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PETITIONER: THE DOOARS TEA CO., LTD.

       Vs.

RESPONDENT: COMMISSIONER OF AGRICULTURAL,INCOME-TAX, WEST BENGAL

DATE OF JUDGMENT: 18/08/1961

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. SUBBARAO, K. HIDAYATULLAH, M.

CITATION:  1962 AIR  186            1962 SCR  (3) 157  CITATOR INFO :  E          1963 SC 577  (21)  D          1967 SC 814  (4)  F          1973 SC2495  (6)  D          1974 SC1358  (11)

ACT: Agricultural Income-Agricultural produce used for assessee’s own  business  and  not  sold in  the  market-If  by  itself constitutes  income-Market value-Mode of  computation-Bengal Agricultural Income-tax Act, 1944 (IV of 1944), s. 2(1)  (b) (1), Rule 4(2).

HEADNOTE: The   appellant  which  carried  on  business  of   growing, manufacturing and selling tea held a large tract of land  on which bamboos, thatching grass, and fuel timber were grown 158 by it by agricultural. operations through its servants , and laborers and the same were utilised for the purposes of  its tea  business and were not sold in the market or  Otherwise. In the relevant assessment year the Agricultural  Income-tax Officer increased the appellant’s return by a certain sum of money  as representing the market value of its  agricultural income  from bamboos, thatching grass and fuel  timber,  The appellant contended inter alia that the agricultural produce in question did not constitute agricultural income under the Bengal Agricultural Income-tax Act because the same had  not been sold or converted into money. Held,   that  under  cl.(1)  of  s.2(1)(b)  of  the   Bengal Agricultural   Income-tax  Act  the   agricultural   produce utilised  by  the  assessee for  its  own,  business  itself constituted income; no sale was contemplated thereunder  and it was not required that the agricultural produce should  be sold and profit or gain received from such sale. Alexander Tennant v. Robert Suiclair Smith, (1892) A.C. 150, In re MiCklethwait, 11 Ex. 456 and Sir Kikabhai Premchand v. Commissioner  of Income-tax (Central) Bombay, (1934)  S.C.R. 219, referred to. Commissioner of Income-tax v. Shaw Wallace & Co., 12 L.R. 59 I.A.  206,  Captain  Maharaj  Kumar  Gopal  Saran  Singh  v. Commissioner  of Income-tax, Bihar and Orrissa, (1935)  L.R.

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62 I.A. 207, not applicable. Rule  4(2)  framed  under the Act  deals  with  cases  where agricultural  produce  has been sold outside the  market  as well  as  cases where it has not been sold at  all  and  the income from such agricultural produce may be computed in the manner prescribed thereunder.

JUDGMENT: CIVIL APPELLATE JURISDICTION Civil Appeal No. 381 of 1960. Appeal from the judgment and order dated September 11, 1957, of the Calcutta High Court in Reference No. 102/1952. S.Mitra,   S.  N.  Mukheijee,  and  B.  N.   Ghosh,   for Appellant. R.B. Pal, Asoke Sen and P. K. Bose, for respondent. 1961.   August 18.  The Judgment of the Court was  delivered by GAJENDRAGADKAR,  J.-This appeal by a certificate arises  out of a reference made to. the High Court 159 at   Calcutta under s. 63(1) of  ,the,,  Bengal Agricultural Income-Tax Act IV of 1944 (hereafter called the Act).  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 assesments  year  1949-50  a return  was  submitted by the, appellant in respect  of  its agricultural’   income  showing  the  said  income  at   the 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 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 the, appellant on its  land by  agricultural  operations which were carried  on  by  the servants and labourers empoyed 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. Before  the  tax Authorities the appellant urged  that   the agricultural produce in question did’ not 160 constitute agricultural income within the meaning of the Act because  the same had not been sold.  The  appellant’s  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 money’s 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

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its business were themselves agricultural income and the tax on the said income at be avoided on 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. It  was  also  urged  by the  appellant  in  the  assessment proceedings that even if the produce in question constituted the  appellant’s 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. 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 161 questions referred for the, opinion of’ the High Court  have been thus framed by the Tribunal :               (1)   Is bamboo, thatch, fuel, etc., grower 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? ; and               (2)   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.  1355  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. The  answer  to  the first question would  depend  upon  the construction  of  the  definition  of  agricultural   income contained in s. 2(1)(b) of the Act.  The charging section is s.3.   It  provides  that  subject  to  its   two   provisos agricultural income-tax shall be charged for each  financial year in accordance with and subject to the provisions of the Act  at  the  rate or rates specified  in  the  Schedule  in respect  of  the total agricultural income of  the  previous year  of every individual Hindu undivided  family,  company, firm or other association of individuals and every Ruler  of a  Part B State.  Section 7 provides for the computation  of tax and allowances under the head "agricultural income  from agriculture Do the relevant and material words used 162 in  the definition of agricultural income by s 2  reach  the subject of taxation in the present case?  That is the  short question which falls for our decision.

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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.  Section 2(1)(b) reads thus :               "’any income derived from such land by-               (i)   agriculture, or               (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 item (ii)." The respondent, the Commissioner of Agricultural Income-tax, West Bengal, contends that the agricultural produce ’in  the present  case  falls directly under s.  2(1)(b)(i).   It  is income derived from agricultural land by agriculture.  It is not  disputed by the appellant that in the  context  income may mean either cash or income in kind.  It is also conceded by  the  appellant that the dictionary meaning of  the  word "income" includes "Produce of a farm", and so if we were, to construe the relevant clause in the light of the  dictionary meaning ’of the word come"’; -it would take in agricultural produce with which we are concerned 163 in  the present case.  It is, however, urged that the"  word "Income"  necessarily denotes, and Las reference to,  profit or  gain,  and  profit or gain cannot  be  made  unless  the produce is sold and realises its value.  No person can trade with  himself and so if the agricultural produce is used  by the  appellant for its own purposes there is no  element  of sale involved in the transaction and there can be no  profit or  gain  which would justify the imposition of tax  on  the said produce. In support of this argument it has been urged before us that the definition of agricultural income prescribed by s. 2  of the Act is common to all the State enactments in respect  of agricultural  income  and is the same as the  definition  of agricultural income prescribed by s. 2(1) of the  Income-tax Act.    The  same  definition  has  been  adopted   by   the Constitution  under  Art.  366(1).  That  being  so,  it  is contended  that in interpret’ the word "income" it would  be relevant to rely on the decisions under the Income-tax  Act. In  Alexander  Tennant  v. Robert Sinclair  Smith  (1)  Lord Halsbury   has  cited  with  approval   Lord   Wensleydale’s observation  in In re Micklethwait (2) that "’it is a  well- establisbed  rule,  that  the subject is  not  to  be  taxed without  clear words for that purpose ; and also that  every Act  of  Parliament must be read according  to  the  natural construction  of its words".  In that case it was held  that the  benefit  which  the appellant  assessee  derived’  from having rent-free house provided for him, by the Bank brought in nothing which can’ be reckoned up as receipt or  properly be  described  as  income. Mr.   Mitra  for  the  appellant, contends  that income obviously and necessarily denotes  the coming  in  of profit or gain, and what is  true  about  the house  which the assessee Alexander Tennant was  allowed  to use  is equally true about the agricultural land  owned  by, the appellant

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.  The appellant has received (1)  [1892] A.C. 150,154.  (2) 11 Ex. 456. 164 no profit or gain from the agricultural produce derived from its  land,  and  so  the said  produce  cannot  be  said  to constitute its income under s.     2(1)(b)(i). The same argument is put in another form on the authority of the  decision  of this Court in Sir  Kikabhai  Premchand  v. Commissioner  of Income-tax (Central), Bombay In  that  case Bose  J.,  who spoke for the majority of the  Court,  stated that  it  was well recognised that in revenue  cases  regard must be had to the substance of the transaction rather  than its mere form, and he proceeded to observe that in the  case before  the  Court,  disregarding  technicalities,  it   was impossible  to get away from the fact that the business  was owned and run by the assessee himself ; and if he was to  be held  liable for the tax "you reach the position that a  man is  supposed to be selling to himself and thereby  making  a profit  out of himself which on the face of it is  not  only absurd  but against all canons of mercantile and  income-tax law".   Mr. Mitra suggests that in taxing  the  agricultural produce  utilised by the appellant for its own  purpose  the respondent is really taxing the appellant on the basis  that it   has  traded  with  itself  and  made  profits  on   the agricultural produce in question. 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 or gain.  Mr. Mitra  seeks  to derive  assistance for this argument from the provisions  of ss. 4 and 6 of the Income-tax Act where ’income profits  and gains  are  grouped  together.   What  is  true  about   the denotation  of the word "income" under the  Income-tax  Act, says Mr. Mitra, must be equally true about the denotation of the word ,,income" under 2(1)(b)(i) of the Act, (1)  [1954] S.C.R. 219. 165 In  dealing  with this argument it is necessary to  bear in mind  that  the  word "’income" even as it is  used  in  the Income-tax  Act  has often been  characterised  by  judicial decisions as formidably wide and vague in its scope.  It  is a  word of elastic import and its extent and sweep  are  not controlled  or limited by the use of the words "profits  and gains"  in ss. 4 and 6. As has been observed by  Sir  George Lowndes in Commissioner of Income-tax v. Shaw Wallace & Co., (1) the object of Indian Income-tax is to tax income a  term which  it does not define.  It is expanded, no  doubt,  into income,  profits  and  gains, but the expansion  is  more  a matter   of  words  than  of  substance.   Similar  is   the observation  of Lord Russell in Captain Maharaj Kumar  Gopal Saran Narain Singh v. Commissioner of Income-tax, Bihar  and Orissa (2)where it has been observed that "the word "income" is  not  limited  by  the  words ,profits"  and gains". Anything  which  can  be properly  described  as  income  is taxable  under  the  Act unless  expressly  exempted".   The diverse forms which income may assume cannot exhaustively be enumerated, and so in each case the decision of the question as  to whether any particular receipt is income or not  must depend  upon the nature of the receipt and the  true,  scope and  effect of the relevant taxing provision.   The  receipt may  be an income for the purpose of taxation though it  may not  amount  to  profit.  The case  of  Gopal  Saran  Narain Singh(2)  itself is an illustration in point.  In that  case the  assessee  aged 47 had transferred an estate  worth  two crores  of  rupees  for a relatively small  annuity  of  Rs.

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2,40,000  for life.  The, said annuity could not  constitute or provide a profit or gain to the assessee but all the same it  was taxable as income.  Thus the 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 (1)  (1932) L. R. 59 I.A. 206, 212. (1935) L.R. 6 2 I.A. 207, 166 in  construing s. 2(1)(b)(i) of, the Act with. which we  are concerned.   What  the  word  "income"  denotes  has  to  be determined in the. context of the said section itself. Going  back  to s.2(1)(b) it refers to income  derived  from land  which means arising from land and denotes  income  the immediate  and effective source of which is  land.   Section 2(i)(b)  consists of three clauses.  Let us  first  construe cls.  (ii) and (iii).  Clause (ii) includes cases of  income derived   from  the  performance  of  any  process   therein specified.   The  process  must  be  one  which  is  usually employed  by the cultivator or receiver of rent-in-kind;  it may  be simple manual process or it may involve the use  and assistance  of machinery.  That is the first requirement  of this  proviso.   The, second requirement is  that  the  said process  must have been employed with the object  of  making the  produce  marketable.  It is, 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 market. able 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 the produce. That  takes  us  to el. (iii).  This  clause  in  terms  and expressly  refers  to  the income derived  from,  sale.   It refers  to the sale price realised either by the  cultivator or the receiv er of rent-in-kind by the sale of the  produce in respect      167 of which the process as contemplated by cl.  (ii)  has  been performed.It is significant   that  the sale  to  which el. (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 (ii) and (iii) and prima facie  that  would Show  that  cl. (i) which does not refer to  sale  even  in- directly cannot be intended to cover cases of income derived from the sale of agricultural produce. Considered in the light of cls. (ii) and (iii) of  s.2(1)(b) what is the true scope and effect of the income contemplated by  cl.  (i) ? In terms the clause takes in  income  derived from  agricultural  land  by agriculture ; and  as  we  have

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already  pointed  out giving the material words  their  plan 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 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 168 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(i)(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  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 is wrong.- The   second   question  relates  to  the   computation   of agricultural  income  for the purposes of the Act.   Rule  4 with  the  construction  of which  the  second  question  is concerned, reads thus 169               "4  For  the purposes of the Act  the,  market               value  of  any  agricultural  produce   shall,               except in the case referred to in clause (a.)               of  the proviso to sub-section (1) of  section               8,  be  determined in  the  following  manner,               namely (1)if the agricultural produce was sold in the market, the market  value  shall. be deemed’ to be the price  for  which such produce was sold; (2)if  the  agricultural produce has not been  sold  in  the market, the market value- shall be deemed to be-               (a)where  such produce is ordinarily sold               in  the market in its raw state, or after  the performance

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of  any process  ordinarily  em-               ployed by a cultivator or receiver of rent-in-               kind  to render it fit to be taken  to  market               the   value  calculated   according..   to-the               average  price at which such produce has  been               so  sold in the locality during  the  previous               year  in  respect of which the  assessment  is               made,;               (b)where  such produce is not ordinarily  sold               in  the  market in the manner referred  to  in               sub-clause (a), the aggregate of-               (i)   the expenses of cultivation               (ii)  the  land revenue or rent, paid for  the               area in which it was grown ; and               (iii)such  amount as the Agricultural  Income-               tax  Officer finds, having regard to  all  the               circumstances  in  each case, to  represent  a               reasonable  rate  of profit on  the  sale,  of               produce in question as agricultural produce." It  is  clear that r. 4(1) cannot apply to  the  appellant’s 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 appellant contends that r. 4(2)  cannot also be in voked against it, and so there is ’no rule under 170 which  the agricultural income in question can be  computed. Incidentally   the   appellant   suggested   that   if   its construction of r. 4(2) is right it in directly supports its case as to the true scope and effect of s. 2(1)(b)(1).   The Legislature  knew that agricultural produce is  not  taxable unless it is sold, and so it has not- made any rule for  the computation  of  agricultural income alleged  to  have  been received  by the assessee from agricultural produce used  by the  assessee for its own purpose.  On the other  hand,  the respondent  contends that r. 4(2) covers the  present  case, and if that is so., according to the respondent, that  would incidentally support his construction of s. 2(1)(b)(1). The  argument  urged by the appellant assumes that  the  two rules are based on a kind of basic dichotomy.  Rule I  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 the market.  If this argument is right then of course cases  where  agricultural produce has not been  sold  would remain  outside the purview of both the rules ; but is  this argument right ? We have 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 s. 57  of the 171 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

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is consistent with the respondent’s case that s.2  (1)(b)(i) includes  agricultural produce utilised b the appellant  for its own business. In the result the appeal fails and is dismissed. With costs. Appeal dismissed.