Appeal No 357 of 1958
Appeal from the judgment and order dated April 24 1957 of the Patna High Court in Misc
Judicial Case No 57 of 1955
A V Viswanatha Sastri and I N Shroff for the appellant
K N Rajagopal Sastri and R H Dhebar for the respondent
October 25
The Judgment of the Court was delivered by SHAH J
The appellant executed a deed of trust settling certain lands described in schedule  A  and the rents of lands described in schedule  C  for the maintenance of certain temples and Thakoorbaries
The material terms of the deed of trust are cl
6  And whereas the declarant feels that a Declaration of Trust should be made whereby the income of a part of the Raj properties may be earmarked and specially devoted to the maintenance of the aforesaid institutions as also the Declarant may as hitherto treat himself and be treated by others as a legal Trustee of the said institutions and the properties out of the income of which the said maintenance is being and will be provided for cl
7  The declarant declares that henceforth he holds and will hold the properties detailed at the foot thereof in Schedule  A  in trust for religious purposes of maintaining the religious institutions more fully described in Schedule  B  annexed here to  cl 8  The declarant further declares that in all lands now held by him in the aforesaid properties as Bakast or proprietor s private lands as in the schedule  C  which are in direct khas cultivation of the Declarant shall henceforth be or continue to be his tenancy lands for which the Declarant shall pay the rental as noted against such lands annually to the  trustee for the use and benefit of the aforesaid institutions and the rights of the Declarant in them 76 shall be those of a rayat under the Bihar Tenancy Act
 The net income of all the lands set out in Schedule A   after providing for the expenses of management and the taxes payable thereon was estimated at Rs 181717 and the net rental of the properties described in Schedule  C  was estimated at Rs 10208 and from the aggregate of these two amounts after deducting 15 as trustee s remuneration the balance of the income estimated at Rs 163136 4 0 was to be utilised for the objects of the trust
In the assessee s income determined by the Income Tax Officer for the assessment year 1950 51 Rs 6000 were included as income from non agricultural properties of the trust
In the view of the Income tax Officer the trust was not a public religious trust and the income derived from properties not used for agriculture was not exempt from liability to pay tax in the hands of the appellant
In appeal against the order of assessment the Appellate Assistant Commissioner held that the income coming to the hands of the appellant from the trust properties was not taxable as private income of the appellant but in his view the remuneration amounting to Rs 21274 computed at the rate of 15 on the net income of the trust properties in the year in question not being agricultural income in the appellant s hands was liable to be taxed
In appeal to the Income tax Appellate Tribunal Patna Bench Patna the order passed by the Appellate Assistant Commissioner in so far as it related to remuneration received by the appellant was affirmed
The High Court of Judicature at Patna thereafter at the instance of the appellant directed the Income tax Appellate Tribunal to submit a statement of the case on five questions set out in the order
The fifth question which is the only question material in this appeal was as follows  Whether in the facts and the circumstances of the case the amount of Rs 21274 being the amount paid to the assessee in his character of a Shebait of the Trust properties should have been held to be exempted from taxation on the ground that it is agricultural income  77 The High Court agreed with the Tribunal that the remuneration was received by the appellant under a contract and it was not agricultural income merely because the source of the money was agricultural income
The High Court accordingly answered the fifth question  against the assessee
This appeal is filed by the appellant with leave under section 66A2 of the Indian Income tax Act granted by the High Court limited to the question whether the amount received by the appellant from the trust property in his character as a shebait was exempt from liability to pay The material part of the definition of  Agricultural income  in section 21 is as follows  Agricultural income  means a any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in the taxable territories or subject to a local rate assessed and collected by officers of the Government as such
b          
Agricultural income falling under cl a ought manifestly to be received as rent or revenue derived from land used for agricultural purposes
The income received from agricultural properties of the trust by the appellant as trustee was indisputably agricultural income in his hands and it was by virtue of section 43viii exempt from liability to pay tax
The appellant claims that the remuneration which by the convenant contained in the deed of trust he has received is also exempt under section 43viii because when he appropriated a fraction of the rent or revenue of agricultural lands towards his remuneration the original character of the income was not altered
The appellant has no beneficial interest in the lands which are the subject matter of the trust  nor is he given under the trust a right to receive and appropriate to himself the income of the properties or a part thereof in lieu of any beneficial interest in that income
The source of the right in which a fraction of the net income of the trust is to be appropriated by the appellant as his remuneration is not in the right 78 to receive rent or revenue of agricultural lands but rests in the covenant in the deed to receive remuneration for management of the trust
The income of the trust appropriated by the appellant as remuneration is not received by him as rent or revenue of land the Character of the income appropriated as remuneration due is again not the same as the character in which it was received by the appellant as trustee
Both the source and character of the income are therefore altered when a part of the income of the trust is appropriated by the appellant as his remuneration and that is so notwithstanding that computation of remuneration is made as a percentage of the income a substantial part whereof is derived from lands used for agricultural purposes
The remuneration not being received as rent or revenue of agricultural lands under a title legal or beneficial in the property from which the income is received it  is not income exempt under section 43 viii
We may briefly refer to the authorities which illustrate the meaning of  agricultural income  in section 21 of the Income tax Act
In Nawab Habibulla
vs Commissioner of Income Tax Bengal1 the Privy Council held that the remuneration received by a mutwalli of a wakf estate not depending on the nature of the properties or assets which constitute the wakf nor on the amount of income derived from the wakf estate is not agricultural income within the meaning of section 21 of the Indian Income tax Act even though the income derived by the wakf estate is from properties used for agricultural purposes
In Premier Construction Co Ltd vs Commissioner of Income Tax Bombay City 2 it was held by the Privy Council that income received by an assessee not itself of a character to fall within the definition of agricultural income does not assume the character of agricultural income by reason of the source from which it is derived or the method by which it is calculated
But if the income received falls within 1 1943 LR 70 IA 14
2 1948 LR 75 IA 246
79 the definition of agricultural income it earns exemption in whatever character the assessee receives it
In that case the remuneration payable to a managing agent of a company in consideration of services to be rendered was a minimum annual salary of Rs 10000 payable irrespective of whether the company made
any profit but if 10 of the profits made by the company exceeded Rs 10000 the agent was to get an additional remuneration calculated as a percentage upon the profits of the company without regard to the source from which those profits were derived
One of the sources of income of the company was agricultural income
It was held by the Privy Council that the assessee received no agricultural income as defined by the Act he received remuneration under a contract for personal service calculated on the amount of profits earned by the employer
In Commissioner of Income Tax Bihar and Orissa vs Kameshwar Singh1 income received by a mortgagee who went into possession of properties mortgaged to him was held to be agricultural income but that was because under the deed of mortgage the mortgagee was to be in possession of the properties and in his relation to the cultivators of the soil he stood in the position of landlord dealing directly with them and collecting the rents
The mortgagee had to pay Government revenue cesses and taxes and his name was registered in the Land Registration Department
He alone was able to sue for rent whether current or arrears to sue for enhancement or for ejectment and was able to settle lands with raiyats and tenants in all the properties in fact he was in a position to take all proceedings which the mortgagor would have been able to take in the ordinary course if the lands leased and mortgaged had remained in the mortgagor s possession
The mortgagee received the income because of the legal ownership vested in him and even though under the covenant of the mortgage deed he was required to appropriate the income towards his dues the income in his hands did not cease to be agricultural income
In Kameshwar Singh s case 1 the court was called upon to consider 1 1935 LR 62 IA 215
80 the nature of the primary receipt by the mortgagee and not of the appropriation made under the coven
ant of the deed of mortgage
In K B Syed Mohammad Isa and another vs Commissioner of Income Tax Central and United Provinces 1 the assessee was a mutwalli appointed under two deeds
Under both the deeds he was to receive agricultural and non agricultural income and to utilise the same for purposes of the trust
Under one of
the two deeds of trust the balance was to be retained by the mutwalli for his personal expenses and in the other in lieu of his services
It was held by the Allahabad High Court that the residue of the amounts retained by the mutwalli under both the deeds of trust was as agricultural income exempt from liability to pay tax
In the view of the court though the language used in the two deeds of trust was different the intention of the settler was the same the mutwalli was required to perform the functions of his office and so long as he did so he was entitled in consideration of this service to appropriate the residue of the profits
But in each case the mutwalli was a beneficiary with an obligation attached to his enjoyment of the benefit and had therefore two capacities one as mutwalli and the other as beneficiary
The court on those facts held that the balance of the income from the zamindari went through the mutwalli  to the beneficiary by virtue of an obligation imposed under the terms of the trust deed itself upon the income of the property 
The mutwalli was the channel through which the beneficiary received the money and the beneficiary was to all intents and purposes the direct recipient of the income and there was no change of source and no alteration in the character of the income
It remained agricultural income after it had passed into the hands of the beneficiary
In the present case the appellant has no beneficial interest in the trust property
The appellant so far as his remuneration is concerned is again not the direct recipient of the income of the 1 ILR 1942 All 425 81 both altered when agricultural income is appropriated under the covenant in the deed of trust as remuneration for services rendered
In this view the appeal fails and is dismissed with costs
Appeal dismissed


Summary:
The appellant framed bye laws for the regulation and control of flour rice and oil mills under which a licence had to be obtained on payment of licence fee for running a mill
The bye laws were framed under section 174 of the U P District Boards Act 1922
The respondent contended that the bye laws were ultra vires and void as the District Boards had been divested of their powers to regulate and control trade under the District Boards Act on account of section III of the P P Panchayat Raj Act 1947 which operated in the same field
Held that the bye laws had been validly made and that the District Boards were not divested of their powers to regu late and control trade under the District Boards Act 1922 by the provisions of U P Panchayat Raj Act 1947
Section 91q of the District Boards Act cast a duty on the District Boards to make provisions for regulating offensive dangerous or obnoxious trades callings or practices and section 1742k specifically empowered District Boards to make bye laws in this respect
There was no similar duty or power conferred upon Village Panchayats under the Panchayat Raj Act and consequently the question of the later enactment prevailing over the former did 82 not arise
The reference to sanitation in section 15c of the Panchayat Raj Act did not cover regulation and control of trade
Though the word  sanitation  in its widest connotation was capable of including this it was not used in its widest sense in section 15c but only in its ordinary sense in relation to conservancy drainage and the like
Section III of the Panchayat Raj Act was in general terms but bye laws could be framed under it only in respect of the functions and duties imposed upon a Gram Panchayat under sections 15 and 16
Held further that the licence fee charged by the District Board could not be struck down on account of fees being charged from the respondent in respect of his mills under the U P Rice and Dal Mills Control Order 1948 and the U P
Pure Food Act
The licence fee charged by the District Board was for the regulation of obnoxious trades and the purpose of this regulation was different from the purpose for which fee was charged from the respondent under the Essential Supplies Act and the Pure Food Act