332 SUPREME COURT REPORTS [1960(1))

r959 having been appointed managing director because of

Th C

-. . his being a promoter of the company and having

e ommissioner II k h f I · El ·

of Income-tax actua y ta en over t e concern o nd1a ectnc

v. Works from Milkhi Ram and others. The finding in

Kalu Babu Lal this case is that the promotion of the Company and

Chand the taking over of the concern and the financing of it

Das c. J. were all done with the help of the joint family funds

and the said B. K. Rohatgi did not contribute anything

out of his personal funds if any. In the circumstances,

we are clearly of opinion that the managing director's

remuneration received

by B.K. Rohatgi was, as between

him

and the Hindu undivided family,

the income of

the latter and should be assessed in its hands. We,

therefore, set aside

the answer given by the High

Court

to the second question and answer the same by

saying that the assessment of the whole of the sum of

Rs. 61,282 should be on the assessee Hindu undivided

family. The result is

that this appeal is allowed with

costs here and in the

Court below.

I959

May IS·

A ppeaJ, aJ,l,owed.

MAHARAJADHIRAJ SIR KAMESHWAR SINGH

v.

THE STATE OF BIHAR

(S. R. DAS, c .. J., N. H. BHAGWATI and

M. HrDAYATULLAH, ,JJ.)

Agricultural Income-tax-Power of Agricultural Income-tax

Officer-If can revise his own order of exemption-Bihar Agricul­

tural Income-tax Act, I938 (Bihar VII of r938) s. 26.

In his return of agricultural income for the assessment year

1944-45, the appellant showed a sum of Rs. 2,82,192, which he

had paid to the Tekari Raj for two lease-hold properties taken

on Zarpeshgi lease, as one of the items of the total amount of

dednction claimed

by him as capital receipt. The Agricultural

Income-tax Officer accepted his claim and exempted

the amount

from payment of agricultural income-tax. The Assistant

Colljl­

missioner of Agricultural Income-tax affirmed the decision. A

demand notice was issued and the

assessee paid two instalments.

Thereafter, the Agricultural Income-tax Officer served on the

assessee a notice under s. 26 of the Bihar Agricultural

Income­

tax Act, 1938, to the effect that income from the said Zarpeshgi

lease had escaped assessment and after he appeared, passed a

S.C.R. SUPREME COURT REPORTS 333

supplementary assessment order and assessed Rs. 39,512-6-0 as z959

tax. The assessee appealed. The Commissioner of Agricultural

Income-tax reversed

the said decision. The Province of Bihar Maharajadhiraj

moved the Board of Revenue and the two questions it referred to

Sir Kameshwar

the High Court under s. 25(1) of the Act were, (1) whether in the Singh

facts and circumstan<;es of the case, the Agricultural Income-tax v.

Officer had jurisdiction to revise his own order under s. 26 of the The· State of Bihar

Act and (2) if so, whether the income from the Zarpeshgi lease

was taxable under the Act. The High Court answered both the

questions in favour of the State of Bihar. Hence this appeal by

the assessee by special leave.

Held, that under s. 26 of the Bihar Agricultural Income-tax

Act, 1938,

the Agricultural Income-tax Officer had the power to

revise his own order

and assess an item of income which,

even

though shown in the return, he had earlier omitted to tax under a.

misapprehension th'at it was not taxable.

The use

of the words

"any reason " in s. 26 of the Act

made

the section wider than s. 34 of the Indian Income-tax ·Act

by dispensing with the conditions which circumscribed the latter

section.

Kamal Singh v.

Commissioner of Income-tax, Bihar G Orissa,

A.LR. 1959 S.C. 257, applied.

Messrs. Chatturam H orilram Ltd. v. Commissioner of Income­

tax, Bihar and Orissa, [1955] 2 S.C.R. 290, distinguished.

Case-law discussed.

Since the appellant had failed to prove his case that the

income in question was income from his money-lending business

or

that the payment made to the lessor was not by way of

premium but as a loan, the income from the lease-hold property

which was admittedly agricultural in character, must

be held to

be liable to

tax under the Act, irrespective of the character of

the recipient.

Crv1L APPELLATE JuRrsmcTION: Civil Appeal No.

254of1954.

Appeal by special lea.ve from the judgment and

order dated February 19, 1952, of the Patna High

Court in Misc. J udl. Case No. 244 of 1949.

B. Sen, S. K . .llfajumdar and I. N. Shroff, for the

appellant.

M. 0. Setalvad, Attorney-General for Irulia, B. K.

Saran and R. C. Prasad, for the respondent.

1959. May 15. The Judgment of the Court was

delivered

by

HIDAY AT

ULLAH J.-This appeal, with the special HUiayatullah J.

leave of this Court, has been filed by Maharajadhiraja

334 SUPREME COURT REPORTS [1960(1)]

Sir Kameshwar Singh of Darbhanga (hereinafter refer­

red to as the assessee) against the judgment of the

Maharajadhiraj

Sir Kameshwar High Court of Patna dated February 19, 1952, by

I959

Singh which the High Court answered in the affirmatiye the

v. following two questions referred to it under s. 25(1) of

T_he State of Biharthe Bihar Agricultural Income-tax Act, 1938:

Hidayalullah j.

(1) "Whether in view of the circumstances of the

case, and particularly the manner in which, after

due consideration, the learned Agricultural lncome­

tax Officer in his first judgment dated the 5th

January, 1946, had held that the assessee was not

liable to be assessed for the receipt on account of

the zarpeshgi lease, the learned Agricultural Income­

tax Officer has jurisdiction to revise his own order

under s. 26 of the Act ; and

(2) Whether if he had the jurisdiction to revise

his own order,

under section 26 of

the Act, the in­

come from the zarpeshgi lease of the assessee was

taxable under the Act."

The facts of the case lie within a very narrow com­

pass. For the assessment year 1944-45 which cor­

responded to the year of account 1351 Fasli, the assessee

returned Rs. 37,43,520 as his agricultural income. He

claimed a deduction of Rs. 9,42,137 -3-lOt on account

of land revenue, rent etc., including a sum of

Rs. 2,82,192 shown to have beeu paid to the Tekari

Raj from which two leasehold properties were taken

on zarpeshgi lease by indentures dated August 15, 1931,

and January 31, 1936, respectively. The amount was

sought

to be deducted as a capital receipt.

The Agricultural

Income-tax

Officer of Darbhanga

by his order dated December 28, 1945 accepted this

contention, and exempted the amount from payment

of agricultural income-tax. He observed:

"Out of H,s. 9,42,137-3-lOt claimed on account of

Land Revenue and rent, Rs. 2,82,192 is shown as

payment to Tekari Raj and then taken towards the

realisation of Zarpeshgi Loan to self. I have gone

through the bond of Gaya Zarpeshgi Lease. This

payment is allowed to the assessee, as it is a capital

income according to the terms of the bond. At the

S.C.R. SUPREME COURT REPORTS 335

same time, I think, this amount of Rs. 2,82,192 x959

should be treated as income to Tekari Raj and

M aharajtJdhiraj

assessed in Gaya Circle along with other income of Sir Kameshwar

Tekari Raj as it is credited to that Raj by the assessee Singh

and then set off against the Zarpeshgiloan advanced v.

to Tekari Raj." The State of Bihar

The assessment was approved by the Assistant Com-Hidayatullah J.

missioner of Agricultural Income-tax on January 4,

1946,

and on the day following, the Income-tax Officer

passed his formal order

and issued a demand notice.

The assessee paid two instalments out of three, when

on March 22, 1946, the Agricultural Income-tax Officer

recorded the following order :-

"It appears that some agricultural income from

Gaya Zarpeshgi lease which should have been taxed

for

the year 1944-45 (1351 Fasli) has escaped

assess­

ment. Issue notice under section 26 fixing the 20th

May 1947."

After the assessee appeared, a supplementary assess­

ment order was passed and Rs. 39,512-6-0 were asses­

sed as tax on Rs. 2,52,879.

In deciding the matter, the Agricultural Income-tax

Officer gave

the following reasons: " According to the terms of the lease the assessee

is

to remain in possession and enjoy the usufruct of

the lands given in lease for a fixed number of years

on

payment of an annual thica rent of Rs.

1,000 to

the lessor and thus satisfy himself for the entire

amount of consideration money of the zarpeshgi

lease in question.

In fact, by this zarpeshgi lease

the assessee has been given the grant of.lands for a

fixed term on a fixed rent. Whatever income is

derived from these lands during

the tenure of this

lease, is

the income of the assessee and as such it

should be taxed in the hands of the assessee and not

in the hands of the

lessor."

The Agricultural Income-tax Officer purported to act

under s. 26 of the Bihar Agricultural Income- tax Act,

1938 (hereinafter referred

to as the Act).

The assessee appealed. The

Commissioner of Agri­

cultural Income-tilix reversed the decision. He pointed

336 SUPREME COURT REPORTS [1960(1)]

I959 out that the agricultural income from Tekari Raj pro-

Maharajadhiraj perty was returned by the assessee but was held to be

Sir Kameshwar exempt and thus could not be said to have escaped

Singh assessment so as to bring the case within s. 26 of the

v. . Act. The Province of Bihar (as it was then called)

The State of Bihar moved the Board of Revenue, Bihar which by a

Hidayatullail J. resolution dated February 7, 19.48, referred the two

questions

to the High Court of Patna. The Board did

not express any opinion on the two

qu~tions. In the

High Court, both the questions were answered in

favour

of the State of Bihar. Leave having been

refused

by the High Court, the assessee applied for,

and obtained special leave from this Court.

Section 26

of the Act, under which the Agricultural

Income-tax Officer

purported to act is substantially

the same ass.

34 of the Indian Income-tax Act, prior

to its amendment. Necessarily, therefore, the rulings

on the interpretation of the latter section were freely

cited

by the contending parties. Section 26 of the Act

reads

as follows :

" If for any reason any agricultural income

chargeable

to agricultural income-tax has escaped

assessment for

any financial year, or has been

asses­

sed at too low a rate, the Agricultural Income-tax

Officer may,

at any time within one year of the end

of that financial year, serve on the person liable to pay· agricultural income-tax on such agricultural

income or, in the case

of a company, on the principal

officer thereof,

" a notice containing all or any of

the requirements which may be included in a notice

under sub-section

(2) of section 17, and may proceed

to assess or re-assess such income, and the provisions

of this Act shall, so far as may be, apply accordingly

as if the notice were a notice issued under that

sub­

section:

Provided

that the tax shall be charged at the rate

at which it would have been charged if such income

had not escaped assessment

cir full assessment, as

the case may be. "

For facility of reference, the previous s. 34 before the

amendment in 1948 of the Indian Income-tax Act may

lik11wise be quoted here. It read :

S.C.R. SUPREME COURT REPORTS 337

" If in consequence of definite information which x959

has come into his possession the Income-tax Officer Maharajadhiraj

discovers that income, profits or gains chargeable to Sir Kameshwar

income-tax have escaped assessment in any year, Singh

or have been under-assessed, or have been assessed v.

at too low a rate, or have been the subject of exces-The State of Bil""

sive relief under this Act the Income-tax Officer Hidayat-:Z1a1s J.

may, in ~,ny case in which he has reason to believe

that the asseSilee has concealed the particulars of his

income

or deliberately furnished inaccurate parti-

culars thereof,

at any time within eight years, and

in any other case at any time within four years of

the end of that year, serve on the person liable to

pay tax on such income, profits or gains, or in the

case of a company, on the principal officer thereof, a

notice containing all

or any of the requirements

which

may be included in a notice under sub-sec-

tion (2) of section 22, and may proceed to assess or

re-assess such income, profits or gains, and the

provisions of this Act shall, so far as may be, apply

accordingly as if the notice were a notice issued

under

that sub-section :

Provided

that the tax shall be charged at the rate

at which it would have been charged had the income,

profits

or gains not escaped assessment, or full

assessment,

as the case may be: ...... "

The short question is whether income which was

returned but was held to be exempt from tax could be

said

to have

"escaped assessment" so that the

Agricultural Income-tax Officer could exercise his

powers under

s. 26 of the Act to tax it. This question

arising

under s. 34 of the Indian Income-tax Act has

been considered on many an occasion by the High

Courts

and also by the Privy Council and this

Court.

The Patna High Court has correctly pointed out that

the preponderance of opinion is in favour of holding

that such income can be said to have escaped assess­

ment.

The High Court in deciding that the Agricultural

Income-tax Officer had jurisdiction to revise his earlier

assessment referred

to the opening words of s. 26,

namely,

"for any reason" and observed that it was

43

338 SUPREME COURT REPORTS [1960(1)]

~959 not necessary to give a restricted meaning to the word

"escaped'', and that if an item of income was not

Maharajadhiraj

Sfr Kam.,hwar charged to tax due to a mistake or oversight on the

Singh part of the taxing authorities, that item could well

v. come within the term "escaped". According to the

Tll< Stat• of Bihar High Court, the phrase "escaped assessment" was not

- confined to cases where there had been an inadvertent

HUlayatullah J.

omission, but in view of the later part· of the section

"where income ... has been assessed at too low a rate",

included a case where there was a deliberate action.

Learned counsel for

the assessee contends that the

generality of the words

"any reason " has no bearing

upon

the construction of the words

" escaped assess­

ment ", that the word " assessment " does not connote

the final determination to tax income but the entire

process

by which the result is reached, and that

inas­

much as the income was actually returned and held to

be exempt, there was no question of an "escaped

assessment " because it passed through the processing

of income. He also contends that the later part of the

section which deals with assessment at too low a rate

cannot be called in aid to decide when income can be

said

to have escaped assessment. He submits that the

section has no application to cases where income is

returned but is held to be not liable to tax and relied

upon

the following cases ; M aharaja Bikram K

ishore v.

Province of Assam('), Commissioner of Income-tax v.

Dey Brothers('), Madan Mohan Lal v. Commissioner of

Inn:nn,e-tax (

3

)

(per Dalip

Singh, J.) and Chimanram

Moi:l.al (Gold and Silver), Bombay v. Commissioner of

Incorr;~-tax (Central), Bombay(') (per Kania, J., as he

then was).

The learned Attorney-General drew the attention of

the Court to other cases in which the view has been

taken that even if income is returned and deliberately

not charged to tax, the condition required for the

application of the section is fulfilled. He cited the

following cases in support of his contention : Anglo­

Persian Oil Co. (India) Ltd. v. Commissioner of Income­

tax ('), P. C. Mullick and D. C. Aich, In re (

6

), The

(1) [1949] 17 I.T.R. 220.

(2) [1936] 4 l.T.R. 209.

(3) [1935] 3 l.T.R. 438,

(4) (1942) I.L.R. i943 Bom. 206.

(5) [1933] l l.T.R. 129.

(6) [1940] 8 l.T.R. 236.

S.C.R. SUPREME COURT REPORTS 339

Commissioner of Income-tax v. Raja of Parlakimedi (1) .r959

OhimanramMoti Lal (Gold and Silver), Bombay v. Oom-

Maharajadhiraj

missioner of Income-tax (Central), Bombay (

2

) and Madan Sir J(ameshwar

Mohan Lal v. Commissioner of Income-tax (

3

). The Singh

learned Attorney-General also relied strongly upon a v.

recent decision of this Court in Kamal Singh v. Commis-The State of Bilitw

sioner of Income-tax, Bihar and Orissa ('), where

ft f 11 h h

Hidayatullali ].

Gajendragadkar, J., a er a review o a t e aut ori-

ties, held

thats

.. 34 of the Indian Income-tax Act was

applicable

to

a. case where an item of income was

returned but deliberately and after consideration, was

held

to be not liable to tax. Learned counsel for the

assessee contends that the point was left open in that

case, and refers to Messrs.

Chatturam Horilram Ltd. v.

Commissioner of Income-tax, Bihar and Orissa(

5

)

as

having held the contrary.

Before referring

to the other authorities of the High

Courts, it will be proper to see if the two cases-of the

Supreme Court are in point or not, and if so, which of

them. In Kamal Singh's case('), the point arose under

the following circumstances. The father of the appel­

lant in that case was assessed to income-tax for the

year 1945-46. The total income assessed to income­

tax was Rs. 1,00,000 which included a sum of Rs. 93,604

received by him on account of interest on arrears of

:rent due to him after deduction of collection charges.

It was urged before the Income-tax Officer that this

interest was not assessable to income-tax being agricul­

tural income, in view of the decision of the Patna

High Court in Kamakshya Narain Singh v. Commis­

sioner of Income-tax (

6

). The Income-tax Officer did

not accept this contention on the ground that an

appeal was pending against the Patna High Court's

decision, before the Privy Council. On appeal, the

- Appellate Assistant Commissioner held that the

Income-tax Officer was bound to follow the decision of

the High Court, and he set aside the order and directed

the Income-tax Officer to make a fresh assessment.

The Income-tax Officer thereupon deducted the amount

(1) (1926) I.L.R. 49 Mad. 22. (4) A.LR. 1959 S.C. 257.

(2) (1942) I.L.R. 1943 Born. 206. (5) [1955] 2 S.C.R. 290.

(3) [1935] 3 I.T,R. 438. (6) [1946] 14 I.T.R. 67J.

340 SUPREME COURT REPORTS (1960(1)]

z959 and brought only the remaining income (after some

Maharajadhiraj minor adjustments) to tax. His order was passed on

s;, I<am'5hwar August 20, I 946. In the year 1948, the Privy Council

Singh reversed the Patna High Court's decision. The judg-

v. . ment of the Privy Council is reported in Commissioner

Tlte Stat• ofB•h•'of Income-tax v. Kamakshya Narain Singh('). The

Hi4ayatullah J. Income-tax Officer then issued a notice under s. 34 of

the Indian Income-tax Act, and after hearing the party

assessed the sum of Rs. 93,604.

After sundry procedure which it is not necessary to

detail, the matter reached this Court, and the question

which was before

it

was" whether in the circumstances

of the case, the assessment order under s. 34 of the Act

of the interest on arrears of rent is legal."

Two questions were involved. The first was whether

the word " information " was wide enough to include

knowledge

about.the state of the law or about a

deci­

sion on a point of law. With that point we are not

concerned in this case. The second was, when income

could be said

to have escaped assessment. Emphasis

was laid on the word

"assessment " in the arguments,

and it was contended that it denoted not merely the

order of assessment, but included " all steps taken for

the purpose of levying of tax and during the process

of taxation. " It was also contended that '; escaped "

meant that the income must have eluded observation,

search etc., or, in other words, eluded the notice of the

Income-tax Officer. Gajendragadkar, J., however, did

not confine the phrase to such a narrow meaning. He

observed;

"Even if the assesse has submitted a return of his

income, cases

may well occur where the whole of the

income has not been assessed and such part of the

income as has not been assessed can well be regarded

as having escaped assessment. In the present case, ....

the rents received by the assessee from his agricul-

tural lands were brought to the notice of the

Income-tax Officer; the question as to whether the

said amount can be assessed in law was considered

and it was ultimately· held that the relevant deci-

sion

of the

Patna High Court which was binding on

(1) [1948] 16 I.T.R. 325.

S.C.R. SUPREME COURT REPORTS 341

the department justified the assessee's claim tha.t the x959

said income was not liable to be assessed to tax.

Maharajadlliraj

There is no \ioubt that a part of the assessee's Sir Kameshwar

income had not been assessed and, in that sense, it Singh

has clearly escaped assessment. Can it be said that, v.

because the matter was considered and decided on The State

0

! Bihar

the merits in the light of the binding authority of

the decision of the Patna High Court, no income ha!'

escaped assessment when the said Patna High Court

decision has been subsequently reversed by the

Privy Council? We see n<1 justification for holding

that cases of income ei:lcaping assessment must

always be cases where· income has not been assessed

owing

to inadvertence or oversight or owing to the fact that no return has been submitted. In .our

opinion, even

in a case where a return has been

submitted,

if the Income-tax Officer erroneously fails

to tax a part of assessable income, it is a case where

the said part of the income has escaped assessment.

Tim appellant's attempt to put a very narrow and

artificial limitation on the meaning of the word

'escape'

ins. 34(l)(b) cannot therefore

succeed."

The assessee seeks to distinguish that case on the

ground that this Court laid down the law in the special

circumstances where a new interpretation

to the law

was given,

and that it was not a case of the

Income­

tax Officer changing his mind. He contends that there

was at least some information which had come to the

Income-tax Officer, on which his subsequent action

could be rested. The learned counsel argued

that

Gajendragadkar, J., had expressly left the question

open, where there was no information

but the

Income­

tax Officer merely changed his mind without any

information from an external source. Reference in this

connection is made to the following observations in the

judgment:

"It appears that, in construing the scope and

effect of the provisions of s. 34, the High Courts

have had occasion to decide whether it would be

open

to the Income-tax Officer to take action under

s. 34 on the ground that he thinks that his original

decision

in making the order of assessment was

Hidayalullah ].

'959

Maharajadhiraj

Sir Ka,neshwar

Si11gh

v.

Tlae Stale of Bihar

Hidayalullah ] .

342 SUPREME COURT REPORTS [1960(1))

wrang without any fresh information from a.n

external source · or whether the successor of the

Income-tax Officer can act under s. 34 on the ground

that the order of assessment passed by his predeces­

sor was erroneous,

and divergent views have been

expressed

on this point. Mr.. Rajagopala Sastri, for

the respondent, suggested

that under the provisions

of

s, 34 as amended in 1948, it would be open to the

Income-tax Officer to act under the said section

even

if he merely changed his mind without any

information from. an external source and came to the

conclusion that, in a particular case, he had

errone­

ously allowed an assessee's income to escape assess­

ment. We do

not propose to express any opinion on

this point in the present

appeal."

We may say at once that the words of s. 26 of the

Act do not involve possessing of or coming by some

fresh information. The section says :

" If for any reason any agricultural income

chargeable

to agricultural income-tax has escaped

assessment for

any financial year .....

,the Agri-

cultural Income-tax Officer

...... may proceed to

assess ...... such income ......

"

The use of the words "any reason" which are of wide

import dispenses with those conditions by which

s. 34 of the Indian Income-tax Act is circumscribed.

The

point which was thus left over by Gajendragad­

kar,

J., cannot arise in the context of the Act we a.re

dealing with.

In view of this clear opinion, it is hardly necessary

for us

to consider again the cases which preceded the

decision of this

Court. The most important of them

are considered in the judgment of Gajendragadkar, J.

Most of the cases are also considered in the judgment

of Harries, C. J., and Mukherjea, J. (as he then was) in

Maharaja Bikram Kishore v. Province of Assam (

1

). In

all the cases where a contrary view was taken, reliance

was placed

upon the decision of the Privy

Council in

Rajerulra Nath Mukerjee v. Income-tax Commissioner(')

particularly a passage wherein it was observed :

(1) [1949] 17 I.T.R. 220. (2) (1933) L.R. 61I.A.10. 16.

S.C.R. SUPREME COURT REPORTS 343

"The fact that s. 34 requires a notice to be served z959

calling for a return of income which had escaped

M aharajadltfraj

assessment strongly suggests that income which has Sir Kameshwar

already been duly returned for assessment cannot Singh

be said to have 'escaped' assessment within the v.

statutory meaning." The State of Biltar

The facts of the case were entirely different. The Hidayatullalt

1

.

income was returned, and was not yet processed when

the notice under s. 34 was issued. The key to the case

is furnished

by the approval by their Lordships of the

observations of Rankin,

C.J., in In re: Lachhiram

Basan{lal (

1

)

that:

"Incom~ has not escaped assessment if there are

pending at the time proceedings for the assessment

of the assessees' income which have not yet termi­

nated in a final assessment thereof."

Their Lordships held that the expression "has escaped

assessment" should not be read as equivalent to "has

not been assessed" because so to do "gives too narrow

a meaning to the word 'assessment' and too wide a

meaning to the word 'escaped'."

That those observations were related to the facts

then before their Lordships is clear from the following

passage:

" To say that the income of Burn & Co., which

in January, 1928, was returned for assessment and

which was accepted as correctly· returned, though

it was erroneously included in the assessment of

Martin & Co., has 'escaped' assessment in 1927-28

seems

to their Lordships an inadmissible reading .....

Their Lordships find

it sufficient for the disposal

oft.he appeal

to hold, as they do that the income of

Burn &

Co., did not 'escape assessment' in the year

1927-28 within

the meaning of s.

34."

It was in the context of the pendency of assessment

proceedings

that the remarks were made, and the

matter is decisively cleared of any doubt by the

follow­

ing passage :

" It may be that if no notice calling for a return

under s. 22 is issued within the tax year then s. 34

(1) (1930) I.L.R. 58. Cal 909, 912.

344 SUPREME COURT REPORTS [1960(1))

I959 provides the only means available to the Crown of

Maharajodhiraj remedying the omission, but that is a different

Sir Kameshwar matter."

Singh In our opinion, the error in the cases relied upon by

T

• s v.

1 8

,._ the assessee arises in using the dicta in the above case,

ne tate o inur h . . ·

_ s orn of the context m whrnh they were made and

Hidayat~llah J. applying them to facts, where they cannot. The

judgment of Gajendragadkar, J., has dealt with the

matter, if we may say so respectfully, very adequately

and we do not consider it necessary to cover the same

ground again.

The preponderance of opinion in the

High Courts is also to accept the contrary view, and

we think rightly.

The learned counsel for the assessee argued that the

decision of this

Court in Messrs. Chatturam Horilram

Ltd. v. Commissioner of Income-tax, Bihar & Orissa(')

discloses a different view, and that we should follow it

in preference to the later view of Gajendragadkar, J.

We do not think that in the case last cited the point

was the same. The same case was relied upon before

the Bench of Venkatarama Aiyar, Gajendragadkar

and Sarkar, JJ., and Gajendragadkar, J., distinguished

it. This is

what he observed :

'

" Mr. Sastri has also relied on the decision of

this Court in Mesbrs. Chatturam Horilram Ltd. v.

Commissioner of Income-tax, Bihar &: Orissa (1) in

support of his construction of s. 34. In Chatturam's

case(') the assessee had been assessed to income-tax

which was reduct>d on appeal and was set aside by

the Income Tax Appellate Tribunal on the ground

that the Indian Finance Act of 1939, was not in force

during

the assessment year in

Chota Nagpur. On a

reference the decision of the tribunal was upheld by

the High Court. Subsequently the Governor of

Bihar promulgated the Bihar Regulation IV of

1942 and thereby brought into force the Indian

Finance Act of 1939, in Chota Nagpur retrospect­

ively as from March 30, 1939. This ordinance was

assented

to by the Governor-General.

On February 8,

1944,

the Income Tax

Officer passed an order in

pursuance of which proceedings were taken against

(1) '[1955] 2 S.C.R. 290.

$.C.R. SUPREME COURT REPORTS 345

the assessee under the p:i;ovisions of s. 34 and they r959

resulted in the assessment of the assessee to income-

M aharajadhiraj

tax. The contention which was raised by the Sir Kameshwar

assessee in his appeal to this Court was that the Singh

notice issued against him under s. 34 was invalid. v.

This Court held that the income, profits or gains The State of Bihar

sought to be assessed were chargeable to income-tax

and that it was a case of chargeable income escap- Hidayatullah f.

ing assessment within the meaning of s. 34 and was

not a case of mere non-assessment of income-tax.

So far as the decision is concerned, it is in substance

inconsistent with

the argument raised by Mr.

Sastri.

He, however, relies on the observations made by

Jagannadhadas, J., that 'the contention of the

learned counsel for the appellant that the escape-

ment from assessment is not to be equated to non-

assessment simpliciter is

not without force ' and he

points

out that the reason given by the learned

Judge in support of the final decisions was that

though earlier assessment proceedings had been taken

they had failed to result in a valid assessment owing

to some lacuna other than that attributable to the

assessing authorities notwithstanding the charge-

ability of income to the tax. Mr. Sastri says that

it is only in cases where income can be 'shown to

have escaped assessment owing to some lacuna

other than that attributable to the assessing autho-

rities

that s. 34 can be invoked. We do not

think that a fair reading of the judgment can lead

to this conclusion. The observations on which

reliance is placed

by Mr.

Sastri have naturally been

ma.de in reference to the facts with which the Court

was dealing and they must obviously be 'read in the

context of those facts. It would be unreasonable

to suggest that these observations were intended to

confine the application of s. 34 only to cases where

income escapes assessment owing

to reasons other

than those attributable to the assessing authorities.

Indeed Jaga.nnadhadas,

J., has taken the precaution

of adding that it was unnecessary to lay down

)"hat

exactly constitutes escapment from assessment and

that it would be sufficient to place their decision on

44

346 SUPREME COURT REPORTS [1960(1))

zu9 the. narrow ground to whiGh we have just referred.

We

are satisfied that this decision is of no assistance

M

aha1ajadhiYaj h )) , ,,

s;. Kameshwar to t e appe ant s case.

Singh For the reasons we have given, we are of opinion

v. . that the Agricultural Income-tax Officer was compe-

The State of Bihar tent under s. 26 of the Act to assess an item of income

Hi4ayatullah J. which he had omitted to tax earlier, even though in

the return that income was included and the Agricul­

tural Income-tax Officer then thought that it was

exempt.

The answer given by the High

Court was

therefore correct.

This brings us

to the second question. The income

was received from

the leasehold properties, and was

agricultural income. The contention

of the assessee

is

that it may he agricultural income in the hands of

the Tekari Raj but in his hands it was capital receipt

and in repayment of the loan of about Rs.

17,00,000

paid to Rani Bhuwaneshwari Kuer. The State of

Bihar, however, denies that there was a loan or a

mortgage

at all. The assessee, it is contended, was

placed

in possession for a number of years on a rent

of Rs.

1,000 per year and the amount paid was pre­

mium and not a loan.

The documents in question are two. They are

plainly indentures of lease between the Rani and the

assessee. From these documents it is clear that in

consideration of a pa.yment of Rs. 17,16,000 the lessee

was placed

in possession of the leasehold property for

28 years. There is no express

term which makes the

sum a loan returnable either by repayment or by the

enjoyment of the usufruct. There is no interest fixed

or right of redemption granted. There is no

provi­

sion for any personal liability in case any amount

remained outstanding at the end of the term of 28

years. These

are the tests to apply to find out

whether the transaction was one of zarpeshgi lease

or

a lease with a mortgage. See Mulla's Transfer of

Property Act, 4th Edition, page 352.

The learned counsel for the assessee in his careful

argument took us through the two documents and

endeavoured to prove that the relation of debtor and

creditor subsisted between the parties. He referred

S.C.R. SUPREME COURT REPORTS 347

us to cl. 4, which embodies a provision entitling the rg59

lessee to deduct 12! per cent. of the grm1s aggregate

amount payable by the mokarraridars as expenses of Maharajadhiraj

h 1 h

Sir Kameshwar

collection and other c arges incidenta t ereto after Singh

payment of rent reserved to the 'lessor' and to ap- v.

propriate to himself the remainder. He submitted The state of Bihar

that the payment to the lessor was not a premium _

but a loan and the intention was that the lessee Hidaya1 .. 1lah J.

or creditor would be thus repaid.

The clause by itself may admit of diverse construc­

tions, and possibly one such construction may be the

one suggested, but that is not the true purport of the

clause read in the context of the rest of the instrument.

To interpret this clause the instrument must be read as

a whole,

and when so viewed, it is found that it

pro­

vides for an exemption of the lessor from the liability

for collection charges.

It places beyond doubt that

the collection charges were not to be debited to the

lessor but were to be borne by the lessee.

Unless such

a provision was included

in the instrument, it might

have been a matter of some dispute as to who was to

be responsible for this expenditure.

The learned counsel for the assessee next drew our

attention to the last clause of the instrument of Janu.

a.ry 31, 1936. That, however, was a special covenant,

and the provision therein was in relation to matters

not covered by the instrument.

That the income from this leasehold property which

was land, would fall within

the definition of

" agricul­

tural income " was not seriously contested before us.

The case of the assessee rests tipon the claim that this

was a money.lending

transaction and the receipts

represented a capital return.

If, however, the

pay­

ment to the lessor was premium and not a loan, the

income, being agricultural, from these leasehold pro.

perties was assessable

under the Act. We are of

opinion that it was so, and that the Agricultural

In­

come-tax Officer was right when he assessed it to

agricultural income-tax. The income was not the

income of money-lending, and this does not depend

upon the character of the recipient. The Thika.

348 SUPREME COURT REPORTS [1960(1)]

r959 pro~ts were clearly agricultural income being actually

M•h•••i•dhir•i derived from land. The answer to the question by

Sir Kameshwar the High Court was thus correct.

Singh The result is that the appeal must fa.ii, and it is

v. accordingly dismissed with costs.

The Slate of Bihar ·

-Appeal dismissed.

Hidayalullah ].

I959

Mayz5.

GUEST, KEEN, WILLIAMS PRIVATE LTD.

v.

P. J. STERLING AND OTHERS

(B. P. SINHA, P. B. GAJENDRAGADKAR and

K. N. WANCHOO, JJ.)

Industrial Dispute-Fixation of age of superannuation of

employees-If a question of law-Standing order, if open to modifica­

tion-Principle of acquiescence and estoppel-Applicability­

I ndustrial Disputes (Appellate Tribunal) Act, I950 (48 of Ig50).

s. 7(I)(a)-Industrial Employment (Standing Orders)' Act, Ig46

(XX of Ig46), s. 7.

The appellant company in enforcement of a standing order,

framed under the Industrial Employment (Standing Orders) Act,

r946 (XX

of r946), against which the respondent had preferred

no appeal, compulsorily retired

47 of its workmen at the age of 55.

A dispute was raised by the workmen as to the validity of such

retirement and the three questions referred to the Tribunal for

adjudication were, (r) whether

f"!rced retirement of workmen at

55 was justified, (2) what relief were the workmen entitled to on

retirement and (3) supposing the forced retirement of the work­

men in question was justified, to what relief would they be

entitled.

It was urged on behalf of the respondents that the age

of superannuation fixed by the standing order should apply only

to new entrants and in the case of old ones the age should be

sixty

with option to them to continue even thereafter. The

Labour Appellate Tribunal on appeal, in reversal of the findings

of

the Industrial Tribunal, held that the Standing Order in

question could not bar adjudication as to the propriety

of the

system of forced retirement, that in view of the admitted fact

that there was no fixed age of retirement in the appellant's

concern before

the Standing Order, it could not be enforced

against workmen recruited prior

to it and by its award directed

that the workmen who had been compulsorily retired should be

reinstated on refunding what

they had received in the shape of

gratuity

and Provident Fund dues. It was urged by way of

preliminary objections on behalf of the appellant that (r) the