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Commissioner of Agricultural Income-tax Vs. George Varghese and Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 13 of 1970
Judge
Reported in[1973]90ITR496(Ker)
ActsAgricultural Income Tax Act, 1950 - Sections 60(1) and 60(6); Income Tax Act, 1922 - Sections 2 and 2(1)
AppellantCommissioner of Agricultural Income-tax
RespondentGeorge Varghese and Co.
Appellant AdvocateGovernment Pleader
Respondent Advocate S.A. Nagendran,; N. Krishna Pillai,; N.N.D. Pillai a
Cases Referred(E. J. John v. State of Kerala
Excerpt:
.....of rubber trees not agricultural income - amount received by slaughter-tapping trees which assessee purchased under agreement - no transfer of interest in land - rubber trees to be withdrawn from land under agreement - land to be considered as mere warehouse of rubber trees - income though derived from land derived by assessee who had not undertaken basic operations relating to agriculture - so amounts received does not fall within 'agricultural income' - question answered in affirmative. - - the provisions in the agreement that we have read would clearly show that the definite intention was to have the trees annihilated......whether, on the facts and in the circumstances of the case, the finding of the tribunal that the income derived by the assessee by slaughter-tapping of rubber trees is not agricultural income is correct '2. the year of assessment is 1965-66 and the corresponding accounting period is that which ended on march 31. 1965. the assessee received certain amounts by selling rubber obtained on slaughter-tapping of rubber trees which stood on the estate of m/s. woodland estates ltd. the question is whether these amounts can be said to be agricultural income within the meaning of that expression as defined in section 2(a) of the act.3. it is agreed before us that the question has to be answered in the light of the provisions in the contract between the assessee and the woodland estates ltd.,.....
Judgment:

Govindan Nair, J.

1. This is a reference at the instance of the Commissioner under Section 60(1) of the Agricultural Income-tax Act, 1950 (hereinafter referred to as ' the Act '). The question referred is worded thus :

' Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the income derived by the assessee by slaughter-tapping of rubber trees is not agricultural income is correct '

2. The year of assessment is 1965-66 and the corresponding accounting period is that which ended on March 31. 1965. The assessee received certain amounts by selling rubber obtained on slaughter-tapping of rubber trees which stood on the estate of M/s. Woodland Estates Ltd. The question is whether these amounts can be said to be agricultural income within the meaning of that expression as defined in Section 2(a) of the Act.

3. It is agreed before us that the question has to be answered in the light of the provisions in the contract between the assessee and the Woodland Estates Ltd., contained in the agreement dated March 23, 1964, which is part of the statement of the case and is in the paper book in I.T.R. No. 14 of 1970. A single statement of the case has been drawn up by the Tribunal for the years 1965-66 and 1966-67, the assessee being the same and the question arising being also the same. This contract states that the rubber trees from which the alleged agricultural income had been derived ' had become old and uneconomical having been intensively tapped for the last two years '. These trees stood on a specified 303 acres described in the schedule to the contract. Further, it is stated that 'with a view to replant rubber in the said 303 acres the vendor has agreed to sell and the purchaser has agreed to purchase all the said rubber trees with their roots standing on the vendor's said properties with rights to do with the trees whatever the purchaser considers fit including slaughter-tapping till they are felled and removed for the consideration and on the terms and conditions hereinafter mentioned ' Thereafter, followed the terms and conditions stipulating the time within which the trees should be removed from the rubber estate so that replanting could be accomplished. We may refer to one other clause in the agreement in paragraph 3 thereof, wherein it is stated that the scheduled properties on which the rubber trees sold stood should continue to be in the possession of the vendor and that since the properties on which those trees stood were intended to be replanted the vendor shall have the full and unrestricted right ' to make pits, fence, to cut roads and paths, to put up buildings, to undertake and do all such preparatory work for the proposed replanting of rubber.'

4. The definition in Section 2(a) of the Act is in these terms: ' 2. Definitions.--In this Act, unless there is anything repugnant in the subject or context,--

(a) ' agricultural income means-

(1) any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in the State or subject to a local rate assessed and collected by officers of the State Government as such;

(2) 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).

Explanation.--Agricultural income derived from such land by the cultivation of tea means that portion of the income derived from the cultivation, manufacture and sale of tea as is defined to be agricultural income for the purposes of the enactments relating to Indian income-tax;

(3) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land or occupied by the cultivator or the receiver of rent-in-kind of any land with respect to which or the produce of which any operation mentioned in Sub-clauses (ii) and (iii) of Clause (2) is carried on :

Provided that the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator or the receiver of the rent-in-kind by reason of his connection with the land, requires as a dwelling house or as a store-house or other out-building....;'

5. The question had often arisen as to what is agricultural income. The Privy Council had to consider in Commissioner of Income-tax v. Raja Bahadur Kamakshya Narayan Singh, [1948] 16 I.T.R. 325 (P.C.) whether the interest payable on arrears of rent in respect of land used for agricultural purposes is agricultural income within the definition of that phrase contained in Section 2(1) of the Indian Income-tax Act, 1922. Though the decision is not very helpful for deciding the question before us, we consider that a passage from it is helpful for understanding the general import of the definition of the term ' agricultural income '. We may extract a passage from that decision :

' The word ' derived' is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry 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.'

6. The Tribunal appears to have proceeded on the basis, that the income in question though derived from land had been derived by the assessee who had not undertaken the basic operations relating to agriculture and that, therefore, the income will not come within the definition. Counsel for the revenue contended before us that this view of the Tribunal is not correct. According to him, it is not necessary in all cases that the income must be derived by the very same person who had undertaken the basic agricultural operations as explained by the Supreme Court in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy, [1957] 32 I.T.R. 466, [1958] S.C.R. 101 (S.C.), before it can be said that he had received agricultural income. This seems to be so, for a land on which there is agricultural produce can be sold with the produce and if it is necessary that the person receiving the income from the sale of that produce should himself have undertaken the basic operations of agriculture, what he received by the sale of agricultural produce will not be agricultural income. This is a proposition which is difficult to accept. So we do not consider that in ail cases the person receiving the agricultural income should himself have undertaken the basic operations of agriculture.

7. We think that in substance what the Tribunal has held is that under the agreement there has been no intention on the part of the contracting parties that the trees which were permitted to be slaughter-tapped, cut and removed, should derive sustenance from the land and continue to afford income to the transferee, the assessee before us. The provisions in the agreement that we have read would clearly show that the definite intention was to have the trees annihilated. There was an out and out sale of the trees and considering the extent of the land on which the trees stood, 303 acres, it is quite conceivable that the removing of the trees would take considerable time and the provisions in the agreement that the assessee had three years time to remove them does not at all imply any intention that the trees should continue to receive nourishment from the land and afford agricultural income to the assessee. The most apt passage that we have been able to find which can be applied to the facts of the case is that contained in Marshall v. Green, [1875] L.R. 1 C.P. 35. The passage is in these terms :

' 'The principle of these decisions appears to be this, that wherever at the time of the contract it is contemplated that the purchaser should derive a benefit from the further growth of the thing sold, from further vegetation and from the nutriment to be afforded by the land, the contract is to be considered as for an interest in land ; but where the process of vegetation is over, or the parties agree that the thing sold shall be immediately withdrawn from the land, the land is to be considered as a mere warehouse of the thing sold, and the contract is for goods. '

8. A reading of the agreement dated March 23, 1964, leaves no doubt inour minds that the contract was not one for an interest in land Theintention was that the things sold, the rubber trees, shall be withdrawnfrom the land. To adopt the words used in the above decision ' the landis to be considered as a mere warehouse of the thing sold '. The contractwas for the sale of the goods. In this view the conclusion reached by theTribunal is correct.

9. It is unnecessary to refer to all the decisions that have been cited before us because we consider that such questions will have to be answered on the terms of the contract when there is one. We are not therefore considering the effect of the decisions the Madras High Court in Commissioner of Income-tax v. K. S. Imam Saheb, [1969] 71 I.T.R. 742 (Mad.) and in C P. A. Yoosuf v. Income-tax Officer, Kottayam, [1970] 77 I.T.R. 237 (Ker.), relied on by counsel for the assessee. Counsel for the revenue urged that the propositions stated in the above decisions have been stated too broadly. We need not consider this aspect because on the facts of the case, it is not possible to say that the amounts received bv slaughter-tapping the trees which the assessee purchased under the agreement dated March 23, 1964, are agricultural income.

10. We must refer to one other aspect. When the owner of the land who by undertaking agricultural operations had cultivated trees and when he derived income by slaughter-tapping and finally sold the trees, the question might arise as to whether the entire amount received by slaughter-tapping and sale of the trees later is agricultural income. The question has been answered by this court in the decision in I.T.Rs. Nos. 76 and 77 of 1965 (E. J. John v. State of Kerala, ). We wish to make it clear that the question arising in this decision is different. What is the nature of the receipts by the assessee depends on the terms of his contract with the owner of the land. Construing it we have to hold that there has been no transfer of an interest in land. Arid so the amounts received will not fall within the definition of the term ' agricultural income' in the Act.

11. We answer the question referred to us in the affirmative that is against the department and in favour of the assessee. There will be no order as to costs.

12. A copy of this judgment under, the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by Sub-section (6) of Section 60 of the Agricultural Income-tax Act, 1950.


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