PETITIONER: THE DOOARS TEA CO., LTD. Vs. RESPONDENT: COMMISSIONER OF AGRICULTURAL,INCOME-TAX, WEST BENGAL DATE OF JUDGMENT: 18/08/1961 BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. SUBBARAO, K. HIDAYATULLAH, M. CITATION: 1962 AIR 186 1962 SCR (3) 157 CITATOR INFO : E 1963 SC 577 (21) D 1967 SC 814 (4) F 1973 SC2495 (6) D 1974 SC1358 (11) ACT: Agricultural Income-Agricultural produce used for assessee's own business and not sold in the market-If by itself constitutes income-Market value-Mode of computation-Bengal Agricultural Income-tax Act, 1944 (IV of 1944), s. 2(1) (b) (1), Rule 4(2). HEADNOTE: The appellant which carried on business of growing, manufacturing and selling tea held a large tract of land on which bamboos, thatching grass, and fuel timber were grown 158 by it by agricultural. operations through its servants , and laborers and the same were utilised for the purposes of its tea business and were not sold in the market or Otherwise. In the relevant assessment year the Agricultural Income-tax Officer increased the appellant's return by a certain sum of money as representing the market value of its agricultural income from bamboos, thatching grass and fuel timber, The appellant contended inter alia that the agricultural produce in question did not constitute agricultural income under the Bengal Agricultural Income-tax Act because the same had not been sold or converted into money. Held, that under cl.(1) of s.2(1)(b) of the Bengal Agricultural Income-tax Act the agricultural produce utilised by the assessee for its own, business itself constituted income; no sale was contemplated thereunder and it was not required that the agricultural produce should be sold and profit or gain received from such sale. Alexander Tennant v. Robert Suiclair Smith, (1892) A.C. 150, In re MiCklethwait, 11 Ex. 456 and Sir Kikabhai Premchand v. Commissioner of Income-tax (Central) Bombay, (1934) S.C.R. 219, referred to. Commissioner of Income-tax v. Shaw Wallace & Co., 12 L.R. 59 I.A. 206, Captain Maharaj Kumar Gopal Saran Singh v. Commissioner of Income-tax, Bihar and Orrissa, (1935) L.R. 62 I.A. 207, not applicable. Rule 4(2) framed under the Act deals with cases where agricultural produce has been sold outside the market as well as cases where it has not been sold at all and the income from such agricultural produce may be computed in the manner prescribed thereunder. JUDGMENT:
CIVIL APPELLATE JURISDICTION Civil Appeal No. 381 of 1960.
Appeal from the judgment and order dated September 11, 1957,
of the Calcutta High Court in Reference No. 102/1952.
S.Mitra, S. N. Mukheijee, and B. N. Ghosh, for
Appellant.
R.B. Pal, Asoke Sen and P. K. Bose, for respondent.
1961. August 18. The Judgment of the Court was delivered
by
GAJENDRAGADKAR, J.-This appeal by a certificate arises out
of a reference made to. the High Court
159
at Calcutta under s. 63(1) of ,the,, Bengal Agricultural
Income-Tax Act IV of 1944 (hereafter called the Act). The,,
appellant, the Dooars Tea, Co. Ltd., is a public limited
company and it carries on- business of growing ,
manufacturing and selling tea. For the accounting year
1948 which corresponds to the assesments year 1949-50 a
return was submitted by the, appellant in respect of its
agricultural’ income showing the said income at the
Rs.3,45,702. The Agricultural Income-tax Officer, however,
did not accept.the correctness of the said return and
increased. the amount to Rs 4,41,940 This increased amount
included a sum of Rs. 39,849 and it represented the market
value of: the appellants agricultural income from bamboos,
thatching grass and fuel timber. It is this amount thus
added by the Agricultural Income-tax Officer to the
agricultural income. of the appellant in the relevant year
that has given rise to the present
The facts leading to the reference are not in dispute. The
appellant holds a large tract of land under lease from the,
local Government and it is common-ground that in a part of
the said land -it grows bamboos, thatching grass and -fuel
timber. During the relevant year it cut down some bamboos,
-some thatching grass and. fuel timber and used the same for
the purpose of its business. The bamboos, the thatching
grass and fuel timber were grown the, appellant on its land
by agricultural operations which were carried on by the
servants and labourers empoyed by the appellant. After they
were grown they were utilised by the appellant for the
purpose of its tea business and were not sold either-in the
market or otherwise. It has been found that the appellant
has been utilising the bamboos thatching grass and fuel
timber grown by it on its land in this way every year.
Before the tax Authorities the appellant urged that the
agricultural produce in question did’ not
160
constitute agricultural income within the meaning of the Act
because the same had not been sold. The appellant’s case
was that agricultural produce grown by it on its own land
could not in law be treated as its income unless it was
converted into its money equivalent or into something which
was money’s worth ; in other words, unless the said produce
was sold. The department, on the other hand, has taken the
view that the several varieties of agricultural produce
grown by the appellant on its land and utilised by it for
its business were themselves agricultural income and the tax
on the said income at be avoided on the plea, that the said
varieties had not been sold. This dispute went up to the
Tribunal ; but the Tribunal agreed with the conclusion of
the tax authorities and held that the produce in question
constituted agricultural income of the appellant for the
relevant year, and so the addition of Rs. 39,849 made by the
Agricultural Income-tax Officer in determining the total
agricultural income of the appellant for the relevant year
was affirmed.
It was also urged by the appellant in the assessment
proceedings that even if the produce in question constituted
the appellant’s agricultural income its market value could
not be computed in money because no rule had been framed for
the computation of the market value of such income. The
appellant urged that r. 4 of the Rules framed.. under the
Act was inapplicable to the present case. This contention
has also been rejected “-by the tax authorities as well as
by the Tribunal; In the result the agricultural income
found to have been earned by the appellant for the relevant
year has been duly taxed.
Feeling aggrieved by the final order passed by the Tribunal
in this matter the appellant required the Tribunal to refer
two questions for’ the opinion of the High Court, and in due
course the Tribunal made the reference as required. The two
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questions referred for the, opinion of’ the High Court have
been thus framed by the Tribunal :
(1) Is bamboo, thatch, fuel, etc., grower by
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?
The High Court has answered both these questions in the
affirmative against the appellant. The appellant then
applied for and obtained a certificate from the High Court
under s.64(2) of the Act read with Art. 1355 of the
Constitution. The High Court has certified that the case is
a fit case for appeal to this Court because it was conceded
by both the parties before the High Court that this case had
been chosen by the assessee and the department as a test
case since all the tea companies are interested in the
questions raised in the present reference. It is with this
certificate that the appellant has come to this Court with
its present appeal.
The answer to the first question would depend upon the
construction of the definition of agricultural income
contained in s. 2(1)(b) of the Act. The charging section is
s.3. It provides that subject to its two provisos
agricultural income-tax shall be charged for each financial
year in accordance with and subject to the provisions of the
Act at the rate or rates specified in the Schedule in
respect of the total agricultural income of the previous
year of every individual Hindu undivided family, company,
firm or other association of individuals and every Ruler of
a Part B State. Section 7 provides for the computation of
tax and allowances under the head “agricultural income from
agriculture Do the relevant and material words used
162
in the definition of agricultural income by s 2 reach the
subject of taxation in the present case? That is the short
question which falls for our decision.
Section 2(1)(a) deals with the agricultural income
consisting of rent or revenue derived from land which is
used for agricultural purposes and is either assessed to
land revenue in a State or subject to local rate assessed or
collected by officers of the Government as such. We are not
concerned with this part of the definition. Section 2(1)(b)
reads thus :
“‘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 item (ii).”
The respondent, the Commissioner of Agricultural Income-tax,
West Bengal, contends that the agricultural produce ‘in the
present case falls directly under s. 2(1)(b)(i). It is
income derived from agricultural land by agriculture. It is
not disputed by the appellant that in the context income
may mean either cash or income in kind. It is also conceded
by the appellant that the dictionary meaning of the word
“income” includes “Produce of a farm”, and so if we were, to
construe the relevant clause in the light of the dictionary
meaning ‘of the word come”‘; -it would take in agricultural
produce with which we are concerned
163
in the present case. It is, however, urged that the” word
“Income” necessarily denotes, and Las reference to, profit
or gain, and profit or gain cannot be made unless the
produce is sold and realises its value. No person can trade
with himself and so if the agricultural produce is used by
the appellant for its own purposes there is no element of
sale involved in the transaction and there can be no profit
or gain which would justify the imposition of tax on the
said produce.
In support of this argument it has been urged before us that
the definition of agricultural income prescribed by s. 2 of
the Act is common to all the State enactments in respect of
agricultural income and is the same as the definition of
agricultural income prescribed by s. 2(1) of the Income-tax
Act. The same definition has been adopted by the
Constitution under Art. 366(1). That being so, it is
contended that in interpret’ the word “income” it would be
relevant to rely on the decisions under the Income-tax Act.
In Alexander Tennant v. Robert Sinclair Smith (1) Lord
Halsbury has cited with approval Lord Wensleydale’s
observation in In re Micklethwait (2) that “‘it is a well-
establisbed rule, that the subject is not to be taxed
without clear words for that purpose ; and also that every
Act of Parliament must be read according to the natural
construction of its words”. In that case it was held that
the benefit which the appellant assessee derived’ from
having rent-free house provided for him, by the Bank brought
in nothing which can’ be reckoned up as receipt or properly
be described as income. Mr. Mitra for the appellant,
contends that income obviously and necessarily denotes the
coming in of profit or gain, and what is true about the
house which the assessee Alexander Tennant was allowed to
use is equally true about the agricultural land owned by, the appellant
. The appellant has received
(1) [1892] A.C. 150,154. (2) 11 Ex. 456.
164
no profit or gain from the agricultural produce derived from
its land, and so the said produce cannot be said to
constitute its income under s. 2(1)(b)(i).
The same argument is put in another form on the authority of
the decision of this Court in Sir Kikabhai Premchand v.
Commissioner of Income-tax (Central), Bombay In that case
Bose J., who spoke for the majority of the Court, stated
that it was well recognised that in revenue cases regard
must be had to the substance of the transaction rather than
its mere form, and he proceeded to observe that in the case
before the Court, disregarding technicalities, it was
impossible to get away from the fact that the business was
owned and run by the assessee himself ; and if he was to be
held liable for the tax “you reach the position that a man
is supposed to be selling to himself and thereby making a
profit out of himself which on the face of it is not only
absurd but against all canons of mercantile and income-tax
law”. Mr. Mitra suggests that in taxing the agricultural
produce utilised by the appellant for its own purpose the
respondent is really taxing the appellant on the basis that
it has traded with itself and made profits on the
agricultural produce in question.
This argument is based on the assumption that income as
defined by s. 2(1)(b)(i) must always be in the nature of
profit or gain, and that inevitably postulates a sale
transaction made at a profit or gain. Mr. Mitra seeks to
derive assistance for this argument from the provisions of
ss. 4 and 6 of the Income-tax Act where ‘income profits and
gains are grouped together. What is true about the
denotation of the word “income” under the Income-tax Act,
says Mr. Mitra, must be equally true about the denotation of
the word ,,income” under 2(1)(b)(i) of the Act,
(1) [1954] S.C.R. 219.
165
In dealing with this argument it is necessary to bear in
mind that the word “‘income” even as it is used in the
Income-tax Act has often been characterised by judicial
decisions as formidably wide and vague in its scope. It is
a word of elastic import and its extent and sweep are not
controlled or limited by the use of the words “profits and
gains” in ss. 4 and 6. As has been observed by Sir George
Lowndes in Commissioner of Income-tax v. Shaw Wallace & Co.,
(1) the object of Indian Income-tax is to tax income a term
which it does not define. It is expanded, no doubt, into
income, profits and gains, but the expansion is more a
matter of words than of substance. Similar is the
observation of Lord Russell in Captain Maharaj Kumar Gopal
Saran Narain Singh v. Commissioner of Income-tax, Bihar and
Orissa (2)where it has been observed that “the word “income”
is not limited by the words ,profits” and gains”.
Anything which can be properly described as income is
taxable under the Act unless expressly exempted”. The
diverse forms which income may assume cannot exhaustively be
enumerated, and so in each case the decision of the question
as to whether any particular receipt is income or not must
depend upon the nature of the receipt and the true, scope
and effect of the relevant taxing provision. The receipt
may be an income for the purpose of taxation though it may
not amount to profit. The case of Gopal Saran Narain
Singh(2) itself is an illustration in point. In that case
the assessee aged 47 had transferred an estate worth two
crores of rupees for a relatively small annuity of Rs.
2,40,000 for life. The, said annuity could not constitute
or provide a profit or gain to the assessee but all the same
it was taxable as income. Thus the argument based on the
emphasis on the use of the words “‘profits and gains” in
ss.4 and 6 of the Income-tax Act cannot really assist the
appellant
(1) (1932) L. R. 59 I.A. 206, 212.
(1935) L.R. 6 2 I.A. 207,
166
in construing s. 2(1)(b)(i) of, the Act with. which we are
concerned. What the word “income” denotes has to be
determined in the. context of the said section itself.
Going back to s.2(1)(b) it refers to income derived from
land which means arising from land and denotes income the
immediate and effective source of which is land. Section
2(i)(b) consists of three clauses. Let us first construe
cls. (ii) and (iii). Clause (ii) includes cases of income
derived from the performance of any process therein
specified. The process must be one which is usually
employed by the cultivator or receiver of rent-in-kind; it
may be simple manual process or it may involve the use and
assistance of machinery. That is the first requirement of
this proviso. The, second requirement is that the said
process must have been employed with the object of making
the produce marketable. It is, however, clear that the
employment of the process contemplated by the second clause
must not alter the character of the produce. The produce
must retain its original character and the only change that
may have been brought about in the produce is to make it
marketable. The said change in the condition of the produce
is only intended to make the produce a saleable commodity in
the market. Thus cl. (ii) includes within the categories of
income derived from the employment of the process falling
under that clause. As we have just observed the object of
’employing the requisite process is to make the produce
market. able but in terms the clause does not refer to’ sale
and does not require that the income should be obtained from
sale as. such though in a sense it contemplates the sale
of the produce.
That takes us to el. (iii). This clause in terms and
expressly refers to the income derived from, sale. It
refers to the sale price realised either by the cultivator or the receiv
er of rent-in-kind by the sale of the produce
in respect
167
of which the process as contemplated by cl. (ii) has been
performed.It is significant that the sale to which
el. (iii)refers must be the sale of produce which has not
been subject to any ,process other than that contemplated by
cl. (ii). Thus it may be stated that reading cls. (ii) and
(iii) together they contemplate the sale of the
produce–cl.(ii) indirectly inasmuch as it refers to the
process employed for making the produce marketable and cl.
(iii) directly inasmuch as it refers to the price realised
by sale of produce which has been subjected to the process
contemplated by cl. (ii). Therefore, it is clear that
income derived from sale of agricultural produce has been
provided for by (ii) and (iii) and prima facie that would
Show that cl. (i) which does not refer to sale even in-
directly cannot be intended to cover cases of income derived
from the sale of agricultural produce.
Considered in the light of cls. (ii) and (iii) of s.2(1)(b)
what is the true scope and effect of the income contemplated
by cl. (i) ? In terms the clause takes in income derived
from agricultural land by agriculture ; and as we have
already pointed out giving the material words their plan
grammatical meaning there is no doubt that agricultural
produce constitutes income under this clause. Is there
anything in the context which requires the introduction of
the concept of sale in interpreting this clause as suggested
by the appellant ? In our opinion this question must be
answered in the negative. Not only is there no indication
in the context which would justify the importing of the
concept of sale in the relevant clause, but as we have just
indicated the indication provided by ClS. (ii) and (iii) is
all to the contrary-. 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
168
the agricultural produce utilised by the appellant for its
business constitutes income.under s. 2(1)(b)(i). If the
agricultural produce used by the appellant was not intended
to be included within the definition of income under s.
2(i)(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 cl. (iii) of s. 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 cl. (ii) ; and so those two
cases having been specifically provided for the two
respective clauses there would be no justification for
introducing the concept of sale in construing cl. (i) of s.
2(1)(b). The words in s. 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. In this connection we may incidentally refer to
the provisions of sub-cls..(i), (ii) and (iii) of s.7(1) of
the Act which provide for the computation of tax and
allowances under the head “agricultural income from
agriculture”. These three sub-clauses in terms correspond
to the three sub-clauses of s. 2(1)(b) and lend some support
to the conclusion that cl. (i) in s.2(1)(b) does not require
that the agricultural produce should be sold and profit or
gain received from such sale before it is included in the
said clause. Therefore, we do not think that Mr. Mitra is
justified in contending that the answer made by the High
Court in reference to question 1 is wrong.-
The second question relates to the computation of
agricultural income for the purposes of the Act. Rule 4
with the construction of which the second question is
concerned, reads thus
169
“4 For the purposes of the Act the, market
value of any agricultural produce shall,
except in the case referred to in clause (a.)
of the proviso to sub-section (1) of section
8, be determined in the following manner,
namely
(1)if the agricultural produce was sold in the market, the
market value shall. be deemed’ to be the price for which
such produce was sold;
(2)if the agricultural produce has not been sold in the
market, the market value- shall be deemed to be-
(a)where such produce is ordinarily sold
in the market in its raw state, or after the performance
of any process ordinarily em-
ployed by a cultivator or receiver of rent-in-
kind to render it fit to be taken to market
the value calculated according.. to-the
average price at which such produce has been
so sold in the locality during the previous
year in respect of which the assessment is
made,;
(b)where such produce is not ordinarily sold
in the market in the manner referred to in
sub-clause (a), the aggregate of-
(i) the expenses of cultivation
(ii) the land revenue or rent, paid for the
area in which it was grown ; and
(iii)such amount as the Agricultural Income-
tax Officer finds, having regard to all the
circumstances in each case, to represent a
reasonable rate of profit on the sale, of
produce in question as agricultural produce.”
It is clear that r. 4(1) cannot apply to the appellant’s
case for the agricultural produce in question has not been
sold in the market but has been used by the appellant for
its own business The appellant contends that r. 4(2) cannot
also be in voked against it, and so there is ‘no rule under
170
which the agricultural income in question can be computed.
Incidentally the appellant suggested that if its
construction of r. 4(2) is right it in directly supports its
case as to the true scope and effect of s. 2(1)(b)(1). The
Legislature knew that agricultural produce is not taxable
unless it is sold, and so it has not- made any rule for the
computation of agricultural income alleged to have been
received by the assessee from agricultural produce used by
the assessee for its own purpose. On the other hand, the
respondent contends that r. 4(2) covers the present case,
and if that is so., according to the respondent, that would
incidentally support his construction of s. 2(1)(b)(1).
The argument urged by the appellant assumes that the two
rules are based on a kind of basic dichotomy. Rule I deals
with agricultural produce sold in the market, and r. 2 with
the agricultural produce which has been sold but not in the
market. In other words, according to the appellant, both
the rules assume that the agricultural produce has in fact
been sold, r. (1) deals with cases where it has been sold in
the market and r. (2) with cases where it has been sold but
not in the market. If this argument is right then of course
cases where agricultural produce has not been sold would
remain outside the purview of both the rules ; but is this
argument right ? We have no hesitation in holding that it is
not. In our opinion, r. (2) deals with cases where
agricultural produce has been sold outside the market as
well as cases where agricultural produce has not been sold
at all. The effect of reading the two sub-rules together is
that the cases of market sales are covered by r. (1) and all
other cases are covered by r. (2). Rule (2) is a residuary
rule which applies to all cases not falling under r. (1).
Therefore, we must hold that the answer given by the High
Court to question 2 is also right. It is obvious that the
rules framed in exercise of the power conferred by s. 57 of
the
171
Act cannot legitimately be pressed into service for the
purpose of construing the relevant provisions of the Act ;
even so, incidentally it may be permissible to observe that
the construction of r. 4(2) which we are, inclined to adopt
is consistent with the respondent’s case that s.2 (1)(b)(i)
includes agricultural produce utilised b the appellant for
its own business.
In the result the appeal fails and is dismissed. With costs.
Appeal dismissed.