Case: State Of Kerala And Others Vs. Bhavani Tea Produce Co. Ltd

1. These two appeals by special leave arise from two petitions under Art. 226 of the Constitution in the High Court of Kerala questioning the assessment to Agricultural Income-tax of Bhavani Tea Produce Co. Ltd. (respondent) under the Madras Plantations Agricultural Income-tax Act, 1955 (as extended to Kerala State) for the assessment years 1955-56 and 1956-57, respectively. The High Court decided that certain receipts were not taxable in those assessment years and the State of Kerala is the appellant before us. The assessment year in each case ended on March 31, of the year and tax was leviable on the results of the previous year. For the first of the two assessment years, corresponding to the previous year ended on March 31, 1955 the net agricultural income was assessed at Rs. 1,32,198 and a tax of Rs. 45,443-1-0 was demanded by the Department and in the succeeding assessment year, corresponding to the previous year ended on March 31, 1956, the amounts of net agricultural income and the tax were respectively Rs. 1,24,339 and Rs. 42,810-5-0. The assessee Company claimed that Rs. 97,090 in the first year and Rs. 10,095 in the second year were not taxable although received by the company from the Coffee Board during the relevant accounting years. The Company contended that these payments were in respect of coffee delivered by the Company to the Coffee Board under S. 25 of the Coffee Market Expansion Act, 1942, in the years 1952-53 and 1953-54, that is to say, prior to April 1, 1954 when the Madras Plantations Agricultural Income-tax Act came into force and were not assessable, as the accounts were maintained on the mercantile system and the amounts were shown in 1952-53 and 1953-54. This plea was not accepted by the Agricultural Income-tax Officer, Coimbatore. His assessment orders are, dated May 18, 1956 and July 15, 1957, respectively. The Company appealed, but the Appellate Assistant Commissioner by orders passed on December 19,1958 dismissed the appeals. The Company appealed further. By a common order, dated January 25, 1960 the Agricultural Income-tax Appellate Tribunal dismissed the appeal in respect of the assessment year 1955-56. In the other appeal the conclusion was the same but the case had to be remanded to ascertain some matters not connected with the present controversy. In both the cases the Department had held that the income was derived in the relevant previous year and this opinion was upheld previous year and this opinion was upheld by the Appellate Tribunal. The Appellant Tribunal observed that"amounts actually received in the previous year as the price of coffee from the plantation should be regarded as income derived from the plantation in that year irrespective of the year to which the crop belongs."The Company did not apply for revision under S. 54 of the Agricultural Income-tax Act, but instead filed petitions under Art, 226 of the Constitution against Agricultural Income-tax Officer, Coimbatore. Appellate Assistant Commissioner of Agricultural Income-tax, Kozhikode and Agricultural Income-tax Appellate Tribunal, Trivandrum. The petitions were heard by Mr. Justice Vaidialingam who accepted the contention of the assessee company and cancelling the assessment orders impugned before him directed the Agricultural Income-tax Officer to make a reassessment of the total income excluding the sums of Rs. 97,090 in the first year and Rs. 10,095 in the second year. The judgment was pronounced on August 18, 1961. The State of Kerala and the Agricultural Income-tax Officer appealed under the Letters Patent. The appeal was summarily dismissed on January 9, 1962. It is from this judgement that the present appeals have been filed.

Reasoning: "Plantation" in the Act means any land used for growing certain crops including coffee. Section 3 lays charge of agricultural income-tax and for our purpose we need read only the first sub-sectionThe failure to register, contravention of S. 25, making of a false return, obstruction and contravention of the other provisions of the Coffee Act, some of which we have not found necessary to mention here, are constituted offences and there is provision for punishment and penalty. The Coffee Board is also given the power to seize coffee withheld from inclusion in the surplus pool.In this way, the marketing of coffee is made the duty of the Coffee Board and the right of a party who has made contributions to the surplus pool is merely to receive payment for coffee which is handed over. The quantum of payment is determined, at first according to the differential scale of valuation prepared by the Coffee Board. It must be remembered that under S. 34 (2) the payment is in the proportion which the value of coffee delivered by the owner bears to the value of all coffee delivered to the surplus pool out of one years crop. But an owner need not wait and may accept an immediate settlement for his coffee. It follows that coffee delivered to the Coffee Board becomes the property of the Board no sooner it is delivered. The Coffee Board can borrow money by pledging it and is not required to return any part of that coffee to the producer. It only sells it and gives to the planter price proportionate to the value of all coffee in the surplus pool for that year, unless the planter settles for an immediate paymentIn these circumstances it is plain that the handing over of coffee by the planter amounts to a sale to the Coffee Board and the payment of the price is from the sale of all the coffee in the surplus pool unless the planter settles for immediate payment. The system of account must make a difference. If it were a cash system income would be taxable when actually received but in the mercantile system it would be taxable in the year in which the relevant entry is made about the sale of coffee to the Coffee BoardWas there a sale to the Coffee Board? The answer must be in the affirmative. The Coffee Board is neither a trustee nor even an agent of the planter. It is not accountable to the owner, except as to payment for coffee received and valued according to the differential prices. All coffee which the Coffee Board obtains under the Coffee Act is put in a pool and gets mixed up with other coffee. Coffee in the pool is disposed of on behalf of the Coffee Board. The Coffee Board only pays a proportionate price to the planter. Even though the planter does not actually sell coffee to the Coffee Board there is in reality a sale by operation of law as a result of which the planter ceases to be the owner of coffee the moment he has handed over his produce to the Coffee Board. He is then entitled to receive payment and is not concerned any more with his coffee. The unsold coffee is not returned to him and he does not enjoy any rights of ownership in it. The Coffee Board can pledge it and sell it as and when it likesThe judgment under appeal follows the earlier decision of the same Court and the Divisional Bench decision of the Madras High Court, and in our opinion the High Courts have taken the right view of the matterThe High Court was thus right in holding that there was no sale in the years relevant to the assessment years for which the tax was demanded. The sale had taken place in the earlier years over which the Agricultural Income-tax Act did not operate.