Appeals Nos 979 and 980 of 1965
Appeals by special leave from the judgment and orders dated November 12 1962 and January 1 1964 of the Madras High Court 951 in Tax Case Nos 19 of 1961 and SC Petition No 142 of 1963 respectively
section Swaminathan and R Gopalakrishnan for the appellant in both the appeals
P Ram Reddy and A V Rangam for the respondent in both the appeals
The Judgment of the Court was delivered by Shah J
section SRajalinga Raja hereinafter called the appellant  owns acardamom plantation on a fifty acre estate
For the 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 58375 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 201 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
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 1 appellant has appealed to this Court
It is claimed by the appellant in the first instance that under the Act agricultural produce itself is income and becomes charged to 952 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 in am  derived from such plantation in the State by i agriculture o 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 953 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
Counsel for the appellant strongly relied upon a judgment of this Court in Dooars Tea Co Ltd vs Commissioner of Agricultural  Income tax West Bengal1 a case decided under the Bengal Agricultural Income tax Act 4 of 1944
It was held in interpreting the definition of section 21 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 1 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 21 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
 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 1   7Sup
CI66 16 954 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
The decision in State of Kerala and Anr vs Bhavani Tea Produce Co
Ltd1 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 s case 1 the assessee was required under section 25 of the  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
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 11 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
The appeals therefore fail and are dismissed with costs
There will be one hearing fee
V I PS Appeals dismissed


Summary:
The appellant owned a cardamom plantation
For the assessment year 1957 58 he submitted a return under the Madras Plantations Agricultural Income tax Act 1955
The Agricultural Income tax Officer did not accept the return and added to the income the value of stocks of cardamom sold in the accounting year
The High Court in revision confirmed the assessment made by the Department
In appeal to this Court it was contended that 1 the agricultural produce itself was income and became charged to tax under the Act when it was received and not when it was sold used or consumed and therefore 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 of the produce received in earlier years from taxation and 2 from the fact that the appellant applied to compound the tax for the earlier years it must be inferred that the produce which was sold by him in the year of account had already suffered tax in the earlier years
HELD  1 Merely because the produce of the plantation was received in the earlier years income derived from sale of that produce in the year of account was not exempt from tax under the Act in that year
953 B 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 con notation 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
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
952 G H 953 A B Dooars Tea Co Ltd vs Commissioner of Agricultural Income tax West Bengal   referred to
2 It had to be proved by evidence that the crop sold related to the years in respect of which the assessee had applied to compound the tax but there was no such evidence
954 F