Judgement Consolidated Appeal (No. 33 of 1947) resulting from the consolidation of two appeals and two cross-appeals from two judgments of the Chief Court (September 29, 1944, and October 9, 1944, respectively) given on two references made under s. 66, sub-s. 1, of the Indian Income-tax Act, 1922, as amended up to and including the Indian Income-tax (Amendment) Act, 1939. The first of the two judgments of the Chief Court is reported at 13 I. T. R. 98. The following facts are taken from the judgment of the Judicial Committee. Two of these appeals related to the income of Raja Mustafa AH Khan of Utraula, who will be referred to as "the assessee," for the year of assessment 1939-40, and two appeals to his income for the year of assessment 1940-41. In each case there was one appeal by the assessee and one by the Commissioner of Income-tax, United Provinces, who will be referred to as " the Commissioner." The same questions were raised in regard to each year and it is necessary to state and consider the facts in regard to one year only. By an assessment order dated September 18, 1939, the Income-tax Officer, Gonda, made an assessment for the year 1939-40 on the assessee which included as income from " other sources " (as defined in s. 12 of the Act) three separate items as follows 1. 1. Forest Rs. 25,144. 2. 2. Malikana Rs. 6,967. 3. 3. Annuity and interest Rs. 1,07,000. Those items will be explained later [see the judgment of the Judicial Committee], but it is convenient here to state that the assessee having appealed against that assessment, the first item was reduced to Rs. 21,040 by the Assistant Commissioner of Income-tax, and was at that figure upheld by the Income-tax Appellate Tribunal and the Chief Court at Oudh ; that the second item had throughout been upheld at the figure of Rs. 6,967 less 10 per cent, for expenses, that was, Rs. 6,271 ; and that the third item was in the first place reduced by the Assistant Commissioner to Rs. 61,797, that from his decision the assessee appealed, but the commissioner did 7 Law. Rep. 75 Ind. App. 268 ( 1947- 1948) Raja Mustafa Ali Khan V. Commissioner of Income-Tax 169 not, that the appellate tribunal allowed the assessees appeal and that its decision was affirmed by the Chief Court. 61,797, that from his decision the assessee appealed, but the commissioner did 7 Law. Rep. 75 Ind. App. 268 ( 1947- 1948) Raja Mustafa Ali Khan V. Commissioner of Income-Tax 169 not, that the appellate tribunal allowed the assessees appeal and that its decision was affirmed by the Chief Court. The appeals therefore to their Lordships Board were by the assessee against assessments in respect of the first item at Rs. 21,040 and the second item at Rs. 6,271, and by the commissioner against an order quashing an. assessment in respect of the third item in the figure of Rs. 61,797. In the case of each item the question was whether the moneys received by the assessee were exempted from income tax as being " agricultural income " under s. 4, sub-s. 3 (viii.), of the Act. By the Indian Income-tax Act, 1922, as amended " Section 2.—In this Act, unless there is anything repugnant in the subject or context,— "(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 ; " (b) any income derived from such land by— " (i.) agriculture, or " (ii.) the performance by a cultivator or receiver of " rent-in-kind of any process ordinarily employed by a "cultivator or receiver of rent-in-kind to render the "produce raised or received by him fit to be taken to " market, or " (iii.) the sale by a cultivator or receiver of rent-in-" kind of the produce raised or received by him, in " respect of which no process has been performed "other than a process of the nature described in sub-clause (ii.) ;" Section 4.—(3.) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them " (i.) to (vii.) * * * * * * " (viii.) Agricultural income." The Chief Court (Bennett and Madeley JJ.) held that for reasons given in their judgment in Maharaja of Kapurthala v. Commissioner of Income-tax (( 1944) I. L. R. 20 Luck . 212.) income from the sale of trees growing on land naturally and without the intervention of human agency, even if the land was assessed to land revenue, was not agricultural income within the meaning of s. 2, sub-s. 1 (a), of the Act. They also held that the malikana was not agricultural income, but that the Rs. 1,07,000 was agricultural income. 1948. June 2, 3, 7, 8. Sir Roland Burrows K.C. and Jopling for Raja Mustafa Ali Khan. The first question is whether money derived from the sale of the forest trees is income at all, and if it is, whether it is agricultural income. There is a finding that the assessee was not carrying on any regular operations in forestry, and that being so, these trees are part of his assets, and this was a capital receipt. To get income it must be found that the assessee is so using his land that he is carrying on an occupation Kauri Timber Co., Ld. v. Commissioner of Taxes ([ 1913] A.C. 771, 776.). [The Board indicated that the point whether the receipt was of a capital nature was not open to the assessee in this appeal.] On the assumption, then, that the receipt is income, the question is whether it is agricultural income or 7 Law. Rep. 75 Ind. App. 268 ( 1947- 1948) Raja Mustafa Ali Khan V. Commissioner of Income-Tax 170 not, and the point arises here only in relation to spontaneous growth of trees on uncultivated land. The receipt is revenue derived from land which was used for agricultural purposes and was assessed to land revenue. [Reference was made to Chief Commissioner of Income-tax v. Zamindar of Singampatti (( 1922) I.L.R. 45 M. 518.), Emperor v. Probhat Chandra Barua (( 1927) I.L.R. 54 C. 863.), which came to the Board on appeal in Probhat Chandra Barua v. King-Emperor (( 1930) L. R. 57 I. A. 228.), Har Prasad v. Emperor 2(( 1924) 1 I. T. C. 417.), Manavedan Tirumalpad v. Commissioner of Income-tax (( 1930) 4 I. T. C. 421.) and Maharaja of Kapurthala v. Commissioner of Income-tax (( 1944) I.L.R. 20 Luck . 212.).] The receipt from the sale of the trees is agricultural income within the meaning of the Act having regard to the fact that the only definition of agricultural income is that in s. 2, sub-s. 1, of the Act. 212.).] The receipt from the sale of the trees is agricultural income within the meaning of the Act having regard to the fact that the only definition of agricultural income is that in s. 2, sub-s. 1, of the Act. There is no distinction in principle between trees which are natural and trees which are cultivated—this is a timber product of a vegetable growth. There is also no distinction to be drawn between products which are food and products used for other purposes of man. The term " agricultural" is used in a wide sense, it covers the vegetable growth as above. With regard to the second point, it is submitted that the malikana here in question is an annual charge on certain villages for the benefit of the owners of the Utraula Estate of the same . nature as that considered in Nathu v. Ghansham Singh (( 1918) I. L. R. 41 A. 259, 267.), and that it is accordingly revenue derived from land which is used for agricultural purposes and is assessed to land revenue, and is therefore agricultural income, and in respect of income tax in the same position as the sums paid by an under proprietor to a superior proprietor. Nathus case (( 1918) I. L. R. 41 A. 259, 267.) establishes that malikana is not a mere personal claim, but is a charge on the land. It has never been suggested in this case that the villages were not agricultural, and under s. 2, sub-s. 1, "agricultural " income" is defined as " any rent or revenue derived from " land which is used for agricultural purposes." Here is a rent charge issuing out of agricultural land the income derived from the malikana was revenue derived from land used for agricultural purposes and assessed to land revenue. In the present case the malikana is peculiar to the estate. Jopling followed. The ground on which it was said that the trees were not an agricultural product was because no human agency was required in their production. Stated in that way it is too narrow. The mere fact that it is found that the trees are of spontaneous growth is not in itself a sufficient distinction. Tucker K.C. and Jayakar, for the Commissioner of Income-tax, were not required to deal with the point that the receipt was of a capital nature. Stated in that way it is too narrow. The mere fact that it is found that the trees are of spontaneous growth is not in itself a sufficient distinction. Tucker K.C. and Jayakar, for the Commissioner of Income-tax, were not required to deal with the point that the receipt was of a capital nature. There are two branches to the definition of agricultural income which must be satisfied, first, the income, i.e., the amount received for the timber or the value of the trees, must be income derived from land by agriculture s. 2, sub-s. 1 (b), and secondly, the land must be used for agriculture, i.e., for agricultural purposes. Here it was nothing but waste land, on which trees grew wild without any human attention. In these circumstances it cannot be said to be income derived from land used for agricultural purposes. It is land used for no purpose at all. Maharaja of Kapurthala v. Commissioner of Income-tax (I.L.R. 20 Luck . 212.) has been followed in a number of cases Beohar Raghubir Singh v. Commissioner of Income-tax (I.L. R. [ 1947] Nag. 425.), Ywuarajah of Pithapuram v. Commissioner of Income-tax (I.L.R. [ 1946] M. 745.) and Benoy Ratan Banerji v. Commissioner of Income-tax (( 1946); 15 I.T. R. 98.), which indicate the kind of view taken by the Indian High Courts. On the question of the malikana, the earlier Rajas of Utraula sold the whole of their interest in the land in question and were left with merely, as it were, empty title, but still retained their malikana. It is a fixed payment, which does not vary with the profits of the land. This Board has said that for income to be agricultural income there must be some interest in the land directly involved it was said in Go pal Saran Narain Singh v. Income-tax Commissioner (L.R. 62 I. A. 207, 211-12.) that "it is not " rent or 7 Law. Rep. 75 Ind. App. 268 ( 1947- 1948) Raja Mustafa Ali Khan V. Commissioner of Income-Tax 171 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. Rep. 75 Ind. App. 268 ( 1947- 1948) Raja Mustafa Ali Khan V. Commissioner of Income-Tax 171 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. The " covenantor is at liberty to make the payments out of any of " her moneys, and is bound to make them whether the land is " sufficiently productive or not." That exactly fits the facts of the present case. Nawab Habibulla v. Income-tax Com missioner (( 1943) L. R. 70 I.A. 14.) again illustrates that the income to be agricultural must be derived directly from some interest in the land. It must not be merely a personal liability with a charge on the mans land ; it requires a proprietary interest to enable it to be money derived from land. [Reference was also made to Commissioner of Taxation v. Kirk ([ 1900] A. C. 588, 590.), Province of Bihar v. Maharaja Pratap Udai Nath (( 1941) 9 I. T. R. 313, 323.) and Syed Mohammad Isa v. Commissioner of Income-tax (( 1942) 10 I. T. R. 267, 279-80.).] The income here in question did not arise within the definition from the use of agricultural land, it arose from the settlement. Sir Roland Burrows K.C. The two last cited cases on malikana do not go to the length of saying that an interest such as the assessee here has is not within the scope of the Act. The assessees right to the malikana gives him an interest in the property ; he is entitled to this payment from the Zamindar because the latter is the owner of the land, and the payment is only due from the Zamindar because he is the owner. Looking at the matter fairly and squarely, this is money clearly derived from the land. Millard Tucker K.C. With regard to the third question— the annuity and interest—inasmuch as the mortgage does not provide that the receipts from the mortgaged property shall be taken by the mortgagee in lieu of interest on the principal sum of Rs. 12,13,079, s. 77 of the Transfer of Property Act, 1882, has no application to the mortgage, and s. 76 consequently does apply. 12,13,079, s. 77 of the Transfer of Property Act, 1882, has no application to the mortgage, and s. 76 consequently does apply. Accordingly, it was the duty of the assessee under s. 76 (b) and (h) respectively (i.) to use his best endeavours to collect the rents and profits thereof, and (ii.) to apply such rents and profits first, in discharge of the interest payable by the Raja of Nanpara on the principal sum of Rs. 12,13,079, and, secondly, in repayment of that principal sum. Even if, in the circumstances, it is held that s. 76 did not apply to the mortgage, the assessee was nevertheless under a similar duty to the Raja of Nanpara by virtue of the assessees covenants contained in cl. 3 of the mortgage. It is therefore submitted that, even on the assumption that the rent payable to the assessee by the Raja of Nanpara under the lease did, as such rent, comply with the definition of " agricultural income" so as to render such rent exempt from any liability to tax, the assessee became beneficially entitled to it solely in his capacity as mortgagee, and not in his capacity as lessor, and became so entitled to it partly as interest due and payable to him on the principal sum and partly as payment of the principal sum itself. The source from which the assessee derived his beneficial right to the sum was not therefore the lands comprised in the lease, but the mortgage and the covenants contained therein. Accordingly, such part of the rent paid under the lease as was applied by the assessee in satisfaction of the interest payable on the principal sum of Rs. 12,13,079 became taxable income of the assessee. Mukund Sarup v. Commissioner of Income-tax (( 1927) 2 I.T.C. 495, 497.) is distinguishable as being a case of a usufructuary mortgage in which the mortgagee was entitled to the rents and profits of the land. Rajniti Prasad Singh v. Commissioner of Income-Tax (( 1929) I.L.R. 9 Pat. 194.) is rather against the commissioner here, but it is submitted that the judge was wrong in that case. If it is not a usufructuary mortgage then the rent which the mortgagee receives is hot rent to which he is beneficially entitled as rent. Rajniti Prasad Singh v. Commissioner of Income-Tax (( 1929) I.L.R. 9 Pat. 194.) is rather against the commissioner here, but it is submitted that the judge was wrong in that case. If it is not a usufructuary mortgage then the rent which the mortgagee receives is hot rent to which he is beneficially entitled as rent. The true characteristic of a usufructuary mortgage is that there is no interest received ; the mortgagee receives the usufructuary property in lieu of interest. [Reference was also made to Commissioner of Income-tax v. Maharajadhiraj of Darbhanga (( 1935) L.R. 62 I. A. 215, 219.), Commissioner of Income-tax v. Khoyee Sahib (( 1934) 3 I. T. R. 1.), Mullas Transfer of Property Act, 2nd ed, p. 343, re zuripeshgi leases, and Feroz Shah v. Sohbat Khan (( 1933) L.R. 60 I.A. 273.).] The whole of the question in this present case depends, and depends entirely, on whether this is a usufructuary mortgage 7 Law. Rep. 75 Ind. App. 268 ( 1947- 1948) Raja Mustafa Ali Khan V. Commissioner of Income-Tax 172 or not. It was not a usufructuary mortgage, in spite of the fact that it is described as such. It can only be a usufructuary mortgage if it complies with the statutory definition of such a mortgage s. 58 (d), Transfer of Property Act. In a true usufructuary mortgage there can be no personal liability for interest Raja Pertab Bahadur Singh v. Gajadher Baksh (( 1902) L.R. 29 I. A. 148, 154.), Jawahir Singh v. Someshar Datt (( 1905) L. R. 33 I. A. 42.) and Narsingh Partab v. Mohammad Yaqub (( 1929) L.R. 56 I.A. 299, 303.). In the case of a mortgage it has been held that if the income arising from a mortgaged property is agricultural it is not liable to tax even if the mortgagee receives it, because there is a general exemption. If, on the other hand, what the mortgagee receives is in fact interest, then he is not entitled to exemption. One case, Ibrahimsa Rowther v. Commissioner of Income-tax (( 1928) I.L.R. 51 M. 455.) is against the commissioner here. Sir Roland Burrows K.C. was not called on the third question. July 12. If, on the other hand, what the mortgagee receives is in fact interest, then he is not entitled to exemption. One case, Ibrahimsa Rowther v. Commissioner of Income-tax (( 1928) I.L.R. 51 M. 455.) is against the commissioner here. Sir Roland Burrows K.C. was not called on the third question. July 12. The judgment of their Lordships was delivered by LORD SIMONDS, who stated the facts set out above and continued With regard to the first item—forest trees— the assessee sought also to raise the question whether the moneys received under the head were not income at all but capital, but it did not appear to their Lordships that this point was open to him on the present appeal. In regard to this first item the question referred to the Chief Court of Oudh under s. 66, sub-s. 1, of the Act was as follows " Whether " income from the sale of forest trees growing on land naturally " and without the intervention of human agency, even if the " land is assessed to land revenue, is agricultural income within "the meaning of s. 2, sub-s. 1 (a), of the Income-tax Act and "as such exempt from income tax under s. 4, sub-s. 3 (viii.), " of the Act." Their Lordships would observe that, inasmuch as (as is stated in the order passed by the appellate tribunal under s. 33 of the Act) the income-tax officer and the assistant commissioner " have devoted considerable parts of their orders " to a consideration of the question whether the land is assessed " to land revenue or not and have both found it is not so " assessed," and from this finding there has been no dissent, there appears to be little jutification for raising the hypothesis in the question referred to the court. The Chief Court has, however, been content to entertain a question thus referred and their Lordships, since they concur in the conclusion reached by the court, will take the same course. The Chief Court has, however, been content to entertain a question thus referred and their Lordships, since they concur in the conclusion reached by the court, will take the same course. As appears from the form of the question, the income under the first head was derived from the sale of trees described as "forest trees " growing on land naturally," and the case has throughout proceeded on the footing that there was nothing to show that the assessee was carrying on any regular operations in forestry and that the jungle from which trees had been cut and sold was a spontaneous growth. On these facts the question is whether such income is (within s. 2, sub-s. 1 (a), of the Act) rent or revenue derived from land which satisfies two conditions, (a) that it is used for agricultural purposes, and (b) that it is " either assessed to land revenue or etc.," or alternatively (as, notwithstanding the form of the question, counsel for the assessee was allowed to argue), whether such income was, within s. 2, sub-s. 1 (ft), income derived from such land by agriculture. It appears to their Lordships that, whether exemption is sought under s. 2, sub-s. 1 (a) or s. 2, sub-s. 1 (b), the primary condition must be satisfied that the land in question is used for agricultural purposes the expression " such land " in (b) refers back to the land mentioned in (a) and must have the same quality. It is not then necessary to consider any other difficulty which may stand in the way of the assessee. His case fails if he does not prove that the land is " used for agricultural purposes." On this point their Lordships concur in the views which have been expressed not only in the Chief Court of Oudh but in the High Court of Madras (see Yuvarajah of Pithapuram v. Commissioner of Income-tax (I. L. R. [ 1946] M. 745.)), and the High Court of Allahabad (see Benoy Ratan Banerji v. Commissioner of Income-tax (( 1946) 15 I. T. R. 98.) and elsewhere in India. The question seems not yet to have been decided whether land can be said to be used for agricultural purposes within the section, if it has been planted with trees and cultivated in the regular course of arboriculture, and on this question their Lordships express no opinion. The question seems not yet to have been decided whether land can be said to be used for agricultural purposes within the section, if it has been planted with trees and cultivated in the regular course of arboriculture, and on this question their Lordships express no opinion. It is sufficient for the purpose of the present appeal to say (1.) that in their opinion no 7 Law. Rep. 75 Ind. App. 268 ( 1947- 1948) Raja Mustafa Ali Khan V. Commissioner of Income-Tax 173 assistance is to be got from the meaning ascribed to the word " agriculture" in other statutes and (2.) that, though it must always be difficult to draw the line, yet, unless there is some measure of cultivation of the land, some expenditure of skill and labour on it, it cannot be said to be used for agricultural purposes within the meaning of the Income-tax Act. In the present case their Lordships agree with the High Court in thinking that there is no evidence which would justify the conclusion that this condition is satisfied. The second item, " malikana," is the subject of the second question referred to the Chief Court, which is as follows " Whether having regard to the nature and incidents of the " tenure in this case the income of Rs. 6,271 realized by the " assessee as malikana in the year of account is agricultural " income, etc." It is necessary, then, to examine the facts of the case, which can conveniently be taken from the order passed by the appellate tribunal which repeated almost in terms and adopted the finding of fact by the appellate assistant commissioner as to the source and true nature of this sum. In its order the tribunal said " 7. This due is stated by the " Appellate Assistant Commissioner to be peculiar to the "Utraul [the assessees] Estate, and distinguishable from "the (haq) malikana due which is payable by the under-" proprietors to the superior proprietors. The nature of this " due is thus described in the revenue papers [meaning the " Appellate Order of the Appellate Assistant Commissioner " made on the assessees appeal] " During the days of the Nawabs of Oudh the Raja of " Utraula was recognized as the Pargana lord and as such " retained the right to a small feudal tribute and to manorial " dues. From the beginning of the nineteenth century " till the annexation, the Rajas of Utraula could not manage " their estate properly 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, however, retained the " right 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 other-" wise became quite independent and the exclusive property " of the purchasers, grantees or transferees. " 8. The amount of the malikana 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 cognizable by Civil Courts and 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 who are liable to pay this "amount....." On these facts their Lordships agree with the Chief Court in holding that this malikana is not agricultural income. It may be conceded that it would never have become payable to the ancestors of the assessee had they not been feudal proprietors of the land. But that does not mean that it is now rent or revenue derived from the land on the contrary, it is paid just because the original proprietors relinquished their claims to the land, and it represents the consideration for that relinquishment. The land is in no real sense its source ; and even if it is to be regarded as secured by a charge on the land, that is no more decisive of the question in the present case than it was in Gopal Saran Narain Singh v. Commissioner of Income-tax, Bihar and Orissa (( 1935) L. R. 62 I. A. 207.). In conclusion, their Lordships would emphasize that in affirming the decision of the Chief Court on this point they deal solely with malikana which, to use the words of the formal question, has " the nature and incidents " of the tenure in this case.” The third item of " annuity and interest thereon " amounting to Rs. 1,07,000 reduced to Rs. 61,797 was 7 Law. Rep. 75 Ind. App. 268 ( 1947- 1948) Raja Mustafa Ali Khan V. Commissioner of Income-Tax 174 the subject of the two following questions (a) " 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, etc." and (b) "Whether the u interest portion of the above receipt represents damages or " compensation for wrongful withholding of the annuity money " and is as such not assessable to income-tax." But, as was pointed out by the Chief Court and is admitted by the commissioner, the first of these questions ignores the fact that the assessment under this head was reduced by the appellate assistant commissioner to Rs. 61,797 and no appeal was preferred against this reduction. As has been already stated, the Chief Court has held that this sum is agricultural income and exempt from tax accordingly, and against its decision the commissioner has preferred this appeal. The facts in regard to the " annuity and interest" now to be considered, which are somewhat complex, are set out at length in the statement of case referred to the Chief Court. Their Lordships think it unnecessary to repeat what is there stated. For the question now to be determined depends not on the historical origin of the payment but on its present quality and incidents. It is sufficient, then, to say that the present payment, which is made under and by virtue of two documents to be presently stated, represents a compromise of a long-standing dispute between the Nanpara estate and the Utraula estate. It has been agreed between the parties that as at June 30, 1937, there was due from the former estate to the latter no less a sum than Rs. 12,13,079, and a scheme for the liquidation of this sum was made. It has been agreed between the parties that as at June 30, 1937, there was due from the former estate to the latter no less a sum than Rs. 12,13,079, and a scheme for the liquidation of this sum was made. Shortly stated, it provided that this total sum should be funded and liquidated over a period of ten years, bearing interest at 3 1/2 per cent, per annum on the unpaid part of the principal amount in the meantime, and should be liquidated by equal annual instalments of Rs. 1,45,862 to cover both principal and interest. At the same time, and as part of the liquidation scheme, a deed of mortgage of certain Nanpara estate property, dated September 4, 1937, and described as a " usufructuary mortgage " deed," was executed by the Raja of Nanpara as mortgagor in favour of the Court of Wards, acting on behalf of the assessee the Raja of Utraula, as mortgagee. Simultaneously, and also as part of the scheme, the Court of Wards acting on behalf of the assessee leased back to the Raja of Nanpara by a lease of the same date the whole of the mortgaged property at an annual rent equivalent to the annual instalment payable under the mortgage, namely Rs. 1,45,862. The relevant provisions of this mortgage and lease can now be stated, but it must first be observed that they are genuine documents which are to be taken at their face value, creating in law the relations which they purport to create. By the mortgage the mortgagor covenanted to pay the mortgagee the sum of Rs. 12,13,079 with interest thereon at 3 l/2 per cent, per annum from July 31, 1937, to June 30, 1947, and thereby granted and transferred property comprised in the mortgage to the mortgagee by way of usufructuary mortgage from July 1, 1937, " to the intent that the said premises shall remain in u possession of the mortgagee and be charged by way of usufructuary mortgage as security for the payment to the ° mortgagee of the said principal sum interest thereon and costs " till the entire satisfaction of such amount.....", and he thereby covenanted that he would cause the name of the mortgagee to be entered in the revenue records as mortgagee in possession. And the mortgagee covenanted that if he entered into possession he would (i.) collect the rent and other moneys accruing due and payable on the premises, (ii.) out of such rents and moneys pay the government revenue and cesses and defray the cost of collection and management and the costs incurred in any suit relating to the premises, and (iii.) apply the balance, first to the liquidation of all sums payable as interest under the mortgage and the remainder in satisfaction of the principal money secured by the mortgage. By the lease the lessor as mortgagee in possession demised by way of " theka " the mortgaged property for a term of ten years from July 1, 1937, at a yearly rent of Rs. 1,45,862 payable annually on May 31, the first payment to be made on May 31, 1938, and it was thereby provided that the lessee should pay all government revenue and cesses assessed or imposed on the demised premises, and he undertook not to assign or sublet without the lessors consent. Thus the assessee went into possession of the property and as mortgagee in possession leased it to the 7 Law. Rep. 75 Ind. App. 268 ( 1947- 1948) Raja Mustafa Ali Khan V. Commissioner of Income-Tax 175 mortgagor. He did not thereby cease to be a mortgagee in possession. In respect of the annual rent of Rs. 1,45,862 payable on May 1, 1938 (which date fell within the " previous year" for the purposes of the 1939-40 income-tax assessment), the mortgagor paid various sums amounting in all to Rs. 1,07,000. It is the sum of Rs. 61,797, part of this sum, which is the subject of the appeal by the commissioner, and the question, simply stated, is whether this sum, which was paid as rent in respect of lands admitted to be used for agricultural purposes and to be assessed to land revenue, was in the hands of the assessee "agricultural income" and as such exempt from tax. Despite the elaborate arguments which have been urged on behalf of the commissioner, their Lordships entertain no doubt that the Chief Court has correctly answered his question in the affirmative, and they think it is immaterial whether any part of this sum in any account as between mortgagor and mortgagee is, or ought to be, appropriated to the payment of principal or of interest or to any other purpose. They therefore do not propose to analyse the payment nor to consider whether, in so far as any part of it was in respect of a principal sum, that principal sum was itself an aggregate of a principal sum and interest. The salient and decisive fact is that the assessee being in possession of the mortgaged property was entitled to receive, and received, the rents thereof. It was conceded that if the assessee was truly a usufructuary mortgagee within the meaning of s. 58 (d) of the Transfer of Property Act, 1882, and in that capacity received the rent in question, it would be in his hands agricultural income and exempt from tax. But it was contended that, if the assessee was not such a usufructuary mortgagee, then, notwithstanding that he went into possession and received the rent, it was not agricultural income. For this reason learned counsel for the commissioner was at pains to show that the mortgage in question was not a usufructuary mortgage within s. 58 (d) of the Act. But in their Lordships opinion it is unnecessary to pursue this question. For the rent of agricultural land received by a usufructuary mortgagee is agricultural income not because he is a usufructuary mortgagee but because, being a usufructuary mortgagee, he has gone into possession and received the rent. So also the assessee, being a mortgagee, usufructuary or other, has gone into possession and the rent that he receives is agricultural income. The law is correctly and succinctly stated by Sir Vepa Ramesam J., in Khoyee Sahib v. The Commissioner of Income-tax (( 1934) 8 I.T.C. 138, 145.), in these words "If the mortgagor receives it [the " rent] from the tenants it is agricultural income in his hands-"and, when it passes from his hands, it is not. The law is correctly and succinctly stated by Sir Vepa Ramesam J., in Khoyee Sahib v. The Commissioner of Income-tax (( 1934) 8 I.T.C. 138, 145.), in these words "If the mortgagor receives it [the " rent] from the tenants it is agricultural income in his hands-"and, when it passes from his hands, it is not. Similarly if the " mortgagee collects it from the tenants, it is agricultural "income in his hands." The view of the law thus expressed receives confirmation from the decision of the Board in Commissioner of Income-tax v. Maharajah of Darbhanga (( 1935) L.R. 62 I.A. 215.). That was a case of usufructuary mortgage but the language-used by Lord Macmillan in delivering the judgment of the Board is equally applicable to the present case. " The " exemption," he said, " is conferred, and conferred indelibly, " on a particular kind of income and does not depend on "the character of the recipient" (( 1935) L.R. 62 I.A. 215, 223.). And again "the result, “in their Lordships opinion, is to exclude agricultural income " altogether from the scope of the Act, howsoever or by "whomsoever it may be received" (Ibid. 222.). Enough has been said to show that the distinction sought to be made between rent received by a mortgagee " in lieu of interest " and rent received by him but applicable by him, inter alia, in satisfaction of interest cannot be maintained. It is, however, proper to refer to a case much relied on by the commissioner. In Commissioners of Inland Revenue v. Paterson (( 1924) 9 Tax Cas. 163.), a case arising under the English Income Tax Act, it was decided that, where a taxpayer borrowed money from an insurance company and gave certain shares and a policy of assurance to the company as security for the loan, the dividends on the shares being receivable by the company and applicable, inter alia, in pay ment of the interest on the loan, such dividends were income of the taxpayer for the purposes of super-tax. Assuming that this case was correctly decided, and that it has any relevance to the case of a mortgagee in possession of agricultural land in India, matters on which it is unnecessary to express any opinion, it appears to their Lordships to give no assistance to the commissioner. Assuming that this case was correctly decided, and that it has any relevance to the case of a mortgagee in possession of agricultural land in India, matters on which it is unnecessary to express any opinion, it appears to their Lordships to give no assistance to the commissioner. For the only result of its application to the present case must be that the rent received by 7 Law. Rep. 75 Ind. App. 268 ( 1947- 1948) Raja Mustafa Ali Khan V. Commissioner of Income-Tax 176 the mortgagee is to be regarded as the income of the mortgagor and this affords no possible ground for saying that it loses its quality of agricultural income. Their Lordships are therefore of opinion that the whole of the sums mentioned in the third and fourth questions are without distinction to be regarded as agricultural income within the meaning of the Act. As has been already stated, the same considerations apply to the assessment for the years 1940 to 1941 and the same results follow. Their Lordships are of opinion that the two appeals of the assessee and the two appeals of the commissioner must be dismissed and they will humbly advise His Majesty accordingly. The assessee and the commissioner will pay their own costs of the several appeals.