Srish Chandra Sen (Deceased) And Others vs The Commissioner Of Income Tax, West Bengal

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 405 of 1957

Decision Date: 23 November, 1960

Coram: M. Hidayatullah, S.K. Das, J.C. Shah

In this case the Court recorded that a notification issued on 2 November 1864 concerned the acquisition by the Government of Bengal of a portion of the Panchannagram Estate, which had been permanently settled under Regulation 1 of 1793. The acquisition was made at the request of the justices of the peace for the Town of Calcutta, a corporation created under the Calcutta Municipal Act of 1863, and the justices were required to pay the compensation due to the estate’s proprietor. Following the acquisition, the proprietor was granted a reduction in land revenue assessment on the estate equal to Rs 386‑7‑1, representing the proportionate revenue attributable to the land that had been taken. On 27 October 1865 the Government demanded that the justices pay a sum of Rs 7,728‑13‑8, which corresponded to the amount capitalised at a twenty‑year purchase of the land revenue attributed to the acquired area. Subsequently, on 5 December 1870 the Secretary of State executed a conveyance in favour of the justices of the peace transferring the acquired land, and the conveyance expressly stated that the land was “ever free and clear and forever 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 23 January 1880 the justices granted a lease of the land to the predecessors‑in‑title of the appellant, under which the lessee was entitled to cultivate the land with the assistance of sewage facilities. Before the income‑tax authorities the appellant asserted that the agricultural income earned from the land should not be subject to income‑tax, contending that the lump‑sum payment made in 1865 had redeemed the liability to pay land revenue and that consequently no land revenue was thereafter demanded; therefore, the income could not be classified as agricultural income within the meaning of Section 2(1) of the Indian Income‑Tax Act, 1922, and should be exempt from tax. The tax authorities rejected this claim, holding that although the redemption relieved the justices of any liability to pay land revenue, it did not affect the assessment of the land to revenue under Regulation 1 of 1793, and thus the income remained taxable agricultural income.

In this case the Court held that the lump‑sum payment made in 1865 discharged the entire land‑revenue liability attached to the property, so that the land was thereafter free from any assessment of land revenue forever, as if no assessment had ever existed. Consequently the land could no longer be described as being assessed for land revenue within the meaning of section 2(1) of the Indian Income‑Tax Act, 1922, and the income earned from the land could not be treated as agricultural income under that provision. The Court noted that the earlier decision in The Collector of Bombay v. Nusserwanji Rattanji Mistri and others, reported in 1955 S.C.R. 1311, did not apply and was therefore distinguished.

The judgment concerned Civil Appeal No. 405 of 1957, which arose from an order dated 15 May 1956 of the Calcutta High Court in Income‑Tax Reference No. 20 of 1953. Counsel for appellants numbered 2 to 41 were S. Mitra, B. Das and S. N. Mukherjee, while the respondent was represented by A. N. Kripal and D. Gupta. The judgment was delivered on 23 November 1960 by Justice Hidayatullah. The appeal concerned a brief point of law but required an extensive factual background. Under the Calcutta Municipal Act VI of 1863 a corporation known as “The Justices of the Peace for the Town of Calcutta” was created. By a notification dated 2 November 1864, one square mile of land forming part of the Panchannagram Estate was acquired at the request of the Justices. Section CXII of the Municipal Act authorised the Justices to agree with landowners for the absolute purchase of any land for any purpose related to the town’s conservancy, while section CXIII permitted compulsory acquisition by the Government of Bengal on the Justices’ representation, with compensation payable to the proprietor. The acquisition proceeded under section CXIII of the Municipal Act and under the 1857 Act for acquisition of land for public purposes. The Panchannagram Estate was permanently settled under Regulation 1 of 1793. After the acquisition the proprietor received a reduction in land‑revenue assessment on the estate amounting to Rs 386‑7‑1, representing the proportionate revenue on the land acquired. In August 1865 the Justices paid Rs 54 685‑2‑10 as compensation to the proprietor and other interest‑holders, and a separate compensation was paid for an adjacent parcel described as an open level sewer. Including conveyance charges, the total compensation paid by the Justices amounted to Rs 57 965‑8‑10.

In this case, the total compensation that had been paid by the Justices amounted to Rs. 57,965‑8‑10. On 27 October 1865 the Government issued a demand that the Justices pay an additional sum of Rs. 7,728‑13‑8. Although the order itself was not produced before the Court, correspondence referred to in the record shows that the amount represented capitalisation of the land‑revenue attributable to the acquired area, calculated on a twenty‑year purchase basis; the land‑revenue in question had earlier been quantified at Rs. 386‑7‑1. The additional payment was made on or about 12 January 1866. A further sum was also paid in July of the same year for the redemption of land‑revenue in respect of the strip of land that had been acquired for an open sewer. On 5 December 1870 the Secretary of State executed a conveyance in favour of the Justices of the Peace. The instrument contained, inter alia, the following wording: “Whereas the Honourable 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 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 INDENTURE WITNESSETH… to hold the said pieces of land, hereditaments and premises intended to be conveyed with the appurtenances … unto the said Justices of the Peace for the Town of Calcutta and their successors forever free and clear and forever 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 said last mentioned Act.” Subsequently, on 23 January 1880 a temporary lease of the parcel known as the “Square Mile” was granted by the Justices of the Peace to the predecessors‑in‑title of the appellant, the late Srish Chandra Sen. The appellant has since died, and forty legal representatives have been listed in the cause title of the appeal. The lease was later renewed for successive periods, and the rent payable under the lease was increased incrementally. Under the terms of the lease the conservancy obligations attached to the land were performed, yet the lessee retained the right to cultivate the land with the assistance of sewage facilities. The assessee

From the leased land the assessee obtained several types of income, some of which were purely agricultural while others were non‑agricultural. For the assessment year 1942‑43 the agricultural income was calculated at Rs 99,987‑9‑6 and the non‑agricultural income at Rs 12,503‑8‑0. The State of Bengal imposed agricultural income‑tax under the Agricultural Income‑Tax Act on the agricultural portion after deducting expenses. Similar assessments were made for the subsequent years 1943‑44, 1944‑45, 1945‑46 and 1946‑47 on the same basis. In 1947 the Income‑Tax Officer reopened the assessment for 1942‑43 under section 34 of the Income‑Tax Act, alleging that the agricultural income had escaped assessment under the Indian Income‑Tax Act. The officer also reopened the assessments for the four later years and recomputed the income for each of those years in the same manner.

The assessee challenged all the reassessment orders before the Appellate Assistant Commissioner, but the appeals were dismissed. The assessee then appealed the commissioner’s orders to the Income‑Tax Appellate Tribunal, Calcutta Bench. The Tribunal dealt with the 1942‑43 assessment separately and allowed the appeal for that year. It held that the reassessment under section 34 was improper because the officer had not acted on any definite information and had conducted a “roving enquiry”. The Tribunal further concluded that the income was exempt from income‑tax under section 4(3)(viii) of the Act, since it derived from land used for agricultural purposes that remained subject to land‑revenue assessment.

For the assessments of the later years the Tribunal issued a common order remanding the appeals to the Appellate Assistant Commissioner for rehearing. The Tribunal noted that the appellants had submitted numerous documents to show that land revenue continued to be levied on the land, contrary to the Department’s contention, and therefore the matter required reconsideration by the commissioner.

At the rehearing the Appellate Assistant Commissioner held that the land in question remained liable to land revenue and that the lump‑sum payment made by the assessee was merely an advance payment of that revenue. Accordingly, the commissioner allowed the appeals and ordered that the income for the four years be excluded from the assessments.

The Department appealed this decision, and the Tribunal subsequently altered its view. It concluded that the lump‑sum payment was not an advance payment of annual land revenue but represented land revenue that had been capitalised. The Tribunal referred to the deed by which the Secretary of State vested the proprietorship in the Corporation and, on the basis of that document and the capitalisation of land revenue, held that the demand for land revenue was forever extinguished. Consequently, the Tribunal allowed the Department’s appeal and restored the original assessments made by the Income‑Tax Officer.

After the Tribunal issued its order, the appellant moved the Tribunal to obtain a reference that set out several questions which, the appellant asserted, arose from that order. The Tribunal consequently referred a specific question of law to the High Court for its opinion, asking whether, based on the facts and circumstances of the case, the Tribunal’s conclusion that the land was not assessed to land revenue within the meaning of section 2(1)(a) of the Indian Income‑tax Act was justified. The reference was heard by Chief Justice Chakravarti, C. J., and Justice Sarkar, who was then a judge of the High Court. In a detailed judgment, the learned Chief Justice affirmed the Tribunal’s conclusions and answered the reference in the affirmative, holding that the Tribunal’s view was correct. Justice Sarkar, in an equally thorough order, voiced doubts about the adequacy of the Chief Justice’s reasons but chose not to dissent from the result. The essential issue that emerged, as was noted at the beginning of this judgment, was a succinct one: it was an admitted fact that the payment of a lump sum had redeemed the liability to pay land revenue and that no land revenue had been demanded nor could any future demand be made against the Justices or their assign­ates in perpetuity. The assessee contended that this redemption relieved the Justices of the payment liability but did not alter the assessability of the land to revenue under Regulation I of 1793. The respondent argued that, unless there was a cancellation of the assessment—a point that could be located in the Land Tax and Tithe Redemption Acts of England—the liability must be deemed to continue, and the land would therefore remain assessed to land revenue for the purposes of section 2(1)(a) of the Indian Income‑tax Act. That statutory provision defined “agricultural income” as any rent or revenue derived from land used for agricultural purposes, and which is either assessed to land revenue in the taxable territories or is subject to a local rate assessed and collected by government officers. Both conditions—use of the land for agricultural purposes and assessment to land revenue or subjection to a local rate—had to coexist. The Department acknowledged that there was no issue of the land being subject to a local rate in the present case, and it was also accepted that the income derived from the land arose from its agricultural use, thereby satisfying the first condition. Consequently, the dispute centered on whether the land could be considered assessed to land revenue despite the lump‑sum payment made in 1865. In the High Court, the matter was examined from three distinct perspectives. The first perspective considered the effect of the Government’s acquisition of the land on the continued assessability of the land to land revenue. The learned Chief Justice held that the acquisition terminated the assessment. The second perspective examined the effect of the redemption of land revenue by the Justices through a lump‑sum payment, a point on which the learned Chief Justice expressed the view that the redemption cancelled the assessment.

In the case before the Court, the Chief Justice expressed the view that the payment of a lump sum by the Justices operated to cancel the existing assessment of land revenue. Justice Sarkar concurred with the Chief Justice regarding the first point, which concerned the effect of the acquisition of the land, but he voiced uncertainty about the second and third propositions. He observed that accepting a lump‑sum payment in place of recurring annual payments seemed more like a contractual agreement than a formal cancellation of the land‑revenue assessment. The argument presented to the Court focused on the interpretation of the conveyance issued by the Secretary of State, which, according to the petitioners, merely released the Justices from the obligation to make payments of the assessed land revenue without actually extinguishing the assessment itself. No statutory provision was identified that authorized the Government to accept a lump‑sum payment in lieu of the annual land‑revenue demands, and counsel admitted that they could locate no such legislation. Consequently, the Court proceeded, as the High Court had done, in the absence of any legislative enactment governing the matter. The only authorities cited were an excerpt from the explanatory notes in the Revenue Roll of the Touzi, which recorded a partial abatement of land revenue granted to the proprietor of the Panchannagram Estate; a dispatch from the Secretary of State for India, Lord Stanley, dated 31 December 1858 (No 2, Revenue), recommending redemption of land revenue through an immediate payment of a sum of equivalent value; and a Government resolution from the Home Department (No 3264 (Rev), 17 October 1861) that permitted redemption of existing land revenue by a single payment equal to the revenue redeemed, limited to ten per cent of the total revenue in the Collectorate and priced at twenty years’ purchase of the existing assessment. It was also noted that a later dispatch (No 14, 9 July 1862) from the Secretary of State for India, Sir Charles Wood, did not endorse the earlier policy but did not repeal it either, suggesting that the Crown’s paramount authority at the time allowed it to free land from the demand for land revenue, either with or without conditions. The Court therefore identified three issues for determination: the effect of the acquisition on the continuance of the land‑revenue assessment, the effect of redemption by a lump‑sum payment on that assessment, and the effect of the grant that freed the Justices from land revenue. The acquisition had been effected under Act VI of 1857, which in clause B. XXVI provided that when any land taken under the Act formed part of an estate paying revenue to the Government, the award would specify the net rent of the land including the Government revenue, and that the revenue authorities could, at their discretion, either remit a proportion of the net rent or require full payment, thereby reducing the compensation payable to the estate proprietor proportionately. This provision was understood to save the estate assessed to land revenue from liability proportionate to the land acquired, but it could not be extended to imply that the liability of the land actually acquired ceased entirely.

The award was required to set out the net rent of the land, which had to include the Government revenue, and also to state the calculated value of that rent. The provision gave the revenue authorities the discretion either to remit the entire calculated amount to the owner of the estate on the condition that the owner would continue to pay the full jumma without any reduction, or to decide what portion of the net rent could be allowed as a remission of revenue, in which case a deduction proportionate to the value of the remission would be made from the amount payable. This clause was intended only to protect an estate that was already assessed to land revenue from having to pay the share of land revenue that corresponded to the portion of land that was compulsorily acquired. In return, the compensation payable to the proprietor of the estate would be reduced in the same proportion. The provision, however, could not be interpreted to mean that the liability of the land that had actually been acquired, now held by the Government grantees, to pay land revenue had ceased. Even so, it was unnecessary to analyse the present dispute from that perspective, because whether the acquired land remained subject to its existing assessment or had to be treated as a newly assessed separate estate, the outcome would be identical so long as the Government continued to demand revenue on that land, which in fact it did. A redemption of the liability by a lump‑sum payment could not have taken place if there had been no land‑revenue demand. The very fact that the recurring liability was discharged by a lump‑sum payment demonstrated that both the Government and the Justices regarded the “Square Mile” as still being subject to the recurring demand and therefore still assessed to land revenue. Consequently, it was not useful to examine the effect of the acquisition on the continued liability of the land to land revenue during the period between the acquisition and the subsequent vesting of the land in the Justices. For this reason, a detailed consideration of the decision in Lord Colchester v. Kewnoy, where it was held that acquisition by the Crown did not render the acquired area immune from land tax because the tax burden would shift to the remaining land within the same unit, was unnecessary. That situation does not arise here, since the Panchannagram Estate was granted an abatement and a lump‑sum sum was paid to release the acquired land from the liability of land revenue. In a similar vein, the Court’s earlier ruling in The Collector of Bombay v. Nusserwanji Rattanji Mistri and Others, which dealt with the acquisition of certain Foras lands under the Foras Land Act (Bombay Act VI of 1851) and held that the Foras tenure ended and the lands, when resold by the Government as freehold, were no longer subject to the assessment that had previously applied to them, is not directly applicable to the present facts.

The Court observed that the earlier material was not very helpful and noted that no rules appear to have been framed before 1875 under the Land Acquisition Act of 1870 (Act X of 1870) that were published in the Calcutta Gazette of 7 July 1875, page 818. The Court further remarked that, if any such rules existed, they had not been placed before the Court. Nonetheless, the Court recognised that a practice resembling those rules seemed to have operated under section XXVI of the Act of 1857. The Court pointed out that the 1857 Act, like the earlier legislation, did not contain any provision for making rules, a feature that was introduced only in later statutes dealing with compulsory acquisition of land. In the absence of any statutory provision or formal rules, the Court held that the factual situation must be accepted: after the acquisition, the Panchannagram Estate received an abatement of land revenue and the demand for land revenue was transferred to the land that had been acquired and conveyed to the Justices. At that point, the liability to assessment remained, and that liability was subsequently discharged by a single down‑payment. The Court then turned to the effect of that redemption. The Court noted that counsel for the appellant argued that redemption, in this context, meant that a lump‑sum payment extinguished the liability for periodic payments but left the assessment on the land untouched. Counsel relied on Wharton’s Law Lexicon, citing the definition of “redemption” as a commutation or substitution of one lump‑sum payment for a series of annual payments, and referred to authorities such as (1) (1866) L.R. 1 Exch. 368 and (2) [1955] 1 S.C.R. 1311. The Court explained that redemption ordinarily means the removal of a charge or obligation by payment, and that the extent to which redemption frees the land or its holder depends not merely on the nature of the obligation before redemption but on what remains after the payment. The Court observed that the payment in this case was intended to be “an immediate payment of one sum equal in value to the revenue redeemed,” as reflected in the Government Resolution dated 17 October 1861. By making the down‑payment, the entire amount of land revenue that could have been recovered from the land was redeemed, the payment representing the capitalised value of that revenue. Consequently, the Court held that once such a payment was made, it could not be said that any assessment for land revenue persisted; the land was discharged from that assessment as fully as if no assessment had ever existed. From that moment, the land would be regarded as revenue‑free both in fact and in law. The Court quoted the Tagore Law Lectures on the Land‑Law of Bengal (1895), page 81, where S. C. Mitra described a class of revenue‑free lands as those “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.” The Court concluded that this description precisely matched the situation created by the conveyance executed by the Secretary of State.

In this case, the land was conveyed to the Justices of the Peace for the Town of Calcutta, and the deed of conveyance made no reference to the payment of Rs 7,728‑13‑8 or to any continuing assessability of the land for revenue. Instead, the deed restated the earlier position by declaring that the conveyed pieces of land, hereditaments and premises, together with their appurtenances, were to be held by the Justices and their successors forever free and clear and forever discharged from all Government land revenue, any payment or charge of that nature. This language left no doubt that the land revenue was extinguished forever and that the land became permanently free from assessment; consequently, it could not thereafter be said that the land remained subject to any land‑revenue assessment. Counsel for the petitioner argued vigorously that the operative clause should be read together with the recital in the deed, which stated that the land was “…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…”. The counsel emphasized the word “payment” and contended that, where ambiguity existed, the operative portion could be interpreted in light of the recitals, citing Halsbury’s Laws of England, volume XI, paragraph 680, and the cases of Gwyn v Neath Canal Co. and Orr v Mitchell. However, the Court found that the deed contained no ambiguity. The historical record of redemption showed clearly that the Government had accepted a down‑payment and consequently freed the land from any land‑revenue liability. The deed itself expressed this result with great clarity, stating that no land revenue could ever be assessed, demanded, or charged on the property. Accordingly, the Court concluded that the land was not assessed to land revenue and that income derived from it did not fall within section 2(1)(a) of the Income‑Tax Act. The High Court’s answer was therefore affirmed as correct. In the result, the appeal was dismissed with costs, and the decision of the lower court was upheld. (1868) L R 3 Exch 209. Appeal dismissed. (2) [1893] A C 238, 254.