# SHRI CHATRASINGHJI KESARI SINGHJI THAKORE v. COMMISSIONER OF INCOME-TAX, BOMBAY

- **Citation:** [1966] 2 S.C.R. 440
- **Court:** Supreme Court of India
- **Decided:** 1965-10-28
- **Case number:** Civil Appeals Nos. 148 and 149 of 1964
- **Bench:** K. Subba Rao, J. C. Shah, S. M. S!Kri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/shri-chatrasinghji-kesari-singhji-thakore-v-commissioner-of-income-tax-bombay-3589
- **Pages:** 9

## Headnote

Incon1e Tax-lvfining lease-Local cess payable under terms of lease
hy lessee-Stans in excess of local cess paid :to lessor-Excess lvhether of
•inconie' of lessor.
A
B
The appellant gave certain mines on lease to a Syndicate. in lieu of
C
rents and
royalty.
By cl. 1 Part VII of the indenture of lease the
Syndicate was also required to discharge all public demands in respect of
the mines made by the State Government or the local authority, except
land revenue. In compliance with the said clause the Syndicate paid
certain sums for the periods ending July 31, 1951 and July 31, 1952 to the
appellant as 'Local Fund Cess'. This Cess was calculated by the Syndicate
as a percentage of the ient and royalties paid for the mines whereas
under the relervant law the oess had to be a percentage of the land revenue,
D
and therefore the sums paid were much larger than due. For the assessment years 1952-53 and 1953-54 the
Income-tax Officer having jurisdiction over the area treated the amounts so paid rto the appellant as
part of his income..
The appellant filed an appeal before the Appellate
Assistant Commissioner and contended that the two sums were not tax·
able because they re.presented Local Fund Cess collected by him on
behalf of the State Government or Local Board, and also because they
E
were receipts "of a casual and non-f'zcurring nature." These contentions
were accepted by the Appellate Assistant Commissioner but the Tribunal
and the High Court in a reference under s. 66 of the Income-Tax Act
upheld the view of the Income Tax Officer.
The appellant came to this
Court with certificate.
HELD : (i) The Syndicate was not an inferior bolder under the appellant. It was the appellant who was the. holder, and the liability to pay
the local fund cess under the Bombay Land
Revenue Code was
his.
Under the terms of Part VII cl. 1 of the indenture of lease the Syndicate
ha<l agreed to pay to the appellant the amount of local fund cess which
the latter had to pay to the Government.
But by collecting the amount
from the Syndicate under the terms of his contract, the appellant was
not constituted an agent of the Government for recovering the cess. [446
A-Cl
F
G
(ii) The Syndicate merely sought to discharge what it believed was its
contractual obHgation under the lease and in doing so it made payments
which eocceeded the local fund
cess payable by the
appellant.
The
amounts so paid had a quality, if not identical, closely ;similar to refits
and
royalty.
It was immaterial that if the true position had been appreciated the Syndicate might not have paid the amounts. They were
in fact paid by the Syndicate and were received and appropriated by
H
the appellant as if he was entitled to receive them.
The difference between the amounts which the appellant receivo<l and the amounts for which
he could under the terms of the lease claim reimbursement must thertforc
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•
C. K. THAKORE V. C. I. T. (Shah, J.)
441
A
be regarded as income within the meaning of the Indian Income-tax Act,
and unless specially exempted, liable to tax. [445 E-G, HJ
(iii) There is nothing in the Income-tax Act which prevents the Revenue authorities from determining the quantum of the1 amount which
is payable by the appellant as local fund cess, when that question properly
arises before them in the course of proceedings for assessment. [446 DJ
B
{iv) The fact that the Syndicate had filed suits to recover the excess
amounts paid to the appellant as local fund cess did not affect the issue.
The appellant had received certain amount under a contract with the
Syndicate and if that amount was income 'the fact that the person who
paid it might claim refund would not deprive it of its character of income
in the year in which it was received. [447 G-H]
( v) Assuming that the amounts sought to be included as income were
C
paid as a result of some mistake on the •part of the Syndicate, they had
not the characteristic of casualness and it was not suggested that they
were non-recurdng. [420 A-Bl

## Text

SHRI CHATRASINGHJI KESARI SINGHJI THAKORE
v.
COMMISSIONER OF INCOME-TAX, BOMBAY
October 28, 1965
[K. SUBBA RAO, J. C. SHAH AND S. M. S!KRI, JJ.]
Incon1e Tax-lvfining lease-Local cess payable under terms of lease
hy lessee-Stans in excess of local cess paid :to lessor-Excess lvhether of
•inconie' of lessor.
A
B
The appellant gave certain mines on lease to a Syndicate. in lieu of
C
rents and
royalty.
By cl. 1 Part VII of the indenture of lease the
Syndicate was also required to discharge all public demands in respect of
the mines made by the State Government or the local authority, except
land revenue. In compliance with the said clause the Syndicate paid
certain sums for the periods ending July 31, 1951 and July 31, 1952 to the
appellant as 'Local Fund Cess'. This Cess was calculated by the Syndicate
as a percentage of the ient and royalties paid for the mines whereas
under the relervant law the oess had to be a percentage of the land revenue,
D
and therefore the sums paid were much larger than due. For the assessment years 1952-53 and 1953-54 the
Income-tax Officer having jurisdiction over the area treated the amounts so paid rto the appellant as
part of his income..
The appellant filed an appeal before the Appellate
Assistant Commissioner and contended that the two sums were not tax·
able because they re.presented Local Fund Cess collected by him on
behalf of the State Government or Local Board, and also because they
E
were receipts "of a casual and non-f'zcurring nature." These contentions
were accepted by the Appellate Assistant Commissioner but the Tribunal
and the High Court in a reference under s. 66 of the Income-Tax Act
upheld the view of the Income Tax Officer.
The appellant came to this
Court with certificate.
HELD : (i) The Syndicate was not an inferior bolder under the appellant. It was the appellant who was the. holder, and the liability to pay
the local fund cess under the Bombay Land
Revenue Code was
his.
Under the terms of Part VII cl. 1 of the indenture of lease the Syndicate
ha<l agreed to pay to the appellant the amount of local fund cess which
the latter had to pay to the Government.
But by collecting the amount
from the Syndicate under the terms of his contract, the appellant was
not constituted an agent of the Government for recovering the cess. [446
A-Cl
F
G
(ii) The Syndicate merely sought to discharge what it believed was its
contractual obHgation under the lease and in doing so it made payments
which eocceeded the local fund
cess payable by the
appellant.
The
amounts so paid had a quality, if not identical, closely ;similar to refits
and
royalty.
It was immaterial that if the true position had been appreciated the Syndicate might not have paid the amounts. They were
in fact paid by the Syndicate and were received and appropriated by
H
the appellant as if he was entitled to receive them.
The difference between the amounts which the appellant receivo<l and the amounts for which
he could under the terms of the lease claim reimbursement must thertforc
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•
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•
C. K. THAKORE V. C. I. T. (Shah, J.)
441
A
be regarded as income within the meaning of the Indian Income-tax Act,
and unless specially exempted, liable to tax. [445 E-G, HJ
(iii) There is nothing in the Income-tax Act which prevents the Revenue authorities from determining the quantum of the1 amount which
is payable by the appellant as local fund cess, when that question properly
arises before them in the course of proceedings for assessment. [446 DJ
B
{iv) The fact that the Syndicate had filed suits to recover the excess
amounts paid to the appellant as local fund cess did not affect the issue.
The appellant had received certain amount under a contract with the
Syndicate and if that amount was income 'the fact that the person who
paid it might claim refund would not deprive it of its character of income
in the year in which it was received. [447 G-H]
( v) Assuming that the amounts sought to be included as income were
C
paid as a result of some mistake on the •part of the Syndicate, they had
not the characteristic of casualness and it was not suggested that they
were non-recurdng. [420 A-Bl
D
E
F
G
H
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 148 and
149 of 1964.
Appeal by special leave from the judgment and order dated
April 14, 1960 of the Bombay High Court in Income-tax Reference No. 85 of 1957.
Bishan Narain, .T. B. Dadachanji, 0. C. Mathur and Ravinder
Narain, for the appellant.
A. V. Viswanatha Sastri, R. Ganapathy Iyer, R. H. Dhebar
and R. S. Sachthey, for the respondent.
The Judgment of the Court was delivered by
Shah, J.
On December 11, 194 7 the appellant granted to the
Shivrajpur Syndicate Ltd. rights for mining manganese ore from
lands in two villages Shivrajpur and Bhat.
The following are
.the material terms of the indenture of lease :
". . . in consideration of the rents and royalties
covenants and agreements by and in these presents and
in the Schedule hereunder written, reserved and contained and on the part of the Lessee to be paid, observed
and perfonned, the Lessor hereby grants and demises
unto the Lessee All Those the mines, beds, veins, and
seams of Manganese Ore
. situate lying and being
in and under the land .
. . . to Hold the premises
. . granted and
demised unto the Lessee for the term of twelve years
. which shall be deemed to have commenced from the first
442
SUPREME COURT
REPORTS
[ 1966] 2 S. C.R.
day of December One thousand nine hundred and fortyfive .
yielding and paying therefore unto the Lessor the
several rents and royalties mentioned in Part V of the
Schedule at the respective times herein specified subject
to the provisions contained in Part VI of the said
Schedule."
In parts II, III and IV of the Schedule liberties, powers, privileges,
restrictions and conditions enjoyed by the lessee were set out.
By Part V the Syndicate agreed to pay annually Rs. 2,629/8/8
A
as rent and royalty at the rate of 8 % of the sale value of all c
manganese ore. By cl. 1 of Part VII it was agreed that :
"The lessee shall pay the rents and royalty reserved
by this lease at the time and in the manner provided in
Parts V and VI and shall also pay and discharge all
taxes, rates, as.sessments and impositions whatsoever
being in the nature of public demands which shall from
time to time be charged, assessed or imposed upon or in
respect of the mines or works of the lessee or any part
thereof by authority of the Government of India or the
Government of Bombay or otherwise except demands for
land revenue .
. "
The appellant received from the Syndicate, besides rents and
royalty, Rs. 16,309 in the year ending July 31,
1951 and
D
E
Rs. 39,515 in the year ending July 31, 1952, being 3/16th of the
amount of rent and royalty payable to the appellant in accordance with the terms of Part V of the lease.
The Syndicate
described this payment as "Local Fund Cess".
The Income-tax F
Officer, Ward 'B', Panch Mahals, brought these two amounts to
tax in the assessment years 1952-53 and 1953-54. In appeal to
the Appellate Assistant Commissioner of Income-tax,
Baroda
Range it was maintained by the appellant that the two sums were
not taxable, because they represented Local Fund Cess collected G
by him on behalf of the Government of Bombay or the Local
Board, Panch Mahals, and in any event because they were receipts
"of a casual and non-recurring nature". The Appellate Assistant
Commissioner upheld those contentions of the
appellant and
directed that the said sums be excluded from the total income of
the appellant.
H
In the view of the Income-tax Appellate Tribunal, the appellant received the two sums from the Syndicate under cl. 1 of
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A
B
c
C. K. THAKORE V. C.I.T. (Shah, J.)
443
Part VII of the lease agreement and not as Local Fund Cess on
behalf of the Government of Bombay or of the Local Board Panch
Mahals, and the amounts were not receipts "of a casual and nonrecurring nature".
The Tribunal submitted a consolidated statement of the case under s. 66(2) of the Income-tax Act in
respect of the two years of assessment and submitted the following
questions for the opinion of the High Court of Bombay :
"(i) Whether the sum of Rs. 16,309 received by the
Rs. 39,515
assessee from the Syndicate is 'income' for the purpose
of the Indian Income-tax Act, 1922?
(ii) If the answer to the above question is in the
affirmative, whether the income-receipt is exempt under
section 3 (vii) of the Act by reason of its being of a
casual and non-recurring nature?"
D
In compliance with an order of the High Court, the Tfibunal submitted a supplementary statement of the case observing that the
lands in question which
were "allienated villages"
between
August 1, 1950 and August 15, 1950 had ceased to be alienated
villages in consequence of the application of the Bombay Taluqdari Abolition Act 62 of 1949, that the total amoun~ of assessment
E
payable in respect of these villages was Rs. 1.222.92 and the local
fund cess due in respect of the lands was Rs. 270.45 nP., that the
total Jama payable by the appellant was Rs. 504.45 nP., and that
the appellant had under the Bombay Local Boards Act, 1923 to
pay the cess as a percentage of land revenue and not of the Jama.
The High Court, in the light of the supplementary statement of
F
the case, recorded its answer on the first question in the affirmative, subject to the reservation that "the amount of cess which the
appellant was legally liable to pay under the Bombay Local Boards
Act was not subject to income-tax", and answered the second
question in the negative.
With certificate granted by the High
G Court, these appeals have been preferred.
The relevant statutory provisions bearing on the questions
Feferred to by the Tribunal may be summarised. By the Bombay
Taluqdari Tenure Abolition Act 62 of 1949, all the incidents of
the Taluqdari tenure attaching to the lands comprised in the appellant's estate were extinguished, and all
Taluqdari lands were
H
declared liable to payment of land revenue in accordance with the
provisions of the Bombay Land Revenue Code, 1879, or Jama
under an agreement, or settlement recognised or declaration made
444
SUPREME COURT REPORTS
[1966] 2 S.C.R
under the Gujarat Talukdars' Act. Under the Bombay Land A
Revenue Code by s. 3 (13) "superior holder" is defined as meaning a landholder entitled to receive rent or land revenue from
other landholders, whether or not he is accountable for such rent
or land revenue or any part thereof to the Provincial Government,
and a "tenant" is defined in s. 3 (14) as meaning a lessee, whether
holding under an instrument, or under an oral agreement, and
J3.
includes a mortgagee of a tenant's rights with possession. Bys. 45
all lands, whether applied to. agricultural or other purposes, and
wherever situate, are liable to pay land revenue to the Government according to the rules enacted under the Code, except such
as may be. wholly exempted under the provisions of any special C
contract with the Government or any law for the time . being in
force.
Under the Bombay Land Revenue Code, liability to pay
land revenue is imposed upon the landholder. Under the Bombay
Local Boards Act 6 of 1923 the State Government is authorised to
levy, on the conditions and in the manner described, a cess at the
rate of three annas on every rupee ofD
( a) every sum payable to the State Government as
ordinary land revenue,
(b) every sum which would have been assessable on
any land as land-revenue, had there been no alienation of land revenue, or
( c) every sum which would have been assessable on any
land as land-revenue, had the land not been talukdari land.
By s. 96 of Act 6 of 1923 it is provided that the cess described
E
in s. 93 shall be levied, so far as may be, in the same manner, and F
under th.e same provisions of law, as the land revenue. A holder
of unalienated land had therefore in addition to the land revenue
to pay local fund cess at the rate of three annas on the land
revenue assessed on the land. In respect of alienated lands, the
land revenue assessed on the land may be wholly or partially
remitted, but the local fund cess is levied as a fraction of the land G ·
revenue.
Under the terms of the lease with the Syndicate it was stipu, .
lated that the Syndicate shall pay all taxes, rates, assessments and
impositions of a public nature. The effect of the covenant wa!i
that the Syndicate will reimburse the appellant for local fund cess
and o.ther taxes paid by him. The local fund cess payable for the
H
twp villages demised by the appellant was according to the finding
of the Tribunal Rs. 27Cl 45 being 3/16th of Rs. 1,222.92 the
I •
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~ I
C. K. THAKORE V. C.I.T. (Shah, J.)
445
A amount of land revenue assessed on the lands. But the amounts
paid by the Syndicate for the two years in question considerably
exceeded the local fund cess payable in respect of the lands. The
Syndicate believed that it was liable to pay to the appellant under
cl. I of Part VII of the indenture of lease cess computed at the
rate of three annas on a rupee of the amount of rent and royalty.
B
c
D
E
F
G
H
Transactions relating to property and contracts are of infinite
variety and it is difficult to devise a precise definition of the
expression "income" liable to tax under the Income-tax Act,
without excluding some important categories thereof. The definition of "income" ins. 2(6C) of the Income-tax Act, 1922 is an
inclusive definition : it is devised for the purpose of the Act and
includes diverse heads which in the normal connotation of the
expression "income" would not be included. We have no desire
in this case to enter upon the difficult task of devising an accurate
definition of the expression "income".
The observation of thil
Judicial Committee in Gopal Saran Narain Singh v. Commlsisoner
of Income-tax, Bihar & Orissa(') at p. 213 that "Anything which
can properly be described as income, is taxable under the Act
unless expressly exempted" gives an indication of the difficulties
of the problem.
It is common ground that the rent and royalty under the
mining lease are income taxable under the Act, and an amount
which is paid under a covenant directly related to the paymen~ of
rent and royalty would, in our judgment, also be taxable as income.
The amounts paid have the quality which is, if not identical closely
similar to rents and royalty. It is immaterial that if the true position were appreciated, the Syndicate may not have paid the
amounts. The amounts have in fact been paid by the Syndicate,
and have been received and appropriated by the appellant as if
he was entitled to receive them. The difference between the
amounts which the appellant received and the amounts for which
he could under the terms of the lease claim reimbursement, must
lherefore be regarded as income within the meaning of the Indian
Income-tax Act, and unless specially exempted, liable to tax. The
appellant did not purport to collect local fund cess on behalf of
the State Government : nor did the Syndicate pay the amount to
him as an agent of the Government. The Syndicate merely sought
to discharge what it believed was its contractual obligation under
the indenture of lease, and in doing so, it made payments which
exceeded the local fund cess payable by the appellant.
(I} L.R. 62 I.A. 207.
446
SUPREME
COURT
REPORTS
[1966] 2 S.C.R.
We are unable to hold that the Syndicate was an inferior A
holder under the appellant. The appellant was the holder of the
land and he had granted a lease in respect of the land to the
Syndicate, and our attention has not been invited to any provision
of the Bombay Land Revenue Code, 1879 which imposes liability
to pay local fund cess upon the lessee who holds land under a
lease from the landholder. Liability to pay land revenue and the B
local fund cess is imposed by the Bombay Land Revenue Code
upon the appellant.
Under the terms of Part VII cl. 1 of the
indenture of lease, the Syndicate had agreed to pay to the appellant
the amount of land revenue and local fund cess which the latter
may have to pay to the Government. But by collecting the amount C
from the Syndicate under the terms of his contract, the appellant
was not constituted an agent of the Government for recovering
either the land revenue or local fund cess.
There is nothing in the Income-tax Act which prevents the
Revenue authorities from determining the quantum of the amount
which is payable by the appellant as local fund cess, when that
question properly arises before them in the course of proceedings
for assessment. The Income-tax Officer 1s within the limits
assigned to him under the Act a tribunal of exclusive jurisdiction
D
for the purpose of assessment of income-tax. He has under the
Act to decide whether a particular receipt is income, and it is not
E
predic?ted that he must make some person or body other than the
assessee who may be concerned with that receipt as a party to
the proceeding before he decides that question. As between the
State and the assessee it is his function alone to determine whether
the receipt is income and is taxable.
The determination by the
Income-tax Officer may be questioned in proceedings before
F
superior tribunals which are permitted by the Act, but the Incometax Officer cannot be prevented from detern1ining a question which
properly arises before hin! for the purpose of assessment of tax,
merely because his determ.ination may not bind some other body or
person qua the assessee.
It is maintained by counsel for the appellant that in the
"Manual of Revenue Accounts" issued under the authority of the
Government of Bombay it is recorded that the local fund in respect
of land held under a mining lease is a fraction of the aggregate
amount of rent and royalties under the lease. This plea is based
upon a complete misconception of what is stated in the Manual
of Revenue Accounts, 1951. Under the head
"Miscellaneous
Land Revenue" at p. 41 certain directions are given about the
G
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C. K;. THAKORE v. C. I. T, (Shah, J.)
447
A
entries to be made in the Tharavband in respect of "miscellaneous
fluctuating revenue". The Manual after setting out heads of fixed
revenue proceeds to set out the following heads
of fluctuating
revenue:
B
c
D
E
F
G
H
( i) Carrying Local Fund, and
(ii) Free of Local Fund.
Under the head fluctuating revenue "Carrying Local Fund" are
non-agricultural rent or revenue from agriculturally assessed or
unasses,sed lands for back years, for broken periods, or short
periods less than five years and fees for brick kilns and lime kilns
erected on Government waste lands; (2) Lump commutationpayments not being commutations in perpetuity of land revenue
for building or any other non-agricultural purpose, including
assessment for unauthorised occupation, and fine when levied for
non-agricultural uses with permission, but not including fines
levied as penalties, and "2(A) Rent and royalties under mining
lease (usually collected at T) ." But these are mere instructions
to the village officers relating to the heads of revenue which are
"to pass through the Tharavband". By the instructions it is not
sought to be conveyed that local fund cess in respect of nonagricultural incomes subject to local fund such as rent and royalti0S
is to be levied at a rate different from the rate prescribed by the
statute. The Bombay Local Boards Act, 1923 expressly provides
that local fund cess is to be levied on land revenue whether the
land is used for purposes agricultural or non-agricultural at the
prescribed rate and by executive instructions the Act cannot be
modified and has not been modified.
It was said that the Syndicate may seek to recover from the
appellant the excess amounts paid by it towards local fund cess.
We were told at the Bar that after the proceeding for assessment
in these appeals reached the High Court, the Syndicate has filed
a suit in the Civil Court against the appellant to recover the
amounts paid by it. We are not in this case concerned with the
merits of that claim. The appellant has received certain amount
under a contract with the Syndicate, and if that amount was
income, the fact that the person who paid it may claim refund will
not deprive it of its character of income in the year in which it
was received.
The contention that this income was of a "casual and nonrecurring nature" was abandoned before the Tribunal. It cannot
L2Sup.Cl/66 -15
448
SUPREME COURT REPORTS
(1966] 2 S.C.R.
be said that the receipt was produced by change or was accidental fortuitous or from unforeseen sources of income. Assuming
that the amounts sought to be included as income were paid as a
result of some mistake on the part of the Syndicate, they have not
the characteristic of casualness, nor is it suggested that they are·
non-recurring.
The appeals therefore fail and are dismissed with costs. One
hearing fee.
Appeals dismissed.
A
B
;