SRINIVASAN J. - This tax revision case relates to the assessment of agricultural income-tax for the assessment year 1955-56. That is the first assessment year for which tax became leviable under the Madras Agricultural Income-tax Act. The assessee is Messrs. Beverley Estates Limited, which has coffee plantations. Under the charging section, tax at the rates specified in the Schedule to the Act shall be charged of or each financial year commencing from the 1st of April, 1955, on the total agricultural income of the previous year of every person. The previous year means the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made. It follows that in respect of the assessment for the assessment year 1955-56, it is the agricultural income of the assessee during the period 1st of April, 1954, to 31st of March, 1955, that has to be ascertained, and the levy of tax is upon that agricultural income. In the case of coffee which is the agricultural produce realised by this assessee, the sale of coffee is controlled by other enactments and, generally speaking, the producer of coffee has to surrender the produce to the Coffee Marketing Board and receive the value thereof. The question as to the mode of assessment in the case of coffee, with particular reference to the first year of assessment under the Act, came up for consideration before this court in certain writ petitions. In those cases, the position was that during the year of account April 1, 1954, to March 31, 1955, the assessee had received a certain sum from the Coffee Board relating to the coffee delivered in the years 1952-53 and 1953-54. The company was taxed on the basis of receipt of money from the Coffee Board during the year of account relevant to the first assessment year, though the produce itself related to years earlier than the first year of account in respect of which the Act took effect, Rajagopalan J., who heard the writ petitions, took the view that though the amount was received towards the produce of coffee gathered and sold prior to April 1, 1954, since the amounts were received only in the relevant year of account they were liable to be taken in the computation of the total agricultural income of that year. The receipt of the income was taken to be the basis of liability to tax. An appeal was taken against this decision and a Bench of this court decided in Puthutotam Estates (1943) Ltd. v. Agricultural Income-tax Officer, that if the sale of a coffee crop had taken place after the 1st of April, 1954, the income from such sale would be taxable for the assessment year 1955-56, even though the whole or part of that crop was grown prior to the 1st of April, 1954. But if the sale had taken place before the 1st of April, 1954, the income from such sale would not be taxable, even if the sale price was realised after the 1st of April, 1954. While Rajagopalan J. had taken the view that the date of receipt of the sale value of the coffee was the basis of liability, the Appellate Bench went back one stage further and held that it was the date of sale, that is to say, the delivery of coffee to the Coffee Board, that should be the governing factor for fixing the liability to tax. The Bench further held that it made no difference what system of accounting was adopted by the assessee.
In the case of the present assessee, the dispute was with regard to the inclusion in the assessable income of the receipts on account of the coffee crop delivered to the Coffee Board prior to April 1, 1954. The assessee contended that such receipts should be excluded. When this question came before this court on an earlier occasion in T.C.No.4 of 1958, the order of the Agricultural Income-tax Appellate Tribunal was set aside and the matter was remanded for fresh disposal in the light of the decision of the Appellate Bench referred to. The Appellate Tribunal found as a result of further enquiry that 13,281 points (coffee units) were delivered to Coffee Board after April 1, 1954. It represented the stock which was on hand on April 1, 1954, with the assessee-company and was quite clearly the produce of the year 1953-54. The assessee claimed that if the tax was top be computed including this quantity of coffee, then it should be equally well entitled to certain allowances of the cost of production, for otherwise the sale value of the coffee would not represent the income if the expenditure incurred for the raising of the coffee was not allowed. But the Appellate Tribunal took the view that whatever allowances the assessee was entitled to were governed by section 5 of the Act and that provision related to expenses incurred only during the previous year, that is, the year April 1, 1954, to March 31, 1955. Since in respect of this quantum of coffee the expenditure should have been incurred not in the previous year but in the account year prior to the previous year, that was not allowed. It would be sufficient to state that while the sale value of the coffee has been taken into account, no deduction relevant to the production of that coffee has been granted. The contention of the assessee as presented before us by Mr. Ramamani, its counsel, has accordingly been that while the charging section brings the income to tax, in the instant case, in relation to the 13,281 points of coffee, it is not the income that has been taken into account but the gross value of the produce itself.
We have already seen that it is the total agricultural income of the previous year of every person that is brought to tax for each financial year. The total agricultural income is defined by section 2(x) to mean 'the aggregate of all agricultural income is defined by section 4'. It is not necessary to refer to that section which only provides for certain exclusions. Agricultural income itself is defined in a variety of ways to mean : (1) any rent or revenue derived from land ; and (2) any income derived by (a) agriculture or (b) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by him fit to be taken to the market, or (c) 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 other than such as is described in (b) has been performed. Looked at broadly, it seems clear that income derived from the land by a process of agriculture is itself receipt of agricultural income. It may be in the shape of produce or it may be in the shape of rent received by a person owning land from a lessee or other person cultivating the land. It may in certain circumstances be taken to be the actual sale price of the produce respectively raised or received by such a person. But where a person raises a crop and realises the produce, such realisation itself amounts to the receipt of agricultural income. In the two decisions of this court, which we have referred to, the fact that in the case of coffee grown by a cultivator he was under a statutory obligation to surrender his production to the Coffee Marketing Board for the purposes of sale appears to have weighed considerably. Most of these coffee estates maintain their accounts on the mercantile system ; and the delivery of coffee to the Coffee Board, though the price was not received immediately, was taken to indicate by the Appellate Bench that the sale resulted in the receipt of agricultural income. The definition of 'agricultural income' however indicates that a sale of the produce is not always necessary before one can expect the receipt of agricultural income and that is the view that was adopted by the Supreme Court in the decision we shall presently refer. The question however is whether the harvest of the produce is the only stage when agricultural income can be said to accrue.
In Dooars Tea Co. Ltd. v. Commissioner of Agricultural Income-tax the question arose thus. The Appellant-company carried on the business of growing, manufacturing and selling tea. The appellant also grew bamboos, that-ching grass and fuel timber on a large tract of land held under a lease from the local Government. During the relevant year, it cut down some bamboos, thatching grass and fuel bamboo and used them for the purpose of its tea business. There was no dispute that the bamboos, etc., were grown by the appellant by pursuit of agricultural operations carried on by the service of labourers employed by the appellant. The market value of this produce was included as agricultural income by the Agricultural Income-tax Officer and such inclusion was disputed by the appellant. It was the contention of the appellant that unless the produce was converted into its money equivalent, or, in other words, unless such produce was sold, the produce could not in law be treated as its income. The department took the contrary view and that view was upheld by the Tribunal. There was a reference to the High Court, and one of the questions was, whether the bamboos, thatching grass, etc., grown by the assessee-company and utilised for its own benefit in its tea business was a agricultural income with in the meaning of the Bengal Agricultural Income-tax Act. The High Court answered this question in the affirmative and a further appeal was taken to the Supreme Court. Section 2(1)(a) of the Bengal Act is in terms identical with the corresponding section of the Madras Agricultural Income-tax Act, so that the decision of the Supreme Court in the interpretation of the provision of the Bengal Act would equally apply to the interpretation of the corresponding provision of the Madras Act. The principal contention advanced before the Supreme Court was that while, no doubt, the word 'income' in the context of the definition section may mean either cash or income in kind, and also the ordinary meaning of the word 'income' would include the produce of a farm, yet 'income' necessarily denoted profit or gain, and profit and gain cannot be made unless the produce is sold and its value realised. It was also urged that no person could trade with himself, so that agriculture produced raised by a person and used by him for his own purposes would not result in any profit or gain liable to be taxed. Their Lordship repelled the contention that the connotation of the word 'income' as profits or gains, which is the basis of the Indian Income-tax Act, should be applied in construing the particular definition found in the Agricultural Income-tax Act. What the word 'income' means for the purpose of this latter Act has to be determined in the context of the provision itself. Proceeding to do so, they point out that the section refers to income derived from land, which means arising from land, and denotes income, the immediate and effective source of which is land. The first part of the relevant definition section covers income derived from land by agriculture. The next two parts deal with such income derived by the performance of a process ordinarily employed to render the produce fit to be taken to the market. They point out that the process contemplated by this part of the definition should be one which does not later the character of the produce. The produce must retain its original character and the only change that may have been brought about is to make it marketable. This clause accordingly means that income derived from the employment of the process falling under that clause would also be agricultural income. Even this clause does not refer to sale and does not require that income should be obtained from sale. The next clause of this part of this definition expressly refers to income derived from sale. They point out that this clause refers to the sale which must be the sale of the produce which has not been subjected to any process other than that contemplated in the earlier clause. The effect of these two latter causes is thus set out in the judgment :
'Thus it may be stated that reading clause (ii) and (iii) together, contemplate the sale of produce - clause (ii) indirectly inasmuch as it refers to the process employed for making the produce marketable and clause (iii) directly inasmuch as it refers to the price realised by the sale of the produce which has been subjected to the process contemplated by clause (ii). Therefore, it is clear that income derived from the sale of agricultural produce has been provided for by clauses (ii) and (iii) and, prima facie, that would show that clause (i) which does not refer to sale even indirectly cannot be intended to cover cases of income derived from the sale of agricultural produce.'
In the light of this conclusion with regard to clauses (ii) and (iii), their Lordships next proceed to deal with the true scope and effect of the income contemplated by clause (i), which is merely any income derived from such land by agricultural. They say that giving the words their plain, gramatical meaning, what is meant is that agricultural produce itself constitutes income under this clause. They observe that there is nothing in the context, which requires the introduction of the concept of sale in interpreting this clause. They conclude thus :
'What this clause seems clearly to have in view is agricultural produce itself which has been used by the assessee. In the present case it is common ground that the appellant has utilised for its business the agricultural produce in question and we feel no difficulty in agreeing with the High Court when it held that the agricultural produce utilised by the appellant for its business constitutes income under section 2(1)(b)(i). If the agricultural produce used by the appellant was not intended to be included within the definition of income under section (2)(1)(b), we apprehend that the whole clause would have been very differently worded, Where income derived from sale was intended to be prescribed the legislature has done so in terms by clause (iii) of section 2(1)(b). Where the marketable condition of the produce resulting from the employment of the specified processes and income derived from the adoption of such processes was intended to be included in the income the legislature has done so by clause (ii); and so those two cases having been specifically provided for by the two respective clauses there would be no justification for introducing the concept of sale in construing clause (i) of section 2(1)(b). The words in section 2(1)(b)(i) are, in our opinion, wide plain and unambiguous and they cannot be construed to exclude agricultural produce used by the appellant for its business.'
It is the contention of Mr. Ramamani, learned counsel, that this decision clearly indicates that the raising of the produce itself denotes the accrual of agricultural income and if that is so, that receipt cannot be ignored and the subsequent sale taken as the point of time when the agricultural income accrued. According to him, therefore, in respect of the 13,281 points of coffee delivered to the Coffee Board after April 1, 1954, the receipt of the income relevant thereto should be the point of time when the crop was harvested by the assessee, that is to say, on a date prior to April 1, 1954. It is not in dispute that if the receipt of income was prior to that date, then, that will not be a receipt within the previous year relevant to the assessment year and cannot be included. The question is whether this contention can be accepted even in the light of the principles laid down in the Supreme Court decision.
We have given the matter careful consideration. We find ourselves unable to accept the argument of Mr. Ramamani that in all cases the raising of the produce itself and its harvest connotes a derivation of income by the cultivators. If that were so it would not be logical to hold that the subsequent sale by the cultivator of the crop, whether the crop has been subjected to any process ordinarily employed to render the produce fit to be taken to the market or not, could again connote income derived from the land. There cannot possibly be two receipts of income, which is precisely what the above argument would indicate. While the first clause 'any income derived from such land in the State by agriculture' is defined to mean agricultural income, the third clause provides an alternative definition such as 'any income derived from land in the State by the sale by a cultivator.....' What the legislature has endeavoured is to specify the receipt of income by two different classes of persons, one by a person who derives income by agriculture, the income being represented by the crop itself and which presumably is not subsequently sold by him but utilised by him for his own needs. In such a case, the income is received when the crop is harvested. In the other case, where the cultivator raises principally for the purpose of marketing it, it is the sale of the produce that results in the realisation of income. If any process necessary to render the produce fit for the market such as ordinarily employed by such persons, is performed, that presumably results in an increaseed value of the crop obtained by the sale. The money realised by the sale is treated as the income derived from the land in cases where the cultivation is undertaken principally for the purpose of marketing the produce. It seems to us accordingly that the above decision of the Supreme Court does not lay down that in all cases the income is realised the moment the crop is harvested.
It is not in dispute that the assessee in this case is a coffee plantation which invariably markets its produce. In such a case, the income derived by the sale would represent the agricultural income.
Mr. Ramamani has cited a decision of the Gujarat High Court in Sakarlal Naranlal v. Commissioner of Income-tax. That was a case where the definition of 'agricultural income' in the Income-tax Act was considered. The question in that case arose thus. From a vegetable product known as galka, loofas were produced by subjecting the vegetable product to certain processes. The product was sent to England for sale, but had to be shipped back as the assessee could not sell them. The loss in this connection of about Rs, 1,75,000 was claimed as a business loss arising out of agricultural operations. The department and the Tribunal held it to be agricultural loss not climbable as a deduction under the Income-tax Act. The learned judges had occasion to consider what the type of process contemplated by the expression 'process ordinarily what the type of process contemplated by the expression' process ordinarily employed by a cultivator as to render the produce raised fit to be taken to the market' meant. This decision only went to the extent of laying down that if a market is available for the produce in its raw state, then the process cannot be stated to be a process of the nature indicated. The learned judges emphasise that the process should be one such as is ordinarily employed to render it marketable. They also observe that it is implied in the language used that the process must not later the character of the produce. We are unable to derive any assistance from this decision with regard to the particular point that is before us, viz., when the income was actually derived.
Our attention has been drawn to the decision of this court in India Coffee Board v. State of Madras where the question arose whether the India Coffee Board, which is an authority created by the Coffee Market Expansion Act, is a dealer within the meaning of the Madras General Sales Tax Act. Reference was made to this decision only for the purpose of explaining that under the provisions of that Act, a person growing coffee has to get himself registered and has it surrender the quota fixed by the Coffee Board to the Coffee Board. It was pointed out by Mr. Ramamani that the grower of coffee has no right to deal with the coffee which he produces and it is the Board which undertakes the sale of the produce. It was somewhat vaguely suggested that the price so paid in advance of the sale of the product. Whatever processes are necessary in respect of the coffee surrender by the producer to the Coffee Board are presumably undertaken by the Coffee Board and adjusted against the final payment of the price. If the argument is that so far as the price that is received by the producer from the Coffee Board is concerned, it represents not the real price in respect of the produce at all but takes into account any additional income resulting from the employment of processes to render the produce marketable and that since the producer does not undertake the performance of these processes, that part of the increase in price should not be brought in to tax as his agricultural income, we are unable to agree. It may be that the producer delivers coffee in the raw condition and that the Coffee Board undertake the necessary processes through cures to whom the producer has to deliver the produce on behalf of the Coffee Board. The price that is paid to the producer is dependent upon the ultimate sale price of the product after it has been subjected to the processes referred to. That the Coffee Board has these processes performed in the circumstances stated can only mean that it does so on behalf of the producer, for it undoubtedly pays the producer the price that is finally secured and not the price for the raw coffee. There is no doubt that this part of the income is also part of the agricultural income of the producer himself.
Mr. Ramamani next contends that in accordance with the mercantile system of accounting, the coffee stood valued at Rs. 2.07 per point in its books on April 1, 1954. It is claimed that the value of the opening stock should be deducted from the ultimate sale price secured from the Coffee Board in order to arrive at the income. Virtually what is contended for on behalf of the petitioner is that the cost of the production of coffee as found in the books of account should be deducted from the sale price before the agricultural income in question could be reached. It is true that under the Income-tax Act, it is the profits or gains that are brought to tax. We are by no means convinced that the principle of taxation under lying the Agricultural Income-tax Act is the same as in the Income-tax Act. While section 3 brings to charge the total agricultural income of the previous year, 'total agricultural income' is defined in section 4 to comprise of agricultural income, derived from land situated within the State which is received or which accrues within or without the State. The computation of agricultural income is provided for the section 5, which requires a series of deductions to be made such as would be applicable in the instant case. The total agricultural income which is chargeable to tax by sectionb 3 is the aggregate of all agriculture income mentioned in section 4 and computed on accordance with the provisions of section 5. In making such computation the assessee is entitled to a deduction of expenses such as sums paid on account of land revenue, local rates, etc., rent paid to the landlord or superior landlord, expenses on the maintenance of any work constructed for the benefit of the land, expenses on the maintenance and repairs of any capital asset purchased or constructed for the benefit of the land and the expenses other than capital expenditure of cultivating the crop from which income is derived. But, in terms of section 5, such expenses as are incurred only during the previous year relevant to the assessment year can be deducted. It is true that in so far as this particular assessment year is concerned. Which is the first assessment year under the Act, in the case of a produce which as not raised during the previous year but related to a still earlier year, the provisions for computation under section 5 and the allowances provided for thereunder would not apply ; that is to say, though the incomes is of the previous year, for the reasons that the sale of the agricultural produce was effected during that previous year, the produce itself having been raised during a period anterior to that previous year, the expenditure in that connection not having been incurred in that previous year, section 5 would not in terms authorise the deduction. What in effect Mr. Ramamani prays for is that the principle of the deductions should be available to the assessee, for undoubtedly what is brought to tax now is the total sale price of the produce without any allowance being given for the cost of production as would normally be the case. Unfortunately, since the computation should be made only in terms of the provisions of the Act and section 5 will not apply to the instant case, we are unable to agree that the book value of the opening stock as on April 1, 1954, should be deducted from the sale price in order to arrive at the agricultural income. For one thing, we are unable to see what the book value of the opening stock really represents, whether it comprises only of those items for which deductions are permissible under section 5, or includes items over and above them. While equity may no doubt be in favour of the deduction of the expenditure, the terms of the section do not permit it. We may however point out that this anomalous situation would obtain only in respect of the first year of assessment.
It follows that the contentions of the petitioner fail. The petition is dismissed. In the peculiar circumstances of the case, we make no order as to costs.