Ramachandra Mardaraj Deo Vs. Commissioner of Income-tax - Court Judgment

Misra, J.

1. This is a reference by the Income-tax AppellateTribunal, Madras Bench 'B', under Section 66(1), IndianIncome-tax Act. The question of law that has beenreferred to this Court for decision is as follows;

'Whether the assesses is entitled to earned incomerelief under Section 2(6-AA) for the five assessmentyears 1946-47 to 1950-51 on his income fromother sources.'

The assessee is the Raja Bahadur of Khallikote who owned three estates, Khallikote, Athgarh and Biridi. A part of his income consisted, of income from forestry, interest on arrear rents, fisheries, and royalties from quarries etc. This part of the income being non-agricultural in character was assessable to income-tax as income from other sources. The assessee, however, contended that he was entitled to relief by way of earned income under Section 15-A of the Act as part of his income from forestry, fisheries,royalties etc., constitutes earned income within the meaning of Section 2(6AA) of the Act. The appellate Assistant Commissioner and the Income-tax Appellate Tribunal negatived his contention in this behalf. On his application, however, the Income-tax Appellate Tribunal was of opinion that a question of law did arise out of the said order, and accordingly they have stated a case on the question quoted above.

2. Section 2(6AA) was introduced into the Income-tax Act by ordinance No. 9 of 1945. For the purpose of the present reference, the relevant portion of the definition of 'earned income' as given in Section 2(6AA) may be quoted as follows:

' 'earned income' means any income of as assessee who is an individual, Hindu undivided family, unregistered firm, or other association of persons not being a company, a local authority, a registered firm or a firm treated as registered under Clause (b) of Sub-section (5) of Section 23-

X X X X (c) Which is chargeable under the head 'other sources' if it is immediately derived from personal exertion or represents a pension or superannuation or other allowance given to the assessee in respect of his past services of any deceased person;

and includes any such income which, though it is the income of another person, is included is the assessee's income under the provisions of this Act, but does not include any such income which is exempt from tax under Sub-section (2) of Section 14 or under a notification issued under Section 60.'

From the definition quoted above, it would appear that in the present case, the assessee, in order to claim the benefit of earned income, must establish that it is an income which is chargeable under the head 'other sources' if it is immediately derived from personal exertion.

3. Before dealing with the question of law, it would be advantageous to note how the departmental authorities have dealt with the question. For the assessment year 1946-47, the Income-tax Officer simply notes in his assessment order 'earned income relief.... Nil'. In the next assessment order, that. is, for 1947-48, the Income-tax Officer states:

'No earned income relief is allowable since the definition of 'earned income' makes it clear that such allowance is claimable under head 'other sources' only if it is immediately derived from personal exertion.'

In the assessment year 1948-49, the assessee placed before the Income-tax Officer certain copies of letters which passed between him and Sri Nahakrishna Chaudhury, the then Hon'ble Minister of' Revenue, Government of Orissa, and Rai Bahadur P.C. Das, the then Secretary to the Government of Orissa, and the copies of the orders issued to his Dewan approving of some quantity in respect of some logs of wood required for the school and hostel work. On the basis of this evidence, the assessee contended that he was personally supervising the management of his forests, and therefore, he satisfied the requirements of Clause (c) of Section 2(6AA). The Income-tax Officer, however, held that

'This correspondence, I am afraid, does not go very far in establishing assessee's title to E. I. R. In order that E. I. R. would be admissible, it should be proved that income falling under the head 'other sources' as the assessee's incomes do fall in the charge year, were immediately derived from personal exertions of the person in whose hands the income is sought to be assessed. In the present case, the assessee has maintained not only Forest Staff, but his Dewan is admittedly in the immediate charge of the general superintendence of the Estates as a whole.'

He held that it was quite natural that the assessee would be associated with the general well-being of his Estates. The assessee's requisition for particular trees from his forests did not in any way establish his claim that the income from the forests was immediately derived from his personal exertion. He, therefore, disallowed the claim. In the assessment years 1949-50, and 1950-51, the same Income-tax Officer disallowed the earned income reliefs on almost similar grounds.

4. I now pass on to the order of the Income-tax Appellate Assistant Commissioner. In the appeal relating to the assessment year 1946-47, the Appellate Assistant Commissioner held that there was no evidence before him to show that the income from other sources was immediately derived from the assessee's personal exertion. In the appeal relating to the assessment year 1947-48, the Appellate Assistant Commissioner pointed out the difference between Clause (b). and Clause (c) of Section 2(6AA) and held that the Legislature prescribed that in the case of businessman the test was the lightest because the businessman is given the allowance only where the business is carried on by him. In the case of income derived from other sources the strictest test is applicable and it must be proved that the income is immediately derived from personal exertion of the assessee.

In the appellate order relating to the assessment year 1948-49, the Appellate Assistant Commissioner pointed out that the test to be applied in such cases was whether the income would come to a stop if the personal-exertion ceased, and applying this test to the facts of the case, it was apparent that whether the Raja Bahadur took a keen interest in the management of his zamindari, or not the income from the zamindari continued to flow, and even if he were absent from his estate for a year or two, the income would continue to come in. He, therefore, held that there was no immediate connection between the Raja Bahadur's exertion and the income from his zamindari. In the subsequent years, he simply referred to his order relating to the assessment year 1948-49, and held that for similar reasons, he disallowed earned income reliefs to the assessee.

5. Against these orders, the assessee filed appeals before the Income-tax Appellate Tribunal which heard four appeals together, and disposed them of by their order dated 8-8-1952. They held that since the assessment of the income is under 'other sources', the assessee's immediate personal exertion was required to be established. The assessee, in their opinion, had not shown that there was this immediate personal exertion on his part in the production of the income in question. Having regard to the position of the assessee and the nature of the source exploited, viz., forests, he could not have exerted himself personally to produce the income. He had necessarily to employ assistants and labour hands for the purpose which fact clearly removed him from the immediacy required for producing the income. The appeal for the year 1950-51 was disposed of by the Income-tax Appellate Tribunal on the same ground. The question that has been referred to us arises on this order of the Incomes-tax Appellate Tribunal.

6. It is somewhat strange that though the section was introduced into the Act in 1945, there has been as yet no occasion for- a judicial interpretation of this clause, Counsel for both sides have informed us that there is no decided case on the point. It is an established principle of construction of statutes that in the absence of there being anything contrary to the context, the language of a statute should be interpreted according to the plain dictionary meaning of the terms used therein.

'The first and most elementary rule of construction is',--says Maxwell 'that it is to be assumed that the words and phrases of technical legislation are used in their technical meaning if they have acquired one and, otherwise, in their ordinary meaning, and, secondly that the phrases and sentences are to be construed according to the rules of grammar.'

'If there is nothing to modify, nothing to alter, nothing to qualify the language which the statute contains, it must be construed in the ordinary and natural meaning of the words and sentences. The safer and more correct course of dealing with a question of construction is to take the words themselves and arrive, if possible, at their meaning without, in the first place reference to cases' See Maxwell on the Interpretation, of Statutes, 9th Edn., p. 3.

In -- 'New Plymouth v. Taranaki Electric Power Board', 1933 AC 680 (A), Lord Macmillan quoted with approval the observations of the Court in --'Spillers Ltd. v. Cardoff (Borough) Assessment Committee', (1931) 2 KB 21 at p. 43 (B) to the following, effect:

'It ought to be the rule, and we are glad to think that it is the rule, that words are used in an Act of Parliament correctly & exactly, and not loosely and inexactly. Upon those who assert that rule has been broken the burden of establishing their proposition lies heavily. And they can discharge it only by pointing to something in the context which goes to show that the loose and inexact meaning must be preferred.'

For ascertainment of the ordinary meaning of words, resort may be made to standard dictionaries. Lord Coleridge said in -- 'R. v. Peters', (1886) 16 QBD 636 at p; 641 (C), as follows:

'I am quite aware that dictionaries are not to be taken as authoritative exponents of the meanings of words used in Acts of Parliament, but it is a well-known rule of Courts of law that words should be taken to be used in their ordinary sense, and we are therefore sent for instruction to these books.'

In -- 'Marquis Canden v. Commr. of Inland Revenue', 1914-1. KB 641 (D) it was said;

'It is for the Court to interpret the statute as best they can. In so doing the Court may no doubt assist themselves in the discharge of their duty fay any literary help which they can find including of course the consultation of standard authors and reference to well-known and authoritative dictionaries. Reference to the Oxford English Dictionary has been approved and adopted by Court in -- 'In re Ripon Housing Order', (1939) 2 KB 838 (E)'.

7. In order to interpret the language of Clause (c), we have to take into consideration the whole scheme of the section. In the case of income chargeable under the head 'profit and gains of business, profession or vocation' the section provides that the mere fact that the business, profession or vocation is carried on by the assessee is sufficient to entitle him to claim the benefit of earned income. In the case of a firm where the assessee is a partner, he can claim the benefit only if he is actively engaged in the conduct of the business, profession or vocation. After providing in this way for income from business, profession or vocation, the Legislature says that in the case of income chargeable under the head 'other sources', the assessee is entitled to the benefit of earned income if he shows that the taxable income under this head is immediately derived from his personal exertion. In other words, he must how that it is his personal exertion which brings into existence the income which is sought to be charged.

The words 'exertion' and 'immediately' as used in the section should have their ordinary dictionary meaning. In the Oxford English Dictionary the primary meaning of the word 'exertion' is stated to be as follows:

(1) Action of putting forth, manifestation, display.

(2) The action or habit of exerting or putting into active operation, the action of exercising or putting to force;

(3) The action of exerting oneself, vigorous action, effort.

In the same dictionary the meaning of the word 'immediately' is stated as follows; 'without intermediary; intervening agency or immediate; by direct agency, as in direct or approximate action, or relation so as to concern interest or affect directly or intimately directly.' Taking the dictionary meaning of the words into consideration, it appears to us that if the income from 'other sources' can be attributable to the direct personal effort of the assessee without the use of any intermediate agency, then alone the assessee can claim the benefit of 'earned income' under Clause (c). The Legislature, in order to emphasise this point, was not satisfied merely by using the words 'immediately' and 'exertion', but qualified the word 'exertion' by the adjective 'personal'. This again makes the meaning of the section still clearer by emphasising that the income, in respect of which the relief is claimed must have been brought into being immediately by the personal exertion of the assessee and not by the exertion of any intermediate agency.

As has been pointed out earlier in the case of business, the mere carrying on of the business in the name of the assessee is sufficient to entitle himto the benefit of 'earned income' and in the case of a partnership it is the managing member who is actively engaged in the conduct of the business who can claim that benefit. In the case of income from 'other sources* if it can be shown that the income is brought about by the direct personal efforts of the assessee, then he can claim the benefit and not otherwise. What is direct personal effort will have to be decided in each particular case on its own facts.

For example, a man may own a tank, and may rear fish, but be may himself not know the art of catching fish, and for that purpose he may engage fishermen to catch the fish; but he conducts the operation personally, and without letting out the fishery to somebody else. In that case, it can be said that the income is immediately derived from his personal exertion. But where in the case of big estates, the owner leaves the management in the hands of Dewans or Managers, whom of course he will have to appoint in the natural course of events, it cannot be said that the income from 'other sources' is immediately derived from his personal exertion so as to entitle him to the benefit of 'earned income'. The plain meaning of the words used in the section indicates that the income must be the result of his direct personal effort.

8. In the present case the finding in the statement of facts is that there was no immediate personal exertion involved in the production of various items of income in question. The Income-tax Appellate Tribunal which constitute the final Court of appeal found that the assessee had not shown that there was immediate personal exertion on the part of the assessee in the production of the income in question. It was not shown that the assessee was having direct personal control over operations with regard to the forests, or that but for his personal exertion the amount of the income would not have been as much as it was found to be. Under these circumstances, the Income-tax Department was justified in holding that the assessee had failed to establish the ingredients which would enable him to claim the benefit of 'earned income' under Clause (c) of Section 2(6AA) of the Act.

9. For the reasons stated above we answer the question in the negative; but as there was a question of law on which there was no previous authoritative decision of any Court, we think that in the circumstances of the case we should not make arty order as to costs.

P.V.B. Rao, J.

10. I agree.