These seven writ petitions can be considered in two groups for dealing with common questions which arise out of them. In the first group consisting of Writ Petitions Nos. 2095, 2098 and 2099, the petitioner is Bhagavandas Narayandas who was assessed to agricultural income-tax by the Agricultural Income-tax Officer, Coonoor, respectively for 1958-59, 1959-60 and 1961-62. The common question which arises for decision in these three petitions can be considered first and arises in the following way. Bhagavandas Narayandas, the petitioner, is a partner in the registered firm of Messrs. Ben Gorm Nilgiri Plantations Company. There are as many as nine partners in that firm including the petitioner and his wife. This firm owns 351 and odd acres of tea plantation. It was treated as a registered firm both for computation of the Central income-tax and the agricultural income-tax. It was supplied with a copy of the deed of partnership of this firm. Paragraph 12 of the deed states that Bhagavandas Narayandas shall devote his whole time and attention to the business of the partnership and diligently and faithfully employ himself therein and use his best skill and endeavour to carry on the same for the at most benefit of the partnership and shall be entitled to Rs. 1,000 per mensem as his salary with effect from April, 1957. Paragraphs 13 and 14 give directions as to how he should carry on the above work. The question arose as to how this salary of Rs. 1,000, which Bhagavandas Narayandas received under the above agreement should be computed both for the Central income-tax as well as the agricultural income-tax. The Central Income-tax Officer excluded the salary paid to him for being allowed as deduction in computing the Central income-tax, under section 10(4) (b) of the Income-tax Act, 1922, and arrived at the total income of the firm and separating 60% of it is agricultural income under rule 24 of the Central Income-tax Rules, assessed the remaining 40% to the Central income-tax. Thereafter, the share in this income of Bhagavandas Narayandas was computed, and thereto his salary of Rs. 12,000 per annum was added for the purpose of fixing his Central income-tax liability. But the Agricultural Income-tax Officer, after adopting share of agricultural income which Bhagavandas Narayandas received from the partnership on the basis of the computation of the Central Income-tax Officer, added thereto 60% of his salary on the view that, since the salary which Bhagavandas Narayandas got was derived by looking after the plantation of tea, it was also assessable to agricultural income-tax In actual fact, the Agricultural Income-tax Officer did not set down any precise reason for departing in the above manner from the view of the Central Income-tax Officer in regard to the assessability of salary income but the Commissioner of Agricultural Income-tax to whom Bhagavandas Narayandas filed revision petitions gave more specific reasons. He observed :
'A partners rendering services to the firm stands on the same footing as his providing capital; only instead of in money in kind. Interest on money advanced by a partner is for like reasons not allowable. It is also clear that a partner cannot be a servant of the firm so as to receive salary, because in that event, he would be both employer and employee and that the payment of salary to a partner is only a mode of adjusting the amount that must be taken to have contributed to the partnership assets by a partner who has made what is really a contribution in kind.'
The above observations will be relevant in the context of section 10(4) (b) of the Income-tax Act, as justifying the principle stated in that section, for not allowing the salary paid to a partner for purposes of deduction. But those observations cannot be viewed as authority for the step taken by the agricultural income-tax authorities for constraining the salary obtained by a partner for services rendered to the firm as agricultural income. The nature of this income cannot be agricultural income as defined either in the Central Income-tax Act or the Agricultural Income-tax Act. It is only salary proper paid as remuneration for services which a partner rendered to the firm.
There is ample authority for the view that the salary which a partner thus receives from the partnership for services done can properly be treated in its entirety as income assessable to Central income-tax at his hands and that no part of it can be viewed as his agricultural income. In Makes Abraham v. Commissioner of Income-tax a Bench of this court considered an identical question. In that case the assessee who was a partner claimed that out of the salary received by him for remuneration only 40% should be assessed to the Central income-tax and the remaining 60% should be left unassessed being in the nature of agricultural income under rule 24 of the Income-tax Rules. The Bench referred to the observations of the Patna High Court in E. C Danby v. Commissioner of Income-tax :
'The mere fact that this ultimate source was agricultural property will not make it agricultural income because the payment was received not as part of his profit from the agricultural property, but as remuneration due to him for work done as manger of the property.'
This view is supported by the decision of the Privy Council in Nawab B. Habibulla v. Commissioner by the Income-tax. Applying the above principle to the case before them, the Bench held that the entire amount which the partner received under the heading of 'monthly allowance and commission' was assessable to Central income-tax. Unfortunately, when this decision was brought to the notice of the Commissioner of Agricultural Income-tax in the revision petition in the present case he observed the question of the liability of the amount to agricultural income-tax that it was a case which arose under the Central Income-tax Act, that the agricultural income-tax department of the Madras Government was not a party to that decision and that it did not appear as if the claim of the agricultural income-tax department to tax the amount in question was negatived.
It appears to me that these observations of the Commissioner of Agricultural Income-tax do not meet the point raised and decided in the above decision. The principle which this court laid down in the above case no doubt arose out of a reference under the Income-tax Act but the court dealt directly with the question whether any portion of the salary of a partner in a registered firm which carried on business of a tea plantation should be construed as his agricultural income, for the purpose of applying rule 24 of the Income-tax Rules, limiting the Central income-tax assessment thereon 40% or whether it should be assessed in entirety as his income under the Central Income-tax Act. When that decision answered this question in favour of the Central income-tax Act. When that decision answered this question in favour of the Central income-tax revenue, and held that the entire income was assessable under the Central Income-tax revenue, and held that the entire income was assessable under the Central Income-tax Act and no part of it was agricultural income, the principle thus laid down will clearly apply when a similar question arises before the agricultural income-tax authorities for the purpose of assessing a portion of the salary of a partner of a firm engaged in the business of working a tea plantations his agricultural income. Therefore, that decision is clearly applicable to the present case, and I am of the opinion that no portion of the present case, and I am of the opinion that no portion of the salary of the petitioner Bhagavandas Narayandas is liable to pay agricultural income-tax. The three Write Petitions Nos. 2095, 2098 and 2099 of 1964 are allowed accordingly and appropriate writs will issue.
Out of the remaining four Write Petitions Nos. 2096, 2097, 2100 and 2101 of 1964, W. P. No. 2097 of 1964 deals with an assessee by name Mrs. Santokben Vallabhdas Madhvani and the other three write petitions deal with another assessee by name Ramnik Vallabhdas Madhvani. But they raise a common question, namely, where a partner has advanced a loan to a registered firm, interest received by him on that loan should be viewed as containing a part that is agricultural income to be computed under rule 24 of the Income-tax Rules on the ratio of 60 to 40. Here again, relying upon section 10(4) (b) of the Income-tax Act, 1922, the Central Income-tax authority did not allow deduction for the interest paid to the partner who had advanced the loan, calculated the total income of the partnership and determined the share of each partner in that income. Thereafter, the Central Income-tax Officer added the interest in its entirety to the share which the above two partner derived from the partnership and computed the income-tax payable by them under the Central Income-tax Act. Following the same procedure as was adopted by him in the first group of cases above, which dealt with the salary of a partner, the Agricultural Income-tax Officer took a different view from the Central Income-tax Officer and treated the interest received on the loan advanced by the partner, as income arising out of the tea plantation to which the 60 to 40 ratio should be applied, and the agricultural part of it computed at 60%. When the assessees in the four write petitions took the matter in revision before the Commissioner of Agricultural Income-tax, the dismissed the revision petitions expressing views identical to those which he expressed when dealing with the revisions which formed the subject-matter of the first group of the write petitions.
In the case of interest payable to a partner on loan advanced by him, the position appears to me be in no way different from the position of salary which a partner gets under an agreement with the partnership for the services which he did to the partnership. Since interest cannot be allowed as deduction under the Income-tax Act, on account of section 10 (4) (b) of that Act, consequently without making any deduction for interest the computation of the total income of the firm was made. Thereafter, 40% of that income was assessed under the Indian Income-tax Act and the remaining 60% was assessed as agricultural income. The Central Income-tax Officer thereafter added the interest, just as he added the salary to the share of each partner in the partnership income for assessing the partners individually treating both the salary and interest in their entirety as income, no part of which could be excluded as agricultural income. The Agricultural Income-tax Officer differed from this view.
In the case of interest also, as in the case of salary, the ultimate source from which interest was paid out might be income from the agricultural property, but the person who received the payment, namely the partner did not receive it as part of the profits from the agricultural property but as a return for the loan he advanced to the partnership. An analogy can be deduced in the case payment of interest from the principles which have been referred to earlier in this judgment as laid down in E. C. Danby v. Commissioner of Income-tax in the case of payment of an amount to a partner as salary or remuneration. Advance of a loan by a partner is also not capital since such advance forms no part of the agreement that constituted the partnership; it is distinct loan, advanced separately which has never been treated by the partners as part of the capital. For the aforesaid reasons, the payment of interest on such loan cannot be construed as income out of which 60% can be assessed as agricultural income.
Before parting with the case, the view of the Commissioner of Agricultural Income-tax in the revision petitions appears to be that, in determining the liability to agricultural income-tax and the liability to Central income-tax arising out of the income from tea (where the statute has provided for the rule of apportionment in rule 24 of the Income-tax Rules as well as in the Explanation to section 2 of the Agricultural Income-tax Act) the appropriate revenue authorities could function in water-tight compartment, in making assessments, notwithstanding the clear link between the two assessment which is established both in rule 24 of the Income-tax Rules and in the Explanation to section 2 of the Agricultural Income-tax Act. It appears to me that if the enactments are applied by the concerned revenue authority in water-tight compartments it may lead to double taxation, and this is a contingency which should be avoided as far as possible. In this connection the observations which were made at page 351 in an earlier Bench decision reported in Kannan Devan Hills Produce Ltd. v. State of Madras may be usefully extracted :
'Therefore, it may not be proper to lay down as a rule of low that for the computation of agricultural income in the case of tea, where both agricultural as well as industrial processes are involved, the computation made by the Central Income-tax Officer shall be the computation which the Agricultural Income-tax Officer has to adopt. But at the same time weighty reasons can be urged in favour of the view that the Agricultural Income-tax Officer should, as a rule, adopt the Central Income-tax Officers computation is particularly in cases where the Central Income-tax Officers computation is complete, and is available to the Agricultural Income-tax Officer. As between officers of two different Government departments engaged in making assessments, one of the Central and the other of the State, if each were to consider the other officers computation to be wrong and proceed to make an independent but conflicting calculation under the provisions of the Indian Income-tax Act, not merely will the assessees suffer, but there will be risk and anamoly of the Central department assessing what is really agricultural income liable to assessment by the State, did the State department assessing what is really income for the purpose of income-tax liable to assessment by the Central Government, each one encroaching upon the jurisdiction of the other. Such conflicts have to be avoided in the interests of the assessees as well as of the Government, concerned. The data available to the Central income-tax department, will be generally fuller, because they have been engaged in making assessments to Central income-tax from a period long anterior to the Agricultural Income-tax Act, which has been enacted only in 1955. Their staff are well-trained in applying the various provisions of the Income-tax Act to make assessments on business income, whereas the agricultural Income-tax Officers ordinarily deal with the computation of purely agricultural income.' In the same decision at page 352 a reference was made to rule 7(1) of the rules framed by the Madras Government under the Madras Agricultural Income-tax Act and it was observed that the words 'shall be assessed' in the main portion of that rule implied that the Central Income-tax Officers computation would be binding on the Agricultural Income-tax Officer and that 'the second proviso to the rule providing for a revision of assessment to conform to the Central Income-tax Officer computation when it is subsequent to the Agricultural Income-tax Officers assessment, also leads to the same conclusion.'
These four writ petitions are also allowed. There will be no order as to costs in all the seven writ petitions. The petitioners will get their advocates fee which is fixed at Rs. 250 and made payable in W. P. No. 2095 of 1964.