JUDGMENT Bennett and Madeley JJ. 1. This is a reference by the Appellate Tribunal on two applications u/s 66(1) of the Indian Income Tax Act. One application was made by the assessee, Raja Mustafa Ali Khan, through the Special Manager, Court 01 Wards, Utraula, district Gonda, and the other by the Commissioner of income tax, Central and United Provinces. 2. The assessment order of the income tax Officer, dated the 18th September, 1938, shows that for the assessment year 1939-40 the assessee was assessed upon a total income of Rs. 1,51,016 received in the previous year. The total includes three items which are in dispute, namely Forest Rs. 25,144. Milikana Rs. 6,967 3. Annuity and interest thereon Rs. 1,07,000 4. The assessee disputed the liability of these items to income tax on the ground that they were agricultural income which is exempt u/s 4 (3) (viii) of the Act. He appealed to the Appellate Assistant Commissioner of income tax. The latter, while holding under the first head that income from the sale of trees was assessable, reduced the amount to Rs. 21,040 allowing actually expenses instead of 20, He dismissed the appeal in respect of Malikana, As regards the annuity and interest thereon he reduced the amount assessable to Rs. 61,797. 5. The assessee appealed to the Tribunal, raising again the question whether any of these items was assessable. He also objected to some other items with which we are not concerned. The Commissioner of income tax did not appeal against the reduction m tde under the head of annuity and interest thereon. 6. The tribunal agreed that the income from sale of frees and from malikana was assessable, but held that the item of Rs. 61,797 (with which alone it was concerned under the head of annuity and interest there m) was not taxibie. 7. The assessee in his application for reference accordingly raised only the questions whether the forest and the milikana were taxible. In his application the Commissioner of income tax contends that the whole sum of Rs. 1,07,000 assessed under the head of annuity and interest thereon is taxable. It is conceded by the learned Counsel for the department, referring to the provisions of Section 33 (2), that it was not open to the Commissioner to object to the deduction of Rs. 45,203 mide by the Assistant Commissioner, as he did not appeal against it. 8. 1,07,000 assessed under the head of annuity and interest thereon is taxable. It is conceded by the learned Counsel for the department, referring to the provisions of Section 33 (2), that it was not open to the Commissioner to object to the deduction of Rs. 45,203 mide by the Assistant Commissioner, as he did not appeal against it. 8. A combined statement of the case upon both applications was drawn up by the Tribunal and the four questions referred by them are these : (1) Whether income from the sale of forest trees growing on land naturally and without the intervention of hum in agency, even if the land is assessed to land revenue, is agricultural income within the meaning of Section 2 (1) (a) of the income tax Act and as such exempt from income- tax u/s 4 (3) (viii) of the Act ? (2) Whether, having regard to the nature and incidents of the tenure in this case, the income of Ks. 6,271 realised by the assessee as milikana in the year of account is agricultural income within the meaning of the definition of that expression in the Income Tax Act and is as such exempt from t;ix u/s 4 (3) (viii) of the Act ? (3) Whether in the circumstances of the case the sum of Rs. 1,07,000 received by the Utraula Estate from the Nanpara Estate during the previous year represents agricultural income within the meaning of Section 2 (1) (a) of the Income Tax Act? and (4) Whether the interest portion of the above receipt represents demages or compensation for wrongful withholding of the annuity money and is as such not assessable fo income tax ? 9. It will be observed that the Tribunal has not noticed the objection to the Commissioner's contention that the .whole amount of Rs. 1,07,000 is taxable. 10. We were invited in this as in some other refe- rences to examine the question whether income from the sale of forest trees was not income at all, but capital, although that question his not been raised. We considered upon references in the case of the Special Manager, Court of Wards, Majgawan Estate 1945 O A (C C) 62 : A W R (C C) 62 (Civil Relerences Nos. We considered upon references in the case of the Special Manager, Court of Wards, Majgawan Estate 1945 O A (C C) 62 : A W R (C C) 62 (Civil Relerences Nos. 9 of 1942 and 2 of 1944) whether it is open to an assessee to raise before this Court a question not expressly raised befoie and for the reasons given in our judgment upon those references we must hold that it is not. 11. The first question now referred was eximined by us at length in the case of His Highness the Maharaja of Kapurthala 1945 O A (C C) 179 : A W R (C C) 179 (Civil Reference No. 1 of 1942) and it is not disputed thit our decision in that will answer the question in this case also. Counsel did not thereto; e address us agiin upon it. We hold that income from the sale of trees growing on land naturally and without the intervention of human agency, even if the land is assessed to land revenue, is not agri- cultural income within the meaning of Section 2 (l)(a)of the Act. 12. We now come to the second question. The finding that the malikana in; question is assessable to income tax is based on its historical origin which has been held to distinguish it from what we may call ordinary malikina, or as it is referred to in the i appellate order of the Tribunal "haq milikana". The latter is payable by the under-proprietors to the superior proprietors. The milikana under consideration is payable by the superior proprietors to the assessee. How the superior proprietors became liable to pay it is explained in the following extract from the revenue papers which we take from the order of the Tribunal. During the days of the Nawabs of Oudh the Raja of Utraula was recognised as the pargana lord and as such retained the right to a small feudal tribute and to manorial dues. From the beginning of the I9th century till the annexation the Rajas of Utraula could not properly manage their estate on account of the continued warfare between the neighbouring estates. During this period they transferred, made grants of or sold a large number of villages to certain, persons for monetary consideration. From the beginning of the I9th century till the annexation the Rajas of Utraula could not properly manage their estate on account of the continued warfare between the neighbouring estates. During this period they transferred, made grants of or sold a large number of villages to certain, persons for monetary consideration. In doing so they surrendered all their zamindari and proprietary rights and lost all their title to real property in respect of those villages. They, Jiowever, retained the rights of a small annual cash payment by virtue of their position as the old 'pargana lord'. This cash allowance came to be called the 'malikana'. The villages otherwise became quite independent and the exclusive property of the purchasers, grantees, or tranferees. 13. The correctness of this account is not disputed, and indeed admissions which support it were made before the income tax Officer. He states in his assessment order : The legal clerk of the Court of Wards has informed me that these dues are annually realised from the superior proprietors of certain villages which are not the property of the Estate. The Estate has nothing to do with the land ( revenue payable on or with the rent realisable from the tenants of those villages. 14. The Income Tax Officer concluded from this that such dues do not constitute income from rent or revenue. He added that as a matter of fact a suit for arrears of such malikana cannot be filed in the Revenue Courts, which appears to be c rrect. It was contended before him that this malikana was nevertheless agricultural income because it "bears some proportion of the land revenue of the villages", but he did not think that this altered the position. 15. The Assistant Commissioner took the same view. He said : At the time of the first regular settlement this position was recognised and the Milikana' in respect of each such village was fixed by a settlement decree, after enquiries as to the past practice and the amount actually paid. A percentage of land revenue deimnd varying from 10 to 25 per cent according to the circumstances of each village was adopted as the basis for calculation of the "Milikm" fixed The Malikan was fixed for each village once for all, and is payable to the Utraula estate for ever. This unalterable annual cash payment is independent of the actual profits of villages. This unalterable annual cash payment is independent of the actual profits of villages. Thus, ro change, was or is being made in the amount of the milikana at the time of second or third regular set lenient corresponding to a change in the land revenue assessments, or to the income of the village. Even if a village yields no income to the proprietors in any year due to floods, draught, hailstorms, etc., and subsequent remissions in rent or revenue, the proprietor of the village will still be liable to pay "Malikana" to the Utraula estate in the terms of the decree, The source of the "malikina" is, thus, the settlement decree and not the land in which the Raja of Utraula has absolutely no right or interest. The owners of these villages are the full or superior proprietors (Malike-Ala) of their villages and not the under-proprietor (Matahetdar) of the Utraula estate. They engage directly with the Government for settlement of the land revenue for payment of which they are directly responsible. It is, thus, abundantly clear that this 'Malikana' is totally different from 'Haqqa-Malikana' referred to in the judgment of the Chief Court. This 'Malikana' is admitted to be the money charged upon the immoveable property and suits for its recovery are filed in the Civil Court, the period of limitation being 12 years as per Article 132 of Limitation Act. 16. The Assistant Commissioner was referring to the decision of this Court in Brahma Din v. Sangam Lal 1939 OA 108 : 1938 (CC) 145 : OWN 1368 in which it was held that ordinary malikana is rent as denned in the Oudh Rent Act and as such the period of limitation is three years u/s 13 2 of th it Act and not 12 years under Article 132 of the Limitation Act (which relites to suits to enforce payment of miney charged upon immvoble property). 17. The Tribunal observed : The amount of the malikina was fixed by a Settlement decree and is not variable. It is payable whether the land on which it is supposed to be a charge is used for agricultural purposes or not or whether it yields any profits or not. It is admitted that suits for the recovery of this due are cognisable by Civil Courts not by Revenue Courts. It is payable whether the land on which it is supposed to be a charge is used for agricultural purposes or not or whether it yields any profits or not. It is admitted that suits for the recovery of this due are cognisable by Civil Courts not by Revenue Courts. This being so it is impossible to describe this due as rent or as agricultural income. There is no relation of landlord and tenant between the appellant and the proprietors where liable to pay this amount. 18. It has been contended before in for the assessee that notwithstanding the fact that his position in regard to these villages is as described above he is really the superior proprietor. The fact that the land revenue settelment has not been mide with him is, it is argued, immaterial, Reliance is placed on a decision of the Allahabad High Court in Nathu v. Ghansham Singh AIR 1919 All. 331. In that case the proprietors of a village refused to accept a settlement and the Government thereupon settled the village (in ISM) with the .actual cultivators subject to a malikan charge of 12 1/2% on the land revenue to the old proprietors who were excluded from the settlement. At the next two settlements the old proprietors were allow the same percentage. The new proprietary body disputed their liability and it was held that they could not do so. No such question as we are now considering was in issue, and a distinction may we think be drawn between the malikana in that case and the present case, because while in the present case the amount does not vary with every fresh settlement, in the case cited it does. Only the percentage his fixed, permanently, not the amount. Moreover it may be thought that the position of the assessee in the present case is not parallel with that of the original proprietors in Nathua v. Ghansham Singh. 19. For the income tax Commissioner it was argued that where malikina is paid by under-proprietors to superior proprietors it is actually rent derived from land, while a person cannot receive rent from land if he has no proprietary interest in it. The malikina under consideration may be charged upon the villages, but this does not mean that it is derived from land. The malikina under consideration may be charged upon the villages, but this does not mean that it is derived from land. If that were so, then maintenance allowances charged on laud would be exempt from income tax, but th.y are not. Similarly in the case of an annuity which is charged on land. On this point the case of Mihxraj Kumar Gopal Saran Narain Singh v. Commissioner of income tax Bihar and Orissa (1935) 62 I A 207 : 1935 A W R 1030 was cited, where it was held by their Lordships of the judicial Committee that the annuity was not agricultural income within Section 2 (1) (a), but money pay ible uider a contract imposing a personal liability, the discharge of which was secure 1 by a charge on land. 20. Reference was nude to this last case by a Bench of this Court in. In the mitter of Assessment in the case of Lal Suresh Singh of Kalakankar 1935 OWN 1143 where it was h Id that an allowance which a taluq- dar had agreed to piy his younger brother for maintenance and which was secured by a charge oa the taluqa was not agricultural income for the purpose of the Income Tax Act. It was said that though the allowance was secured by charge on the taluqa, yet the Raja was at liberty to make the payment out of any of his moneys. 21. It has been held by a Full Bench of this Court in Maqsood Ali v. Mr. H. Hunter 1943 OA 158 : OWN 280 that a charge is not an interest in property, but we do not think the criterion is to be found here. A simple mortgage involves the transfer of an interest in immoveable property, but the interest received thereon by the mortgagee is nonetheless liable to be assessed to income tax. 22. Both the income tax officials and the Tribunal have in our opinion given good reasons for holding that this malikani is not agricultural income. It was acquired just as an annuity or maintenance allowance might be acquired in consideration of the relinquishment of all claims to the property. It may hive originally borne some relation to the land revenue, bit it his now ceased to do so. It was acquired just as an annuity or maintenance allowance might be acquired in consideration of the relinquishment of all claims to the property. It may hive originally borne some relation to the land revenue, bit it his now ceased to do so. It may be considered in the light of feudal payment, having regard to the position of the recipient, but this does not affect the legal position. It is some- thing outside the ordinary law governing that milikina which is payable by an under-proprietor to a superior proprietor and cannot be considered rent or revenue derived from land. We answer the question accordingly. 23. The last Uvo questions may be considered together. The amount of Rs. 1,07,000 referred to in the first wis part of a larger su n of Rs. 1,45,863 due to the Utraula Estate in a "liquidation scheme" under which the Nmpara Estate was required to pay this latter sum to the Utraula Estate annually for ten years. The original liability arose out of litigation between the two Estates dating from 1909. We hive been taken through the history of this litigation and its subsequent developments, but it is unnecessary for the purpose of this reference to examine these in any great detail. The original litigation ended in a compromise which required the Raja of Nanpara to make certain payments to the Raja of Utraula. The former defaulted and litigation recommenced. The Commissioner of Lucknow was appointed arbitrator and under his award of the 8th April, 1930, the Nanpara Estate was required to pay the Raja of Utraula an annuity for life of Rs. 1,70,293. The award was made a decree of this Court. There was again default on the part of the Raja of Nanpara and the liquidation scheme referred to was consequently drawn up to provide for the extinction of the liability in ten years. The annual amount to be paid included interert on the arrears of the annuity. 24. Two deeds were executed on the 4th September, 1937, to give effect to the liquidation scheme. The Raja of Nanpara executed a usufructuary mortgage deed in favour of the Raja of Utriula, an I the Raja of Utraula executed a lease in favour of the Raja of Nanpara of the mortgaged property. 25. The mortgage was for Rs. 24. Two deeds were executed on the 4th September, 1937, to give effect to the liquidation scheme. The Raja of Nanpara executed a usufructuary mortgage deed in favour of the Raja of Utriula, an I the Raja of Utraula executed a lease in favour of the Raja of Nanpara of the mortgaged property. 25. The mortgage was for Rs. 12,13,070/4, the total amount then found due from the Raja of Nanpara to the Raja of Utraula. It bore interest at the rate of 3 1/2 per cent their provided in the liquidation scheme. 26. Under the lease the Raja of Nanpara engaged to pay the Raja of Utraula the sum of Rs. 1,45,862 annually for ten years. In this way it was arranged that the mortgage liability would be extinguished in this period. The assessee received only Rs. 1,07,000 in the year 1938-39 out of the sum of Rs. 1,45,862 due. He is said to to have appropriated Rs. 42,425 towards interest and the balance towards principal. The liquidation scheme shows what amount was to be considered interest each year. The learned counsel for the Income Tax department concedes that he can say little to support the claim except in respect of this sum of Rs. 42,425. He concedes that income tax cannot be claimed on that portion of the annual sum received under the lease which was considered as principal under the liquidation scheme, unless the legal effect of the mortgage deed and the lease, considered together, is a simple mortgage, and that the weight of authority is against him on this point. The only case which he can cite in his favour is Rajniti Prasad Singh v. Commissioner of Income- Tax, Bihar and Orissa (1930) 9 Pat 194. That case (is) certainly supports him, bat the later (Special Bench) decision of the sam: High Court in Commissioner of income tax, Biliar and Orissa v. Maharaja- dhiraj Sir Kameshwar Singh (1934) 13 Pat. 336 is authority for the opposite view. So is the Privy Council case of Feroz Shah v. Sohbat Khan (1933) 60 I A 273 : 2 A W R 180. 336 is authority for the opposite view. So is the Privy Council case of Feroz Shah v. Sohbat Khan (1933) 60 I A 273 : 2 A W R 180. It was said in the latter case that there is nothing in itself suspicious about a possessory mortgage accompanied by a lease of the mortgaged property to the mortgagor, although there has been no handing over of the land to the mortgagee and back to the mortgagor as lessee. At the termination of the lease the mortgagee is entitled to possession, if that is the effect of the documents ; the transaction should not be treated as a simple mortgage and evidence to show the intention of . the parties or to contradict the express terms of the documents is not admissible, being forbidden by Section 92 of the Evidence Act. 27. There was some contention as to whether interest on arrears of rent is or is not agricultural income'. On this point too there has been some conil ct and we were referred to a number of cases of which we need cite only In Re: Manager, Radhika Mohan Roy Ward's Estate, AIR 1941 Cal 443 and Fathaperumal Chettiar v. Commissioner of income tax, Madras 1913 I T R 632 "for the view that it is not agricultural income, and Commissioner of Income Tax Vs. Janab Hajee Muhammad Sadak Khoyee Sahib, AIR 1936 Mad 144 and Sri Mati Lakshmi Daiji v. Commissioner of Income Tax, Bihar and Orissa 1944 ITR 309 for the view that it is. 28. But this question does not in our opinion arise. The amount which it is suggested should be taken into consideration as interest, being credited! to this head out of the sum of Rs. 1,07,000, was not interest upon any part of the annual rental due under the lease. To ascertain its character we have to go behind the lease and see how that rental was made up and that is just what we are precluded from doing. 29. In the Special Bench Patna case referred to was said that the source of the income must be considered in its proximate rather than in its ultimate significance. If we consider only the lease and that is all we can consider we find that the whole amount of Rs. 29. In the Special Bench Patna case referred to was said that the source of the income must be considered in its proximate rather than in its ultimate significance. If we consider only the lease and that is all we can consider we find that the whole amount of Rs. 1,45,862 is to be paid annually as rent and that being so no part of the sum of Rs. 1,07,000 paid can be deemed interest. 30. Something was said about evasion of income tax by this means, but the law is well settled that no objection can be taken by the Income Tax department to any legitimate transaction, though it may have or appear to have this effect. 31. In Re: Makund Sarup, AIR 1928 All 81 a Full Bench of the Allahabad High Court considered the case of a money-lender who lent money in the Court of his business on the security of lands, taking a usufructuary mortgage and immediately leasing the lands back to his mortgagor with a stipulation for fixed annual payments amounting to a definite percentage o.i the sum advanced. It was held that the annual payments should be excluded from the assessment of the profits and gains of his business as being "agricultural income" We cannot distinguish .this case from the case under consideration. 32. Our answer therefore to the third question referred is that the sum of Rs. 1,07,000 is agricultural income within the meaning of Section 2 (1) (a) of the Income Tax Act; and to the fourth question that no portion of this receipt can (for this purpose be considered interest, damages or compensation. 33. The parties will pay their own costs in this reference. We fix the fee of the Counsel for the Department at Rs. 200.