http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: S.   S. RAJALINGA RAJA

       Vs.

RESPONDENT: STATE OF MADRAS

DATE OF JUDGMENT: 26/10/1966

BENCH: SHAH, J.C. BENCH: SHAH, J.C. RAMASWAMI, V. BHARGAVA, VISHISHTHA

CITATION:  1967 AIR  814            1967 SCR  (1) 950

ACT: Madras Plantations Agricultural Income Tax Act (5 of 1955),- "Agricultural Income"-Whether agricultural produce is itself income.

HEADNOTE: The   appellant  owned  a  cardamom  plantation.   For   the assessment  year  1957-58, he submitted a return  under  the Madras  Plantations Agricultural Income-tax Act, 1955.   The Agricultural  Income-tax Officer did not accept the  return, and  ’added  to the income the value of stocks  of  cardamom sold  in the accounting year.  The High Court  in  revision, confirmed the assessment made by the Department. In  appeal  to this Court, it was contended  that:  (1)  the agricultural produce itself was income and became charged to tax  under the Act when it was received and not when it  was sold, used or consumed, and therefore, the High Court  ought to  have  directed determination of the  produce  which  was actually derived from agriculture in the year of account and ought to have brought to tax only that quantity and excluded the  value  of the rest of the produce received  in  earlier years,  from  taxation;  and  (2) from  the  fact  that  the appellant applied to compound the tax for the earlier years, it  must be inferred that the produce which was sold by  him in  the  year  of account had already suffered  tax  in  the earlier years. HELD : (1) Merely because the produce of the plantation  was received  in the earlier years, income derived from sale  of that produce in the year of account was not exempt from  tax under the Act in that year. [953 B] Section   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  con- notation  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.  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

business  of  the assessee from which the  assessee  obtains benefit  of  the  commodity may be deemed to  give  rise  to income. [952 G-H; 953 A-B] Dooars Tea Co. Ltd. v. Commissioner of Agricultural  Income- tax, West Bengal, [1962] 3 S.C.R. 157, referred to. (2)  It  had  to be proved by evidence that  the  crop  sold related  to the years in respect of which the  assessee  had applied to compound the tax, but there was no such evidence. [954 F]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 979 and 980 of 1965. Appeals by special leave from the judgment and orders  dated November  12,  1962 and January 1, 1964 of the  Madras  High Court                             951 in  Tax Case Nos. 19 of 1961 and S.C. Petition No,.. 142  of 1963 respectively. S.   Swaminathan  and R. Gopalakrishnan, for  the  appellant (in, both the appeals). P.   Ram Reddy and A. V. Rangam, for the respondent (in both the appeals). The Judgment of the Court was delivered by Shah,   J.  S.  S.Rajalinga  Raja-hereinafter  called   ’the appellant’--owns   acardamom  plantation  on  a   fifty-acre estate. For the assessment year 1957-58 he submitted a return  under the Madras Plantations Agricultural Income-tax Act 5 of 1955 disclosing a net income of Rs. 5,250/- from the plantation.. On  enquiry the Agricultural Income-tax Officer learnt  that the  appellant had sold stocks of cardamom of the  value  of Rs.  58,375-9-9  between April 1, 1956 and March  31,  1957. The appellant explained that those sales represented not the produce  of the year of account, but accumulated  stocks  of the past 3 to 4 years.  That explanation was rejected by the Agricultural   Income-tax   Officer   and   after   allowing expenditure estimated at the rate of Rs. 120/- per acre, the balance  was brought to, tax, and a penalty of  Rs.  3,000/- was  levied under s. 20(1) (c) of the  Act.  The  order  was confirmed in appeal to the Appellate Assistant Commissioner, both  as to the levy of tax and penalty.  But the  Appellate Tribunal  was  of the view that the  average  production  of cardamom  per  acre was 40 lbs. and that if  the  stocks  of cardamom,  sold in the year of assessment be  attributed  to production of the year, the yield would approximately be 134 lbs.  per  acre.  Holding that. an estimate of 40  lbs.  per acre  would  be  a  "fair  estimate"  and  that  an  average expenditure  of  Rs. 145/- per acre should be  allowed,  the Tribunal  directed that the assessment be modified, and  the order imposing penalty be set aside. The State of Madras then applied to the High Court of Madras in revision.  The High Court was of the view that a part  of the  stock  of  cardamom sold in the year,  though  not  the whole, was probably accumulated stock out of previous year’s production,  but since the appellant did not lay before  the taxing  authorities reliable evidence, his  explanation  was rightly   rejected.   The  High  Court  also  rejected   the contention  of the appellant that the income from sales  of’ cardamom stock of previous years was not taxable in the year of’  account because it had been subjected to tax  in  those previous. years under orders compounding the tax under s. 65 of the Act.  The High Court accordingly allowed the petition

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

and  restored the assessment made by the  Department.   With special leave, the 1 appellant has appealed to this Court. It  is claimed by the appellant in the first  instance  that under  the  Act, agricultural produce itself is  income  and becomes charged to, 952 tax under the Madras Plantations Agricultural Income-tax Act 1955, when it is received, and not when it is sold, used  or consumed.  Relying upon this premise it was urged that  even on the view expressed by them the learned Judges of the High Court  ought to have directed determination of  the  produce which was actually derived from agriculture in the year  of. account, and ought to have brought to tax only that quantity and  excluded the value of the rest from taxation under  the Act.   Section 3 of the Act imposes the charge of  tax  upon the total agricultural income of the previous year of  every person,  and  by s. 4 the total agricultural income  of  any previous  year  of  any person  comprises  all  agricultural income  derived  from  a plantation  within  the  State  and received within or without the State.  ’Agricultural income’ is  defined (insofar as the definition is relevant in  these appeals) as meaning:               "(1)  any  rent  or  revenue  derived  from  a               plantation;               (2)   any    in-,am-,   derived   from    such               plantation in the State :by-               (i)   agriculture; o-               (ii)  the  performance  by  a  cultivator   or               receiver  of  rent  in-kind  of  any   process               ordinarily   employed  by  a   cultivator   or               receiver of rent-in-kind to render the produce               raised  or received by him fit to be taken  to               market; or               (iii) the sale by a cultivator or receiver  of               rent-in kind of the produce raised or received               by  him,  in respect of which no  process  has               been  performed  other than a process  of  the               nature described in paragraph (ii):               Explanation 1.-               Explanation 2.-               (3) 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 953 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  appellant’s case is true, income derived from  sale  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

that  produce in the year of account is not exempt from  tax under the Act, in that year. Counsel for the appellant strongly relied upon a judgment of this  Court  in  Dooars Tea Co.  Ltd.,  v.  Commissioner  of Agricultural’  Income-tax,  West Bengal(1)  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. case  (1),  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:               "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 has 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 (1) [1962] 3 S.C.R. 157; 44 I.T.R. 6. 7Sup.C.I./66-16 954 person  who  has  raised  agricultural  produce  instead  of selling it uses that produce for his own business, can he 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 assessee  may give rise to agricultural income. The  decision  in  State of Kerala and Anr  v.  Bhavani  Tea Produce  -Co.   Ltd.(1)  on which  reliance  was  placed  by counsel for the appellant has, in our judgment, no relevance whatever  in  this case.  In Bhavani Tea  Produce  Company’s case (1) 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

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. 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. The  appeals  therefore fail and are dismissed  with  costs. There will be one hearing fee. V.  I P.S.                              Appeals dismissed. (1) [1966] 2 S.C.R. 92: 59 I.T.R 254 955