# Nawab Habibulla v. Commissioner of Income-tax, Bengal

- **Citation:** [1961] 2 S.C.R. 74
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** CIVIL APPELLATE ' JURISDICTION: Civil Appeal No. 357 of 1958
- **Bench:** S. K. Das, J: C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/nawab-habibulla-v-commissioner-of-income-tax-bengal-2034
- **Pages:** 8

## Headnote

Income Tax-Exemption from taxation-Agricultural income
from trust properties-Trustee's remuneration a percentage of such
income and resting on trust deed-Remuneration, whether agricultural income-Indian Income-tax Act, I922 (II of I922), ss. z(I),
4(3)(viii).
The appellant executed a deed of trust settling some of his
lands for the maintenance of certain temples and Thakoorbaries.
He was to be the trustee of the institutions and was to get 15%
of the net income of those lands as trustee's remuneration.
Before the income-tax authorities the appellant claimed that as
the income received from agricultural properties of the trust by
him as trustee was agricultural income in his hands and was by
virtue of s. 4(3)(viii) of the Indian Income-tax Act, r922, exempt
from liability to pay tax, the remuneration which by the
covenant contained in the deed of trusr he received was also
exempt under that section 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.
Held, that the source of the right in which a fraction of the
net income of 1the trust was to be appropriated by the appellant
as his remuneration was not in the right to receive rent or
revenue of agricultural lands, but rested in the covenant in the
deed to receive remuneration for management of the trust, and
the character of the income appropriated as remuneration was
not the same as the character in which it was received by the
appellant as trustee. Consequently, 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 was
received, it was not agricultural income within the meaning of
s. 2(1) of the Indian Income-tax Act, 1922, and was not exempt
from taxation under s. 4(3)(viii) of the Act.
Nawab Habibulla v. Commissioner of Income-tax, Bengal,
(r943) L.R. 70.I.A. 14 and Premier Construction Co. Ltd. v. Commissioner of Income-tax, Bombay City, (1948) L.R. 75 I.A. 246,
relied on.
Commissioner of Income-tax, Bihar and Orissa v. Kameshwar
Singh, (r935) L.R. 62 I.A. 215, distinguished.
..
•
2 S.C.R.
SUPRE~IE COURT REPORTS
75
•
CIVIL
APPELLATE ' JURISDICTION:
Civil Appeal
No. 357 of 1958.
.
J.Iaharajadki1aj'1
Appeal from the judgment and order dated April Sir K~meshwar
24, 1957, -of the Patna High Court in 1\Iisc. Judicial
Singh
Case No. 57 of 1955.
·
- ·
.
The c0 ,;;,.issione1
·A. V. Viswanatha Sastri and J. N. Shroff, for the of Income-tax,
appellant.
_
. Bihar Go Orissa
K. N. Rajagopal Sastri and R. H. Dhebar, for the
respondent.
1960. October 25. The Judgment of the Court was
delivered by
_
_ __ ·__
·
SHAH J.-The appellant executed a deed of-trust
·Shah J.
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 in.
come of a part of the Raj properties may be earmark.
ed 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 proper.
ties out of the income of which the said maintenance
is being and will be provided for."
d. 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 -heretO.''
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 re

## Text

OctoLer 25.
74
SUPREME COURT REPORTS
MAHARAJ ADHIRAJ A
SIR KAMESHWAR SINGH
v.
[1961]
COMMISSIONER OF INCOME-TAX, BIHAR AND
ORISSA.
(S. K. DAS and J: C. SHAH, JJ.)
Income Tax-Exemption from taxation-Agricultural income
from trust properties-Trustee's remuneration a percentage of such
income and resting on trust deed-Remuneration, whether agricultural income-Indian Income-tax Act, I922 (II of I922), ss. z(I),
4(3)(viii).
The appellant executed a deed of trust settling some of his
lands for the maintenance of certain temples and Thakoorbaries.
He was to be the trustee of the institutions and was to get 15%
of the net income of those lands as trustee's remuneration.
Before the income-tax authorities the appellant claimed that as
the income received from agricultural properties of the trust by
him as trustee was agricultural income in his hands and was by
virtue of s. 4(3)(viii) of the Indian Income-tax Act, r922, exempt
from liability to pay tax, the remuneration which by the
covenant contained in the deed of trusr he received was also
exempt under that section 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.
Held, that the source of the right in which a fraction of the
net income of 1the trust was to be appropriated by the appellant
as his remuneration was not in the right to receive rent or
revenue of agricultural lands, but rested in the covenant in the
deed to receive remuneration for management of the trust, and
the character of the income appropriated as remuneration was
not the same as the character in which it was received by the
appellant as trustee. Consequently, 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 was
received, it was not agricultural income within the meaning of
s. 2(1) of the Indian Income-tax Act, 1922, and was not exempt
from taxation under s. 4(3)(viii) of the Act.
Nawab Habibulla v. Commissioner of Income-tax, Bengal,
(r943) L.R. 70.I.A. 14 and Premier Construction Co. Ltd. v. Commissioner of Income-tax, Bombay City, (1948) L.R. 75 I.A. 246,
relied on.
Commissioner of Income-tax, Bihar and Orissa v. Kameshwar
Singh, (r935) L.R. 62 I.A. 215, distinguished.
..
•
2 S.C.R.
SUPRE~IE COURT REPORTS
75
•
CIVIL
APPELLATE ' JURISDICTION:
Civil Appeal
No. 357 of 1958.
.
J.Iaharajadki1aj'1
Appeal from the judgment and order dated April Sir K~meshwar
24, 1957, -of the Patna High Court in 1\Iisc. Judicial
Singh
Case No. 57 of 1955.
·
- ·
.
The c0 ,;;,.issione1
·A. V. Viswanatha Sastri and J. N. Shroff, for the of Income-tax,
appellant.
_
. Bihar Go Orissa
K. N. Rajagopal Sastri and R. H. Dhebar, for the
respondent.
1960. October 25. The Judgment of the Court was
delivered by
_
_ __ ·__
·
SHAH J.-The appellant executed a deed of-trust
·Shah J.
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 in.
come of a part of the Raj properties may be earmark.
ed 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 proper.
ties out of the income of which the said maintenance
is being and will be provided for."
d. 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 -heretO.''
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
SUPREME COURT REPORTS
[1961]
•
z960
shall be those of a rayat under the Bihar Tenancy
Act."
.r.sfohaKrajadhhir•i•
The net income of all the lands set out in Schedule_
ir
ames war_
• •
,,
Singh
" A" after prov1drng for the expenses of management
v.
and the taxes payable thereon was estimated at
The CommissioneiRs. 1,81,717 and the net rental of the properties des0/ Income-tu, cribed in Schedule " C " was estimated at Rs. 10 208
Bihar & Orissa and from the aggregate of these- two amounts ~fter
· Shah ]~
deducting 15% as trustee's remuneration, the balance
. of the income estimated at Rs. 1,63,136-4-0 was to be
utilised for the objects of the trust.
·
In t.he assessee's income determined by the Income.
Tax Officer for the assessment year 1950.51, Rs. 6,000
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. 21,274 computed at the rate of 15% on· the net income of the
trust properties in the year in question not being agri.
cultural 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 ofthe case, the amount of Rs. 21,274 being· the amount
·paid to the assessee in his character of a Sheba.it of
the Trust properties should have been held to be
exempted from taxation on the ground that it is agricultural income ?"
·
__
·
- - ---- ------·-----~---~
...
I
I I
If
I
I
•
. l
•
•
•
-
j
2 S.C.R. SUPREME COURT REPORTS
77
The High Court a.greed with the Tribunal that the
'960
remuneration was received by the appellant under a M h -.-dh'
·~
d ,
. l
l .
l
a araJa
iraJw
contract, an it was not a.gricu tura. mcome, mere Y Sri Kameshwar
because the source of the money was agricultural inSitigh
come. The High Court accordingly answered the
v.
fifth question "against the a.ssessee". This appeal is The Commissioner
filed by t.he appellant with leave under s. 66A(2).of B
0!hlnc~m0
e-tax,
•
•
s ar C1'
rissa
the Indian Income-tax Act granted by the High Court
limited to the question whether ~he amount received
by the appellant from the trust property in his character as a shebait was exempt from liability to pay
income-tax.
The material part of the definition of" Agricultural
income " in s. 2( 1) 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 s. 4(3)(viii)
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 s. 4(3)(viii) 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 a.ppro- .
priate to himself the income of the properties or a
part thereof in lieu of any beneficial interest in· that
inc.ome. The source of the right in which a fraction
of the net income of the trust is t~ be appropriated by
the appellant as his remuneration is not in the riglit
Shah ].
78
SUPREME COURT REPORTS
[1961]
to receive rent or revenue of agricultural lands, but
rests in the covenant in the deed to receive remuneraMahnmjadhirn1a t"
f
f th t
t
Th ·
f h
S ..
1.
,
10n or management o
e rus ,,
e mcome o t e
ir i.anies1twaY
•
•
•
Sing'1
trust appropriated by the appellant as remunerat10n 1s
v.
not received by him as rent or revenue of land; the
The Commi"i""" character of the income appropriated as remuneration
of Inc~me-fox, due is again not the same as the character in which it
Biha. "" Onssa was received by the appellant as trustee.
Both the
Shah ].
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,
notwithst.a.nding 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
s. 4(3) (viii).
.
We may briefly refer to the authorities which illustrate the meaning of" agricultural income " in s. 2( l)
of the Income-tax Act. ·
In Nawab Habibvlla v. Commissioner of Income
'l'ax, Bengal('), the Privy Council held that the remuneration received by a mut.walli 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 8. 2(1) 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 Go., Ltd. v. Commissioner
of Income Tax, Bombay City('), 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) L.R. 70 I.A. q,
(2) (i948) L.R. 75 I.A. 246.
( '
I
(
-'-.·
•
;
' ..
2 S.0.R. SUPREME COURT REPORTS
79
the definition of agricultural income, it earns exempz96o
tion, iu whatever character the assessee receives it. M h -.-d,...
.
I
h
h
.
bl
.
a ataJa ira;a
n t at case, t e remuneration pa.ya e to a managmg Sir Kameshwar
agent of a company in consideration of services to be
Singh
rendered was a minimum annual salary of Rs. 10,000
v.
payable irrespective of whether t.he company made Tlie Commissioner
any profit· but if 10°1 of the profits made by the of Income-t~:r,
'
/O .
Bihar 0· Onssa
company exceeded Rs. 10,000 the agent was to get an
_
additional remuneration calculated as a percentage
Shah J.
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
asscssee received n.o agricultural income as defined by
the Act: he received remuneration under a contract
for personal service calculated on the a.mount of pro.
fits earned by the employer.
In Commissioner of Income Tax, Bihar and Orissa
v. Kameshwar Singh(1), 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 collepting 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 ca.lied upon to consider
(1) (1935) L.R. 62 I.A. •us .
80
SUPREME COURT REPORTS
[1961)
196o
the nature of the primary receipt by the mortgagee
and not of the appropriation ma.de under the coveulvl aharajadhiraja
Sir Kameshwar ant of the deed of mortgage.
Singh
Iri K. B. Syed Mohammad Isa and another v. Com.
v.
missioner of Income '1.'ax, Central and United ProvinThe Commissioner ces (1), the a.ssessee was a. mutwa.lli appointed under
of.Income-fox. two deeds. Under both the deeds, he was to receive
Bihar & Orissa
• 1
I
d
• It
I ·
d
· 1 ·
a.grwu tura. au uon-agricu ura mcome an to uti 1se
Shah J.
the same for purposes of the trust. U uder 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 a.mounts 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 mutwa.lli 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 ea.ch
case, the mutwalli was a. beneficiary with a.n obliga.
tion attached to his enjoyment of the benefit, and had
therefore two ca.pa.cities, one a.s mutwa.lli and the
other as beneficiary. The court on those facts held
that the balance of the income from the zamiudari
went " through the mutivalli" 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
trust : the source and the character of the income a.re
(1) I.L.R. [194>] All. 4>5.
,/
I
-
I
2 s.c.R. SUPREME COURT .REPORTS
81
both altered when agricultural income is appropriated
under the covenant in the deed of trust as remunera- Maharajadhiraja
tion for services rendered.
Sir Kameshwar
In this view, the appeal fa.ils and is dismissed with
Singh
costs.
v.
Appeal dismissed.
THE DISTRICT BOARD, GHAZIPUR
v.
LAKSHMI NARAIN SHARMA
(P. B. GAJENDRAGADKAR, A. K. SARKAR,
K. SUB BA RAO, K. N. WANCHOO
and J. R. MuDHOLKAR, JJ.)
Regulatio~ and Control of Trade-District Board, power ofIf impliedly repealed-Sanitation, connotation of-U. P. District
Boards Act, Ig22 (U. P. X of I922), ss. 9I(q) and I74-U. P.
Panchayat Raj Act, I947 (U. P. XXVI of Ig47), ss. IS and III.
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
\;ye-laws were framed under s. 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 s. III of the U. P. Panchayat Raj Act,
1947, which operated in tbe same field.
Held, that the bye-laws had been validly made and that
the District Boards were not divested of their powers to regulate and control trade under the District Boards Act, 1922, by
the provisions of U. P. Panchayat Raj Act, 1947. Section 9x(q)
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 s. 174(2)(k) 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
u
The Commissioner
of Income-lax,
Bihar & Orissa
Shah].
October z6.