Case: S. S. Rajalinga Raja Vs. State Of Madras

* * * *" Prima facie, S. 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 appellants 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. Commr. of Agricultural Income-tax West Bengal, 44 ITR 6 : (AIR 1962 SC 186 ) a case decided under the Bengal Agricultural Income-tax Act 4 of 1944. It was held in interpreting the definition of S. 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.s case, 44 ITR 6 : (AIR 1962 SC 186 ) 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 (of ITR): (at pp. 189-190 of AIR):"In terms the clause [S. 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 lies 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 person who has raised agricultural produce instead of selling it uses that produce for his own business, can 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 assesses may give rise to agricultural income. 5. The decision in State of Kerala v. Bhavani Tea Produce Co. Ltd., 59 ITR 254 : (AIR 1966 SC 677 ) on which reliance was placed by counsel for the appellant has, in our Judgment, no relevance whatever in this case. In Bhavani Tea Produce Cos. case, 59 ITR 254 : (ATR 1966 SC 677) the assessee was required under S. 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. 6. 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 S. 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.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]Prima facie, S. 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 appellants 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 yearBut 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 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 assesses may give rise to agricultural income6. 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 S. 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 evidence6. The second argument raised by the appellant has also no substance. For the years6 and7 the appellant did not submit returns of income but applied to compound the tax under S. 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