Case: Bacha F. Guzdar Vs. Commissioner Of Income-Tax, Bombay

sum of money ..............................."19. It was suggested that the dividend arises out of the profits accruing from land and is impressed with the same character as the profits and that it does not change its character merely because of the incident that it reaches the hands of the shareholder. This argument runs counter to. the definition of agricultural income which emphasizes the necessity of the recipient of income having a direct and an immediate rather than an indirect and remote relation with land. To accept this argument will be tantamount to saying that the creditor recovering interest on money debt due from the agriculturist who pays out of the produce of the land is equally entitled to the exemption. In fairness to Mr. Kolah it must, however, be stated that the contention was not so broadly put but there is no reason why one should stop at a particular stage and not pursue the analogy to its logical limits.20. English decisions resting upon the peculiarities of the English Income-tax law can hardly be a safe guide , in determining upon the language of the Indian Income-tax Act the true meaning of the words agricultural income. A few cases of the Privy Council decided with reference to the provisions of the Indian Income-tax Act, however, deserve notice. The first case, -viz., Commissioner of Income-tax, Bihar and Orissa v. Raja Bahadur Kamakshya Narayan Singh and Others([1948] 16 I.T.R. 325.) dealt with the question whether interest on arrears of rent payable in respect of land used for agricultural purposes is agricultural income and therefore exempt from income-tax. It was held that it was neither rent nor revenue derived from land within the meaning of section 2(1) of the Income-tax Act. Lord Uthwatt who delivered the judgment of the Privy Council used the following piquant language in coming to that conclusion :"The word derived is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition. "21. The second case, viz., Premier Construction Co. Ltd. V. Commissioner of Income-tax, Bombay City([1948] 16 I.T.R. 380.) dealt, with the nature of the commission of a managing agent of the company a part of whose income was agricultural income. The assessee claimed exemption from tax on the ground that his remuneration at 10 per cent. of the profits was calculated with reference to the income of the company part of which was agricultural income. It was held that the assessee received no agricultural income as defined by the Act but that he received a remuneration under a contract for personal service calculated on the amount of profits earned by the employer, payable not in specie out of any item of such profits, but out of any moneys of the employer avail- Able for the purpose, and that the remuneration therefore was not agricultural income and was not exempt from tax. Sir John Beaumont in the above case observed :" In their Lordships view the principle to be derived from a consideration of the terms of the Income-tax Act and the authorities referred to is that where an assessee receives income, not itself of a character to fall within the definition of agricultural income contained in the, Act, such income does not assume the character of agricultural income by reason of the source from which it is derived, or the method by which it iscalculated. "22. In the third case, viz., Maharajkumar Gopal Saran Narain Singh v. Commissioner of Income-tax, Bihar and Orissa([1935] 3 I.T.R. 237.) an annual payment for life to the assessee was not held to be agricultural income and therefore not exempt from tax where the annuity arose out of a transfer made by the assessee of a portion of his estate for discharging his debts and for obtaining an adequate income for his life it being held that it was not rent or revenue derived from land --but. Money paid under a contract imposing personal liability on the covenantor the discharge of which was secured by a charge on land. But reliance was placed uponanother judgment of the Privy Council in the same volume at page 305 in Commissioner of Income-tax, Bihar and Orissa v. Sir Kameshwar Singh([1935] 3 I.T.R. 305.). That was a case of a Usufructuary mortgagee the profits received by whom were exempt from income-tax on the ground that they were agricultural income in his hands. Lord Macmillan, after referring to certain sections of the Act, observed that "the result of those sections is to exclude agricultural income altogether from the scope of the Act howsoever or by whomsoever it may be received." These observations must be held to be confined to the facts of that particular case which was a case of usufructuary mortgagee who had received profits directly from the land. The obvious implication of the words used by Lord Macmillan was that whosoever receives profit from the land directly is entitled to the exemption.23. Reference was also made to some English decisions but they have no bearing upon the present case as they were founded on the English Income-tax law and the provisions of the particular statute.24. The learned Attorney-General also contended that the conclusion that dividend is not agricultural income also follows from the provisions of section 16, subsection (2) and the proviso to the Act. According to him, this section compels the assessee to show in his return the whole dividend including the portion which is excluded on the ground of agricultural income. We do not consider it necessary to express any opinion upon this contention as our conclusion reached as a result of the foregoing discussion is sufficient to dispose of the appeal.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The proper approach to the solution of the question is to concentrate on the plain words of the definition of agricultural income which connects in no uncertain language revenue with the land from which it directly springs and a stray observation in a case which has no bearing upon the present question does not advance the solution of the question. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders.