The Dooars Tea CO., Ltd. vs Commissioner Of Agricultural,income-tax, West Bengal

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.