Commissioner of Income Tax vs Raja Shri Shri Kalyani Pd. Deo Panchkote

Manohar Lall, J.—This is a reference u/s 66 (1), Income Tax Act, 1922 by the Appellate Tribunal, Calcutta Bench, asking the opinion of this Court upon the following question:

Whether the proportionate amount of the revenue paid from the estate, to which appertain the coal lands from which the royalties arose, or a reasonable , portion of it, ought to have been allowed as a deduction u/s 12 (2).

The assessee, the Raja of Panchkote, is the owner of a zemindary for which he is assessed to pay an annual jama or Government revenue of Rs. 54,527. In the previous year 1940-41 which is the subject of assessment for the year 1941-42, the assessee derived an income from royalties from the coal fields which he had leased out to some lessees. His claim for deduction of the jama was disallowed by the Income Tax authorities on the ground that Section 12 of the Act does not make it a permissible deduction. The Income Tax officer took the view that at the time when the jama was fixed long ago at the time of the Permanent Settlement, there was possibly no trace even of the development of these coal fields, and obviously this income from coal field could not have been one of the determining factors in assessing the jama for all times, and as the jama fixed by the Government was dependent on the income of these estates existing at that time, so the deduction claimed is not permissible under S, 12 (2) of the Act. He adds that

this item of expense n6t having been incurred solely for the purpose of making or earning such income was not deductible u/s 12 (2)." The Appellate Assistant Commissioner substantially came to the same conclusion. The Appellate Tribunal took the contrary view which may be expressed in their own words:

Most of the income assessed arose out of the revenue-paying Rstate No. 19 of Manbhum Collectorate. The revenue payable is Rs. 54,527. The claim to deduct this was disallowed on the ground that Section 12 of the Aot does not make it a permissible deduotion so that no enquiry was held to apportion it amongst the lands out of which the income assessed arose. It is submitted that if the whole figure cannot be deducted an enquiry should be made as to what is thesum deductible. It is argued on the principle laid down in 58 Cal. 4301 that the tax is not on the gross income, that the non-agricultural income of an estate is the inoome after deducting the revenue. We do not see why the apportionment was not made. We, therefore, direct that the proportionate amount of the revenue paid may be deducted in computing the income from the non-agricultural sources.

At the instance of the Commissioner of Income Tax, Bihar and Orissa, the question stated above has been referred to us. In my opinion, it is impossible to take any other view than that taken by the Appellate Tribunal. The authoritative pronouncement by Lord Russell of Killowen, who delivered the judgment of the Board, in the celebrated case in AIR 1930 209 (Privy Council) is conclusive and binding on us. At p. 240 his Lordship observed:

Their Lordships were unable to ascertain upon what footing the appellant had been assessed in respect of the income derived from his zemindary, i.e., whether on the gross inoome or after some allowance had been made in respect of the jama assessed and paid upon the lands. Their Lordships are of opinion that, in assessing the appellant to income tax in respect of the inoome derived from his zemindary, his inoome, profits and gains from that source should be computed after making proper allowance in respect of the jama assessed and paid.

The assessee is sought to be assessed in respect of the non-agricultural income derived from the coal fields which are situated within his zemindary. The assessee is, therefore, entitled to claim a deduction for the jama which should be ascertained'' as paid by him for the lands in his zemindary which produced him the royalties, otherwise the tax would not be upon " income, profits and gains " but on his gross receipts. It was argued on behalf of the Income Tax Department that it is impossible to ascertain what would be the jama payable for the lands under which the coal fields are situated which produced the royalty income, but it is not within the province of this Court to advise the parties at this stage as to what sort of evidence they should lead in order to determine the amount of revenue which should be deducted. The learned standing counsel also drew attention to Section 9(1) (v) of the Act where the assessee when he is sought to be taxed under the heading ''property'' is allowed a deduction for the sum paid on account of land revenue in respect of the property. He argued that no such reference is -to be found in S 10 or in Section 12. This argument is wholly inadmissible in view of the decision of their Lordships of the Judicial Committee. I would, therefore, answer the question referred to us in these words: The assessee is entitled to claim a deduction on account of the jama paid which can be attributed to the coal lands from which the royalties included in the assessable income arose in the previous''year. The assessee is entitled to the costs of this Court, hearing fee Rupees 250.

Fazl Ali, C.J.

I agree.