S. S. Rajalinga Raja Vs. State of
Madras [1966] INSC 230 (26 October 1966)
26/10/1966 SHAH, J.C.
SHAH, J.C.
RAMASWAMI, V.
BHARGAVA, VISHISHTHA
CITATION: 1967 AIR 814 1967 SCR (1) 950
ACT:
Madras Plantations Agricultural Income Tax
Act (5 of 1955),- "Agricultural Income"-Whether agricultural produce
is itself income.
HEADNOTE:
The appellant owned a cardamom plantation.
For the assessment year 1957-58, he submitted a return under the Madras
Plantations Agricultural Income-tax Act, 1955. The Agricultural Income-tax
Officer did not accept the return, and 'added to the income the value of stocks
of cardamom sold in the accounting year. The High Court in revision, confirmed
the assessment made by the Department.
In appeal to this Court, it was contended that:
(1) the agricultural produce itself was income and became charged to tax under
the Act when it was received and not when it was sold, used or consumed, and
therefore, the High Court ought to have directed determination of the produce
which was actually derived from agriculture in the year of account and ought to
have brought to tax only that quantity and excluded the value of the rest of
the produce received in earlier years, from taxation; and (2) from the fact
that the appellant applied to compound the tax for the earlier years, it must
be inferred that the produce which was sold by him in the year of account had
already suffered tax in the earlier years.
HELD : (1) Merely because the produce of the
plantation was received in the earlier years, income derived from sale of that
produce in the year of account was not exempt from tax under the Act in that
year. [953 B] Section 3 of the Act read with the definition of
"agricultural income" charges to tax the monetary return either as
rent or revenue or agricultural produce from the plantation. The expression
"income" in its normal con- notation does not mean mere production or
receipt of a commodity which may be converted into money. Income arises when
the commodity is disposed of by sale, consumption or use in the manufacture or
other processes carried on by the assessee qua that commodity. It is not
necessary, however, for income to accrue that there must be a sale of a
commodity : consumption or use of a commodity in the business of the assessee
from which the assessee obtains benefit of the commodity may be deemed to give
rise to income. [952 G-H; 953 A-B] Dooars Tea Co. Ltd. v. Commissioner of
Agricultural Income- tax, West Bengal, [1962] 3 S.C.R. 157, referred to.
(2) It had to be proved by evidence that the
crop sold related to the years in respect of which the assessee had applied to
compound the tax, but there was no such evidence.
[954 F]
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 979 and 980 of 1965.
Appeals by special leave from the judgment
and orders dated November 12, 1962 and January 1, 1964 of the Madras High Court
951 in Tax Case Nos. 19 of 1961 and S.C. Petition No,.. 142 of 1963
respectively.
S. Swaminathan and R. Gopalakrishnan, for the
appellant (in, both the appeals).
P. Ram Reddy and A. V. Rangam, for the
respondent (in both the appeals).
The Judgment of the Court was delivered by
Shah, J. S. S. Rajalinga Raja-hereinafter called 'the appellant'--owns
acardamom plantation on a fifty-acre estate.
For the assessment year 1957-58 he submitted
a return under the Madras Plantations Agricultural Income-tax Act 5 of 1955
disclosing a net income of Rs. 5,250/- from the plantation..
On enquiry the Agricultural Income-tax
Officer learnt that the appellant had sold stocks of cardamom of the value of
Rs. 58,375-9-9 between April 1, 1956 and March 31, 1957.
The appellant explained that those sales
represented not the produce of the year of account, but accumulated stocks of
the past 3 to 4 years. That explanation was rejected by the Agricultural
Income-tax Officer and after allowing expenditure estimated at the rate of Rs.
120/- per acre, the balance was brought to, tax, and a penalty of Rs. 3,000/-
was levied under s. 20(1) (c) of the Act. The order was confirmed in appeal to
the Appellate Assistant Commissioner, both as to the levy of tax and penalty.
But the Appellate Tribunal was of the view that the average production of
cardamom per acre was 40 lbs. and that if the stocks of cardamom, sold in the
year of assessment be attributed to production of the year, the yield would
approximately be 134 lbs. per acre. Holding that. an estimate of 40 lbs. per
acre would be a "fair estimate" and that an average expenditure of
Rs. 145/- per acre should be allowed, the Tribunal directed that the assessment
be modified, and the order imposing penalty be set aside.
The State of Madras then applied to the High
Court of Madras in revision. The High Court was of the view that a part of the
stock of cardamom sold in the year, though not the whole, was probably
accumulated stock out of previous year's production, but since the appellant
did not lay before the taxing authorities reliable evidence, his explanation
was rightly rejected. The High Court also rejected the contention of the
appellant that the income from sales of' cardamom stock of previous years was
not taxable in the year of' account because it had been subjected to tax in
those previous. years under orders compounding the tax under s. 65 of the Act.
The High Court accordingly allowed the petition and restored the assessment
made by the Department. With special leave, the 1 appellant has appealed to
this Court.
It is claimed by the appellant in the first
instance that under the Act, agricultural produce itself is income and becomes
charged to, 952 tax under the Madras Plantations Agricultural Income-tax Act
1955, when it is received, and not when it is sold, used or consumed. Relying
upon this premise it was urged that even on the view expressed by them the
learned Judges of the High Court ought to have directed determination of the
produce which was actually derived from agriculture in the year of.
account, and ought to have brought to tax
only that quantity and excluded the value of the rest from taxation under the
Act. Section 3 of the Act imposes the charge of tax upon the total agricultural
income of the previous year of every person, and by s. 4 the total agricultural
income of any previous year of any person comprises all agricultural income
derived from a plantation within the State and received within or without the
State. 'Agricultural income' is defined (insofar as the definition is relevant
in these appeals) as meaning:
"(1) any rent or revenue derived from a
plantation;
(2) any in-,am-, derived from such plantation
in the State :by- (i) agriculture; o- (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 paragraph
(ii):
Explanation 1.- Explanation 2.- (3) Prima
facie, s. 3 of the Act read with the definition of 'agricultural income'
charges to tax the monetary return either as rent or revenue or agricultural
produce from the plantation. The expression "income" in its normal
connotation does not mean mere production or receipt of a commodity which may
be converted into money. Income arises when the commodity is disposed of by
sale, consumption or use in the manufacture or other processes carried on by
the assessee qua that commodity. There is no reason to think that the expression
"income" in the Act has any other connotation. A tax on income
whether agricultural or non- agricultural is, unless the Act provides
otherwise, a tax on monetary return-actual ,or notional. Section 4 of the Act
supports that view, for in the 953 total agricultural income is comprised all
agricultural income. derived from a plantation in the State. It is not
necessary, however, for income to accrue that there must be a sale of a
commodity: consumption or use of a commodity in the business of the assessee from
which the assessee obtains benefit of the commodity may be deemed to give rise
to income. Therefore, merely because the produce of his plantation was received
in the earlier years, assuming that the appellant's case is true, income
derived from sale of that produce in the year of account is not exempt from tax
under the Act, in that year.
Counsel for the appellant strongly relied
upon a judgment of this Court in Dooars Tea Co. Ltd., v. Commissioner of
Agricultural' Income-tax, West Bengal(1) a case decided under the Bengal
Agricultural Income-tax Act 4 of 1944. It was held in interpreting the
definition of s. 2(1) (b) of -the Bengal Agricultural Income-tax Act, 1944,
which is in substantially the same language as the definition under the
Act-that it was not predicated of the agricultural' income that it must be sold
and profit or gain received from such sale before it can be included in the
definition of agricultural income. In Dooars Tea Co. Ltd. case (1), the
appellant grew bamboos, thatching grass and fuel by agricultural operations and
utilized the products for the purpose of its tea business. The claim of the
Income-tax authorities to tax the value of the produce was resisted on the plea
that the produce was not sold. In rejecting that plea, the Court observed at p.
13:
"In terms the clause [s. 2(1) (b)] takes
in income derived from agricultural land by agriculture; and as we have already
pointed out giving the material words their plain grammatical meaning there is
no doubt that agricultural produce constitutes income under this clause. Is
there anything in the context which requires the introduction of the concept of
sale in interpreting this clause as suggested by the appellant? In our opinion
this question must be answered in the negative. Not only is there no indication
in the context which would justify the importing of the concept of sale in the
relevant clause, but as we have just indicated the indication provided by
clauses (ii) and (iii) is all to the contrary. What this clause seems clearly to
have in view is agricultural produce itself which has been used by the
assessee." But these observations do not, in our judgment, imply that
agricultural produce when received by a person carrying on agricultural
operations becomes income in his hands. The Court in that case was concerned to
deal with a limited question whether a (1) [1962] 3 S.C.R. 157; 44 I.T.R. 6.
7Sup.C.I./66-16 954 person who has raised
agricultural produce instead of selling it uses that produce for his own
business, can he be said to have earned agricultural income? The Court in that
case held that he would be deemed to be earning income. The decision is
authority for the proposition that for agricultural income to arise, it is not
predicated that the agricultural produce must be sold: user of agricultural
produce for the purpose of the business of the assessee may give rise to
agricultural income.
The decision in State of Kerala and Anr v.
Bhavani Tea Produce -Co. Ltd.(1) on which reliance was placed by counsel for
the appellant has, in our judgment, no relevance whatever in this case. In
Bhavani Tea Produce Company's case (1) the assessee was required under s. 25 of
the Coffee Act, 1942, to deliver the coffee produced by it to the Coffee Board
and the question which fell to be determined was whether such delivery
constituted sale by operation of law as a result of which the assessee ceased
to be the owner of the coffee, the moment it handed over the produce to the
Coffee Board. This Court held that under the relevant provisions of the Act as
soon as the producer of coffee handed over the produce to the Coffee Board, it
ceased to be the owner and income accrued to him at that point of time.
That case does not lay down the proposition
that income accrues to a producer of agricultural produce before the date of
disposal, use or sale.
The second argument raised by the appellant
has also no substance. For the years 1955-56 and 1956-57 the appellant did not
submit returns of income, but applied to compound the tax under s. 65 of the
Act, and paid the tax determined at the rates specified in Part 11 of the Act.
There from it cannot be inferred that the produce which was sold by him in the
year of account to which these appeals relate had suffered tax in the earlier
years. It has to be proved that the crop sold by the appellant related to the
years -in respect of which he had applied to compound the tax; and on that part
of the case there is no evidence.
The appeals therefore fail and are dismissed
with costs.
There will be one hearing fee.
V. I P.S.
Appeals dismissed.
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