The Judgment of the Court was delivered by

Chakravartti, C.J:— This Reference under Section 63(1) of the Bengal Agricultural Income-tax Act involves one aspect of a point which has many aspects and some of which are pending examination in other References made to this Court. The answer to the narrow point which arises for consideration in the present case appears to be comparatively simple. It also appears that there has been a confusion of thought on the part of all concerned.

2. The material facts are as follows: In the accounting year 1358 B.S, the assessee, Manmatha Nath Mukherjee, received 1,836½ maunds of paddy, no part of which was sold during that year. In the next year, that is to say, in 1359 B.S, 1992 maunds of paddy were seized from his possession by the Procurement Authorities, out of which 1,651½ maunds were paddy harvested in 1358 B.S To make the position a little clearer, out of 1,836½ maunds of paddy harvested by the assessee in 1358 B.S, 1,651½ maunds were seized by the Procurement Authorities in 1359 B.S along with a certain further quantity. The paddy seized was paid for at the rate of Rs. 8-8-0 per maund which was the rate fixed by Government. The balance of 185 maunds of paddy out of the stock of 1358 B.S was not seized by Government and does not appear to have been sold even in 1359. It has, however, been found that the price at which paddy was being sold in the open market in 1358 B.S was Rs. 18/- per maund.

3. Under Section 7 of the Bengal Agricultural Income-tax Act, tax was payable by the assessee in respect of his agricultural income of 1,8361 maunds of paddy received by him during the year 1358 B.S The Act, however, does not know of income in kind. It has provided in column VII of Schedule B to the Form of Return that the market-value of the agricultural produce is to be shown. What market-value means for the purposes of the Act, is the subject-matter of R. 4 of the rules framed under S. 57. Leaving aside an exceptional case referred to in the opening paragraph of the rule which is not material here, market-value is to be determined in the following manner, namely, (1) if the agricultural produce was sold in the market, the market value is to be deemed to be the price for which such produce was sold; and (2) if the agricultural produce has not been sold in the market, the market price is to be deemed to be, where such produce is ordinarily sold in the market, either in a raw state or in a processed condition, ‘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’. I need not reproduce Cl. (b) of the rule which is not relevant for our present purpose. Clauses (1) and (2) of the rule contemplate two different sets of things. Clause (1) contemplates a case where the agricultural produce ‘was sold in the market’ and Cl. (2) contemplates a case where agricultural produce ‘has not been sold in the market’. It will be noticed that while Cl. (1) uses the past tense, Cl. (2) uses the present perfect tense. The reason appears to be that Cl. (1) contemplates a case where the agricultural produce was sold out during the accounting year in question and Cl. (2) contemplates a case where, up to the end of the accounting year, the produce was not or has not been sold. Neither of the Clauses says in express terms by reference to what date the expressions ‘was sold’ and ‘has not been sold’ are to be understood, but since the price at which such produce was sold during the previous year is referred to as the relevant price, it appears from that circumstance, as also from the fact that one has to compute the income of the accounting year, to be perfectly plain that the time or period contemplated is the accounting year. If that be so, where the market-value of the agricultural produce of any particular year is to be ascertained, it has first to be seen whether it was sold in the market during the accounting year or whether up to the end of that year, it was not sold.

4. There is room for some controversy as to what exactly is meant by the expression ‘sold in the market’, but the question does not arise in the present case and need not detain us. The paddy in the present case was not at all sold during the accounting year and, therefore, the question as to whether it was sold, but not sold in the market, does not arise. The broad basis of fact on which the present case must be decided is that the agricultural produce was not sold at all. If it was not sold, then its market-value has to be ascertained by the standard laid down in Cl. (2)(a) of R. 4. The terms of that clause I have already read. It lays down that the market-value shall be the value calculated according to the average price at which such produce has been sold in the locality during the previous year. The Tribunal in the present case found that during the previous year, that is during 1358 B.S, the open market price was Rs. 18/- per maund, but they held that there was another market which they called ‘the regulated market’, created by the Procurement authorities at which paddy was sold at a lower rate fixed by Government themselves. The Tribunal appear to have thought that since Cl. (a) of R. 4(2) required the average price at which the produce had been sold in the locality to be ascertained, it was right to take note of all the rates which had, in fact, been current at the relevant time. They pointed out the fact that during the relevant period, two rates were prevailing in the locality and they thought that notice had to be taken of both. At the same time, they were of opinion that although Cl. (a) of R. 4(2) spoke of the average price, it would cause hardship to the assessee, if the average of the open market price and the procurement rate was taken and that it would be more in consonance with justice if the two rates were kept apart. The principle which they thought could rightly be applied was thus stated:

“If an assessee operated with his stocks in the open market, for him the average open market rate should be applied. If, on the other hand, enquiry reveals that he operated partly in the open market and partly in the regulated market R. 4(2)(a) should be applied by adopting either of these two rates (each an average) or both, accordingly as the circumstance demands.”

Proceeding to apply that principle, the Tribunal held that since 1,651½ maunds of paddy belonging to the assessee, had been seized by Government and he had been compelled to sell it at the procurement rate of Rs. 8/8/- per maund, the value of that quantity of paddy should be computed at the procurement rate. They did not overlook the fact that the paddy had been seized in 1359 B.S, whereas the accounting year was 1358 B.S, but they found as a fact that, even in 1358 B.S Rs. 8/8/- per maund was the procurement rate or to use their own language, ‘the price in the regulated market’. Accordingly, they held, in agreement with the Appellate Assistant Commissioner, that the value of 1,651½ maunds of paddy should be taken to be its price, computed at the rate of. Rs. 8/8/- per maund, whereas the value of the balance of 185 maunds should be computed at the rate of Rs. 18/- per maund. The Commissioner of Agricultural Income-tax was not satisfied with that decision and he has caused the following question to be referred to this Court:

“Whether in the facts and in the circumstances of the case and in view of the mandatory provisions of R. 4(2)(a) of the Bengal Agricultural Income-tax Rules 1944, the Appellate Tribunal was justified in valuing 1,651 maunds, 20 seers of paddy (harvested in the accounting year 1358 B.S but seized and purchased in 1359 B.S by the Procurement Department of the Government of West Bengal) at the average procurement rate of Rs. 8-8-0 per maund for 1358 B.S instead of Rs. 18/- per maund which was the open market rate of paddy for 1358 B.S”

5. Before I proceed to say what, in my view, is the obvious principle to be applied, I may pause to point out that to speak of the Procurement Authorities having created a regulated market appears to me to betray a misconception. A market connotes freedom of bargain. There may be a market, completely circumscribed as regards the rates by price control, but within the limit set by the relevant rule or order, the area of operation would still be a commercially free area. Even where a control price is fixed, it is generally the ceiling which is fixed and not an invariable price. Be that as it may, to say that when agents of the State seize paddy, grown by subjects, under the authority of some law or Regulation and pay for it at some rate fixed by themselves and much below the rate in the open market, they create a regulated or any kind of market at all, is, if I may be permitted to use the strong expression, a misuse of language. The Tribunal even speak of the persons whose paddy is seized as “operating” in the regulating market. How any person who is seized by the neck and compelled to deliver his paddy and then dismissed with a trivial sum as its price, can be said to operate in the market, is beyond my comprehension.

6. The present case, however, falls to be decided on another ground. It appears to me that needless confusion was created in the case by reference to the conditions to which the assessee was subjected in 1359 B.S To that confusion, even the Department contributed. It appears to have been forgotten that what was being sought was the measure of the assessee's agricultural income for the accounting year 1358 B.S The only relevant enquiry, therefore, was as to what was the value to him of the agricultural produce received in 1358 in the year in which it was received. If, for example, a person receives a quantity of paddy in a particular year or any other thing, say gold, and sits over it during the whole of that year and finds, when the next year has come, that the price has fallen, or if by some law, his goods are by then commandeered and paid for at the insignificant rate, he can, by no means, be heard to contend, if his assessment takes place after the prices have fallen or the goods have been commandeered, that it is by the lower rate to which the price has descended or at which he was paid that the value of his income, though it was the income of the previous year, must be computed. It is elementary that, in any assessment of income-tax, when the quantum of the income for any accounting year is to be determined, it is the value of the receipt to the assessee in that year which requires determination. Subsequent fluctuations of price are wholly immaterial.

7. Applying that elementary conception fo the present case, one finds that in 1358 B.S, there was nothing whatever to prevent the assessee from receiving the full benefit of the open market price prevailing in that year. The Procurement Agents had not yet paid any attention to him and, therefore, there was no question of his being subjected to the misfortune of having to sell his paddy at the procurement rate. He was free to operate, fit I may borrow the Tribunal's expression, “in the open market” and free, if he so desired, to convert his paddy into cash. If he desired during any part of the year 1358 B.S to convert his paddy into cash, he would get the value of his-paddy at the rate of Rs. 18/- per maund and at no lower rate, not to speak of the far lower procurement rate of Rs. 8-8. In those circumstances when, under the terms of Cl. (a) of R. 4(2), the average price at which the produce was sold in the locality during the previous year is to be ascertained, I find it impossible to understand how any price, other than the open market price of 1358 B.S, could be applicable to the assessee in the present case. If, again, to borrow the Tribunal's language, there was a ‘regulated market’ existing at the same time, the assessee was not required to go anywhere near the market and there was nothing to reduce to him or for him the value of the paddy which he had received below its full market price at the open market. It seems to me to be beyond argument that in the present case, where the paddy was not sold in the market during the accounting year and where the average price at which paddy was sold in the locality during the previous year is to be ascertained, the only price which is relevant is the open market price which the assessee was wholly free to realise and could realise, if he so wished. During the whole of the accounting year 1358 B.S, the value of his 1,836½ maunds of paddy was to him the value of that quantity of paddy, computed at the rate of Rs. 18/- per maund. Consequently, that was the income which he received and that was the income on which he was liable to be assessed on the clear words of Sec. 7 of the Act, read with Rule 4(2)(a).

8. In my view, the view taken by the Tribunal is entirely unsustainable. Apart from what they have said about a free market and a regulated market, it appears to me that they misled themselves by applying the conditions of 1359 B.S to 1358 B.S in forgetfulness, it would appear, of the fact that it was the value of the paddy to the assessee as in 1358 B.S that was to be determined.

9. The Department itself appears to have had no clear notion of the true position, because even before us, the only argument was that the average of the open market price and the procurement price ought to have been taken.

10. For the reasons given above, the answer to the question must, in my opinion, be in the negative.

11. The Commissioner of Agricultural Income-tax, West Bengal, will have the costs of this Reference.

12. Guha, J.:— I agree.

V.S.B

13. Answer in negative.