Case: S. R. Y. Sivaram Prasad Bahadur Vs. The Commissioner Of Income Tax Hyderabad

the management of Estates was taken over. Section 14 of that Regulation provided that the amount payable to Jagirdars and Hissedars under that Regulation "shall be deemed to be interim maintenance allowances payable until such time as the terms for the commutation of Jagirs are determined". Section 3 of The Hyderabad Jagirs (Commutation) Regulation, 1359F laid down that commutation sum for a Jagir would be a certain multiple of its basic annual revenue. Section 6 of that Regulation provided that the commutation sum for each Jagir would be distributable between the Jagirdars and Hissedars in certain proportions. Sub-section (2) of S. 7 of that Regulation stated that payment to a Jagirdar of the commutation sum of the Jagir shall constitute the final commutation as from the 1st April 1950 of his rights in the Jagir and if any payment by way of an interim maintenance allowance under the said Regulation, that is, the former Regulation, is made in respect of a period subsequent to the said date, the amount of such payment shall be recovered from the recipient thereof by deduction from his share in the commutation sum for the Jagir. On an interpretation of S. 14 of the Regulation of 1358 F, this Court held that the interim maintenance allowances paid under that section were revenue receipts on which income-tax can be imposed. Some of the observations found in that judgment undoubtedly support the case of the Department. But we must see under what circumstances those observations were made.20. In order to understand the ratio of that decision, we must bear in mind the provisions of the two Regulations referred to hereinbefore. The first Regulation provided for the taking over of the management of the Estates and the second Regulation prescribed the mode of determining the commutation sum in respect of each jagir and for its payment. The character of the receipt which this Court was called upon to consider was the maintenance allowance paid under Section 14 of the first of the two Regulations. Under the Regulation, the Administrator of Jagirs took over the management of the Estates pending making provision for determination of the commutation amount. Provision in that regard was made under the second Regulation. Till the payment of the commutation sum, the Administrator merely managed the Estates on behalf of the former owners of those Estates. This is clear from Ss. 5, 8, 11, 12, 13 and 14 of the first Regulation. Under Section 5 thereof the quondam Jagirdars were required to hand over the possession of their Estates to the Jagir Administrator. Section 8 required the former Jagirdars to pay to the Government the administration expenses of their Estates. Section 11 provided for distribution of net income of an Estate between the Jagirdar and his Hissedars who were entitled to a share in the income of the Estate. Section 12 (1) says"From the amount payable to any person under section 11, there shall be deducted the amount of any maintenance allowance which under sub-section (2) is debitable to the share of that person."Section 13 required the Jagir Administrator to maintain separate account in respect of each Jagir and afford the concerned Jagirdar and Hissedar reasonable facilities for the inspection of the same. Section 14 reads:"The amounts payable to Jagirdars and Hissedars under the Regulation shall be deemed to be interim maintenance allowances payable until such time as the terms for the commutation of jagirs are determined."21. It is the character of the payments made under S. 14 that came up for consideration before this Court in Rameshwar Raos case, 1964-2 SCR 847 = AIR 1963 SC 290 (supra). Quite clearly the maintenance allowances paid were revenue receipts. Hence that decision has no bearing on the question of law under consideration in the present case. The observations made by this Court in that decision must be read in the light of the facts of that case.22. The decision of Mr. Justice P. Jaganmohan Reddy (as he then was) in Kumara Rajah of Venkatagiri v. Income-tax Officer, A-Ward Nellore, (1967) 64 ITR 264 (Andh Pra) sitting singly proceeded on the basis that the ratio of the decision of this Court in Raja Rameshwara Raos case, 1964-2 SCR 847 = (AIR 1967 SC 290 ) is equally applicable to payments under S 50 (2) of the Act. The same view was taken by the judges of the High Court who rendered the decisions under appeal. For the reasons mentioned earlier both those decisions must be held to have proceeded on an errorneous view of the decision of this Court.23. On behalf of the Revenue, reliance was placed on the decision of this Court in Chandroji Rao v. Commr. of Income-tax, Madhya Pradesh, 77 ITR 743 = (AIR 1970 SC 1582 ). To that decision both of us were parties. The question for decision in that case was whether the payments of interest made under S. 8 (2) of the Madhya Bharat Abolition of Jagirs Act, 1951 was a Revenue receipt or a capital receipt. That section provided for the payment of interest on the compensation payable to the Jagirdars by the Government under S. 8 (1) for resumption of their Jagir lands. This Court held that the receipt of interest under S. 8 (2) of that Act was a taxable income. The Court observed that there was a clear distinction between the compensation payable under S. 8 (1) and the interest payable under sub-s. (2) of Section 8. The payment under Section 8 (2) was given to the Jagirdar for his being kept out of the compensation amount to which he was entitled for a period of ten years and that it was not a payment for the acquisition of the Jagir. Therein the Court explained the distinction between the payment made for depriving the use of money to which a person is entitled and that made for the destruction or taking away his property, the former being a revenue receipt and the latter a capital receipt.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]7. From the provisions of the Act, it is clear that the legislature must have been satisfied that the enquiries relating to the determination of the compensation of the Estates abolished was bound to take considerable time. In the very nature of things, those enquiries were bound to be prolonged. We have earlier seen that the Estates abolished vested in the Government as soon as the notification contemplated in Section 3 was issued. But the compensation payable to the Estate holders became due only when the same was finally determined under Section 39. In other words, the liability of the Government to pay the compensation finally determined arose only after the same was determined under Section 39 though the Act provided for payment of half the amount of compensation on the basis of a rough estimate within six months from the date of vesting. It may also be noted that there is no provision in the Act providing for payment of interest on the compensation payable as from the date of vesting.While it is true that the terminology used by the legislature in respect of a payment is not conclusive of the true character of that payment, it would be proper to proceed on the basis that the legislature knew what it was saying. The word compensation is a well known expression in law. When the legislature says that all payments made under the Act are in respect of the compensation payable to the former holders unless there are clear and convincing circumstances to show that one or more items of payment do not form part of the compensation payable, we must hold that those payments are what they are said to be by the statute. We must give the word "compensation" its normal and natural meaning. As seen earlier, in cl. (e) of S. 3 of the Act the legislature definitely says, that the holder or holders of the Estate falling within clauses (b) and (c) of S. 3 "shall be entitled only to compensation from the Government as provided in this Act". From this it follows that all payments made to them under the Act are compensation payable to them for taking over their Estates. Statutes which take away others property, by and large, provide for payment of compensation as from the date of taking. In the generality of those statutes, if immediate payment is not made at the time of taking provision is made for payment of interest on the compensation payable as from the date of taking. In the Act, there is no provision for payment of compensation at the time of the vesting of the Estates in the Government. Nor is there any provision for payment of interest on the compensation payable, as from the date of taking. The compensation determined has to be deposited only after the enquiry under S. 39 was over. We are told at the bar that the final determination of the compensation under S. 39 was made years after the Estate vested in the Government, though some advance compensation was paid. Hence there is force in the contention advanced on behalf of the assessee that the interim payments made were given as compensation for depriving the assesses of the income that they would have got from their agricultural lands; an income which would not have been assessable to tax under the Act if it had been received as agricultural income. The quantum of interim payments payable to the former holders of those Estates was determined by taking into consideration the income that the former owners would have received had they continued to be the owners of those Estates. This prima facie shows that the Government was compensating the former holders for taking away their income producing assets. The interim payments do not appear to have any relationship with the compensation ultimately payable. On the other hand, it takes note of the loss of income incurred by the former owners due to the abolition of the Estates. The contention that it was in lieu of interest on the compensation payable overlooks the fact that the liability of the Government to pay the compensation excepting to the extent provided in Section 54-A, arose only after the compensation payable was finally determined under S. 39. The interim payments were not fixed on the basis of the estimated compensation. They were fixed on the basis of the loss of income to the former owners. Under these circumstances, it is not possible to accept the contention that the interim payments were paid in lieu of interest or even that they represented compensation for loss of interest. If the legislature intended that the interim payments were to be made in lieu of the payment of interest on the compensation payable, nothing would have been easier than to say so in the Act. The term "interest" is a familiar term in law. In this very Act, the legislature had prescribed payment of interest under certain circumstances. As observed by this Court in Dr. Sham Lal v. Commr. of Income-tax, Punjab, 53 ITR 151   = (AIR 1964 SC 1878  ) the interest is a payment to be made by the debtor to the creditor when money was due to the creditor but was not paid or in other words was withheld from the creditor by the debtor after the time when the payment should have been made. Proceeding further, this Court observed in that case that interest whether it was statutory or contractual represented the profit the creditor would have made if he had the use of the money to which he was entitled to. In the cases before us, the assesses were not entitled to any compensation till the same was determined under S. 39. Therefore, no amount, to which they were entitled to, were, withheld from them. Hence on that account they were not entitled to any compensation in lieu of interest.10. It is true that while the Act calls the payments made under Sections 54-A, 54-B and 41 as compensation, the payments made under Section 50 (2) is called interim payments. This circumstance by itself will not be of much significance because, as seen earlier, S. 3 proceeds on the basis that all payments made under the Act are in the nature of compensation. Possibly the legislature wanted to make a distinction between compensation paid for the loss of income and that for the loss of assets.In our opinion, this sub-section, instead of assisting the Department, support the case of the assesses. All that that provision says is that the interim payments made under S. 50 (2) are not to be considered as compensation which the Government is required to deposit under S. 41 (1) or to any extent to be in lieu of such compensation. That section does not say that the interim payments are not compensation. It only says that it is no part of the compensation required to be deposited under S. 41 or in lieu of such compensation. That does not mean that it cannot be compensation for the recurring loss caused to the owner because of the taking away of an income producing asset without payment of compensation. It is not the contention of the assesses that the interim payments made are part of the total compensation payable for the acquisition of the Estates. According to them, it is a compensation for the destruction or taking away of an income producing asset of their till the assets taken from them are compensated.It is the character of the payments made under S. 14 that came up for consideration before this Court in Rameshwar Raos case, 1964-2 SCR 847   = AIR 1963 SC 290 (supra). Quite clearly the maintenance allowances paid were revenue receipts. Hence that decision has no bearing on the question of law under consideration in the present case. The observations made by this Court in that decision must be read in the light of the facts of that case.22. The decision of Mr. Justice P. Jaganmohan Reddy (as he then was) in Kumara Rajah of Venkatagiri v. Income-tax Officer, A-Ward Nellore, (1967) 64 ITR 264 (Andh Pra) sitting singly proceeded on the basis that the ratio of the decision of this Court in Raja Rameshwara Raos case, 1964-2 SCR 847   = (AIR 1967 SC 290  ) is equally applicable to payments under S 50 (2) of the Act. The same view was taken by the judges of the High Court who rendered the decisions under appeal. For the reasons mentioned earlier both those decisions must be held to have proceeded on an errorneous view of the decision of this Court.23. On behalf of the Revenue, reliance was placed on the decision of this Court in Chandroji Rao v. Commr. of Income-tax, Madhya Pradesh, 77 ITR 743   = (AIR 1970 SC 1582  ). To that decision both of us were parties. The question for decision in that case was whether the payments of interest made under S. 8 (2) of the Madhya Bharat Abolition of Jagirs Act, 1951 was a Revenue receipt or a capital receipt. That section provided for the payment of interest on the compensation payable to the Jagirdars by the Government under S. 8 (1) for resumption of their Jagir lands. This Court held that the receipt of interest under S. 8 (2) of that Act was a taxable income. The Court observed that there was a clear distinction between the compensation payable under S. 8 (1) and the interest payable under sub-s. (2) of Section 8. The payment under Section 8 (2) was given to the Jagirdar for his being kept out of the compensation amount to which he was entitled for a period of ten years and that it was not a payment for the acquisition of the Jagir. Therein the Court explained the distinction between the payment made for depriving the use of money to which a person is entitled and that made for the destruction or taking away his property, the former being a revenue receipt and the latter a capital receipt.