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PETITIONER: SRISH CHANDRA SEN (DECEASED) AND OTHERS

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

DATE OF JUDGMENT: 23/11/1960

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. DAS, S.K. SHAH, J.C.

CITATION:  1961 AIR  487            1961 SCR  (2) 598

ACT: Income Tax--Agricultural income--Acquisition of land   form- ing  part  of  permanently  settled  estate--Redemption   of liability   to   pay  land  revenue  by  Payment   of   lump sum--Agricultural income from the land--Liability to income- tax-Indian Income-tax Act, 1922 (11 of 1922), S.2(1).

HEADNOTE: By  a notification dated November 2, 1864, a piece  of  land forming   part  of  the  Panchannagram  Estate   which   was permanently settled under Regulation 1 of 1793, was acquired by the Government of Bengal at the instance of the  justices of  the  Peace  for  the  Town  of  Calcutta,  which  was  a corporation established under the provisions of the Calcutta Municipal  Act, 1863, and the justices were required to  pay the  compensation payable to the proprietor of  the  Estate. After  the  acquisition, the proprietor of  the  Estate  was granted abatement of land revenue assessed on the Estate  to the  extent  of Rs. 386-7-1, being  the  proportionate  land revenue  on  the land acquired.  On October  27,  i865,  the Government  called  upon the justices to pay a  sum  of  Rs. 7,728-13-8,  which represented the amount capitalised at  20 years’  purchase  of  land revenue attributed  to  the  area acquired.  On  December  5, i870,  the  Secretary  of  State executed in favour of the justices of the Peace a conveyance of the land acquired, which stated, inter alia, that it  was "ever  free  and  clear and for  ever  discharged  from  all Government land revenue whatever or any payment or charge in the nature thereof to the end and intent that the said  land may   be  used  for  a  public  purpose,  namely,  for   the conservancy  of the town." On January 23, 1880, a  lease  of the land was granted by the Justices to the predecessors-in- title of the appellant, under which the lessee had the right to carry on cultivation with the aid of sewage. Before the income-tax authorities the appellant claimed that the agricultural income derived by him from the land was not liable  to  income-tax, but the claim was  rejected  on  the ground  that  on  the  payment of a  lump-sum  in  1865  the liability  to  pay  land revenue was redeemed  and  no  land revenue  was demanded thereafter; consequently,  the  income derived from the land was not agricultural income within the

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meaning  of S. 2(1) of the Indian Income-tax Act, 1922,  and was  not,  therefore,  exempt  from  tax.   The  appellant’s contention  was that the redemption only saved the  justices from   liability  for  payment  but  did  not   affect   the assessability  of the land to revenue under Regulation 1  of 1793. 599 Held,  that  by the down payment of a lump sum in  1865  the entire  land  revenue  to be recovered  from  the  land  was redeemed  and  the  land  became  free  from  land   revenue assessment  in perpetuity, as completely as if there was  no assessment.   Thereafter, the land could not be said  to  be assessed  to land revenue within the meaning of S.  2(1)  of the  Indian  Income-tax Act, 1922,  and,  consequently,  the income  derived  therefrom  could not be  considered  to  be agricultural income under that section. The  Collector of Bombay v. Nusserwanji Rattanji Mistri  and others, [1955] 1 S.C.R. 1311, distinguished.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 405 of 1957. Appeal  from the judgment and order dated May 15,  1956,  of the Calcutta High Court in I.T.R. No. 20 of 1953. S.   Mitra, B. Das and S. N. Mukherjee, for appellants Nos. 2 to 41. A.   N. Kripal and D. Gupta, for the respondent. 1960.  November 23.  The Judgment of the Court was delivered by HIDAYATULLAH, J.-The point involved in this appeal is a very short  one;  but it requires a long narration  of  facts  to reach  it.  The appeal is against the judgment and order  of the  High Court of Calcutta dated May 15, 1956, arising  out of an Income-tax Reference. By  the  Calcutta  Municipal  Act  VI  of  1863,  there  was established a Corporation under the name of "The Justices of the  Peace  for the Town of Calcutta".   By  a  notification issued on November 2, 1864, one square mile of land  forming part  of  the  Panchannagram  Estate  was  acquired  by  the Government  of  Bengal  at the  instance  of  the  Justices. Section CXII of the Municipal Act provided that the Justices might  "agree with the owners of any land for  the  absolute purchase thereof............ for any other purpose  whatever connected  with  the  conservancy of the  Town".   Under  s. CXIII,  it was provided that if there was any  hindrance  to acquisition by private treaty, the Government of Bengal upon the  representation  of  the  Justices  would   compulsorily acquire the land and vest 600 such  land  in  the Justices on  their  paying  compensation awarded  to the proprietor.  The action which was  taken  by the  notification was under s. CXIII of the  Municipal  Act, and the acquisition was under Act VI of 1857, an Act for the acquisition of land for public purposes. The  Panchannagram  Estate  was  permanently  settled  under Regulation 1 of 1793.  After the acquisition, the proprietor of  Panchannagram  Estate  was  granted  abatement  of  land revenue assessed on the Estate to the extent of Rs. 386-7-1. This represented the proportionate land revenue on the  land acquired. In  August,  1865,  the Justices were required  to  pay  Rs. 54,685-2-10 as compensation payable to the proprietor and to other  persons holding interest in the land.  Another  piece of land which is described as an open level sewer, was  also

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acquired about the same time, and separate compensation  was paid  for  it.  With the amount of conveyance  charges,  the total compensation thus paid by the Justices was Rs. 57,965- 8-10.   On October 27,1865, the Government called  upon  the Justices to pay a further sum of Rs. 7,728-13-8.  This order has   not  been  produced  in  the  case;  but  from   other correspondence,   it  is  easy  to  see  that   the   amount represented  an amount capitalized at 20 years’ purchase  of land revenue attributed to the area acquired, which, as  has been  stated above, came to Rs. 386-7-1.  This  payment  was made  on  or  about January 12,  1866.   Similarly,  another amount  was paid in July of the same year for redemption  of the  land  revenue in respect of the strip of land  for  the open sewer. On  December  5,  1870, a conveyance  was  executed  by  the Secretary  of State in favour of the Justices of the  Peace. It was there stated, inter alia: "Whereas  the Honourable the Lieutenant Governor  of  Bengal hath thought fit that the said land so acquired as aforesaid would  be vested in the said Justices of the Peace  for  the Town of Calcutta a Corporation created by and authorised  to hold  land under the said Act No. VI of 1863 of the  Council of the Lieutenant Governor of Bengal to the end and intent 601 that  the said land may be held by the said Justices  for  a public   purpose,  namely,  for  the  conservancy   of   the Town......... and subject in every way to the same’ Act  but free  and discharged from all payment of land revenue,  land tax  and  all and every tax or imposition in the  nature  of revenue derivable from land payable to Government in respect thereof;  NOW THIS IN-DENTURE WITNESSETH.......to  hold  the saidpieces  of land, hereditaments and premises intended  to be conveyed with the appurtenances except as aforesaid  unto the said Justices of the Peace for the Town of Calcutta  and their  successors  for  ever free and  clear  and  for  ever discharged from all Government land revenue whatever or  any payment  or  charge  in the nature thereof to  the  end  and intent  that the said land may be used for a public  purpose namely  for the conservancy of the town upon the trusts  and subject  to  the powers, provisions,  terms  and  conditions contained  in the said Act No. VI of 1863 of the Council  of the   Lieutenant  Governor  of  Bengal  and  to  the   rules heretofore   passed  or  hereafter  to  be  passed  by   the Government  of  Bengal  under the the  said  last  mentioned Act;". On January 23, 1880, a temporary lease of the land known  as the  ’Square Mile’ was granted by the Justices of the  Peace to  the predecessors-in-title of the  appellant  (assessee), Srish  Chandra Sen who has, since the filing of the  appeal, died, leaving behind 40 legal representatives who have  been shown  in  the  cause title of the appeal.   The  lease  was renewed   for  further  periods,  and  the  rent  was   also progressively  increased.  The conservancy arrangements  for which  the land ’was held were carried out, but, the  lessee had  the  right  to carry on cultivation  with  the  aid  of sewage. The assessee derived from this land various kinds of income, some  being purely agricultural and some,  non-agricultural. For  the  assessment year 1942-43,  the  total  agricultural income was computed at Rs. 99,987-9-6, and  non-agricultural income,  at  Rs. 12,503-8-0.   Agricultural  income-tax  was charged  by  the  State of  Bengal  under  the  Agricultural Income- 602 tax Act, on the agricultural income less expenses.  For  the

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assessment years, 1943-44, 1944-45, 1945-46 and 1946-47, the assessments  were  made along similar lines.  In  1947,  the Income-tax Officer reassessed the income for the  assessment year, 1942-43 after reopening the assessment under s. 34  of the  Income-tax  Act  on  the  ground  that  the   so-called agricultural  income  had escaped assessment  to  income-tax under the Indian Income-tax Act.  Assessments for the  other years,  1943-44,  1944-45,  1945-46 and  1946-47  were  also reopened,  and the income in those years wag also  similarly reassessed.    The  assessee  appealed  to   the   Appellate Assistant  Commissioner  against  all these  orders  of  the Income-tax  Officer,  but his appeals  failed.  Against  the orders of the Appellate Assistant Commissioner, appeals were filed  before  the Income-tax Appellate  Tribunal  (Calcutta Bench).  The Tribunal dealt with the assessment for  1942-43 separately, and allowed the appeal as regards assessment for that year.  It held that the reassessment was improper under s. 34 of the Income-tax Act, because the Income-tax  Officer had  not  proceeded on any definite information but  in  the course  of a "roving enquiry".  The Tribunal also held  that the  income was exempt from taxation to income-tax under  s. 4(3)(viii)  of the Act, inasmuch as this income was  derived from land used for agricultural purposes, which continued to be assessed to land revenue. In the appeals arising out of assessments for the subsequent years, a common order was passed by the Tribunal,  remanding the  appeals to the Appellate Assistant Commissioner  for  a rehearing.   The  Tribunal stated that  the  appellants  had filed  a number of documents to establish that land  revenue was  assessed on the land which, the  Department  contended, proved  the  contrary.  The Tribunal felt  that  the  matter should   be   reconsidered  by   the   Appellate   Assistant Commissioner,  and hence remanded the cases.  The  Appellate Assistant  Commissioner in the rehearing held that the  land in question continued subject to land revenue, and that  the lump  sum payment was merely payment of revenue in  advance. He accordingly allowed the appeals, and ordered exclusion of the income 603 from  the  assessments for the four years in  question.   On appeal by the Department, the Tribunal changed its  opinion, and  came to the conclusion that the’ payment of a lump  sum was  not a payment in advance of the land revenue  due  from year to year but was land revenue capitalised.  It  referred to the deed by which the proprietorship in the land was ves- ted in the Corporation by the Secretary of State, and stated that by the document and the capitalisation of land revenue, the  demand for land revenue was extinguished for ever.   It accordingly allowed the appeals, and restored the orders  of assessment made by the Income-tax Officer. The assessee next moved the Tribunal for a reference setting out a number of questions which, he contended, arose out  of the  Tribunal’s order.  The Tribunal referred the  following question of law for the opinion of the High Court: "Whether on the facts and in the circumstances of this  case the Tribunal’s conclusion that the land was not assessed  to land revenue within the meaning of s. 2(1)(a) of the  Indian Income-tax  Act  is justified?" The reference was  heard  by Chakravarti, C. J., and Sarkar, J., (as he then was).  In an elaborate  judgment,  the learned Chief Justice  upheld  the conclusions  of the Tribunal, and answered the  question  in the affirmative.  Sarkar, J., in an equally elaborate  order expressed  his  doubts about the correctness  of  the  Chief Justice’s reasons, but declined to disagree with

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him. The question that arises in this case, as we have stated  in the opening of this judgment, is a very short one.  It is an admitted  fact that by payment of’ a lump sum the  liability to pay land revenue was redeemed and no land revenue was de- manded  or  was ever demandable from the Justices  or  their assigns  in perpetuity.  The contention of the  assessee  is that  this redemption saved the Justices from the  liability for payment but did not affect the assessability of the land to  revenue  under  Regulation I of  1793.   Unless,  it  is contended,. there was a cancellation of the assessment,  a,% is to be found in the 604 Land  Tax  and  Tithe  Redemption  Acts  in  England,    the liability  must be deemed% to continue and land would  still be  assessed to land revenue for purposes of s.  2(1)(a)  of the Indian Income-tax Act.  That section reads as follows: "2(1) ’Agricultural income’ means- (a) any rent or revenue derived from land which is used  for agricultural  purposes,  and  is  either  assessed  to  land revenue  in (the taxable territories) or subject to a  local rate assessed and collected by Officers of (the  Government) as such". It is not denied that both the conditions, namely, "used for agricultural  purposes"  and  "is either  assessed  to  land revenue or subject to a local rate.............. have to co- exist.   It is admitted by the Department that there  is  no question  of  subjection  to  a  local  rate  assessed   and collected,  in this case.  The income derived from the  land was  from its use for agricultural purposes, and  the  first condition is thus satisfied.  The dispute centres round  the point  whether the land .can be said to be assessed to  land revenue, in spite of the lump sum payment in 1865. In  the  High  Court, the matter  was  examined  from  three different  points  of  view.  The first was  the  effect  of acquisition  of  the land by Government upon  the  continued assessability  of  the land to land  revenue.   The  learned Chief  Justice held that by the acquisition  the  assessment ceased  to  subsist.   The  second was  the  effect  of  the redemption  of  land revenue by the Justices by a  lump  sum payment.   The learned Chief Justice was of opinion that  it had  the effect of cancelling the assessment.  The last  was the effect of the grant free from land revenue, about  which the  learned Chief Justice was of opinion that it freed  the land from assessment to land revenue.  Sarkar, J., agreed as to  the  first, but expressed doubts about  the  second  and third  propositions.   According to the learned  Judge,  the acceptance of a lump sum payment in lieu of recurring annual payments was more a matter of agreement than a  cancellation of assessment to land revenue. The matter has been argued before us from the 605 argument  about  the  interpretation to be  placed  on  the, conveyance  by  the Secretary of State which,  according  to him, only freed the Justices from ’payment’ of the  assessed land revenue but -did not cancel the assessment. No  Act of Legislature bearing upon the power of  Government to  accept a Iump sum payment in lieu of the annual  demands for  land revenue has been brought to our  notice.   Counsel admitted that they were unable to find any such  legislative provision.  We have thus to proceed, as did the High  Court, without  having  before us the authority  of  a  legislative enactment.   The only materials to which reference was  made are:  an extract from the explanatory notes in  the  Revenue Roll  of  the Touzi which shows that an  abatement  of  land

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revenue   pro  tanto  was  granted  to  the  proprietor   of Panchannagram  Estate, and a despatch from the Secretary  of State  for  India  (Lord  Stanley)-No.  2  (Revenue)   dated December 31, 1858-recommending redemption of land revenue by an immediate payment of a sum of equivalent value,  together with  a Resolution of Government (Home Department  No.  3264 (Rev)  dated October 17, 1861) on permission to  redeem  the existing  land revenue by the immediate payment of  one  sum equal in value to the revenue redeemed.  By the  resolution, it was provided that such redemption would be limited to  10 per  cent of the total revenue in the Collectorate  and  the price  to be paid was to be fixed at 20 years’  purchase  of the  existing  assessment.   It may  be  mentioned  that  in Despatch  No. 14 dated July 9, 1862, the Secretary of  State for India (Sir Charles Wood) did not agree with the  earlier policy, but did not cancel it. It  may  thus be assumed that what was done  was  under  the authority  of  the Crown, which was  then  paramount,  which paramountcy  included the prerogative to free land from  the demand of land revenue with or without conditions.  We have, therefore,   to   examine  three  things:  the   effect   of acquisition  on  the continuance of the assessment  to  land revenue,  the effect of redemption by a down payment on  the same,     77 606 and the effect of the grant, free from land revenue, to  the Justices. The acquistion was under Act VI of 1857.  That Act  provided in B. XXVI as follows: "When any land taken under this Act forms part of an  estate paying  revenue to Government, the award shall  specify  the net  rent of the land including the Government Revenue,  and the  computed  value of such rent: and it shall  be  at  the discretion of the Revenue authorities either to pay over the whole  of  such  value to the owner of  the  estate  on  the condition of his continuing to pay the jumma thereof without abatement;  or to determine what proportion of the net  rent shall be allowed as a remission of revenue, in which case  a deduction shall be made from the said value proportionate to the value of such remission." This  provision  only  saved the  Estate  assessed  to  land revenue  from liability to pay land revenue  proportionately falling  upon the land acquired compulsorily, subject  to  a like  proportionate reduction in the amount of  compensation payable  to the proprietor of the estate, but the  provision cannot  be stretched to mean that the liability of the  land actually acquired, to land revenue in the hands of  grantees from  the Government also ceased.  Be that as it may, it  is hardly necessary to view the present case from this angle at all,  because,  whether the land acquired  continued  to  be subject to an assessment or must be deemed to be  reassessed as  a  separate  estate, the result would  be  the  same  if Government  demand  still subsisted on it, as, in  fact,  it did.   There could have been no redemption of the  liability by  a  down  payment  if no land  revenue  could  have  been demanded.   The  fact  that  the  recurring  liability   was redeemed by a lump sum payment itself shows that in the view of Government as well as of the Justices, the ’Square  Mile’ was still subject to the recurring demand and was thus still assessed to land revenue.  It is, therefore, not  profitable to  investigate the effect of acquisition on  the  continued liability of the land to land revenue between the time there was acquisition and the vesting of the land in the Justices. -For the above reason, we need not examine at

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607 length  the  case  in Lord Colchester v.  Kewnoy  where  the acquisition  by  the Crown was held not to  make,  the  area acquired immune from land-tax, because the burden of the tax would  then have fallen upon the remaining land situated  in the  unit  from which it was acquired and on  which  unit  a quota of the land-tax was chargeable.  Such a position  does not  arise here, because the Panchannagram Estate was  given abatement and a lump sum was paid to free the land  acquired from the liability to land revenue.  Similarly, the decision of  this  Court in The Collector of  Bombay  v.  Nusserwanji Rattanji Mistri and Others (2), where on the acquisition  of some Foras lands held under Foras Land Act (Bombay Act VI of 1851)  the Foras tenure was declared to have come to an  end and  on  the  same  lands  being  resold  by  Government  as freehold, they were declared not to be subject to assessment to which they were previously subject, is not very helpful. There  do  not appear to be any rules prior to  1875,  which were framed under the Land Acquisition Act of 1870 (Act X of 1870)  and which are to be found in the Calcutta Gazette  of July  7,  1875, p. 818.  If there were, they have  not  been brought to our notice.  But a practice similar to the  rules seems  to  have obtained under s. XXVI of the Act  of  1857. That  Act  also  did not contain any  provision  for  making rules,  as  are  to  be found in  the  subsequent  Acts  for compulsory  acquisition  of  land.  In the  absence  of  any statutory  law or rules, we must take the facts to  be  that after   acquisition  the  Panchannagram  Estate  was   given abatement  of land revenue, and the demand for land  revenue was  transferred  to the land acquired and  granted  to  the Justices.   At  that  stage,  the  liability  to  assessment remained, and it was that liability which was redeemed by  a down payment. We next consider the effect of redemption.  Learned  counsel for   the  appellant  contends  that  redemption   in   this connection means that by a single payment, the liability for periodical payments is saved but the assessment on the  land remains uncancelled.  He has cited Wharton’s Law Lexicon  to show the meaning of (1) (1866) L.R. 1 Exch. 368. (2) [1955] 1 S.C.R. 1311. 608 the   word  "redemption",  which  is  "commutation  or   the substitution of one lump payment for a succession of  annual ones:  e.g. See the Land Tax and the Tithe  Redemption  Acts and  many  other  statutes".   Redemption  is  the  act   of redeeming which in its ordinary meaning is equal to bringing off a charge or obligation by payment.  To what extent  this redemption freed the land or its holder from the  obligation depends  not  so much upon what the  obligation  was  before redemption  as  what remained of that obligation  after  it. Here,  the  payment  itself was meant to  be  "an  immediate payment  of one sum equal in value to the revenue  redeemed" (vide the Resolution of Government dated October 17,  1861). By the down payment, the entire land revenue to be recovered from  that land was redeemed.  The payment was equal to  the capitalised value of the land revenue.  When such a  payment took  place, it cannot be said that the assessment for  land revenue  remained.  The land was freed from that  assessment as completely as if there was no assessment.  Thenceforward, the  land would be classed as revenue-free, in fact  and  in law.  In The Land-Law of Bengal (Tagore Law Lectures,  1895) p.  81  S. C. Mitra described these  revenue-free  lands  as follows: "There  is another class of revenue-free lands  which  comes

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within these rules laid down in the Registration and Tenancy Acts,   namely,   lands   of  which   Government   has,   in consideration  of the payment of a capitalised sum,  granted proprietary  title  free in perpetuity from  any  demand  of land-revenue." That  this is what had happened here is quite apparent  from the conveyance by the Secretary of State vesting the land in the Justices.  It is significant that there is no mention of the  payment of Rs. 7,728-13-8, nor of the assessability  of the  lands to land revenue.  On the other hand, the deed  of conveyance  merely  reaffirmed the position,  which  existed before by stating: "...to  hold  the  said pieces of  land,  hereditaments  and premises  intended  to be conveyed  with  the  appurtenances except as aforesaid unto the said Justices of the Peace  for the Town of Calcutta and their successors for ever free  and clear and for ever discharged 609 from all Government land revenue whatever or any payment  or charge in the nature thereof." There  can  be no doubt that the land revenue was  for  ever extinguished  and  the land became free from  land  revenue, assessment in perpetuity.  It cannot thereafter be said that the land was still assessed to land revenue. Mr. Mitra made a great effort to construe the operative part quoted above with the aid of the recital in the deed,  where it was stated: "...but  free  and  discharged  from  all  payment  of  land revenue, land tax and all and every tax or imposition in the nature   of   -revenue  derivable  from  land   payable   to Government...... He drew attention to the word ’payment’, and contended  that what was saved was payment of land revenue.  He argued  that in  case  of ambiguity it was permissible  to  construe  the operative  portion of a deed in the light of  the  recitals, and cited Halsbury’s Laws of England, 3rd Edn., Vol.  XI, p. 421,  para.  680,  Gwyn v. Neath Canal Co. (1)  and  Orr  v. Mitchell  (2).  If there was any ambiguity in the  operative portion  of  the  deed, we may have taken  the  aid  of  the recitals.  But  there  is no ambiguity  in  the  deed.   The history of redemption is a matter of record, and it is plain that  Government  was accepting a down payment  and  freeing land  from land revenue.  This is precisely what  was  done, and  the  result of the down payment is set out  with  great clarity in the deed itself, and it is that there was no land revenue assessed on or demandable from that land.  In  fact, no demand or payment or charge in the nature of land revenue could  ever be made on it.  In view of this, it is,  in  our judgment,  quite satisfactorily established that  this  land was not assessed to land revenue and the income from it  did not  fall  within  s. 2(1)(a) of the  Income-tax  Act.   The answer given by the High Court was thus correct. In the result, the appeal fails, and will be dismissed  with costs. (1868) L R. 3 Exch. 209.                                    Appeal dismissed (2)  [1893] A. C. 238, 254. 610