Strict construction of income tax exemptions leaves coffee sale proceeds taxable when received in British India.

Income from the sale of coffee grown on Mysore estates was held not to be exempt under the second proviso to Section 4(2) of the Indian Income Tax Act, 1922, because that proviso was construed as limiting the extended charge under Section 4(2) rather than granting complete immunity. Where the sale proceeds were received in British India, Section 4(1) could still apply despite the agricultural character of the source. The statutory scheme distinguished between income accruing or arising in British India and income arising outside British India but received in British India, and a strict reading of Section 4 required tax liability on the received income.

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Issues: Whether income derived from the sale of coffee produced on estates in Mysore was exempt from taxation under the second proviso to Section 4(2) of the Indian Income Tax Act, 1922, and whether the assessee was liable to tax under Section 4(1).

Analysis: The assessee carried on a business of growing, curing, transporting and selling coffee, and the receipts were realised in British India. The statutory scheme distinguished between income accruing or arising in British India and income accruing or arising without British India but received in British India. The second proviso to Section 4(2) was construed as limiting the extended liability created by that sub-section, not as conferring a complete immunity from tax in every case. The exemption for agricultural income was also considered, but the Court held that the proviso could not be read as barring assessment under Section 4(1) where the income was received in British India. A strict construction of Section 4 led to the conclusion that the assessee could not claim exemption for the whole sale proceeds.

Conclusion: The income was not exempt under the second proviso to Section 4(2), and the assessee was liable to tax under Section 4(1) of the Indian Income Tax Act, 1922.

Ratio Decidendi: A proviso to an exemption or charging provision must be strictly construed according to its language, and where income is received in British India, receipt may attract liability under Section 4(1) notwithstanding an argument based on the second proviso to Section 4(2).

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