THE PROVINCE OF BIHAR vs RANI BHUBNESHWARI KUER.

AGARWALA, AG, C.J. - This is a reference by the Board of Revenue u/s 25 of the Bihar Agricultural Income Tax Act, 1938, in respect of an assessment for the year 1943-44. The material facts are that the assessee Rani Bhubneshwari Kuer was the owner of two properties which may conveniently be referred to as the Tikari estate and the Amawan estate. In 1941 in respect of the Tikari estate she created a trust, vesting the entire estate in a Board of Trustees, of which she herself is a member. This deed of trust was subsequently amended in 1942. Broadly speaking, the objects of the trust were : (a) to liquidate the Ranis debts; (b) to pay certain allowance to dependent; and (c) to make certain allowances for religious and public purposes. In the year with which we are concerned the Rani as settlor-trustee made a return of the income of the trust estate to the Agricultural Income Tax Officer of Ranchi, who assessed the income of the estate at Rs. 2,90,748, and the tax payable at Rs. 39,372-2-0. The Rani also made a return of the income she derived from the Amawan estate to the Agricultural Income Tax Officer of the Patna Circle, showing her income from that estate as Rs. 29,589-5-3. The Agricultural Income Tax Officer, Patna Circle, sent this return to the Agricultural Income Tax Officer at Ranchi, who then proceeded u/s 26 to levy on the assessee an assessment based on the amalgamation of the income from both estates. The questions which have been formulated by the Board for our decision in this state of affairs are so worded as not to express clearly the matters in dispute between the assessee and the Income Tax department. The parties have agreed in this court that the matters in which they are at issue should be formulated thus : first, whether the assessee is entitled to have the income of the Amawan estate assessed separately from the income of the Tikari estate; and, secondly, whether for the purpose of ascertaining the rate applicable to the assessees income from the Amawan estate the Income Tax authorities are entitled to add to that income the income from the Tikari estate.

Section 3 of the Act, which is the charging section of the Act, provides that agricultural income shall be charged on the total agricultural income of the previous year of every person. "Person" is defined in Section 2 (m) as meaning any individual or association of individuals owning or holding property for himself or for any other, or partly for his own benefit and partly for another, either as owner, trustee, receiver, common manager, administrator or executor, or in and capacity recognised by law, and includes an undivided Hindu family, firm or company. A Board of Trustees is, therefore, a person within the meaning of this Act, and as such is liable to be charge for Income Tax on its agricultural income for the year previous to the year of assessment. Omitting the words not relevant for the present purpose, Section 11 (1) of the Act provides that if a person holds land from which agricultural income is derived, partly for his own benefit and partly for the benefit of beneficiaries, or wholly for the benefit of beneficiaries, agricultural Income Tax shall be assessed on the total agricultural income derived from such land at the rate which would have been applicable if such person had held the land exclusively for his own benefit and the agricultural Income Tax so payable shall be assessed on the person holding such land, and he shall be liable to pay the same. So far as the Tikari estate is concerned, it is held by the Board of Trustees, and the income therefrom is declared by this section to be taxable in the hands of the Board. The second sub-section to Section 11 provides that any person holding such land shall be entitled, before paying to any beneficiary the amount of agricultural income which such beneficiary is entitled to receive for the agricultural income derived from such land, to deduct the amount of agricultural Income Tax at the rate at which the agricultural income is or will be assessed under sub-section (1). There is no dispute in this case about the genuineness of the deed of trust executed by the Rani which has vested the Tikari estate in the Board of Trustees for the purposes set out in the trust. In view of the clear provisions of Section II of the Act the income from this trust estate is assessable in the hands of the Board of Trustee and not otherwise. On the other hand, the income derived from the Amawan estate is assessable only in the hands of the Rani. There is no justification, therefore, for supposing that there is any basis for the view taken by the department that the income of these two estates may be assessed at one assessment. The Board of Trustees are entitled u/s II to have the income from their estate separately assessed from the income which the Rani derives from her Amawan estate, and the Rani herself is entitled to have the income from the Amawan estate assessed separately from the income which the Board of Trustees derives from the Tikari estate. The first question must, therefore, be answered in the affirmative.

On behalf of the Income Tax authorities it has been contended that in so far as the income derived from the trust properties is applicable, under the terms of the trust, to the liquidation of the Ranis debts, it should be regarded in law as her income and assessable as if she had received it direct. The language of the charging section, however, does not justify this conclusion. That section, as I have already shown, provides that agricultural income shall be charged on the total agricultural income of the assessee. Reduced to its simplest form, therefore, the question that has to be decided is whether assessment of such part of the income of the trust properties as is applicable under the terms of the trust to the liquidation of the Ranis debts is agricultural income within the meaning of the Act. Section 2 (a) of the Act defines agricultural income as (1) any rent or income derived from land which is used for agricultural purposes and is either assessed to land revenue in Bihar or subject to a local rate assessed and collect by Officers of the Crown as such; (2) any income derived from such land by (i) agriculture, or (ii) the performance by a cultivator or receiver or rent-in-kind of any process ordinarily employed by a cultivator or receiver or rent-in-kind to render the produce raised or received by him fit to be taken to market, or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii). If that part of the income of the trust which is applicable to the discharge of the Ranis debts is to be regarded as her income, it still remains for consideration whether it falls within the meaning of agricultural income as defined in Section 2 (a) of the Act. Regarded thus, it appears to me plain that the Rani does not receive it as income derived from rent to land used for agricultural purposes, or by reason of the land being used for the purposes mentioned in sub-clause (ii) of the definition. She receives it constructively if she receives it at all, by reason of the terms income to the liquidation of her debts. In this view I am supported by the decision of their Lordships of the Privy Council in Captain Maharaj Kumar Gopal Saran Narain Singh v. Commissioner of Income Tax. That was a case under the Indian Income Tax Act all agricultural income. The definition of agricultural income for the purposes of that Act is precisely the same as the definition of agricultural income in the Act now under consideration. The facts of the case were that N transferred an estate to B in Consideration of (a) the payment of a lump sum, (b) the discharge of certain debts, and (c) the payment to him for life of an annuity of Rs. 2,40,000. By a separate deed the payment of the annuity was made a charge on the lands transferred. The taxing authorities included the annuity in Ns assessable income, and the question that arose for decision was whether N was entitled to have the annuity excluded from the assessment on the found that it was agricultural income which was exempted from taxation under the provisions of the Act. The Privy Council held that the annuity was not agricultural income within the meaning of the Act money payable under a contract imposing a personal liability the discharge of which was secured by a charge on land. I am, therefore, of the opinion that the second question must be answered in the negative.

The reference is answered accordingly. The assessee in entitled to the cost of this hearing which is assessed at Rs. 250.

MANOHAR LALL, J. - I agree, I cannot understand how a trustee can be taxed in one assessment only on the income which is derived from the trust estate, of which he is in possession as a trustee, but also on his individual income which has nothing to do with the income of the trust estate. It was sought to be argued on behalf of the department that the trust is nothing more than a device to pay off the debts of the Rani and that we should held that the income in the previous year was the income of the Rani from the fact that the trustless have applied to pay off the debts of the Rani. This argument would have sound if it could be held that the trust was void and invalid. Trust is defined by Section 3 of the Indian Trusts Act of 1882 and our attention has been drawn to no provision of the Act which would compel us to hold that this particular trust was invalid. On the other hand, section 4 enacts that a trust may be created for any awful purpose and nothing can be more lawful than the payment of ones own debts. Illustration (c) to Section 4 appears to contemplate a trust like the present; the trust appears to be bona fide as an important creditor like the Bank of Bihar was entitle to nominate a member on the Board of Trustee. The argument that the Rani should be taken to be recipient of this income in the previous year on account of the payment of the debts by the trustee ignores the decision of the celebrated House of Lords case of Mersey Docks and Harbour Board, where it was pointed out that the mode of the application of the income has nothing to do with the question as to when and by whom the profits have been received and that the tax attaches itself as soon as the income is received. In the present case, therefore, the tax became payable as soon as the trustee received the income, and the subsequent allocation would not amount to a receipt of the same income by the Rani through the creditors. I also notice that the department has been taxing the trust in the past and also in the present year by accepting the position that the trust has derived the assessable income; the trust has been assessed by the Income Tax Officer, Gaya. The statement of the case and the orders of the Income Tax Officer and the Assistant Commissioner proceeded on the view that a valid trust exists.

Reference answered accordingly.