JAGDISH CHANDRA DEO DHABAL DEB vs DHANPATI SINGH DEB.

BEEVOR, J. - This is an appeal by the defendant against a decision of the Additional Subordinate Judge of Chaibassa modifying a decree passed by the Munsif of Jamshedpur in a suit for recovery of arrears of an annuity payable in monthly installments to the plaintiff under the will of the late Raja Satrughan Deo Dhabal Deb. The defendant appellant is the executor and also the chief legatee under that will. There is no dispute regarding the title of the plaintiff-respondent to the annuity in question and the only matter in dispute is the claim of the appellant to deduct from the amount payable to the plaintiff the amount of agricultural Income Tax payable on that sum in accordance with the Bihar Agricultural Income Tax Act, 1938. Both the lower Courts have rejected this claim.

The testator was the proprietor of a property known as the Dhalbhum Estate. After his death the appellant obtained probate of the will which is dated 11th May 1995, but he only succeeded in getting possession of the estate after litigation which stated in 1921 and was contested up to the Privy Council. The annuity in question is payable under para. 8 of the will which runs as follows :

"After my death, my said affectionate brother Jagadish Chandra Deo Dhabal Deb (i.e., the appellant) shall pay Rs. 3,000 a year at the rate of Rs. 250 a month to each of my said affectionate grandsons Dhanapathi (i.e., the plaintiff-respondent) and Radhika Prasad Singha, till my debts are not cleared off. And when the debts are cleared off, they shall each be paid Rs. 12,000 a year at the rate of Rs. 1,000 a month with their sons, grandsons and other male descendants, from generation to generation. The said sum of Rs. 24,000 shall be a charge that is encumbrance on my Dhalbhum zamindari."

The only other paragraph in the will to which it is necessary to refer is para. 2 which runs as follows :

"Whatever right and title I have in my zamindari Ghatsila alias Dhalbhum and other immovable properties Raj Sultantant which I will leave behind, shall, after my death, absolutely devolve according to the under-mentioned provisions upon Raja Jagdish Chandra Deo Dhabal Deb son, of late Raja Iswar Chandra Deo Dhabal Deb, inhabitant of Chilkigarh, Pargana Jambuni, thana Jhargram, District Midnapur."

The claim of the appellant is based on Section 11 of the Bihar Agricultural Income Tax Act, 1938, which runs as follows :

"(1) Save as provided in Sections 9, 12, and 13, if a person holds land from which agricultural income is derived partly for his own benefit and partly for the benefit of beneficiaries or wholly for the benefit of beneficiaries, agricultural Income Tax shall be assessed on the total agricultural income derived from such land at the rate which would have been applicable if such person had held the land exclusively for his own benefit, and the agricultural Income Tax so payable shall be assessed on the person holding such land, and he shall be liable to pay the same.

(2) Any person holding such land shall be entitled, before paying to any beneficiary the amount of agricultural income which such beneficiary is entitled to receive from the agricultural income derived from such land, to deduct the amount of agricultural Income Tax at the rate at which the agricultural income is or will be assessed under sub-section (1).

Explanation. - In this section "beneficiary" means a person entitled to a portion of the agricultural income derived from the land."

Both the lower Courts have held that the annuity payable to the respondent is not agricultural income. The lower appellate Court also held that the plaintiff respondent is not a beneficiary within the meaning of Section 11 of the Bihar Agricultural Income Tax Act, 1938, and the trial Court also appears to have held the same. It is undisputed that the appellant does pay agricultural Income Tax under that Act on income derived from the Dhalbhum zamindari, and there is no dispute that the income on which he pays such tax is agricultural income is defined in Section 2 of the Act. At first it was not clearly admitted that the appellant also derives income from that zamindari which is not agricultural income, but the learned Subordinate Judge in his judgment pointed out that the certified copies of orders of assessment made by the Bihar Agricultural Income Tax Officer showed that the Dhalbhum estate had certain sources of income which were not record of this suit from which the income of the Dhalbhum estate from these and other sources, which do not come within the definition of agricultural income, can be definitely found out.

In this Court, after some discussion, it was agreed by counsel on both sides that for the purpose of this suit and appeal, it should be taken that the income of the Dhalbhum Estate is half agricultural and half non-agricultural income. The agreement was recorded in the order of the Court dated 2nd February 1944. This agreement is strictly limited to the suit and appeal, and is, therefore, not to be taken as any admission on either side as to the real proportion between the agricultural and the non-agricultural income of the estate, should the matter arise for decision in future in any proceedings in Court or otherwise.

The learned Munsif took the view that the appellant in Court or otherwise assessed to agricultural income in respect of the amount payable to the plaintiff-respondent as annuity. I doubt whether his view on that point is correct. But that matter is not directly before the Court and it is unnecessary to express a definite opinion on the point. The learned Subordinate Judge took the view that the defendant, now appellant, was at liberty to pay the allowance due to the plaintiff either from the agricultural or non-agricultural income of Dhalbhum Estate and that, therefore, the allowance payable to the plaintiff was not an agricultural income as defined in Section 2 of the Bihar Income Tax Act.

Mr. P. R. Das, who appeared for the appellant, contended that the annuity or allowance payable to the plaintiff under the terms of the will is not at any stage the personal income of the appellant but is derived by the plaintiff direct from the property of the Dhalbhum Estate, the appellant being merely a transmitting agent. He, therefore, urged that the question whether the annuity payable to the plaintiff-respondent is agricultural income or not depends solely on the decision whether the income collected by the appellant for the plaintiff-respondent is agricultural income or not, and he further urged that if the income so collected by the appellant includes both agricultural and non-agricultural income then in the absence of any specific provision in the will directing that the annuity should be payable out of one kind of income rather than the other, it should be held that a part of the annuity, bearing the same proportion to the whole annuity as the agricultural income of the Dhalbhum zamindari bears to the whole income of that zamindari, should be treated as agricultural income.

Mr. P. R. Das first referred to the direction in para. 8 of the will. "The said sum of Rs. 24,000 shall be a charge that is encumbrance on my Dhalbhum zamindari." He referred to the distinction between a charge and a mortgage and he referred us to certain decisions, both English and Indian, in support of the proposition that a charge merely indicates the particular property or fund out of which payment of the amount charged is to be made. This, however, will not carry us very far because the decision of the Judicial Committee of the Privy Council in Gopal Saran Narain Singh v. Commissioner of Income Tax, Bihar & Orissa, shows that an annuity does not become agricultural income by reason merely of the fact that it is secured by a charge on land. In that case the assessee by an indenture conveyed the greater portion of his estate in consideration of the transferee covenanting to pay his debts amounting to over 10 lacs of rupees, to pay him a sum of over 4 lacs in cash and further to pay him annual sums during his lifetime of Rs. 2,40,000, such payment being secured by a charge on the property thereby transferred. The Judicial Committee agreeing with a Full Bench of this Court held that the annual payment was no agricultural income. They stated :

"It is not rent or revenue derived from land. It is money payable under a contract imposing a personal liability on the covenantor, the discharge of which is secured by a charge on land."

Mr. P. R. Das rightly points out that the present cast is clearly distinguishable from that case which came before the Judicial Committee. In the present case the plaintiffs right to the annuity is not based on any personal covenant of the appellant and the direction in the will granting the annuity could not be considered as a personal covenant of the testator.

There is one decision of the Privy Council which appears to have an important bearing on the question now before us. This is the case in Bejoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta. The facts of that case were somewhat different from those now before us and it will be necessary to consider whether changes in the law which have taken place since the pronouncement of the Judicial Committee made in that case have altered the principles to be applied to the present circumstances. It will, therefore, be necessary to consider the facts of that case in some detail. The assessee, who was the appellant before the Privy Council, succeeded to the family ancestral estate on the death of his father. His step-mother brought a suit for maintenance against him. The suit was compromised and the decree was by consent pronounced directing the appellant to make a monthly payment of Rs. 1,100 to his step-mother. It was found that the ladys maintenance was a legal liability of the appellant arising by reason of the fact that he was in possession of his ancestral estate, that it was payable out of such estate, and that the Court had declared that the maintenance was a charge thereon in the hands of the appellant. Their Lordships of the Judicial Committed held that the sums paid by the appellant to his step-mother were not the income of the appellant at all. On this point they overruled the view taken by a Full Bench of the Calcutta High Court in which the judgment was delivered by the then Chief Justice, Sir George Rankin, with whom G. C. Ghose and Buckland, JJ., agreed. It is clear, however, from a passage in their Lordships judgment at p. 1033 of the report that they agreed with the learned Chief Justice in his approach to the question. That passage runs as follows :

"The learned Chief Justice in his judgment which was concurred in by his colleagues, Ghose and Buckland, JJ., deals with the case on the footing that, by the decree of the Court, the appellants step-mother had a charge not only on his zamindari property from which his agricultural income was derived, but also on all his other sources of income included in the assessment. He rejects the suggestion that the appellants liability to his step-mother was of the same kind as his liability to provide for his wives and daughter, and states that the position is the same as if the appellant had received his various properties, securities and businesses under a bequest from his father upon the terms that these assets were charged with an annuity for the maintenance of the widow. The case was not one of a charge created by the Raja for the payment of debts which he has voluntarily incurred. Their Lordships agree that this is the correct approach to the question."

In this passage their Lordships cited within quotation marks certain portions of the judgment of the learned Chief Justice and approved of them. The first of those portions given in quotation marks, read with their Lordships later decision that the sums paid by the appellant before them to his step-mother were not income of the appellant at all, clearly shows that if the appellant had received his various properties, securities, and businesses under a bequest from his father upon the term that those assets were charged with an annuity for the maintenance of the widow, such an annuity would not have been the income of the appellant at all. The other portion quoted from the judgment of the learned Chief Justice distinguished the case from one of "a charge created by the Raja for the payment of debts which he has voluntarily incurred." The facts of the case now before us fit in exactly with the hypothetical case cited by the learned Chief Justice in his justice in his judgment, and it will, therefore, appear that the law applicable to the present case is the law applied by their Lordships of the Judicial committed in Bejoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta. The case reported in Gopal Saran Narain Singh v. Commissioner of Income Tax, Bihar & Orissa, mentioned above, was clearly a case where the charge was really created by the Rani, the transferee, for payment of debts which she had voluntarily incurred, viz., the debt for payment of the annuity and other sums. That case was, therefore, clearly distinguishable from the case reported in Bejoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta.

I must now consider the effect of subsequent legislation on the decision reported in Bejoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta. In their Lordships judgment at p. 1035 of the report, after referring to a certain English decision and giving some account of the development of the imperial system of Income Tax legislation, their Lordships remarked :

"The correlative of the obligation to return as income sums which are really charges upon the tax-payers income is the right to reimbursement of the tax on such charges. The Indian Income Tax Act makes no similar provision for the deduction of tax at the source and the consequent reimbursement of the tax-payer in the case of such a charge as that to which the revenues of the appellant are subject."

Since that decision the Income Tax Act has been amended and considerable changes in the law have been introduced; and the number of cases in which deduction of Income Tax at the source is permitted or required by the Act have been increased. Some annuities are treated as salaries u/s 7 of the Act and in respect of these annuities deduction of Income Tax at the source has to be made u/s 18 by the person responsible for paying the annuity. So far as I can see, the annuity now in question would not fall within Section 7(1) of the Income Tax Act, but I do not think I need examine this question very closely because, even if this annuity does fall within Section 7(1) there is clearly nothing in the Income Tax Act which lays down or suggests that an annuity falling within Section 7(1) is to be treated as part of the income of the person responsible for paying it though by reason of Section 18 he is responsible for deducting at source the Income Tax assessable on that annuity. I, therefore, consider that the recent amendments of the Income Tax Act have not affected the application of the principles laid down in Bejoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta, to circumstances such as those in the present case.

We are now not directly concerned with the provisions of the Income Tax Act but with the provisions of the Bihar Agricultural Income Tax Act, 1938, and, in particular, with the terms of Section 11 thereof. Section 11(1) starts with the words "save as provided in Sections 9, 12 and 13," but Sections 9 and 13 have no application to the facts of the present case. Section 12 runs as follows :

"Where any person holds land, from which agricultural income is derived, as a common manager appointed under any law for the time being in force or under any agreement or as receiver, administrator or the like on behalf of persons jointly interested in such land or in the agricultural income derived therefrom, the aggregate of the sums payable as agricultural Income Tax by each person on the agricultural income derived from such land and received by him shall be assessed on such common manager, receiver, administrator or the like, and he shall be deemed to be the assessee in respect of the agricultural Income Tax so payable by each such person and shall be liable to pay the same."

It was not suggested on behalf of either party in this appeal that the appellant is holding the Dhalbhum estate as an "administrator or the like on behalf of parsons jointly interested in such land or in the agricultural income derived therefrom," and although the appellant is the executor of the will, I think that he is not now holding the estate as an executor but as a legatee, and Section 12, therefore, does not apply. I notice that Section 12 does not contain any clause equivalent to Section 11(2), but in Section 12 an a administrator is to be "deemed to be the assessee in respect of the agricultural Income Tax so payable by each such person and shall be liable to pay the same." The words "each such person" refer to the person jointly interested in the land or the agricultural income derived therefrom, and this section cannot mean that an administrator is personally responsible for the agricultural Income Tax yet cannot deduct that tax from the amounts payable to the persons by whom that tax is payable. Even, therefore, if Section 12 were held to apply to the facts of the present case, I should come to the conclusion that the appellant would be entitled to deduct any agricultural Income Tax actually payable on the annuity.

Returning to Section 11, the explanation to that section makes it clear that the appellant cannot make the deductions claimed under sub-section (2) unless the plaintiff-respondent is a beneficiary as described in that explanation which says :

In this section "beneficiary" means a person entitled to a portion of the agricultural income derived from the land."

It has been suggested that the word "portion" in this explanation must be read as equivalent to an aliquot part or share so that the extent of the beneficiarys income would vary with any variation in the total income. By reference to the new Oxford English dictionary I find the first meaning attributed to the word "portion" is "the part of (anything) allotted to one person; a share;" and among the meanings attributed to the word "part" I find "portion or division of a whole; that which together with another or others makes up a whole; a certain amount, but not all, of any thing or number of things." It appears to me that the object of the explanation to Section 11 was to make it clear that the word "beneficiary" in this section referred only to persons actually entitled to receive a part of the agricultural income and not to persons who might indirectly be entitled to some benefit by reason of that income. In the absence of any such restrictive explanation it might be urged, for example, that a lessee holds land partly for his own benefit and partly for the benefit of his landlord. I, therefore, see no reason to interpret the word "portion" in the explanation in any restricted sense. There appears to be no reason why a person entitled to a fixed sum out of fluctuating agricultural income should be exempt from agricultural Income Tax thereon while a person entitled to a fluctuating share would be liable to such a tax.

Section 11(1) directs that if a person holds land from which agricultural income is derived partly for his own benefit and partly for the benefit of the beneficiaries, agricultural Income Tax shall be assessed on the total agricultural income derived from such land, and it states that the agricultural Income Tax so payable shall be assessed on the person holding such land and he shall be liable to pay the same. He is, therefore, the assessee as defined in Section 2 (e) of the Act. Nothing in Section 11 or any other section of the Act, however, says that the total agricultural income derived from such land is or is to be deemed the income of the assessee. It appears clear that the whole scheme of this Act is to provide convenient machinery for collection of the tax and for this purpose the tax is assessed on the person who holds the land, whether the agricultural income derived from that land is his income or the income of others. I find nothing, therefore, in the Act to exclude the principle adopted in Bejoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta.

Applying, therefore, the principle adopted in that case, I find that the annuity payable to the plaintiff-respondent does not, and never did, form part of the income of the defendant-appellant though in so far as that income is agricultural income the agricultural Income Tax payable thereon will be assessed on him.

As already pointed out, the annuity payable to the plaintiff-respondent is not derived from any personal covenant of the appellant. It is derived direct from Dhalbhum Estate. The estate has both agricultural and non-agricultural income. There is nothing in the will directing that the annuity shall be payable out of any particular part of the estate. In these circumstances is the annuity to be treated partly or wholly or not at all as agricultural income ? Now it is clear that the income of the plaintiff-respondent derived by way of this annuity together with the similar incomes of other annuitants and the income of the appellant himself together make up the entire income of the Dhalbhum Estate. Having held that this income by way of annuity was never part of the appellants income, it must follow that if no part of this annuity is treated as agricultural income, a specific portion of the non-agricultural income of the Dhalbhum Estate must be held as belonging to the plaintiff-respondent and no the appellant. Presumably the same view must be taken in respect of all the annuitants and in this way all or nearly all the non-agricultural income might be allotted to the annuitants leaving the appellant only agricultural income. On the other hand, if the entire annuities are treated as agricultural income, it would follow that the appellant would be entitled to the entire non-agricultural income. In the absence of any direction in the will and of any contract or agreement between the parties concerned, it seems to me that neither party is entitled to claim that the annuities as a whole shall be treated as coming from one source rather than the other and, therefore, the entire income of the estate of both kinds should be treated as a proof from which the legatees, that is, the appellants and the annuitants, may draw income for themselves, and none of them is entitled to take more than his share of a particular kind of income. In this view whatever is the share of the total Dhalbhum Zamindari income, which is agricultural income, the same share of the annuity must be considered agricultural income. For the purpose of this appeal, without reference to the future, the parties have agreed that that should be taken as one half. The appellant is, therefore, entitled to deduct one half of the agricultural Income Tax which would be payable or has been paid on the annuity in question in this suit. I will repeat that so far as the extent of the share to be treated as agricultural income is concerned, this decision will not bind either party for the future or in respect of any installments of the annuity which became payable after the date of suit.

The principle which I have adopted in apportioning the agricultural Income Tax appears to be in accordance with the practice adopted by the Income Tax authorities in certain other cases as is shown in the statement of facts set out in the judgment of Lord Macmillan in Bejoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta, at foot of page 1031. The validity of this practice was not a matter for decision before their Lordships of the Judicial Committee in that case, but the report does not suggest that their Lordships or either of the parties before them considered that there was anything wrong in that practice. The view also appears to be supported by one passage in the judgment of Lord Russell of Killowen in Prabhat Chandra Barua v. Commissioner of Income Tax, Bengal. One of the questions for decision in that case was whether income derived from a zamindari had actually been brought into a charge for the purposes of Income Tax by the Income Tax Act, 1922. After deciding that question in the affirmative, their Lordships stated as follows :

"Their Lordships were unable to ascertain upon what footing the appellant had been assessed in respect of the income derived from his zamindari, i.e., whether on the gross income 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 income derived from his zamindari, his income, profits and gains from that sources should be computed after making proper allowance in respect of the jama assessed and paid."

Admittedly a portion of the income from zamindari would be agricultural income and as such exempt from tax under the Income Tax Act, 1922. The passage just quoted from their Lordships judgment, therefore, indicates that the jama would have to be apportioned between the agricultural and non-agricultural income of the zamindari in order to ascertain the net non-agricultural income.

During the course of argument, it was suggested that difficulties might arise in the event of any future change in the conditions of the Dhalbhum estate which might considerably alter the proportion of agricultural to non-agricultural income. It was suggested that the appellant might sell the zamindari and convert that estate into a different from, e.g., Government securities. The question whether the appellant has any power to do so is not before us, but assuming that he has such power and chooses to exercise it, I anticipate no difficulties. If he has the power to alter the entire nature of the income of the estate, it seems to follow that he has the power to alter the nature of the income payable to the plaintiff-respondent.

As already mentioned, the parties to this appeal did not raise any question about Section 12 of the Bihar Agricultural Income Tax Act, 1938, and have proceeded on the basis that if the income in question is agricultural income it is taxable u/s 11. It may perhaps make a difference to the actual amount of tax payable which of the two sections is applicable and nothing in my judgment is to be taken as deciding under which of those two sections the income is in fact taxable, a matter which could only be determined by the agricultural Income Tax authorities subject to any reference which may be made to the High Court.

The learned Additional Subordinate Judge, who took a different view, relied for his decision on the cases reported in Gopal Saran Narain Singh v. Commissioner of Income Tax, Bihar and Orissa, Commissioner of Income Tax, Bihar and Orissa v. Dhaneshwardhar Misra, Lakshmi Narasayamma Rao v. Commissioner of Income Tax, Madras, and In re Saltanat Begum. The first of these cases is the case that I have already referred to reported in Gopal Saran Narain Singh v. Commissioner of Income Tax, Bihar and Orissa. The case in Commissioner of Income Tax, Bihar and Orissa v. Dhaneshwardhar Misra, is a case in which for many years the Bettiah Raj gave thicadari lease of certain villages to the assessee and his predecessors at a comparatively favorable rate in consideration of services previously rendered. Subsequently the Raj declined to grant any lease of the aforesaid villages and in lieu thereof granted a fixed annual allowance approximately equal to the annual profits arising out of the lease. The annual allowance was held not to be agricultural income but an ex gratia payment by the Bettiah Raj. This case is clearly distinguishable as the annual payment depended on the will of those in charge of the Bettiah Raj quite independent of the question whether that Raj had any agricultural land or not. The case reported in Lakshmi Narasayamma Rao v. Commissioner of Income Tax, Madras, certainly appears to be in point, but the judgment therein is a very brief one and I cannot reconcile that decision with the principles laid down by the Privy Council in the subsequent case in Bijoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta, which was decided in March 1933. The case reported in In re Saltanat Begum, was a case decided in September 1933. The income there in question was an allowance of Rs. 4,000 per month payable under a compromise in a certain suit. Reliance was placed on the Madras case just cited and on the decision in Sundrabai v. Commissioner of Income Tax, Bombay. No reference was made to the decision of the Privy Council in Bijoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta. Perhaps the Oudh case is distinguishable on the ground that the compromise really embodied a contract. It was pointed out in the judgment in that case at p. 477 of the report that the assessee would certainly appear to have had at one time an interest in the estate within the meaning of Section 13 (1) of Act I of 1869 though it must be pointed out that, having regard to the provisions of Section 25 of the Act, the maximum annuity to which she could have been entitled would have been Rs. 3,000. This would seem to show clearly that her allowance of Rs. 4,000 a month could not be considered as derived from the estate but was clearly derived from the contract embodied in the decree. If that decision meant anything further than this, I should consider that it was inconsistent with the decision of the Privy Council in Bijoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta. The case in Sundrabai v. Commissioner of Income Tax, Bombay, was a decision of the year 1931. It was then held that the monthly maintenance allowance and the annual value of a rent-free bungalow given to a Hindu widow under a decree of Court not specifying whether the allowance was payable out of the corpus or income of her husbands estate consisting inter alia of agricultural lands were assessable to Income Tax. That case also I find difficult to reconcile with the decision of the Privy Council in Bijoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta.

As a result of my conclusions and the agreement between the parties regarding the proportion between agricultural and non-agricultural income, the defendant-appellant is entitled to deduct one-half of the amount which he claimed to deduct as the plaintiffs share of agricultural Income Tax. This suit has really been contested by the defendant-appellant as a test case regarding his liability to the annuitants under the will of the late Raja Satrughan Deo Dhabal Deb, and he has succeeded only in respect of a portion of his claim. In the circumstances I would allow the orders for cost passed by both the lower Courts to remain intact except that the proportionate costs allowed by the original Court must be re-calculated on the amount found due after allowing the defendant the deduction of agricultural Income Tax to which I have held, he is entitled. I would leave the parties to bear their own costs in this Court.

SINHA, J. - I agree.

Order accordingly.