- Court
- Supreme Court of India
- Decided
- 4 April 1963
- Bench
- S. K. Das, A. K. Sarkar, K. N. Wanchoo, K. C. Das Gupta
Headnote
Income Tax-Interim maintenanoe allowances and com-mutation Bum-Distinctinn-lnterim maintenance allowances, whether income or capital-flyderabad (Abolition of Jagirs) Regulation, 1358F-Hyderabad Jagirs (Commutation) Regula-tion, J359F-Income-tax Act, 1922 (11 of 1922). ·
The Hyderabad (Abolition of Jagirs) Regulation, l 358F, which abolished Jagirs, provided by s. 14 that the amount payable to the J agirdars under the Regulation "shall he deemed to be interim maintenance allowances payable until such time as the terms of the commutation for thejagirs are deter-mined." The Hyderabad .Jagirs (Commutation) Regulation, 1359F, bys. 3 laid down that commutation sum for a .Jagir would be a certain multiple of its basic annual revenue and by s. 6, tlut the commutation sum for each Jagir would be distribut1ble between the Jagirdar and Hissedars in certain proportions. Sub-section (2) of s. 7 of the latter Regulation stated that "payment to a Jagirdar ...... of. ..... the commu-tation sum of theJa~ir shall constitute the final commutation as from the !st April 1950, of his rights in the Jagir and if any· payment by way of an interim maintenance allowance under the said Regulation," that is, the Regulation of J3j8F., "is made in respect of a period ...•.. subsequent to the said date, the, amount of such payment .... shalJ be recovered from the recipient thereof by deduction from .... his share in the commutation sum for the Jagir."
He"ld that the interim maintenance allowances paid under s. 14 of the earlier Regulation in respect of a period prior to April I, .1950, were revenue receipts on which income. tax can be imposed. They were intended to be quite distinct from the con1mutation sum mentioned in it which sum was ad· mittedly a capital receipt. The words "final commutation'' in s. 7 (2) of the Latter Regulation did not show that the interim allowances were part of the comrriutation sum and, therefore,
1963 of the nature of capitr.l receipts but they only meant that the
final commutation was the only commutation that thejagirdar Raj• Ram~•tcara •• Rao was to get in respect of his rights in thejagir .
Conrmi :siontt of '!rt· The observation in Commissioner of Inland Revenue v, cornt-tax, /~.,tftrabad
Butterley & 'Co. Ltd. that such interim allowances were sui generis and were neither income from property nor from investment nor did it arise from the right to compensation but arose from· the statute itself which directed it to be paid, approved.
Shanmugha Raje.!Wara Sethupalhi v. Income-taz 0 fficer, Karaikudi, [1962] 44 I. T. R. 853. Ccmmi.!•ionor of lnrome-taz v. Shaw Wallace & Co. (1932) L. R. 59 I. A. 206 and Cammi8-Bioner of Inland /levenut v. Butterley & Co. Ltd., (1956) 36 T. C. 411, rcfrrred to.
Crvn, APPEL!,ATE juRI8DICTIO!'<' : Civil Appeal No. 420 of 1962.
Appeal from the judgment and order dated April 3, 1959 of the Andhra Pradesh High Court in Writ Petition No. 17 of t 956 {Referred Case).
C. Krish1UJ Reddy, A. V. V. Nair and P. Ram Rec'dy, for the appellant.
K. N. Raja;Jopal Snstri and R. N. Sachthey, for the respondent.
l!J6:l. April 4. The Judgment of the Court was delivered by J. SARKAR .J.-The appellant was the proprietor Sarkar of the Wanaparthy Jagir in the former Indian State
of HyJerabad. Certain payments described as interim maintenance allowances were mad'e to him under the Hyderabad (Abolition of .Jagirs) Regulation 1 :158 F, hereafter called the Abolition Regulation. These payments were brought to tax under the I ncome·tax Act, I fE~ as income. The appellant contended that they were capital and not liable to be taxed. He took various proceedings and eventually a case was stated to the High Court of Andhra Pradesh 1963 for decision of the following question : I Raja Rameswara R«o v. "Whether the interii;n maintenance allowa-Commissioner of In· nces received by the assessee under the Ct11f'le·lax, Hyderatad Hyderabad (Abolition of Jagirs) Regulation, Sarkar J, 1358 Fasli, are income and therefore liable to tax."
The qu'estion was answered against the appellant .by the High Court and hence this appeal.
The point at issue is whether these payments constituted capital or income. The answer to this question will have to be found in the Abolition Rugulation under which the payments were made and another Regulation called the Hyderabed Jagirs (Commutation) Regulation, 1359F (hereafter called the Commutation Regulation) which was intended to be supplementary to the earlier Regulation. The material provisions of these Regulations may, there-fore, be referred to at once.
We shall first take up the Abolition Regula· tion. Under s. 6 of this Regulation, the Jagirs were included in "Diwani" (Government) as from the "appointed day" to be fixed under s. 5 and thereupon the powers, rights and liabilities of the J agirdars in relation to the J agirs ceased to be exercisable by or against them. Section 3 provided for the appointment of an officer called the J agir Administrator. Section 8 provided for payment to Govemmen t of a specified percentage of the gross revenue, which for practical purposes may be taken to be the total realisation or income of the Jagir, fer meeting the administration expenses. Section 13 required a separate account in respect of each Jagir to be kept by the J agir Administrator. Section 1 O provided for payment to the J agirdar out of the income of the Jagir of ·a sum equivalent to half of
1963 what he was getting before the comme11cement of Roja Romuwar• Rao the Regulation, as remuneration for managing the
v. Jagir and for distribution of a like sum among tlic Commission.1r oj In· Hissedars (sharers in the J agir income with the .J agir-rom1·IOJt, ff.Jlkrabad
dar) in a certain proportion. Section 11 provided Sa1*4r J, that the net income of the J agir calculated in the
manner prescribed, would be distributed between the J agirdar and Hissedars in the proportion in which they were entitled to the income under the law in force before the commencement of the Regulation. Section 14 provided that the amounts payable to Jagirdars under Regulation ."shall be deemed to be interim maintenance allowances payable until such time as the terms for the commutation of J agirs are determined." These are the interim maintenance allowances with regard to which the question has arisen in th is case.
We turn now to the Commutation Regulation. Section 3 of this Regulation provided that the com· mutation sum for a Jagir would be a certain multi-ple of its basic annual revenue, the method of cal-culation of which was laid down in s. 4. Section 5 stated that the commutation sum for every J agir would be determined by the J agir Administrator. Section 6 said that the commutation sum for each Jagir would be distributable between the Jagirdar and Hissedars in like· proportion as the income was distributable between them under s. 11 of the Abolition Regulation subject to certain deduc-tions to which it is unnecessary to refer.
It is not in dispute that as a result of the Re~ulations the appellant's rights in his Jagir were extmguished. The appellant contends that he was divested of the J agir as from the "appointed day" fixed under s. 5 which was, it is said, September 15, 1949. It appears that a: somewhat different view was taken in Shanmugha RajeB'IL'ara Sethupathi v. Inrome·lax Offiar, Karaikwli ('). We do not think (I) [19~2) ff LT,R, 85S, it necessary in the present case to fix the precise 1963 point of time when the J agir was taken away from Rafa Rame.swara Rao the appellant and we will proceed on the basis that v. the appellant's contention is the correct one. • Commissioner oj In-come-tax, HJderabad As we have earlier said, the real point for · Sark•r J. decision is whether the payments were of income nature or of the nature of capital. If they were made as compensation · for the deprivation of the Jagir, they would undoubtedly be capital. It may be stated that it is common case of the parties that"
the commutation sum payable under the Com-mutation Regulation was paid as such compensation.
The first thing that we wish to observe is that the two Regulations made a clear distinction between the interim maintenance allowances and the com-mutation sum. The allowances were paid under the Abolition Regulation which said nothing about the right to the payment of the commutation sum;
that right was created only by the . Commutation Regulation. The allowances were measured as a fraction of the current income while the commuta-tion was a multiple of annual revenue. The allowances were recurring payments for. a certain time while the Commutation sum was a fixed sum payable at once or by instalments. Then we find that under s. 14. of the Abolition Regulation the interim maintenance allowances were "payable until such time as the terms for the commutation of Jagirs are determined". In other words, after the terms for commutation are determined, the interim maintenance allowances are to cease to be payable.
It follows that when compensation begins to be paid, the payments of the maintenance allowances have to stop.
Lastly, we find this distinction empha~ised in sub-sec- (2) of s. 7 of the Commutation Regulation.
That provision is in these terms :
852 SUPREME COUI_lT REPORTS [1!)64] VOL.
IJOJ "The payment to a Jagirdar or Hissedar Rtja Rtmtt1wara Rao of his appropriate share in the commutation
v. sum of the Jagir shall constitute the final Commis,iot11r of 111· • commutation as from April I, 1950, of his com1'UJt, HJitrabaJ rights in the J agir and if any payment by way Sm/tar J, of an interim maintenance allowance under the said Regulation is made in respect of a period the whole or part of which is subsequent to the said date, the amount of such payment or, as the case may be, the appropriate pro· portion of such amount shall be recovered from the recipient thereof by deduction from the first payment made to him on account of his share in the commutation sum for the Jagir". The words "said Regulation" in this sub-section refer to the Abolition Regulation.
It seems to us that though' somewhat cumbcrously worded, the intention behind the sub-section is not many serious doubt. Its object was to provide that the date of determination of the terms of commuta-tion mentioned in s. 14 of the Abolitio.n Regulation would be April I, 1950 and no interim maintenance allowances would be paid ill respect of any period after that date but thereafter only commutation sum would be paid. Now this commutation sum is the sum determined as provided in ss. 3 and 4 of the Commutation Regulation. The interim main-tenance allowances are no part of the commutation sum so determined. Furthermore, the sub-section expressly provides that if any interim maintenance allowance is paid in respect of a period subsequent to April l, 1950, that payment is to be recovered out of the commutation sum payable under this Regulation. Quite clearly, therefore, only what. was paid in respect of the period prior to April l, 1950 was to be interim maintenance allowance, and what was thereafter paid was towards the commutation sum.
2 s.a.R. SUPRENIE COURT REPORTS 853
It was contended on behalf of the appellant /963 that the words "final commutation" in the sub-Raja Romeswara R•o section showed that the interim maintenance allo-v. wances were also part of the commutation sum. Commissioner of In• &ome-tax, Hyd,rab1 It seems to us impossible to accept this contention for that would make the two the same, which, as we Sarkar have shown earlier, they could not be. "Final commutation" meant the only commutation that the J agirdar was to get in respect of his rights in the Jagir, that is to say, he was to get no other commuta-tion. In fact, as already stated, if any interim main-tenance allowance was paid after the commutation became payable, that was to be recovered from and not added to the commutation.
We have earlier said that it is not in dispute that the commutation sum was paid as compensation for the loss of the Jagir and was, therefore, capital which was not liable to be taxed. We thus find that the Regulations make a clear distinction between the commutation sum or compensation and the interim maintenance allowances'. These allowances were obviously· not intended to be compensation.
The question then arises, if these allowances were not paid as compensation for the loss of the J agir and were not of the nature of capital as such, what was their nature ? We think that if we have regard to the provisions of the Regulations under which they were paid, as we must, there is no doubt that they were of the nature of income. No doubt they were not income of any of the kinds that are commonly found, but are, as Lord Radcliffe said in a case to which we shall later refer, sui generis. We proceed now to discuss why we think they were income.
These allowances, we notice, were treated by · the Regulations as something other than the compen-
~ation for the loss of the Jagir. They were, therefore!
1963 not treated as capital as representing compensa-
tion for the Jagir. If they were not capital for the R•ja RarntswartJ •• Rao reason that they were not compensation for the loss CommiHi?rur of 111· of the J agi.r, we find no ground on. which we can a11ru·tax, lly1uahad say they were capital. It would follow that they
S•rkar J. must be income and taxable as such. They were
certainly not windfall for a right to them was created by the Abolition Regulation, a right which under s. 21 could be enforced in a civil court. Then we find that these allowances were payable with a regularity and were of a recurring nature, both of which are recognised as characteristic of income : see· the Cornmissioncr of lnmme-tax v. Shaw Wallace & Go. (1). Next, we observe that the Regulation advisedly called the payments "maintenance allow-ances," a nomenclature peculiarly suited to pay-ments of the nature of income. Lastly, it may be pointed out that the payments were made for the interim period between the time when the income of the .Jagir began to be collected by the Govern-ment through the J agir Administrator and April I, 1950, when the compensation for the loss of the Jagir first became payable. The payments were, therefore, by way of compensation for the loss of income in the interim period. In the words of
Headnote as published in the Digital Supreme Court Reports by the Supreme Court of India. Paragraph references point to the judgment below.
Judgment
Jenkins L. J. as will appear later, they were "in-come-compensation" and therefore of the income nature.
\'Ve think for all these reasons the interim maintenance allowances were taxable income. If a source had to be found for them, the Regulation had to be held to be the source.
A case very near to the one in hand and a case that throws a great deal of light on the problem that faces us in the Commissioner of Infonrl Revenue v. JJutterley Go. Ltd. ('). We think a detailed refer- , ence to it can be very profitably made. That case
was concerned with the English Coal Industry OHl932) L,R, 591.A, 206. (2) t 1956) St T,O, ~II.
Nationalisation Act, 1946, which nationalised the 1963 collieries and divested all owners of them and the businesses concerning them. Under this Act and Raja Rameswara Ra• v. the Coal Industry (No. 2) Act, 1949, the assessee Commissiondr of ln-company became entitled to compensation for the come·lax, HyoerabU assets transferred to the Government and to certain Sarkar J. payments called "revenue payments" and "interim iacome" for the period between what was called the primary vesting date and the date on which com-pensation for the assets taken away was fully satisfied.
The question was with regard to these payments.
The assessee company had contended in the beginn-ing that the payments were not of income nature at all. In the Court of appeal however that con-tention was abandoned and it was conceded that the payments were of income nature. The only dispute was whether they were income .chargeable to profits tax ·as profits of a trade or busin€ss carried on by the assessee company. The decision was that the payments were not income or profit of any trade or business.
We will first read from a part of the judgment of Jenkins L. J. in the Court of Appeal. He said (p. 437), "The Act of 1946 studiously avoids des-cribing the interim income as interest on or income of the compensation." Then the learned Lord Justice pointed out that the payments were to be calculated by reference to the past earning of the concern and bore no relation at all to the amount of the.compensation and proceeded to observe, (p. 438), "I find it difficult to hold that the interim income payable under these Acts, defined and measured in the way it is, can properly be described as income of the compensation; and there is, I think, much to be said for the view that, albeit itself in the nature of income, it is not income, . of the com-pensation but· rather income-compensation, if I may use that expression, that is to say, a series of periodical payments an independent right . to
856 SUPRENIE COURT'REPORTS [1964] VOL.
190 which is conferred by the Act by way of compe11sa-Raja R"11tstb•r• .. R•o tion for the loss of income sustained in respect of
the period between the primary vesting date and C1mmissi11111 •f1n· the ascertainment and satisfaction of the compensa- ,.,,,,.tu, Hyitrciad
tion." We think these observations can be Sark•r I. applied in all their force to the payments with
which the present case is concerned. Here also the interim payments had no relation to the commutation sum, that is, compensation for the loss of the J agir. It is clear that Jen kins L. J. was treating the payment as a species of income and we also think that the payments in the present case cannot be treated otherwise.
There are some observations in speech of Lord Radcliffe when he dealt with this case on appeal to the House of Lords which we think may be usefully quoted here. He observed, (p. 449-50), "The Coal Industry Nationalisation Act, 1946, legislated for a revolution in tlie coal industry of this country .................. These interim income pay-ments which are now in question are the product of that disturbance and adjustment, and it docs not seem to me at all surprising that they cannot well be related to any of those other kinds of receipt which normally come into the accounts of a company . conducting a trade or business. They are sui gerieris
and it would, I think, lead to confusion if they were described in any terms except those which arc strictly applicable to their own special circumstances. Thus, they were paid because the nationalisation Statute decreed that they should be paid. They would not have been payable to the Respondents if they had not been conducting a colliery business at the vesting date, and in that sense, of course, they were paid to and received by the Responde11ts for no other reason than that they had been owners of colliery assets and had been in the colliery trade. Equally of course, the interim income payments that the Respondents got · were fixed either as a proportion of the profits which they had been earning 196J in the colliery trade before the date of vesting or by a computation of interest at varying rates upon sums Raja Ram1swara •• Rao received from time to time by way of capital . Commissillnar Qf [n. compensation. But, when all that is said, the-fact CMfll•tCX, ff,ft.rBbad remains that the only identifiable origin of the Sarkar J, payments was the Statute whiBh authorised them and at the same time defined their terms and methods of computing. It is natural enough that moneys paid in this way, described by their instrument of creation as 'interim income', should be regarded as inherently of an income nature when the question arises of subjecting them to any tax that bears upon income as a chargeable S\lbject. But I do not think that in any proper use of the words can they be said to arise from a source of income, in the sense that income or profits-for the moment I am not con-cerned with any difference between the two terms-can be said to ari>e from a trade or a business or an investment or some other piece of property that admits of use or enjoyments.'·' He also observed, ( 451-52), "I have already explained why they were not income from investments. By a similar process of reasoning they were not, in my view, income from property. It does not clear up the matter to say that the right to compensation-and, for that matter, the right to interim income-was a chose in action. The interim income payments did not arise from the right to compensation· as income arises from income-producing property. They arose from the Statute itself which decreed that they were to be paid." ·
We venture to think that the observations that we have read from the English case in the preceding paragraphs give the correct picture of the nature of the payments. It was found unarguable that the int~rim payments under the English Acts were not of income nature. The payments with which we 11re co11cerned were made 11nder statutory provisions
1963 completely parimateria with those under consider-Raja Ramtswara Rao ation in the English casr. . We, therefore, hold that
v. the interim payments to the appellant were income COmmi1sioll4r of In• and liable tax.
c1Jmt·l•x1 llyderabad to
SMkar J, It appears that there were in this case four payments totalling Rs. 1,47,857-4-0 of which the first was made on January 2:3, 1950 and the other three on April 10, 1950, July 3, 1950 and August 3, 1950, respectively. It does not appear to have been found whether the last three payments, which it will be noticed had been made after April l, 1950, were in respect of the commutation sum or interim maintenance. It was for that reason that the Tribunal directed the Income-tax officer concerned to institute an.enquiry as to the nature of these three payments. Apparently, the High Court approved of that order. We also take the same view. We the think that the question was answered correctly by High Court by saying that the interim mainten· ance allowance received by the assessee which do not form part of the commutation amount are income and arc liable to be taxed and that the payments made subsequent to April l, 1950, towards commu· tation amount are not income and not liable to be taxed.
The result is that this appeal fails and is accordingly dismissed with costs.
A ppe.al dismissed.
Source: Supreme Court of India, Digital Supreme Court Reports, via the Indian Supreme Court Judgments open dataset (CC BY 4.0). Text was extracted from the official PDF and may contain conversion errors. Check the official PDF before relying on it.