appellant as part of his  income. The appellant filed an appeal before the Appellate Assistant Commissioner  and contended that the two sums were not  tax- able  because they represented Local Fund Cess collected  by him  on behalf of the State Government or Local  Board,  and also  because  they  were receipts "of  a  casual  and  non- recurring  nature." These contentions were accepted by  the; Appellate  Assistant Commissioner but the Tribunal  and  the High Court in a reference under s. 66 of the Income-Tax  Act upheld  the view of the Income Tax Officer.   The  appellant came to this Court with certificate. HELD  : (i) The Syndicate was not an inferior  holder  under the appellant.  It was the appellant who was the holder, and the  liability to pay the local fund cess under  the  Bombay Land Revenue Code was his.  Under the terms of Part VII  cl. 1 of the indenture of lease the Syndicate had agreed to  pay to  the  appellant the amount of local fund cess  which  the latter had to pay to the Government.  But by collecting  the amount  from the Syndicate under the terms of his  contract, the appellant was not constituted an agent of the Government for recovering the cess. [446 A-C]

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(ii) The  Syndicate  merely  sought  to  discharge  what  it believed was its contractual obligation under the lease  and in  doing so it made payments which exceeded the local  fund cess  payable by the appellant.  The amounts so paid  had  a quality,  if  not identical, closely similar  to  rents  and royalty.   It was immaterial that if the true position  had. been  appreciated  the, Syndicate might not  have  paid  the amounts.   They were in fact paid by the Syndicate and  were received  and  appropriated by the appellant as  if  he  was entitled  to  receive  them.   The  difference  between  the amounts  which  the appellant received and the  amounts  for which   he  could  under  the  terms  of  the  lease   claim reimbursement must therefore 441 be  regarded  as  income within the meaning  of  the  Indian Income-tax  Act,  and unless specially exempted,  liable  to tax. [445 E-G, H] (iii)     There  is  nothing  in the  Income-tax  Act  which prevents  the  Revenue  authorities  from  determining   the quantum  of the amount which is payable by the appellant  as local  fund cess, when that question properly arises  before them in the course of proceedings for assessment. [446 D] (iv) the fact that the Syndicate had filed suits to  recover the excess amounts paid to the appellant as local fund  cess did  not  affect  the issue.   The  appellant  had  received certain  amount under a contract with the Syndicate  and  if that amount was income the fact that the person who paid  it might claim refund would not deprive it of its character  of income in the year in which it was received. [447 G-H] (v)  Assuming  that  the amounts sought to  be  included  as income were paid as a result of some mistake on the part  of the Syndicate, they had not the    characteristic         of casualness  and  it was not suggested that  they  were  non- recurring. [420 A-B]

JUDGMENT: CIVIL   APPELLATE   JURISDICTION  :   Civil   Appeals   Nos. 148 and 149 of 1964. Appeal  by special leave from the judgment and  order  dated April 14, 1960 of the Bombay High Court in Income-tax Refer- ence No. 85 of 1957. Bishan  Narain, J. B. Dadachanji, 0. C. Mathur and  Ravinder Narain, for the appellant. A.   V.  Viswanatha Sastri, R. Ganapathy Iyer, R. H.  Dhebar and R. S. Sachthey, for the respondent. The Judgment of the Court was delivered by Shah,  J. On December 11, 1947 the appellant granted to  the Shivrajpur  Syndicate Ltd. rights for mining  manganese  ore from  lands  in  two  villages  Shivrajpur  and  Bhat.   The following are the material terms of the indenture of lease               "               and agreements by and in these presents and in               the  Schedule hereunder written, reserved  and               contained and on the part of the Lessee to  be               paid,  observed  and  performed,  the   Lessor               hereby grants and demises unto the Lessee  All               Those  the  mines, beds, veins, and  seams  of               Manganese  Ore situate lying and being in  and               under the land . . .               Lessee  for  the term of  twelve  years  which               shall  be  deemed to have commenced  from  the               first               442

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             day of December One thousand nine hundred  and               fortyfive               yielding and paying therefore unto the  Lessor               the  several rents and royalties mentioned  in               Part V of the Schedule at the respective times               herein  specified  subject to  the  provisions               contained, in Part VI of the said Schedule."               In  parts  II, -III and IV.  of  the  Schedule               liberties, powers, privilege as,  restrictions               and conditions enjoyed by the lessee were  set               out.   By Part V the Syndicate agreed  to  pay               annually Rs. 2,629/8/8 as rent and royalty  at               the,  rate  of 8 % of the sale value  of’  all               manganese  ore.  By cl. 1 of Part VII  it  was               agreed that :               "The lessee -shall pay the. rents and  royalty               reserved by this lease at the time and in  the               manner  provided in Parts V and VI  and  shall               also  pay  and  discharge  all  taxes,  rates,               assessments  and impositions whatsoever  being               in  the-nature of public demands  which  shall               from  time  to time be  charged,  assessed  or               imposed  upon  or in respect of the  mines  or               works  of  the lessee or any part  thereof  by               authority  of  the  Government  of  India   or               the ..Government of Bombay or otherwise except               demands for land revenue The appellant received from the Syndicate, besides rents and royalty, Rs. 16,309 in the year ending July 31, 1951 and Rs. 39,515 in the year ending July 31, 1952, being 3/16th of the amount  of  rent  and royalty payable to  the  appellant  in accordance  with  the terms of Part V of  the  ’lease.   The Syndicate described this payment as "Local Fund Cess".   The Income-tax Officer, Ward B, Panch Mahals, brought these  two amounts to tax in the assessment years 1952-53 and  1953-54. In appeal to the Appellate Assistant Commissioner of Income- tax,  Baroda Range it was maintained by the  appellant  that the  two  sums were not taxable,  because  they  represented Local Fund Cess collected by him on behalf of the Government of Bombay or the Local Board, Panch Mahals, and in any event because  they were receipts " of a casual and  non-recurring nature".  The Appellate Assistant Commissioner upheld’ those contentions of the appellant and directed that the said sums be excluded from the total income of the appellant. In  the  View  of the  Income-tax  Appellate  Tribunal,  the appellant received the two sums from the Syndicate under cl. 1 of                             443 Part VII of the lease agreement and not - as Local Fund Cess on behalf of the Government of Bombay or of the Local  Board Panch Mahals, and the amounts were not receipts "of a casual and   nonrecurring  nature".   The  Tribunal   submitted   a consolidated  statement  of the case under s. 66(2)  of  the Income-tax  Act - in respect of the two years of  assessment and submitted the following questions for the opinion of the High Court of Bombay "(i) Whether the sum of Rs. 16,309 received by the                         ----------                         Rs. 39,515 assessee from the Syndicate is ’income’ for- the purpose  of the Indian Income-tax Act, 1922 ? (ii) If  the  answer  to  the  above  question  is  in   the affirmative,  whether  the income-receipt  is  exempt  under section  3  (vii)  of the Act by reason of its  being  of  a casual and nonrecurring nature,?"

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In compliance with an order of the High Court, the  Tribunal submitted a supplementary statement of. -the case  observing that the lands in question which were allienated - villages" between August 1, 1950 and August 15, 1950 had ceased to  be alienated villages in consequence of the application of  the Bombay  Taluqdari Abolition Act 62 of 1949, that  the  total amount  of assessment payable in respect of  these  villages was  Rs. t,222.92 and the local fund cess due in respect  of the  lands was Rs. 270.45 nP., that the total  Jama  payable by-the appellant was Rs. 504.45 nP., and that the  appellant had under the Bombay Local Boards Act, 1923 to pay the  cess as  a percentage of land revenue and not of the  Jama.   The High Court, in- the.light of the supplementary statement  of the  case, recorded its answer on the first question in  the affirmative, subject to the reservation that "the amount  of cess which the appellant was legally liable to pay under,the Bombay Local Boards Act was not subject. to income-tax"  and answered   the  second  question  in  the  negative.    With certificate  granted by the High Court, these  appeals  have been preferred. The  relevant statutory provisions bearing on the  questions referred  to  by  the Tribunal may be  summarised.,  By  the Bombay  Taluqdari Tenure Abolition Act 62 of 1949,  all  the incidents of the  Taluqdari tennure attaching to the lands  comprised  in the  appellant’s estate were extinguished and all  Taluqdari lands  were  declared liable to payment of land  revenue  in accordance  with the provisions of the Bombay  Land  Revenue Code,  1879,  or  Jama  under  an  agreement,  or settlement recognised or declaration made 444 under  the  Gujarat Talukdars’ Act.  Under the  Bombay  Land Revenue  Code  by S. 3(13) "superior holder" is  defined  as meaning  a  landholder  entitled to  receive  rent  or  land revenue  from  other  landholders,  whether  or  not  he  is accountable  for  such  rent or land  revenue  or  any  part thereof  to  the Provincial Government, and  a  "tenant"  is defined  in S. 3 (14) as meaning a lessee,  whether  holding under  an  instrument,  or  under  an  oral  agreement,  and includes  a mortgagee of a tenant’s rights with  possession. By s. 45 all lands, whether applied to agricultural or other purposes,  and  wherever  situate, are liable  to  pay  land revenue  to  the Government according to the  rules  enacted under the Code, except such as may be wholly exempted  under the  provisions of any special contract with the  Government or  any law for the time being in force.  Under  the  Bombay Land Revenue Code, liability to pay land revenue is  imposed upon the landholder.  Under the Bombay Local Boards Act 6 of 1923  the  State Government is authorised to  levy,  on  the conditions  and in the manner described, a cess at the  rate of three annas on every rupee of-               (a)   every   sum   payable   to   the   State               Government as ordinary land revenue,               (b)   every   sum   which  would   have   been               assessable  on any land as  land-revenue,  had               there been no alienation of land revenue, or               (c)   every   sum   which  would   have   been               assessable  on any land as  land-revenue,  had               the land not been talukdari land. By  S.  96  of Act 6 of 1923 it is provided  that  the  cess described in s. 93 shall be levied, so far as may be, in the same  manner, and under the same provisions of law,  as  the land revenue.  A holder of unalienated land had therefore in addition  to the land revenue to pay local fund cess at  the rate  of  three annas on the land revenue  assessed  on  the

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land.   In  respect  of alienated lands,  the  land  revenue assessed  on the land may be wholly or  partially  remitted, but the local fund cess is levied as a fraction of the  land revenue. Under  the  terms  of the lease with the  Syndicate  it  was stipulated  that the Syndicate shall pay all  taxes,  rates, assessments and impositions of a public nature.  The  effect of  the covenant was that the Syndicate will  reimburse  the appellant  for local fund cess and other taxes paid by  him. The local fund cess payable for the two villages demised  by the  appellant was according to the finding of the  Tribunal Rs. 270 45 being 3/16th of Rs. 1,222.92 the 445 amount  of  land  revenue assessed on the  lands.   But  the amounts, paid by the Syndicate for the two years in question considerably exceeded the local fund cess payable in respect of the lands.  The Syndicate believed that it was liable  to pay  to  the  appellant  under cl. 1  of  Part  VII  of  the indenture of lease cess computed at the. rate of three annas on a rupee of the amount of rent and royalty.. Transactions  relating  to  property and  contracts  are  of infinite  variety  and it is difficult to devise  a  precise definition  of the expression "income" liable to  tax  under the   Income-tax  Act,  without  excluding  some   important categories  thereof.   The definition, of "income" in  s.  2 (6C) of the Income-tax Act, 1922 is an inclusive  definition :  it  is devised for the purpose of the  Act  and  includes diverse  heads  which  in  the  normal  connotation  of  the expression  "income"  would  not be included.   We  have  no desire  in  this case to enter upon the  difficult  task  of devising an accurate definition of the expression  "income". The  observation  of the Judicial Committee in  Gopal  Saran Narain   Singh  v.  Commissioner  of  Income-tax,  Bihar   & Orissa(1)  at  p. 213 that "Anything which can  properly  be described  as  income,  is  taxable  under  the  Act  unless expressly exempted" gives an indication of the  difficulties of the problem. It  is  common_ground that the rent and  royalty  under  the mining lease are income taxable under the Act, and an amount which  is  paid  under a covenant directly  related  to  the payment of rent and royalty would, in our judgment, also  be taxable as income.  The amounts paid have the quality  which is,  if not identical closely similar to rents and  royalty. It is immaterial that if the true position were appreciated, the  Syndicate may not have paid the amounts.   The  amounts have  in  fact  been paid by the Syndicate,  and  have  been received  and  appropriated by the appellant as  if  he  was entitled  to  receive  them.   The  difference  between  the amounts  which  the appellant received and the  amounts  for which   he  could  under  the  terms  of  the  lease   claim reimbursement,  must therefore be regarded as income  within the  meaning  of  the  Indian  Income-tax  Act,  and  unless specially  exempted, liable to tax.  The appellant  did  not purport  to collect local fund cess on behalf of’ the  State Government : nor did the Syndicate pay the amount to him  as an agent of the Government.  The Syndicate merely sought  to discharge  what it believed was it s contractual  obligation under  the  indenture  of lease, and in doing  so,  it  made payments,which, exceeded the local fund cess payable by  the appellant. (1)  L.R. 62 I.A. 207. 446 We  are  unable to hold that the Syndicate was  an  inferior holder  under  the appelant.The appellant was the holder  of the  land  and he had  granted  a lease in  respect  of  the

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land  to  the   Syndicate ,and our attention  has  not  been invited to any provision of  the Bombay Land Revenue  Code,. 1879 which imposes liability to pay local fund cess upon the lessee  who  holds land under a lease from  the  landholder. Liability  to pay land revenue and the local fund  ’cess  is imposed -by the Bombay Land Revenue Code upon the appellant. Under    the  terms of Part VII cl. 1 of  the  indenture  of lease  ,  the Syndicate had agreed to pay to  the  appellant the  amount  of land revenue and local fund cess  which  the latter   may  have  to   pay  to  the  Government.  But   by collecting the amount from the Syndicate under the terms  of his contract, the appellant was not consisted an gent of the Government  for recovering either the land revenue  or local fund  cess  which  the  latter   may  have  to  pay  to  the Government. But by collecting  the amount from the Syndicate under  the terms  of his contract , the appellant   was  not constituted  an  agent   of the  Government  for  recovering either the land revenue or local  fund cess. There  is nothing in the Income-tax Act which prevents  the, Revenue  authorities  from determining the  quantum  of  the amount which is payable by the appellant as local fund cess, when that question properly arises before them in the course of  proceedings  for assessment. The Income tax  Officer  is within the limits  assigned to him under the Act a  tribunal of exclusive jurisdiction  for the purpose of assessment  of income tax. He has  under Act to decide whether a particular receipt  is income, and it is not  predicated that  he  must make some person or body other than the assessee who   may be  e concerned with that receipt as a party to    preceding before. he decides that question.- As between the State  and the assessee it. is his function alone to determine  whether the  receipt is income and is taxable. -  The  determination by, the Income-tax Officer may be questioned in  proceedings before   superior  tribunals  which  are  permitted  by  the Act,but  the Income-tax  Officer  cannot be  prevented  from determining a question which properly arises  before him for the  purpose  of  assessment  of  tax  merely   because  his determination   may not bind some other body or  person  qua the assessee. It  is maintained by counsel for the appellant that  in  the "Manual  of Revenue Accounts   "issued under  the  authority of the Government  of Bombay it is recorded  that  the local fund  in  respect  of land held under a  mining lease  is  a fraction   of the aggregate  amount  of rent  and  royalties under  the  lease.  This  plea is  based   upon  a  complete misconception  of what is stated in the Manual   of  Revenue Accounts  ,  1951.  Under   the  head  "Miscellaneous   Land Revenue 447 entries  to  be  made  in  the  Tharavband  in  respect   of "miscellaneous  fluctuating  revenue".   The  Manual   after setting  out heads of fixed revenue proceeds to set out  the following heads of fluctuating revenue (i)  Carrying Local Fund, and (ii) Free of Local Fund. Under the head fluctuating revenue "Carrying Local Fund" are non-agricultural   ’rent  or  revenue  from   agriculturally assessed  or  unassessed lands for back  years,  for  broken periods, or short periods less than five years and fees  for brick  kilns  and  lime kilns erected  on  Government  waste lands; (2) Lump commutation payments not being  commutations in perpetuity of land revenue for building or any-other non- agricultural purpose, including assessment for  unauthorised occupation,  and fine when levied for non-agricultural  uses with   permission,  but  not  including  fines   levied   as

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penalties,  and "2(A) Rent and royalties under mining  lease (usually  collected at T)." But these are mere  instructions to  the  village officers relating to the heads  of  revenue which  are  "to  pass  through  the  Tharavband".   By   the instructions it is not sought to be conveyed that local fund cess in respect of nonagricultural incomes subject to  local fund  such as rent and royalties is to be levied at  a  rate different  from  the rate prescribed by  the  statute.   The Bombay Local Boards Act, 1923 expressly provides that  local fund  cess is to be levied on land revenue whether the  land is used for purposes agricultural or non-agricultural at the prescribed rate and by executive instructions the Act cannot be modified and has not been modified. It was said that the Syndicate may seek to recover from  the appellant  the excess amounts paid by it-towards local  fund cess.  We were told at the Bar that after the proceeding for assessment  in  these appeals reached the  High  Court,  the Syndicate  has filed a suit in the Civil Court  against  the appellant to recover the amounts paid by it.  We are not  in this  case  concerned with the merits of  that  claim.   The appellant has received certain amount under a contract  with the Syndicate, and if that amount was income, the fact  that the person who paid it may claim refund will not deprive  it of  its  character  of income in the year in  which  it  was received. The  contention that this income was of a "casual  and  non- recurring  nature"  was abandoned before the  Tribunal.   It cannot Sup.CI/66 -15 448 be  said  that  the receipt was produced by  change  or  was accidental fortuitous or from unforeseen sources of  income. Assuming  that the amounts sought to be included  as  income were  paid  as a result of some mistake on the part  of  the Syndicate,  they have not the characteristic of  casualness, nor is it suggested that they are non-recurring. The  appeals  therefore fail and are dismissed  with  costs. One hearing fee. Appeals dismissed. 449