Judgement Consolidated Appeal (No. 26 of 1947) from three decrees of the High Court (February 15, 1944) and from a fourth decree of the same court (December 14, 1944) whereby four separate references made to the court under s. 66, sub-s. 1, of the Indian Income-tax Act, 1922, as amended, were all answered in favour of the assessees, the respondents to the several appeals. The following introductory statement is taken from the judgment of the Judicial Committee All of these appeals k raised the question whether interest on arrears of rent payable in respect of land used for agricultural purposes was exempt from income tax as being agricultural income within the definition of that phrase contained in s. 2, sub-s. 1, of the Indian Income-tax Act. In the second appeal a further question was raised, namely, whether when a usufructuary mortgage was given by the debtor in satisfaction of any such arrears of interest the amount of such interest could then be treated as received, so as to become taxable under the Act. Under s. 4, sub-s. 3 (viii.) of the Indian Income-tax Act, 1922, agricultural income was exempt from assessment to income tax. Agricultural income was defined in s. 2 of the Act as follows " (1.) 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 British India or subject to a local rate assessed " and collected by officers of the Crown as such ; It is not necessary to state in detail the facts bearing on-ths first question. In each case there was included in the assessment of income made on the assessee interest in respect of arrears of rent payable for land which was used for agricultural purposes and was either assessed to land revenue or subject to-a local rate. That interest had been paid. The interest was it was understood, payable in all cases by virtue of various-statutes which prescribed that interest should be payable on rent in arrears. The point put baldly was therefore, " Is such " interest rent or revenue derived from land ?" The High Court (Fazl Ali C.J., Manohar Lai and Beevor JJ.) (only the first two of whom heard the reference in the fourth of there appeals) answered the question common to all four references in the affirmative. The point put baldly was therefore, " Is such " interest rent or revenue derived from land ?" The High Court (Fazl Ali C.J., Manohar Lai and Beevor JJ.) (only the first two of whom heard the reference in the fourth of there appeals) answered the question common to all four references in the affirmative. They answered the second question, which arose only in the second reference, in the negative. 1948. May 11, 12, 13. Millard Tucker K.C. and Handoo for the appellant. The principal question is whether interest on arrears of rent, which rent is payable in respect of agricultural land, is itself agricultural income within the definition in s. 2, sub-s. 1, of the Indian Income-tax Act and exempt from assessment to income tax under s. 4, sub-s. 3 (viii.). It is submitted that it is immaterial whether the interest was payable under a statute or by agreement prior or subsequent. If it is held that interest on arrears of rent is not itself w rent or revenue " derived from land," then the second question is whether j when a creditor for any such interest takes a usufructuary mortgage in satisfaction of the interest, he has been paid and received interest within the meaning of the Act so as to become taxable. On the first question there are conflicting decisions in India. It was held in Commissioner of Income-tax, Madras v. Zamindar of Kirlampudi (( 1931) I.L.R. 55 M. 830.) that " interest due to a Law. Rep. 75 Ind. App. 283 ( 1947- 1948) Commissioner of Income-Tax, v. Raja Bahadur Kamakhaya 179 Zamindar u under promissory notes taken by him from his ryots for the “amount of rent due by them with interest is not agricultural “ ‘income within the meaning of s. 2, sub-s. 1 (a) " of the Act. The main case relied on by the appellant is In re Manager, Radhika Mohan Roy Wards Estate (( 1941) A.I.R. (Cal.) 443.), where it was held that interest on arrears of rent payable by statute is not agricultural income and is therefore assessable to income tax. Kumar Deba Prosad Garga v. Commissioner of Income-tax, Bengal (( 1943) 11 I.T.R. 546.) follows that decision. The same view was held in Pethaperumal Chettiar v. Commissioner of Income-tax, Madras (I.L.R. [ 1944] M. 322.) where it was said that u such interest is not rent. Kumar Deba Prosad Garga v. Commissioner of Income-tax, Bengal (( 1943) 11 I.T.R. 546.) follows that decision. The same view was held in Pethaperumal Chettiar v. Commissioner of Income-tax, Madras (I.L.R. [ 1944] M. 322.) where it was said that u such interest is not rent. It is an additional sum payable to a landholder for the delay in payment of the "rent. Nor is it revenue derived from land. Its source "is the tenants default in the performance of his contract." [Reference was also made to Province of Bihar v. Maharaja Pratap Udai Nath (( 1941) I.L.R. 20 Pat. 699.).] Sri Sri Sri Ramchandra Dev v. Commissioner of Income-tax, Bihar and Orissa (( 1942) I.L.R. 21 Pat. 461.) is against the appellant here, but there are three observations on that case (a) the Calcutta Wards Estate case (( 1941) A.I.R. (Cal.) 443.) does not appear to have been before the court (b) they have not decided whether the interest was rent or revenue derived from the land; they said that w the income-tax authorities have always conceded u that interest on arrears of rent payable by a raiyat is agricultural income and not taxable" (c) & few" days later another case was decided by the same High Court which it is difficult to reconcile with the former Maharaja Bahadur Ram Ran Vijay Prasad Singh v. Province of Bihar ([ 1942] I.L.R. 21 Pat. 488.). The last authority on this point, and again against the appellant here, is Sarju Bat v. Commissioner of Income-tax (( 1947) 15 I.T.R. 137.). That concludes the conflicting views in the authorities. Putting the argument independently, one must first keep in mind the whole of the definition of agricultural income as indicating the sense of the exemption as a whole. The land is the crux and the source of the income which is being exempted. It is the land itself which is to produce the income—that is inherent in "rent derived from land." For the broadest meaning of land see Commissioners of Taxation v. Kirk ([ 1900] A.C. 588.). The general idea of the definition section is that it is only the profits derived immediately from the land itself that are exempt. Interest on arrears of rent is not rent in the ordinary meaning of the word, which is consideration paid by the tenant for the use of the land. The general idea of the definition section is that it is only the profits derived immediately from the land itself that are exempt. Interest on arrears of rent is not rent in the ordinary meaning of the word, which is consideration paid by the tenant for the use of the land. Secondly, the interest, which in this case is payable because some rent was not paid on its due date, is not revenue " derived from the land," which must be the case for it to fall within the section. It cannot be said that the interest which the assessee receives from the bank on the money constituting the arrears of rent is revenue derived from the land. Being interest on money it cannot at the same time be revenue derived from land. [Reference was made to Riches v. .]. T h e pr oxim a t e a n d no t t h e ultim a t e s o ur c e of t h e in t e r e s t m u s t be lo ok e d a t C o m m is si o n e r of I n c o m e-t a x , Bih a r a n d O ris s a v . M a har a j a dh i r a j S i r Ka m e s h wa r S i ng h Westminster Bank, Ld. ([ 1947] A.C. 390, 399.)(( 1933) I.L.R. 13 Pat. 336, 339.), where it was said that "the source of u the income must be considered in its proximate rather than "in its ultimate significance." It may be that ultimately the assessee would not have had this interest but for the land and the fact that he had a tenant who was in arrears with his rent, and therefore in a sense he derived the interest from the land, but the answer is that in an immediate sense he derived it from the fact that a debt was owing by the tenant. That last cited case came on appeal to this Board (( 1935) L. R. 62 I.A. 215.), which did not deal with the point now in issue, but it is submitted that it is inherent in the Boards decision that the immediate source of the income must be looked at. That last cited case came on appeal to this Board (( 1935) L. R. 62 I.A. 215.), which did not deal with the point now in issue, but it is submitted that it is inherent in the Boards decision that the immediate source of the income must be looked at. It was said in Gopal Saran Narain Singh v. Income-tax Commissioner (( 1935) L.R. 62 I.A. 207, 211-12.) that " it is not u rent or revenue derived from land; it is money payable " under a contract imposing a personal liability on the " covenantor the discharge of which is secured by a charge on " land." That is applicable here, where the interest was payable either under a contract or by virtue of a statutory provision. Here, the tenant can pay it out of any money he likes, and he is bound to pay it whether the land is productive or not and whether he remains a tenant or not. [Reference] was also made to Nawab Habibulla v. Income-tax Commissioner, Bengal (( 1942) L.R. 70 I.A. 14.).] Law. Rep. 75 Ind. App. 283 ( 1947- 1948) Commissioner of Income-Tax, v. Raja Bahadur Kamakhaya 180 Pritt K.C., Sir Roland Burrows K.C., Colombos and Prem Lall for the respondents in the first, third and fourth appeals. This interest is rent or revenue, and it is derived from the land—as a question of construction that is the true answer. It attaches itself to the principal of which it is an accretion; it is so close to rent that it is difficult to imagine that it has not the same derivation. The broad question here is whether it is "derived" from the land. [Reference was made to Province of Bihar v. Maharaja Pratap Udai Nath (I.L.R. 20 Pat. 699.).] It can still be derived, though there may be a degree of indirectness, in the derivation a thing can derive mediately or immediately, and may also derive from more than one source Commissioners of Taxation v. Kirk ([ 1900] A.C. 588, 592.) ; Liquidator, Rhodesia Metals, Ld. v. Commissioner of Taxes ([ 1940] A.C. 774, 786.). If this interest does not derive from land, from what does it derive? v. Commissioner of Taxes ([ 1940] A.C. 774, 786.). If this interest does not derive from land, from what does it derive? It was suggested for the appellant that it derives from default in payment, as if that were something different, but default is not a separate source of income independent of the obligation or the contract on which the obligation arises. Further, it is no answer to say that it is interest on money; if it can be revenue derived from land then it does not matter how many other things it may be. The source from which interest on agricultural rent is derived is identical with that of the source of the rent, namely, the contract of tenancy. The word " revenue " in s. 2, sub-s. 1 (a), of the Act includes all income derived from land used for agricultural purposes and therefore includes interest on arrears of rent. With regard to the nature of interest, there are various definitions, and the theme of it being the fruit of the tree runs through many of the cases Riches v. Westminster Bank, Ld. ([ 1947] A.C. 390, 413.) ; Commissioner of Income-tax, Bengal v. Shaw, Wallace and Company (( 1932) L.R. 59 I.A. 206, 212.). There is also a rather strong analogy in the treatment of interest on a statute-barred debt, for if the principal of a debt becomes statute-barred the interest on the debt is also statute-barred Elder v. Northcott ([ 1930] 2 Ch. 422.). [Reference was also made to Cheang Thye Phin v. Lam Kin Sang ([ 19291 A.C.. 670.).] Thus the nature of interest in its closeness to principal supports i the argument on construction. Next, the Chief Justice in the present case said that u in Sri Sri Sri Ramchandra Devs " case (I.L.R. 21 Pat. 422.). [Reference was also made to Cheang Thye Phin v. Lam Kin Sang ([ 19291 A.C.. 670.).] Thus the nature of interest in its closeness to principal supports i the argument on construction. Next, the Chief Justice in the present case said that u in Sri Sri Sri Ramchandra Devs " case (I.L.R. 21 Pat. 461.) it was pointed out that the income-tax authorities " had always conceded in the past that interest on arrears of "rent was not taxable,” and it was said in Commissioners for Special Purposes of Income-tax v. Pemsel ([ 1891] A.C. 531.) " that when you " find legislation following a continuous practice and repeating " the very words on which that practice was founded, it may " perhaps fairly be inferred that the legislature in re-enacting " the statute intended those words to be understood in their "received meaning." That, however, is at best no more than a help to construction. [The conflicting authorities which were cited for the appellant were examined and discussed.] The decision of the High Court on this point in the present case was right and ought to be affirmed. B. Sen, for the respondent in the second appeal, adopted the argument for the respondents on the main point in the first, third and fourth appeals. Millard Tucker K.C. replied, and then dealt with the second appeal. In this appeal the position is that a sum of money was owed as interest on arrears of rent, part of which was received in cash by the assessee, and as to the remainder, Rs. 21,545, he took a usufructuary mortgage of some of his debtors property in satisfaction of that sum, so that if the appellant is right on the first point the assessee is taxable on the amount which he received in cash, and the second point is, did he, for the purposes of the Income-tax Act realize and receive the Rs. 21,545 in respect of interest. It is submitted that he received moneys worth which he could have sold, and on the authorities that is the same as receiving money. The principle is well settled, and four propositions, supported by authority, are (a) In order to be taxed there must be some income, that is, something must be received. It can be either money or moneys worth. The principle is well settled, and four propositions, supported by authority, are (a) In order to be taxed there must be some income, that is, something must be received. It can be either money or moneys worth. Where moneys worth, and not money, is received, the amount of the income is the value of the property received or the amount of the debt, whichever is the less. This proposition is subject to the reservation that the position might be different in the case of a trader, (b) To be moneys worth within the meaning of the rule that which is received must be something Law. Rep. 75 Ind. App. 283 ( 1947- 1948) Commissioner of Income-Tax, v. Raja Bahadur Kamakhaya 181 which of its own nature is capable of being sold or transferred and thus turned into money, (c) Where the sum which would be income if it were received is owing to the assessee no income would be held to be received so long as his debtors liability to pay him remains undischarged, (d) Where moneys worth is received the measure of the income is the then value of that which is received, and subsequent excess or deficiency on realization of the amount cannot be taken into account. It may be different when it is received as a receipt in the course of a trade. The following authorities support one or more of the above propositions Californian Copper Syndicate {Limited and Reduced) v. Harris (( 1904) 5 Tax Cas. 159.) ; Scottish and Canadian General Investment Co., Ld. v. A. Easson (( 1922) 8 Tax Cas. 265.); Tennant v. Smith ([ 1892] A.C. 150.); Weight (Inspector of Taxes) v. Salmon (( 1934-5) 19 Tax Cas. 174.); Ede (Inspector of Taxes) v. Wilson and Cornwall ([ 1945] 1 All E.R. 367.) ; Cross (Inspector of Taxes) v. London and Provincial Trust, Ld. ([ 1938] 1 K.B. 792.) ; Raghunandan Prasad Singh v. Income-tax Commissioner (( 1933) L.R. 60 I.A. 133.) ; Income-tax Commissioner v. Maharajadhiraj of Darbhanga (( 1933) L.R. 60 I.A. 146.) ; Commissioner of Taxes v. Union Trustee Co. of Australia ([ 1931] A.C. 258.) and Gold Coast Selection Trust, Ld. v. Humphrey (Inspector of Taxes) ([ 1946] 2 All E.R. 742.). The debt was discharged in satisfaction of this interest by the creation of the mortgage deed, and the commissioner was right in taxing as he did. of Australia ([ 1931] A.C. 258.) and Gold Coast Selection Trust, Ld. v. Humphrey (Inspector of Taxes) ([ 1946] 2 All E.R. 742.). The debt was discharged in satisfaction of this interest by the creation of the mortgage deed, and the commissioner was right in taxing as he did. B. Sen, for the respondent, was not called on. July 6. The judgment of their Lordships was delivered by LORD UTHWATT who, after the introductory statement set out above, continued There is a diversity of judicial opinion as to the correct answer to the question whether interest on arrears of rent payable for land used for agricultural purposes is "rent or revenue derived from land." The High Court of Calcutta (cf. In re Manager, Radhika Mohan Roy Wards Estate (( 1941) A.I.R. (Cal.) 443.)) and the High Court of Madras (cf. Pethaperumal Chettiar v. Commissioner of Income-tax (I.L.R. [ 1944] M. 322.)) have answered this question in the negative. The High Court of Allahabad (cf. Sarju Bai v. Commissioner of Income-tax (( 1947) 15 I.T.R. 137.)) and the High Court of Patna (cf. Srimati Lakshmi Daiji v. Commissioner of Income-tax (( 1944) 12 I. T. R. 309.) and the cases here under review) have answered it in the affirmative. This difference of opinion is not surprising for, as Braund J. truly points out in Sarju Bai v. Commissioner of Income-tax (( 1944) 12 I.T.R. 309.) the matter is almost one of first impression. The observation of Braund J. has as its background the fact that none of the other provisions of the Income-tax Act throws any light on the construction or meaning of the definition. The point therefore lies within a very small compass. The conflicting points of view are put with clarity in the judgment of Braund J. in Sarju Bai v. Commissioner of Income-tax (15 I.T.R. 144-5.) where he expresses himself as follows "The " argument on the one hand is that interest payable (whether " by statute or not) on arrears of rent which have already u become a debt due is not referable in any way to the "agricultural relationship as landlord and tenant, but is " attributable solely to their character as creditor and debtor. " It is said that interest is in its nature merely that commercial " compensation which either the accepted practice of business " or in some cases the legislature has adopted to see that a "creditor does not suffer from the default of his debtor. That, " it is said, has nothing whatever to do with the relationship " of landlord and tenant and, therefore, is not in any way " derived from the agricultural land which is the subject matter "of the tenancy. That is one way of putting it. The other " way of putting it is that interest on arrears of rent is something which in this case has been introduced by the United " Provinces Tenancy Act as a condition of the relationship " between landlord and tenant. Arguing from that, it is said " that, whether or not such interest can be strictly classified as " rent, it certainly can be classified as coming within the larger " expression revenue which forms part of the definition of " agricultural income. It will be remembered that the " definition speaks of ‘any rent or revenue derived from land.’ " Those who put it in this way say that such interest, when " received, has its Law. Rep. 75 Ind. App. 283 ( 1947- 1948) Commissioner of Income-Tax, v. Raja Bahadur Kamakhaya 182 origin in the tenancy, because, if there had " been no tenancy, there would have been no arrears of rent " and if there had been no arrears of rent, there would have been " no statutory interest. Following this sequence of causes, " they say that it is obvious that interest in circumstances such " as these must be classified as revenue derived from land." The interest clearly is not rent. Rent is a technical conception, its leading characteristic being that it is a payment in J money or in kind by one person to another in respect of the grant of a right to use land. Interest payable by statute on rent in arrear is not such a payment. It is not part of the rent, nor is it an accretion to it, though it is received in respect of it. Equally clearly the interest on rent is revenue, but in their Lordships opinion it is not revenue derived from land. Interest payable by statute on rent in arrear is not such a payment. It is not part of the rent, nor is it an accretion to it, though it is received in respect of it. Equally clearly the interest on rent is revenue, but in their Lordships opinion it is not revenue derived from land. It is no doubt true that without the obligation to pay rent—and rent is obviously derived from land—there could be no arrears of rent, and without arrears of rent there would be no interest. But the affirmative proposition that interest is derived from land does not emerge from this series of facts. All that emerges is that as regards the interest, land, rent and non-payment of rent stand together as causse sine quibus non. The source from which the interest is derived has not thereby been ascertained. The word "derived" is not a term of art. Its use in the definition indeed demands an inquiry into the genealogy of the product. But the inquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition. There is no commercial connexion between the interest and the rented land, an effective source—not land—has become apparent. These considerations supply a negative answer to the question posed, subject to an entirely different point taken by the respondents. It was stated—and the statement was not disputed—that for a considerable period income-tax authorities had not treated interest on rent in arrears as taxable, and that in their manuals published from time to time this view was openly stated. In their view such interest fell within the definition of agricultural income. The Income-tax Act, 1922, had in that period been amended from time to time without a change in the definition of agricultural income. Their Lordships were asked to make the inference that the definition had thereby obtained the meaning attributed to it by the income-tax authorities and that the legislature must be taken to have adopted the definition in the sense in which the income-tax authorities had understood and applied it. Their Lordships were asked to make the inference that the definition had thereby obtained the meaning attributed to it by the income-tax authorities and that the legislature must be taken to have adopted the definition in the sense in which the income-tax authorities had understood and applied it. The observations of Lord Macnaghten in Pemsel’s case ([ 1891] A.C. 531, 591.) and of their Lordships in Burahs case (( 1877) I.L.R. 3 C. 63.) were relied on. Their Lordships are unable-to accept this contention, for the reason that they are unable to draw from the facts brought to their attention the inference that the. legislature had by the repetition of the debated phrase adopted the meaning attributed to it by the taxing authorities. There is, indeed, no evidence that the legislature was aware of the practice, and their Lordships are not prepared to make the assumption that a practice purporting to give effect to a definition has resulted in the creation of such a generally received meaning embodying that practice as would justify the inference that the attributed meaning has been silently adopted by the legislature. The further question raised by the second appeal may be shortly disposed of. It appears that the holder of the patni rights under the Khagra Estate was unable to pay the patni rent due to the estate for several years till the rent and interest amounted to Rs. 86,918.7.0, the interest on arrears of rent amounting to Rs. 21,545. The holder of the rights thereupon executed a usufructuary bond in favour of the assessees under which they were put in possession of certain agricultural property for the purpose of realizing the sum due to them. The question referred by the income-tax tribunal was as follows " Assuming that interest on arrears of rent is taxable, " whether a usufructuary mortgage bond executed by the " debtor in favour of the assessee in satisfaction of such " interest on arrears of rent due to him is taxable." The question is put in general terms, but their Lordships are interested only in the particular bond which was given. They have considered the terms of the bond and hold the view, which they Law. Rep. 75 Ind. App. They have considered the terms of the bond and hold the view, which they Law. Rep. 75 Ind. App. 283 ( 1947- 1948) Commissioner of Income-Tax, v. Raja Bahadur Kamakhaya 183 understand to be also the view of the High Court of Patna, that on its true construction the continuance of the personal liability for the debt was recognized and affirmed. They agree, therefore, with the High Court that on this basis the point at issue is governed by the decision of their Lordships in Raja Raghunandan Prasad Singh v. Commissioner of Income-tax (( 1933) L.R. 60 I.A. 133.). Their Lordships will accordingly advise His Majesty that these appeals be allowed and that the questions raised in appeals one, three and four and the first question raised in appeal No. 2 be answered in the negative, and that the several respondents pay the costs of the appellant in the High Court of Patna. The negative answer of the High Court to the second question raised in the second appeal will remain undisturbed. The respondents will pay the costs of the appeal to their Lordships.