JUDGMENT
CHAKRAVARTTI C.J. – This reference under section 63(1) of the Bengal Agricultural Income-tax Act comes back to us after remand.
The assessee is a public limited company, called the Dooars Tea Co. Ltd., carrying on the business of growing, manufacturing and selling tea. For the accounting year 1948, relative to the assessment year 1949-50, the company returned an agricultural income of Rs. 3,45,702. The Agricultural Income-tax Officer increased that amount to Rs. 4,41,940 including therein a sum of Rs. 39,849 as the market value of the assessees agricultural income from bamboo, thatch and fuel timber. The assessee objected to the addition of that sum on two grounds which shall specify later.
The factual position with regard to the bamboo, thatch and fuel timber has been found to be as follows :
The company hold a large tract of land under a lease from the local Government and in a part of it they grow bamboos, thatching grass and fuel timber. During the calendar year 1948, they cut down some bamboos, some thatching grass and some fuel timber and utilised the same for the purposes of their business. The bamboos, thatching grass and fuel timber were grown by the assessee company on their own land by agricultural operation carried on by their servants and labourers, but after they had been grown, they were merely utilised by the company for the purpose of their tea business and not sold in the market or sold at all. It has now been found that such utilisation of bamboo, thatching grass and timber took place every year. The thatching grass had to be cut every year, because otherwise it would deteriorate and normally, the assessee company also used the grass every year. There was no absolute regularity as regards such cutting and appropriation, but since, in practice, the cutting and the using of the grass, bamboos and timber took place every year, such regularity as was constituted by such annual use could be predicated.
The assessees contention before the Income-tax authorities was that the bamboos, thatching grass and fuel timber, though cut down and utilise, did not constitute agricultural income within the meaning of the definition in the Act, inasmuch as the same had not been sold. In the assessees view, agricultural produce grown by a person on his own land could not possibly be his income so long as it remained on the land or even so long as it was merely cut down or gathered or even so long as it was merely utilised by such person for his own purposes. It would become income only if it was sold and if it brought in its value in money from third parties as its price. The Departments view was that the several varieties of agricultural produce, grown and utilised by the assessee company, were themselves agricultural income and the fact that they had not been sold was immaterial. The Tribunal overruled the assessees contention and held that the bamboos, grass and fuel timber which the assessee company had appropriated to their own use, did constitute their agricultural income, though; they had been grown by the assessee company on their own land and with their own labourers and though they had not been sold. The market value of the produce had, therefore, been properly brought to tax.
Before the taxing authorities and finally before the Tribunal, the assessee company raised a second contention. They contended that even assuming that agricultural produce grown by a person on his own land could become his agricultural income, if he appropriated it to his own use, its market value could not yet be computed in money, inasmuch as no rule had been framed for its computation. Rule 4 of the Rules framed under the Act which the taxing authorities had applied was said to be not applicable, because, in the assessees view, the rule applied only when agricultural produce was sold and the only two contingencies contemplated were that it had been sold in the market or had been sold otherwise than in the market. Agricultural produce not sold at all was, in the assessees view, not within the ambit of rule 4.
The second contention of the assessee company also failed to find favour with the Tribunal although in their appellate order they did no deal with it specifically.
assessee company next required the Tribunal to refer the questions raised by them for the opinion of this court and in due course the Tribunal referred the two following questions :
“(1) Is bamboo, thatch, fuel etc., grown by the assessee company and utilised for its own benefits in its tea business, agricultural income within the meaning of the Bengal Agricultural Income-tax Act ? and
(2) If the answer to question (1) be in the affirmative, can such income be computed under rule 4 of the Rules framed under the Act ?”
When the reference came up for hearing, this court felt some difficulty in regard to both the questions. The first question had been framed in general terms and did not merely ask whether in order that agricultural produce might constitute agricultural income within the meaning of the Act, it was essential that the same should be sold in the market. It asked a broad question and invited this court to say whether, in the circumstances stated, the agricultural produce could be income at all. It appeared to us that if this court was to answer the general question as to whether agricultural produce grown by a person on his own land and utilised for his own purposes could, on account of its nature, be income at all, it was not sufficient to know that it had been obtained by the assessee company from their own lands, cultivated by their own labourers and appropriated to their own use. It would be necessary to know further whether there had been any regularity or periodicity in the growing of the produce and in the use of it for the assessee companys own purposes, because, if the use made of such produce had been only on an isolated occasion in a particular year that circumstance alone might prevent it from being treated as an income, although in its nature it might be a receipt of an income character. As I observed on the previous occasion, if a person grows crops on his agricultural land, he will necessarily have to harvest them and some kind of periodicity is implicit in the cultivation of crops. If, on the other hand, an assessee grows plants and trees or even grass on his agricultural land and leaves them standing, without cutting them or appropriating them in any way, it will be at least doubtful whether such trees and plants would constitute his agricultural income. If, to go a step further, a person grows a forest for his pleasure, as it were and does not usually draw upon it for extraction of timber, but once in a way, say on a single occasion in ten or twenty years, he cuts down some of the trees and appropriates them, it will again be doubtful whether such drawings would constitute his income. But the case might be different if an assessee grew timber or grass on his own land and cut and appropriated the trees or grass habitually either every year or as and when his needs required with some kind of regularity. We considered it important to know what the true position in the present case was and accordingly remanded the case to the Appellate Tribunal in order that they might find and state to this court whether the assessee company were in the habit of utilising bamboos, thatching grass and fuel timber grown by them on their own land with some kind of regularity as and when the purpose of their business required. As I have already stated, the Tribunal have now returned a finding in the affirmative.
With regard to the second question, the difficulty we felt was of a different kind. The statement of case submitted to us proceeded clearly on the footing that the contention underlying the question had been advanced before the Tribunal and dealt with by them, but their appellate order contained no trace of any such contention and necessarily there was no finding thereon. In making our order of remand, we, accordingly, directed the Tribunal also to state to this court whether it had been contended before the Tribunal that even assuming that the bamboos, thatching grass and fuel timber did constitute the assessee companys agricultural income in the circumstances of the case, rule 4 of the Rules framed under the Act could not be applied to the computation of the income. The Tribunal were also asked to state, if such a contention had been advanced, what their finding on that contention was. The Tribunal have now stated that the contention had in fact been advanced at the hearing of the appeal and they have given a finding against the assessee company.
I am entirely unable to accept the extreme contention of the assessee company reflected in the first of the two questions. Mr. Mitra, who appeared for them, submitted that when a person grew agricultural produce by his own labour and on his own land, nothing came in to him form outside and accordingly there could not be any income accruing or arising to him. The agricultural produce, it was said, was only the potentiality of the assessees land which had been nursed or tended to a concrete shape by the assessees labour and with the assistance of the soil and the element. What appeared on the land as the agricultural produce after the agricultural operations had been performed on it was only what was always immanent in the land and, therefore, there was nothing in such produce which the assessee had not had previously and which had come to him from external parties or sources. It was said that so long as agricultural produce was left standing on the land, it could not possibly be income; nor could it be income, if it was merely appropriated by the assessee to his personal use. To treat it is income in the second case and to take its market value as income would be to say that a man could trade with himself and make a profit thereout, which was an impossible notion. Only if the agricultural produce was sold, so that something came in to the assessee form third parties as the price of the produce, could an income accrue to him, because then he was getting something which he had not had before.
I confess I am unable to see how, on the extreme contention of Mr. Mitra it can be logical to say that agricultural produce, which could not be income so long as it was left on the land or so long as it was merely appropriated by the assessee company to their own use, could still become income, if it was sold. On the theory of Mr. Mitra, the produce of land is something which the land had always contained and, therefore, something which the assessee company had always possessed. It is on the basis of that theory that Mr. Mitra contended that agricultural produce could not be income, because it brought in nothing to the assessee. If so, I am unable to see how the position changes, if instead of the produce being utilised as it is, it is converted into money by its sale to a third party. The money value of the produce would represent nothing else than the produce and if, on Mr. Mitras theory, the produce could not be income because it had always been a part of the land which was the assessees own property, it appears to me that equally and for the same reason, the money value fetched by the sale of the produce also cannot be income, because it is only the produce in another shape and, therefore, only what the assessee had always possessed. I am unable to find any consistency or logic in the extreme contention of Mr. Mitra.
Looking at the matter from the fundamental point of view, also I do not see why agricultural produce cannot in itself be income until it is sold and until it fetches its money value form third parties. To say that the produce was always immanent in the land and, therefore, when it grew and became the assessees property, it brought nothing new to him, is, to my mind, an extravagant contention. The assessee under the Agricultural Income-tax Act has, his land just as the assessee under the Indian Income-tax Act has, say his business. The former, by expending his labour and skill on his capital asset of land, brings into existence the produce which is no less his income than the profit which the latter brings into existence by expending his business acumen and skill on his stock-in-trade and the profit-making structure. In each case, there is a gain or profit which is in itself of an exchangeable value proceeding form the fixed or capital asset, severed from it and received by the assessee for his separate use, benefit or disposal. I cannot see why, when a person grows agricultural produce on his land, nothing can be said to come to him which can truly be called his income. Income need not be in money but be moneys worth and there may be income in kind.
I need not, however, tarry long over the economists or the theoreticians concept of income, because in my view a satisfactory answer to the question referred can be obtained even if we limit ourselves to a lower plane. What we are considering is not whether something can be income at all according to the abstract concept of income but the more practical question as to whether something is income – in the view of a particular Act. If it appears clearly form the provisions of the Bengal Agricultural Income-tax Act that, in its contemplation, agricultural produce is in itself agricultural income, then we need not travel further, because for the purpose of assessment under the Act such produce will have to be treated as the agricultural income of the assessee and will be liable to be brought to tax.
In my view, it is abundantly clear from the definition of “agricultural income” as given in section 2(1) of the Act that agricultural produce derived from land is itself treated by the Act as constituting agricultural income, chargeable to tax. The definition is not peculiar to the Bengal Act, but it a reproduction of the definition in the Indian Income-tax Act and indeed the same definition is to be found in the Constitution. For the purpose of the present question, we need not consider any of the clauses of the definition except clause (b) of section 2(1). Clause (a) of section 2(1) deals with rent or revenue derived form land used for agricultural purposes with which we are not here concerned. Clause (b) of section 2(1) is divided into three sub-clauses. Under sub-clause (iii) of section 2(1)(b), “agricultural income” means any income derived form agricultural land by 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 item (ii). The process described in item (ii) is process ordinarily employed by a cultivator or receiver of rent in kind to render the produce raised or received of rent in kind to render the produce raised or received by him fit to be taken to the market. Sub-clause (iii) contemplates a case where the produce has been subjected only to such process and, therefore, it contemplates produce just as it is received form the land and located only so far as necessary to make it marketable as produce. The agricultural income contemplated by section 2(1)(b)(iii) is thus the income derived by the sale of such processed produce. Sub-clause (ii) of section 2(1)(b) speaks of agricultural income derived form agricultural land by the performance by a cultivator or receiver of rent in kind of any process of the nature I have already described. It will be noticed that the income which this sub-clause has in view is only such income as is derived form the mere process performed on the agricultural produce. It obviously means that where the performance of the process has added to the value of the raw produce, so much of the price of the processed produce as may reasonably be attributed to the process is also agricultural income, although it is not the product of agriculture, truly so-called. In a way sub-clauses (ii) and (iii) of section 2(1)(b) divided between them the income derived form the sale of agricultural produce which has been processed for marketing purposes. If such produce has not been processed but has been sold in its raw state just as it was received form the land, such sale does not appear to have been specifically provided from the land, such sale does not appear to have been specifically provided for, presumably in that view that some kind of operation would always have to be performed on the produce in order to make it marketable. If the produce has been processed and thereafter sold, then that part of the price which has been fetched by the process is agricultural income under sub-clause (ii). For the total agricultural income derived form the sale of processed agricultural produce one will necessarily have to take the proceeds under sub-clause (iii), but if one wishes to find how much was brought in by the process itself, one will have to look to sub-clause (ii).
What, however, is important to notice is that sub-clauses (ii) and (iii) both contemplate sale of the agricultural produce.
There remains sub-clause (i). Under that sub-clause, “agricultural income” means “any income derived form agricultural land by agriculture.” Sale is not mentioned. What the sub-clause obviously has in view is the agricultural produce itself, because nothing else can be derived form agricultural land merely by agriculture. I asked Mr. Mitra repeatedly to say what sub-clause (i) of section 2(1)(b) contemplated, if it did not contemplate the agricultural produce in itself, having regard to the fact that prices fetched by the sale of agricultural produce had been separately declared to be agricultural income under sub-clauses (ii) and (iii) Mr. Mitra felt the difficulty and offered to give an explanation which ultimately he was unable to give.
In my view, the clear contemplation of section 2(1)(b)(i) is that when produce has been derived by agriculture form land used for agricultural purposes, such produce in itself and without more is agricultural income. Sale of such produce is not essential, although the price fetched by the sale will also be agricultural income, as has been clearly provided for in the second and the third sub-clauses of section 2(1)(b).
I do not think I ought to refer to any other section, but support may be drawn from section 7 of the Act which is the charging section in respect of “agricultural income derived form agriculture” as defined in section 2(1)(b). Section 7 makes agricultural income-tax payable in respect of all agricultural income derived from land which has been referred to in clause (b) of sub-section (1) of section 2 and received by the assessee in the previous year. Since it refers to the whole of section 2(1)(b), sub-clause (i) of that section also is obviously included. The effect of section is to treat as agricultural land, although it has not been sold the only condition being that it has been sold the only condition being that it has been received. It was contended. It was contended that the provision for allowances contained in sub-section (1) of section 7 indicated that the section did not contemplate that produce which had been sold should be chargeable to tax. The allowances admissible are, confining oneself only to income derived from cultivation of land, the cost of cultivation, the cost of performing the process referred to in section 2(1)(b)(ii), the cost of transporting the produce to the marker and the cost incurred in maintaining agricultural implements and machinery in good repair and providing for the upkeep of the necessary cattle. It appears to have been suggested before the Appellate Assistant Commissioner, though it was not suggested before us, that since there was the conjunction “and” between items (iii) and (iv) of sub-section (1) of section 7, it was intended that all the items should be read conjunctively and, therefore, it was obviously contemplated that in every case there would be some cost for transporting produce to the market for sale. The implication of such provision, it was said, was that produce which was not sold was not intended to be treated as income to be charged to tax.
The contention appears to me to be plainly untenable. The third item which is the cost of transporting the produce is the cost of transporting such produce of the market. It was not the assessees contention that even if the produce was sold but it was not sold in the market, the price would not be income and would not be chargeable to tax and yet if the items are to be taken literally and read conjunctively as contended one must go to the length of contending that unless agricultural produce was transported to the market and sold there, the price would not become income and would not be taxable. To go to that length would obviously be ludicrous. In my view, the items under sub-section (1) of section 7 are obviously to be treated disjunctively and the clear import of the section, which is the machinery section for the levy of the tax on agricultural income and so chargeable to tax. I must accordingly hold both on general principles and on the construction of the sections of the Act that agricultural produce is itself income, even though it may not be sold and that the assessees contention to the contrary is not correct.
The second question raised by the assessee company aims at leading to the same result, but by way of establishing that there is no practical means of bringing agricultural income constituted by agricultural produce to tax, since no method of computation of such income has been provided. I have already referred to the assessees contention that rule 4 of the Rules which the taxing authorities applied is not applicable.
Leaving aside details, not important for the present purpose, rule 4 says that “for the purposes of the Act the market value of any agricultural produce shall…… be determined in the following manner namely, –
(1) if the agricultural produce was sold in the market…….
(2) if the agricultural produce has not been sold in the market.”
It was contended that the basic dichotomy underlying the rule was one between produce sold and not sold. Produce not sold was outside the rule altogether, whereas for produce sold, two types of sale had been mentioned, namely, sale in the market and sale not in the market. It was said that the rule clearly contemplated that the produce had been sold and then it proceeded to lay down different standards for the computation of price according as the produce had been sold in the market or sold elsewhere, but still sold. The argument was reinforced by referring to the fact that what rule 4 was prescribing was only the method of determining the market value of agricultural produce, but market value was referred to only in the proviso to section 7(1) and in the main paragraph of section 8(1), proviso (a) to the latter section, where also the expression occurs, being specifically excluded by rule 4. It was accordingly said that the method of computation laid down in rule 4 was intended to be applied only to the determination of the market value of agricultural produce for the purposes of the proviso to section 7(1) and the main paragraph of section 8(1) and for no other purpose.
I am unable to accept this contention of the assessee as well. On the question of the construction of rule 4, I did not see why it should be held that agricultural produce which has not been sold at all is outside its contemplation. The two alternatives mentioned in the rule are undoubtedly “sold in the market” and “not sold in the market”. But agricultural produce not sold is also “not sold in the market”, nothing having been sold anywhere. It is clear to my mind that the method prescribed by clause (1) of rule 4 is intended to be applied where the applied where the produce was either sold in market, while clause (2) is intended to be applied where the produce was either sold but not sold in the market or not sold at all. That construction is the only practical construction which will meet the object of the rule and it does not, no my mind, involve any violence to the language used.
That the rule is intended for general application and not for application only in determining the market value of produce for the purposes of the proviso to section 7(1) and the main paragraph of section 8(1) appears sufficiently form the opening words themselves. Those words are, “For the purposes of the Act, the market value of any agricultural produce shall…… be determined.” It is nothing to the purpose that the expression “market value” is to be found only in the proviso to section 7(1) and in section 8, because rule 4 does not say that the expression “market value”, as used in the Act, shall mean a certain thing. What it says is that for the purposes of the Act, the market value of agricultural produce shall be computed according to certain methods. The rule has been framed under section 57 of the Act which authorises the Provincial Government to make rules for carrying out the purposes of the Act, although any rules framed must be consistent with the provisions of the Act itself. It is true that unlike section 59(5) of the Indian Income-tax Act, section 57 does not say that the rules made under the section shall have effect, as if enacted in the Act. But so fat at least certain matters are concerned, the same result is achieved in other ways. One of the things which the Provincial Government may be rules do under section 57(2) is that they may “provide for any matter which by this Act is to be prescribed.” If one turns to section 24 of Act one finds it provided in both sub-section (1) and (2) that persons who earned an assessable income during the previous year or who have been called upon to furnish a return must furnish it “in the prescribed form”. The Act itself, therefore, says that a form shall be prescribed. The form actually prescribed is Form 5 which has two schedules and the seventh column of Schedule B provides for showing the “market value of agricultural produce.” The column is divided into four-sub-columns of which column b requires the assessee to state the quantity of the produce. It is thus clear that even where the agricultural income of an assessee is constituted by agricultural produce in his hands, he has to furnish the return of his income in terms of the market value of the produce. It is thus necessary, in order to carry out one of the purposes of the Act, to provide how such market value is to be determined and that is exactly what rule 4 has been framed to do although it also provides the standard of valuation for cases where the produce has been sold off. “For the purposes of the Act,” with which rule 4 opens, must mean for all the purposes and one of the purposes being to enable the assessee to furnish his return in the prescribed from and, therefore, to enable him to state the market value of his income of agricultural produce. Rule 4 provides him with the means of doing so.”Market value”, the determination of which is provided for in rule 4, is thus not merely the market value referred to in the proviso to section 7(1) or in the main paragraph of section 8, but also the market value mentioned in Schedule B to the return. There does not seem to me, therefore, any ground whatever for saying either that rule 4 is limited, to cases where agricultural produce has been sold, whether in the market value only for the purposes of the proviso to section 7(1) and the main paragraph of section 8. The rule clearly applies to the computations of the agricultural income constituted by agricultural produce, even though such produce may not have been sold.
Although it was not argued at the Bar, I may point out that section 8(1) of the Bengal Agricultural Income-tax Act is merely the converse of rule 23(1) of the Rules framed under the Indian Income-tax Act. Under rule 23(1), the market value of any agricultural produce which has been raised by the assessee or received by him as rent in kind and, which has been utilised as raw material in such business or the sale receipts of which are included in the accounts of the business is to be deducted, the amount being the agricultural income of the assessee. For the same reason it is to be brought to tax under section 8(1) of the Agricultural Income-tax Act. It is interesting to notice that sub-rule (2) of rule 23 also lays down the method of determining the market value of the agricultural produce which is to be excluded for the purposes of the Indian Income-tax Act. There also the two alternatives are “ordinarily sold in the market” and “not ordinarily sold in the market,” but it will be noticed that in the former case, the market value is the average price at which the produce was sold during the previous year and in the second case it is certain expenses and plus what the Income-tax Officer holds to be a reasonable profit on the sale of the produce in question, as agricultural produce. Actual sale of the produce is not contemplated in either case and what is contemplated is only the existence or otherwise of a market for the produce. Rule 4 of the Rules framed under the Bengal Agricultural Income-tax Act appears to be a variant of rule 23(2) of the Indian Income-tax Rules, but whereas the latter is limited to the computation of market value for the purposes of rule 23(1), corresponding of section 8(1) of the Bengal Act, rule 4 applies to the computation of the market value for all purposes.
For the reason given above, the answer to the question referred must, in my opinion, be :
Question (1) : “Yes.” Question (2) : “Yes.”
The Commissioner of Agricultural Income-tax, West Bengal, will have the costs of this reference, including the costs of the previous hearing.
GUHA, J. – I agree.
Questions answered in the affirmative.
