JUDGMENT
R. Jayasimha Babu, J.
1. At the instance of the Revenue, the following common question is referred to us :
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the remuneration received by the assessee from Craigmore Ltd. London, as per the terms of the agreement, partakes of the character of agriculture and that rule 8 should be applied while taxing the same ?”
The assessment years are 1979-80, 1980-81 and 1978-79, respectively.
2. The assessee is a partnership firm. One of its partners is one Mr. William Thomas Craig Jones. An agreement was entered into between the said Craig Jones and an English company known as Craigmore Land and Produce Co. Ltd. under which Craig Jones was employed as a managing director and entrusted with the general supervision of the management of the company and the entire responsibility for export of tea from the lands held by that company in India. The agreement provided for payment to him of five per cent, of the net profits of the company for each financial year and in addition to that one per cent, of the invoice price of any tea exported by the company from India. Though the asses-see-firm was not a party to that agreement, the amounts received by Craig Jones were included in and accounted for by the assessee-firm as its income.
3. The assessee claimed that the amount received from the English company was partly agricultural income in the hands of the assessee and, therefore, Rule 8 of the Income-tax Rules is applicable and as a consequence, only 40 per cent, of the amount received which was about Rs. 6,00,000 was to be chargeable to income-tax.
4. That contention was negatived by the Income-tax Officer and by the Commissioner. But it has been accepted by the Tribunal and the question as set out above has been referred to us at the instance of the Revenue.
5. The facts set out above clearly show that the amount received by the assessee is the amount that was payable by the company owning agricultural lands which had entered into an agreement with its managing director, and the amounts paid were part of the total amount payable by it to him for the services rendered by him in relation to the business of the company. The assessee did not own the lands and did not carry on business in tea. It merely received the amounts payable by the company for the services rendered by Craig Jones. Even as the amount if received directly by Craig Jones could not have been regarded as agricultural income, it cannot be regarded as agricultural income in the hands of the assessee also.
6. The proximate source for the receipt of the income was not the manufacture of tea or cultivation of lands on which tea is grown. The source was the company which had engaged in that activity of growing and marketing tea and the reason for making the payment was remuneration for the services rendered by Craig Jones, for the company. The amounts paid by a company owning agricultural lands on which tea is grown to its employees as salary do not become agricultural income in the hands of the employees, merely because the salary was paid by a company which was engaged in agriculture and derived its income therefrom.
7. The Supreme Court in the case of Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 has held that the dividend received by a person from an agricultural company does not constitute agricultural income in the hands of the recipient, as the immediate and proximate source for the receipt of the dividend was the holding of shares and not the agricultural activity carried on by the company which paid the dividend.
8. The Privy Council in the case of Premier Construction Co. ltd. v. CIT [1948] 16 ITR 380 negatived the claim of the managing agent of the company which owned agricultural lands that the remuneration received by the agent was agricultural income.
9. The amounts received by the assessee being remuneration payable by the company which owned agricultural lands to Craig Jones who was its managing director, do not constitute agricultural income either in the hands of Craig Jones or in the hands of the firm by which he appears to have been given the right to receive that income.
10. We answer the question referred to us in favour of the Revenue and against the assessee.