S.S Rajalinga Raja v. State Of Madras .

Shah, J.— S.S Rajalinga Raja hereinafter called “the appellant” — owns a cardamom plantation on a fifty-acre estate. For Assessment Year 1957-58 he submitted a return under the Madras Plantations Agricultural Income Tax Act 5 of 1955 disclosing a net income of Rs 5250 from the plantation.. On enquiry the Agricultural Income Tax Officer learnt that the appellant had sold stocks of cardamom of the value of Rs 58,375-9-9 between April 1, 1956 and March 31, 1957. The appellant explained that those sales represented not the produce of the year of account, but accumulated stocks of the past 3 to 4 years. That explanation was rejected by the Agricultural Income Tax Officer and after allowing expenditure estimated at the rate of Rs 120 per acre, the balance was brought to tax, and a penalty of Rs 3000 was levied under Section 20(1)(c) of the Act. The order was confirmed in appeal to the Appellate Assistant Commissioner, both as to the levy of tax and penalty. But the Appellate Tribunal was of the view that the average production of cardamom per acre was 40 lbs. and that if the stocks of cardamom, sold in the year of assessment be attributed to production of the year, the yield would approximately be 134 lbs. per acre. Holding that an estimate of 40 lbs. per acre would be a “fair estimate” and that an average expenditure of Rs 145 per acre should be allowed, the Tribunal directed that the assessment be modified, and the order imposing penalty be set aside.

2. The State of Madras then applied to the High Court of Madras in revision. The High Court was of the view that a part of the stock of cardamom sold in the year, though not the whole, was probably accumulated stock out of previous year's production, but since the appellant did not lay before the Taxing Authorities reliable evidence, his explanation was rightly rejected. The High Court also rejected the contention of the appellant that the income from sales of cardamom stock of previous years was not taxable in the year of account because it had been subjected to tax in those previous years under orders compounding the tax under Section 65 of the Act. The High Court accordingly allowed the petition and restored the assessment made by the Department. With special leave, the appellant has appealed to this Court.

3. It is claimed by the appellant in the first instance that under the Act, agricultural produce itself is income and becomes charged to tax under the Madras Plantations Agricultural Income Tax Act, 1955, when it is received, and not when it is sold, used or consumed. Relying upon this premise it was urged that even on the view expressed by them the learned Judges of the High Court ought to have directed determination of the produce which was actually derived from agriculture in the year of account, and ought to have brought to tax only that quantity and excluded the value of the rest from taxation under the Act. Section 3 of the Act imposes the charge of tax upon the total agricultural income of the previous year of every person, and by Section 4 the total agricultural income of any previous year of any person comprises all agricultural income derived from a plantation within the State and received within or without the State. “Agricultural income” is defined (insofar as the definition is relevant in these appeals) as meaning:

“(1) any rent or revenue derived from a plantation;

(2) any income derived from such plantation in the State 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 paragraph (ii):

Explanation 1.— * * *

Explanation 2.— * * *

(3) * * *”

Prima facie, Section 3 of the Act read with the definition of “agricultural income” charges to tax the monetary return either as rent or revenue or agricultural produce from the plantation. The expression “income” in its normal connotation does not mean mere production or receipt of a commodity which may be converted into money. Income arises when the commodity is disposed of by sale, consumption or use in the manufacture or other processes carried on by the assessee qua that commodity. There is no reason to think that the expression “income” in the Act has any other connotation. A tax on income whether agricultural or non-agricultural is, unless the Act provides otherwise, a tax on monetary return — actual, or notional. Section 4 of the Act supports that view, for in the total agricultural income is comprised all agricultural income derived from a plantation in the State. It is not necessary, however, for income to accrue that there must be a sale of a commodity: consumption or use of a commodity in the business of the assessee from which the assessee obtains benefit of the commodity may be deemed to give rise to income. Therefore, merely because the produce of his plantation was received in the earlier years, assuming that the appellant's case is true, income derived from sale of that produce in the year of account is not exempt from tax under the Act, in that year.

4. Counsel for the appellant strongly relied upon a judgment of this Court in Dooars Tea Co. Ltd., v. Commissioner of Agricultural Income Tax, West Bengal (1962) 3 SCR 157 a case decided under the Bengal Agricultural Income Tax Act, 4 of 1944. It was held in interpreting the definition of Section 2(1)(b) of the Bengal Agricultural Income Tax Act, 1944, which is in substantially the same language as the definition under the Act — that it was not predicated of the agricultural income that it must be sold and profit or gain received from such sale before it can be included in the definition of agricultural income. In Dooars Tea Co. Ltd. case (1962) 3 SCR 157 the appellant grew bamboos, thatching grass and fuel by agricultural operations and utilized the products for the purpose of its tea business. The claim of the Income Tax Authorities to tax the value of the produce was resisted on the plea that the produce was not sold. In rejecting that plea, the Court observed at p. 13:

“In terms the clause [Section 2(1)(b)] takes in income derived from agricultural land by agriculture; and as we have already pointed out giving the material words their plain 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 clauses (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.”

5. But these observations do not, in our judgment, imply that agricultural produce when received by a person carrying on agricultural operations becomes income in his hands. The Court in that case was concerned to deal with a limited question whether a person who has raised agricultural produce instead of selling it uses that produce for his own business, can he be said to have earned agricultural income? The Court in that case held that he would be deemed to be earning income. The decision is authority for the proposition that for agricultural income to arise, it is not predicated that the agricultural produce must be sold: user of agricultural produce for the purpose of the business of the assessee may give rise to agricultural income.

6. The decision in State of Kerala v. Bhavani Tea Produce Co. Ltd. (1966) 2 SCR 91 on which reliance was placed by counsel for the appellant has, in our judgment, no relevance whatever in this case. In Bhavani Tea Produce Company case (1966) 2 SCR 91 the assessee was required under Section 25 of the Coffee Act, 1942, to deliver the coffee produced by it to the Coffee Board and the question which fell to be determined was whether such delivery constituted sale by operation of law as a result of which the assessee ceased to be the owner of the coffee, the moment it handed over the produce to the Coffee Board. This Court held that under the relevant provisions of the Act as soon as the producer of coffee handed over the produce to the Coffee Board, it ceased to be the owner and income accrued to him at that point of time. That case does not lay down the proposition that income accrues to a producer of agricultural produce before the date of disposal, use or sale.

7. The second argument raised by the appellant has also no substance. For the years 1955-56 and 1956-57 the appellant did not submit returns of income, but applied to compound the tax under Section 65 of the Act, and paid the tax determined at the rates specified in Part II of the Act. Therefrom it cannot be inferred that the produce which was sold by him in the year of account to which these appeals relate had suffered tax in the earlier years. It has to be proved that the crop sold by the appellant related to the years in respect of which he had applied to compound the tax; and on that part of the case there is no evidence.

8. The appeals therefore fail and are dismissed with costs. There will be one hearing fee.