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Manyam Meenakshamma Rajajmundry Vs. Commissioner of Wealth-tax, Andhra Pradesh, Hyderabad - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 26 of 1963
Judge
Reported inAIR1967AP189; [1967]63ITR534(AP)
ActsWealth Tax Act, 1957 - Sections 2
AppellantManyam Meenakshamma Rajajmundry
RespondentCommissioner of Wealth-tax, Andhra Pradesh, Hyderabad
Appellant AdvocateI. Vishnu Rao, Adv.
Respondent AdvocateC. Kondaiah, Standing Counsel
Excerpt:
.....in total wealth - assessee challenged inclusion of said properties - no evidence to show that forest lands used either for agricultural purpose or for purposes subservient to agriculture - right of exclusion of assets and debts outside india conferred only on persons who are not citizens of india or are non-residents of india and provision not applicable on assessee - said properties liable to be included in total wealth of assessee. - - there are however other operations which have got to be restored to by the agriculturist and which are absolutely necessary for the purpose of effectively raising the produce from the land. xx xx xx xx in considering the connotation of the term 'agriculture' we have so far thought for cultivation of land in the wider sense as comprising within..........besides the points urged befire the appellate assistant commissioner, she contended that the forest lands constituted agricultural lands, that the house property at yanam was situated that the house property at yanam was situated outside the union territory and that these could not be included in her total wealth. the tribunal held that the forest lands were not agricultural lands because no act of husbandry was performed thereon and the tree in the forest were of spontaneous growth. on the question as to the house property at yanam, it held that the territory was under the de facto jurisdiction of the government of india and that the assessee was only entitled to rebate of tax as provided under the law in view of the territory having not been acquired de jure by the government of.....
Judgment:

Krishna Rao, J.

(1) This is a reference under Section 27(1) of the Wealth Tax Act (XXVII of 1957). The assessee Srimathi Manyam Meenakshamma, a resident of Rajahmundry was assessed to a total wealth of Rs. 5,19,191by the Wealth Tax Officer in regard to the assessment year 1957-58 for which the relevant valuation date is 31-3-1957. She owned extensive immovable properties, including forest and agricultural lands and buildings situated at various places. The forest measuring about 200 sq. miles was valued by her at Rs. 21,000. The Wealth Tax Officer, however, determined its value to be Rs. 2,00,000 as he found that the average income during the last three assessment years was Rs. 10,000 and capitalized this income 20 times. The agricultural lands had been taken over by the Government under the Estates (Abolition and Conversion into Ryyotwari) Act (XXVI of 1948). The Wealth Tax Officer included the balance of Rs. 71,279 of the compensation amount payable to the assessee in her total wealth for the purpose of the assessment. As regards the buildings, it is relevant only to mention that a house property at Yanam was valued by the assessee at Rs. 5,000 but the Wealth Tax Officer fixed it as Rs. 50,000.

(2) The assessee appealed to the Appellate Assistant Commissioner contending that the forest was not worth even Rs. 40,000, because the acquisition of the forest by the Government was under consideration. With regard to the compensation to be received from the Government, she contended that it was not an ascertained or definite amount but depended on the survey and ryotwari settlement. In respect of the house property at Yanam, she objected that its valuation at Rs. 50,000 was excessive. The Appellate Assistant Commissioner negatived the first two contentions of the assessee but reduced the valuation of the house property at Yanam, from Rs. 50,000 to Rs. 40,000.

(3) The assessee took the mater on a further appeal to the Income-tax Appellate Tribunal. Besides the points urged befire the Appellate Assistant Commissioner, she contended that the forest lands constituted agricultural lands, that the house property at Yanam was situated that the house property at Yanam was situated outside the Union territory and that these could not be included in her total wealth. The Tribunal held that the forest lands were not agricultural lands because no act of husbandry was performed thereon and the tree in the forest were of spontaneous growth. On the question as to the house property at Yanam, it held that the territory was under the de facto jurisdiction of the Government of India and that the assessee was only entitled to rebate of tax as provided under the law in view of the territory having not been acquired de jure by the Government of India. In respect of these two items, it merely reduced the market value of the forest lands to Rs. 1,50,000 and of the house property at Yanam to Rs. 25,000.

(4) Upon the application of the assessee the following questions of law were referred us by the Tribunal:

1. Whether the forest lands, trees in which are of spontaneous growth, constitute agricultural lands within the meaning of Section 2(e)(i) of the Wealth Tax Act and liable to exemption?

2. Whether the Department was right including in the total wealth of the assessee the sum of Rs. 71,279 being the probable amount of compensation receivable by the assessee from the Government under the Madras Estates (Abolition and Conversion into Ryotwari) Act of 1948? and

3. Whether the value of the property situate in Yanam was includible in the total wealth of the assessee?

(5) It will be convenient to refer to the Wealth Tax Act (XXVII of 1957) hereinafter referred to as the Act. In connection with the first question, Sri I. Vishnu Rao, the learned counsel for the assessee, urged before us that the entire estate including the forest lands was taken over in 1953 by the Government under the Estates (Abolition and Conversion into Ryotwari) Act XXVI of 1948 and that the forest lands could not be taken as assets belonging to the assessee at all. But in the return dated 19-5-1958 submitted by the assessee, it was stated that 'since the forest is likely to be taken over by Government the valuation is fixed on the basis of 3 years; net income.' It is therefore difficult to agree with the assessee's contention that the forest was already taken over earlier by the Government in 1953.

Sri I. Vishnu Rao next submitted that the income form the forest was likely to be received by the assesse only for a period of three years and therefore it constituted an interest in property which is exempted by clause (v) of section 2(e) of the Act. But the Tribunal has observed in its order dated 1-1-1962 that the assessee was disputing the action of the Government and that the matter was pending decision in the High Court. In its statement of the case, the view taken by the Tribunal is that no issue arose out of the action of the Government and that the market value determined by it is a question of fact. No material have been placed before us on the merits of the submission founded on section 2(e) clause (v) of the Act. We shall therefore confine ourselves to the question as framed by the Tribunal.

(6) The answer to this question turns on the construction of section 2(e)(i) of the Act which is in the following terms:--

(e) 'assets' includes property of every description, moveable or immovable, but does not include-

(I) agricultural land crops, grass or standing trees on such land;

Sri I. Vishnu Rao's contention is that the forest lands are capable of being used for agricultural purposes and therefore constitute agricultural lands. This leads us to a consideration of the meaning of the expression 'agricultural lands' in section 2(e)(i) of the Act.

(7) The Act imposes a tax on the capital value of the assets of persons and was manifestly passed by the Parliament to the Constitution, which reads thus:--

'Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies;'

There is no definition of either 'agriculture' or agricultural income' is defined in Article 366 and carries the meaning given to it in section 2(e) of the Indian Income-tax Act The words of the expression 'agricultural land' must therefore be interpreted as bearing their ordinary and natural meaning in the English languages as applied constitution. The word 'land' in Entry No. 21 of List II in Schedule VII of the Government of India Act, 1935, which corresponds to Entry No. 18 of List II in the Seventh Schedule to the Constitution, was construed by Lord Wright in Megh Raj v. Allah Rakhia AIR 1947 P. C. 72 as including every form of land, whether agricultural or not.

The meaning of the word 'agriculture' was settled by the Supreme Court in I.T. Commissioner v. Benoykumar : [1957]32ITR466(SC) Bhagwati, J. who spoke for their Lordships of the Supreme Court, said:

'. . . . . . the primary sense in which the term agriculture is understood is agar -- field and cultra -- cultivation of the field and (if) the term is understood only in that sense, agriculture would be restricted only to cultivation of the land in the strict sense of the term meaning thereby, tilling of the land, sowing of the seeds, planting and similar operations on the land.

They would be the basic operations and would require expenditure of human skill and labour upon the land itself. There are however other operations which have got to be restored to by the agriculturist and which are absolutely necessary for the purpose of effectively raising the produce from the land.

xx xx xx xx We are of opinion that the mere performance of these subsequent operations on the products of the land where such products have not been raised on the land by the performance of the basic operations which we have described above would not be enough to characterize them as agricultural operations. In order to invest them with the character of agricultural operations, these subsequent operations must necessarily be in conjunction with and a continuation of the basic operations which are the effective cause of the products being raised from the land.

xx xx xx xx In considering the connotation of the term 'agriculture' we have so far thought for cultivation of land in the wider sense as comprising within its scope the basic as well as the subsequent operations described above, regardless of the nature of the products raised on the land. These products may be grain or vegetables or fruits which are necessary for the sustenance of human beings including plantations and groves, or grass or pasture for consumption of beasts or articles of luxury such as, betel, coffee, tea, spices, tobacco, etc., or commercial crops like cotton, flax, jute, hemp, indigo etc.

All these are products raised from the land and the term 'agriculture' cannot be confined merely to the production of grain and food products for human beings and beasts as was sought to be done by Bhasyam Ayyangar, J. in ILR 24 Mad 421 or Sadasiva Ayyar J., in ILR 38 Mad 738: AIR 1915 Mad 781 but must be understood as comprising all the products of the land which have some utility either for consumption or for trade and commerce and would also include forest products such as timber, sal, and piyasal trees, casuarina planations, tendu leaves, horranuts etc.

xx xx xx xx ... .. .. .. .. If the basic operations are there, the rest of the operations found themselves upon the same.

But if these basic operations are wanting the subsequent operations do not acquire the characteristic o the agricultural operations.'

(8) It will thus be seen that the word 'agriculture' means the performance of operations like tilling of the land, sowing of the seeds or planting in order to raise products of some utility and that the nature of the products raised on the land is immaterial. The word 'agricultural' means 'of or pertaining to agriculture; connected with husbandry or tillage of the ground'. If follows that 'agricultural land' is land which relates to or is connected with the aforesaid basic operations and the land in order to constitute agricultural land.

(9) In AIR 1947 P.C. 72, there was an implied decision by the Judicial Committee as to the nature of the nexus. Dealing with the definition of 'land' in the Punjab Restitution of Mortgaged Lands Act (IV of 1938), which term was found to refer only to agricultural land, Lord Wright said:-

'That definition restricts it to land occupied or let for agricultural purposes or for purposes subservient to agriculture or for pasture'. The addition of the word 'pasture' has been relied on as extending the scope of the Act beyond agriculture, but pasture is certainly 'land' within item 21 of List 2. It may have been mentioned ex abundant cautela but in any case it is sufficiently allied to agriculture generally to be treated as a species of agricultural land or at least as land occupied or let for purposes subservient to agriculture and as such within the general scope of an Act dealing with agricultural land.'

(10) In our opinion, 'agricultural land' means land ordinarily used for the purpose of agriculture or for purposes subservient to or allied to agriculture.

(11) Sir I. Vishnu Rao strongly relies on certain observations of the Federal Court in Megh Raj v. Allah Rakhia, AIR 1942 FC 27 and of the Madras High Court in Sarojini Devi v. Sri Krishna, AIR 1944 Mad 401. In AIR 1942 FC 27, after referring to the conflict of authorities as to the connotation of 'agriculture' Varadachariar, J., said:-

'It may on a proper occasion be necessary to consider whether for the purposes of the relevant entries in Lists 2 and 3, Constitution Act, it will not be right to take into account the general character of the land (as agricultural land) and not the use to which it may be put at a particular point of time. It is difficult to impute to Parliament the intention that a piece of land should, so long as it is used to produce certain things, be governed by and descend according to laws framed under List 2, but that when the same parcel of land is used to produce something else (as often happens in this country), it should be governed by and descend according to laws framed under List 3'.

(12) Similarly, in AIR 1944 Mad 401, Patanjali Sastri, J., stated:-

'...... it would be somewhat grotesque to suppose that Parliament intended that lands devoted to the production of one kind of crop should devolve according to laws passed by Provincial Legislatures, while those used for growing another kind should pass according to laws made by the Central Legislature, or that 'the circumstances in which the cultivation is carried on' (per Reilly J. in Chandrasekara Bharati Swamigal v. Duraiswami Naidu, ILR 54 Mad 900: AIR 1931 Mad 659 should determine the law which governs the devolution of the land. Nor could it have been intended that succession to such lands should depend on the degree of tillage or preparation of the soil or off the skill and labour expended in rearing and maintaining the plants. We are of opinion that for the purposes of the relevant entries in Lists II and III of Sch. 7, the expression 'agricultural lands' must be taken to include the lands which are used or are capable of being used for raising any valuable plants or trees or for any other purposes of husbandry.'

(13) Both the learned Judges had in mind the meaning given to the word 'agriculture' based on the nature of the products raised on the land. This consideration, however, arises no longer in view of the pronouncement of the Supreme Court in : [1957]32ITR466(SC) . The general character of a land, if it is to be considered independently of its connection with agriculture, would give little content to the adjective 'agricultural' in the expression 'agricultural land'. If the capacity for being used for agriculture is a criterion, as observed by Bhagwati J., in Rasiklal Chiman Lal v. Commissioner of Wealth Tax, 1965 1 ITJ 82 : AIR 1965 Guj 259 even building sites lying idle would be agricultural lands 'since it would always be possible to say of them that they are capable of being used for agricultural purpose.' We are inclined to agree with the observation of Hedge and Ahmad Ali Khan, JJ. in Krishna Rao v. Third W.T. Officer, AIR 1963 Mys 111, that the present characteristics and not the potentialities of a land are the proper criterion. If a land is originally used for purposes of agriculture or for purposes subservient to or allied to agriculture, it would be agricultural land. If it is not so used, it would not be agricultural land. The question how a land is ordinarily used would be one of fact depending on the evidence in each case. If for instance, an agricultural land as we have interpreted above, is left fallow in a particular year owing to adverse seasonal conditions or to some other special reason, it would not cease to be agricultural land.

(14) The Tribunal has observed in paragraph 8 of its statement of the case that the contention as to the forest lands in question being agricultural lands was put forward for the first time during the appeal to the Tribunal. This may not be correct because, as pointed out by Sri I. Vishnu Rao, even in her return dated 19-5-1958 the assessee stated referring to the forest 'I claim it non-taxable as it is agricultural in nature.' In its order of 1-1-1962, the Tribunal has stated that 'admittedly no agricultural operations are being performed. on the forest lands. Sri I. Vishnu Rao denies that the assessee made any such admission. Be that as it may, we find nothing on the record to suggest that the forest lands were being ordinarily used either for the purpose of agriculture or for purposes subservient to or allied to agriculture by the valuation date. It follows that our answer to the first question must be in the negative.

(14A) Turning to the second question, it has to be noticed at the outset that in her return dated 19-5-1958, the assessee herself showed a sum of Rs. 71,279 as being half the compensation amount due to her by the Government for the villages taken over.

The position of Sri I. Vishnu Rao is that this figure was based on the amount of the deposit made by the Government under section 54-A of Act XXVI of 1948, as advance payment of one half of the roughly estimated amount of the compensation. Since the final determination under section 39 of the amount of compensation is pending, he urges that the amount due to the assessee is unascertained. The Appellate Assistant Commissioner was of the view that the rough estimate for the purposes of section 54A would have been made on a conservative basis and as accurately as possible from all the known data.

The Tribunal observed that although the balance of the amount of compensation is indeterminate, it is a debt due to the assessee in respect of which she was receiving payments in installments. It directed that the assessment be revised if the final determination of the amount of compensation is different. The result of this direction is that the assessee can have no real grievance. On her own showing, the sum of Rs. 71,279 is at any rate the probable amount of compensation due to her.

(15) Sri I. Vishnu Rao argued at one stage that the amount of compensation due to the assessee is only an actionable claim, but subsequently recognised that this would make no difference to its constituting assets within the meaning of section 2(e) of the Act. An actionable claim is defined in section 3 of the Transfer of Property Act as either unsecured debt or beneficial interest in movable property not in the claimant's possession. The amount of compensation due to the assessee, even if it is assumed to be an actionable claim, would be only an unsecured debt, because it is manifestly not a beneficial interest in moveable property.

Sri I. Vishnu Rao finally urged that as the amount of compensation is receivable in instalments only in the future, it ought to have been reduced by making a valuation in present of the future instalments. There are no materials before us disclosing the amounts of the instalments. The mode of valuation suggested does not really arise for consideration because, as we have already mentioned the assessee herself showed Rs. 71,279 in her return as the probable amount of compensation receivable by her. Our answer to the second question is in the affirmative. But nothing we have stated is intended to mean that the relief directed by the Tribunal to be given to the assessee will be inadmissible, regarding which we express no opinion.

(16) The final question relates to the house property at Yanam. Under Section 6 of the Act the right of exclusion of assets and debts outside India is conferred only on persons who are not citizens of India or are non-residents in India. It is not disputed that the assessee is not entitled to the benefit of Section 6 of the Act. Sri I. Vishnu Rao is not able to bring to our notice any provision of law under which the assessee could claim exclusion of the house property at Yanam. Rule 4 of the Schedule to the Act provides for reduction of the wealth tax where assets located outside India are included in the net wealth of the assessee. The order of the Tribunal gives effect to this provision. Our answer to the third question is in the affirmative.

(17) The reference is answered accordingly. The assessee will pay the costs of the Department. Advocate's fee Rs. 400.

(18) Reference answered.


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