Case: The Dooars Tea Co., Ltd Vs. Commissioner Of Agricultural,Income-Tax, West Bengal

The appellant, the Dooars Tea Co. Ltd., is a public limited company and it carries on business of growing, manufacturing and selling tea. For the accounting year 1948 which corresponds to the assessment year 1949-50 a return was submitted by the appellant in respect of its agricultural income showing the said income at Rs. 3,45,702. The Agricultural Income-tax Officer, however, did not accept the correctness of the said return and increased the amount to Rs. 4,41,940. This increased amount included a sum of Rs. 39,849 and it represented the market value of the appellants agricultural income from bamboos, thatching grass and fuel timber. It is this amount thus added by the Agricultural Income-tax Officer to the agricultural income of the appellant in the relevant year that has given rise to the present reference.2. The facts leading to the reference are not in dispute. The appellant holds a large tract of land under lease from the local Government and it is common ground that in a part of the said land it grows bamboos, thatching grass and fuel timber. During the relevant year it cut down some bamboos, some thatching grass and fuel timber and used the same for the purpose of its business. The bamboos, the thatching grass and fuel timber were grown by the appellant on its land by agricultural operations which were carried on by the servants and labourers employed by the appellant. After they were grown they were utilised by the appellant for the purpose of its tea business and were not sold either in the market or otherwise. It has been found that the appellant has been utilising the bamboos, thatching grass and fuel timber grown by it on its land in this way every year.3. Before the tax authorities the appellant urged that the agricultural produce in question did not constitute agricultural income within the meaning of the Act because the same had not been sold. The appellants case was that agricultural produce grown by it on its own land could not in law be treated as its income unless it was converted into its money equivalent or into something which was moneys worth; in other words, unless the said produce was sold. The department, on the other hand, has taken the view that the several varieties of agricultural produce grown by the appellant on its land and utilised by it for its business were themselves agricultural income and the tax on the said income cannot be avoided in the plea that the said varieties had not been sold. This dispute went up to the Tribunal; but the Tribunal agreed with the conclusion of the tax authorities and held that the produce in question constituted agricultural income of the appellant for the relevant year, and so the addition of Rs. 39,849 made by the Agricultural Income-tax Officer in determining the total agricultural income of the appellant for the relevant year was affirmed.4. It was also urged by the appellant in the assessment proceedings that even if the produce in question constituted the appellants agricultural income its market value could not be computed in money because no rule had been framed for the computation of the market value of such income. The appellant urged that R. 4 of the Rules framed under the Act was inapplicable to the present case. This contention has also been rejected by the tax authorities as well as by the Tribunal. In the result the agricultural income found to have been earned by the appellant for the relevant year has been duly taxed.5. Feeling aggrieved by the final order Passed by the Tribunal in this matter the appellant required the Tribunal to refer two questions for the opinion of the High Court and in due course the Tribunal made the reference as required. The two questions referred for the opinion of the High Court have been thus framed by the Tribunal:(1) Is bamboo, thatch, fuel, etc., grown by assessee company and utilised for its own benefits in its tea business, agricultural income within the meaning of the Bengal Agricultural Income-tax Act ; and2. If the answer to question (1) be in the affirmative, can such income be computed under rule 4 of the rules framed under the Act?The High Court has answered both these questions in the affirmative against the appellant. The appellant then applied for and obtained a certificate from the High Court under S. 64(2) of the Act read with Art. 135 of the Constitution. The High Court has certified that the case is a fit case for appeal to this Court because it was conceded by both the parties before the High Court that this case had been chosen by the assessee and the department as a test case since all the tea companies are interested in the questions raised in the present reference. It is with this certificate that the appellant has come to this Court with its present appeal.

Reasoning: 7. Section 2(1) (a) deals with the agricultural income consisting of rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in a State or subject to local rate assessed or collected by officers of the Government as such. We are not concerned with this part of the definition.This argument is based on the assumption that income as defined by S. 2(1) (b) (i) must always be in the nature of profit or gain, and that inevitably postulates a sale transaction made at a profit orthe argument based on the emphasis on the use of the words profits and gains" in Ss. 4 and 6 of the Income-tax Act cannot really assist the appellant in construing S. 2(1)(b)(i) of the Act with which we areis, however, clear that the employment of the process contemplated by the second clause must not alter the character of the produce. The produce must retain its original character and the only change that may have been brought about in the produce is to make it marketable. The said change in the condition of the produce is only intended to make the produce a saleable commodity in the market. Thus cl. (ii) includes within the categories of income derived from the employment of the process falling under that clause. As we have just observed the object of employing the requisite process is to make the produce marketable but in terms the clause does not refer to sale and does not require that the income should be obtained from sale as such though in a sense it contemplates the sale of theis significant that the sale to which cl. (iii) refers must be the sale of produce which has not been subject to any process other than that contemplated by cl. (ii). Thus it may be stated that reading cls. (ii) and (iii) together they contemplate the sale of the produce---cl. (ii) indirectly inasmuch as it refers to the process employed for making the produce marketable and cl. (iii) directly inasmuch as it refers to the price realised by sale of produce which has been subjected to the process contemplated by cl. (ii). Therefore, it is clear that income derived from sale of agricultural produce has been provided for by cls. (ii) and (iii) and prima facie that would show that cl. (i) which does not refer to sale even indirectly cannot be intended to cover cases of income derived from the sale of agriculturalterms the clause 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 thisour 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 cls. (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. In the present case it is common ground that the appellant has utilised for its business the agricultural produce in question and we feel no difficulty in agreeing with the High Court when it held that the agricultural produce utilised by the appellant for its business constitutes income under S. 2(1)(b) (i). If the agricultural produce used by the appellant was not intended to be included within the definition of income under S. 2(1) (b) we apprehend that the whole clause would have been very differently worded. Where income derived from sale was intended to be prescribed the Legislature has done so in terms by cl. (iii) of S. 2(1)(b). Where the marketable condition of the produce resulting from the employment of the specified processes and income derived from the adoption of such processes was intended to be included in the income the Legislature has done so by cl. (ii); and so those two cases having been specifically provided for by the two respective clauses there would be no justification for introducing the concept of sale in construing cl. (i) of S. 2(1)(b). The words in S. 2(1)(b) (i) are, in our opinion, wide, plain and unambiguous and they cannot be construed to exclude agricultural produce used by the appellant for its business. In this connection we may incidentally refer to the provisions of sub-cls. (i), (ii) and (iii) of S. 7(1) of the Act which provide for the computation of tax and allowances under the head "agricultural income from agriculture". These three sub-clauses in terms correspond to the three sub-clauses of S. 2(1)(b) and lend some support to the conclusion that cl. (i) in S. 2(1)(b) does not require that the agricultural produce should be sold and profit or gain received from such sale before it is included in the said clause. Therefore, we do not think that Mr. Mitra is justified in contending that the answer made by the High Court in reference to question 1 isis clear that R. 4(1) cannot apply to the appellants case for the agricultural produce in question has not been sold in the market but has been used by the appellant for its own business.The argument urged by the appellant assumes that the two rules are based on a kind of basic dichotomy. Rule 1 deals with agricultural produce sold in the market, and R. 2 with the agricultural produce which has been sold but not in the market. In other words, according to the appellant, both the rules assume that the agricultural produce has in fact been sold R. (1) deals with cases where it has been sold in the market and R. (2) with cases where it has been sold but not in thehave no hesitation in holding that it is not. In our opinion, R. (2) deals with cases where agricultural produce has been sold outside the market as well as cases where agricultural produce has not been sold at all. The effect of reading the two sub-rules together is that the cases of market sales are covered by R. (1) and all other cases are covered by R. (2), Rule (2) is a residuary rule which applies to all cases not falling under R. (1). Therefore, we must hold that the answer given by the High Court to question 2 is also right. It is obvious that the rules framed in exercise of the power conferred by . 57 of the Act cannot legitimately be pressed into service for the purpose of construing the relevant provisions of the Act; even so, incidentally it may be permissible to observe that the construction of R. 4(2) which we are inclined to adopt is consistent with the respondents case that S. 2(1) (b) (j) includes agricultural produce utilised by the appellant for its own business.