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

The facts lie within a narrow compass. The appellant, Mrs. Bacha F. Guzdar, was, in the accounting year 1949-50, a shareholder in two Tea:companies, Patrakola Tea Company Ltd., and Bishnath Tea Company Ltd., and received from the aforesaid companies dividends aggregating to Rs. 2,The two companies carried on business of growing and manu- facturing tea. By rule 21 of the Indian Income-tax Rules, 1922, made in exercise of the powers conferred by section 59 of the Indian Income-tax Act, it is providedderived from the sale of tea grown and manufactured by the seller in the taxable territories shall be computed as if it were income derived from business and 40% of such income shall be deemed to be income, profits and gains, liable tois common ground that 40% of the income of the Tea companies was taxed as income from the manufacture and sale of tea and 60% of such income was exempt from tax as agriculturalto the appellant, the dividend income received by her in respect of the shares held by her in the said Tea companies is to the extent of 60% agricultural income in her hands and therefore pro tanto exempt from tax while the Revenue contends that dividend income is not agricultural income and therefore the whole of the income is liable to tax. The Income-tax Officer and on appeal, the Appellate Assistant Commissioner both concurred in holding the whole of the said income to be liable to tax. The Income-tax Appellate Tribunal confirmed the view that the dividend income could not be treated as agricultural income in the hands of the shareholder and decided in favour of the Revenue, but agreed that its order gave rise to a question of law and formulated the same as set out above and referred it to the High Court. The High Court upheld the order of the Tribunal but granted leave to appeal to this Court.

Reasoning: 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.