Dividend from agricultural profits is taxable when the shareholder's immediate source is the company's dividend declaration.

Dividend received by a shareholder from a tea company did not retain agricultural income character merely because the company's profits partly included exempt agricultural receipts. A company is a separate legal entity, and the shareholder's income arises only when dividend is declared; the immediate and effective source of that receipt is the dividend declaration, not the land from which the company's profits were generated. The exemption for agricultural income applies only where the assessee's own income is directly derived from land used for agricultural purposes. Accordingly, the dividend was taxable in the shareholder's hands and was not exempt as agricultural income.

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Issues: Whether dividends received by a shareholder from tea companies, part of whose profits were exempt as agricultural income, retained the character of agricultural income in the shareholder's hands and were therefore exempt under the Income-tax Act.

Analysis: The dividend received by the shareholder was not the same income as the company's agricultural receipts. A company is a separate legal entity from its shareholders, and the shareholder has no proprietary right in the company's profits until a dividend is declared. The relevant exemption applied only to income falling within the definition of agricultural income, namely revenue derived from land. The Court held that, for this purpose, one must look to the immediate and effective source of the shareholder's income, not to the remote source of the company's profits. The immediate source of the dividend was the declaration of dividend by the company, not land used for agricultural purposes. Authorities dealing with direct receipt of agricultural income or with special statutory exemptions were distinguished on that basis.

Conclusion: The dividend income was not agricultural income in the hands of the shareholder and was not exempt from tax.

Final Conclusion: Dividend income received by a shareholder from a company carrying on agricultural operations does not acquire the character of agricultural income merely because the company's underlying profits include exempt agricultural receipts.

Ratio Decidendi: For a receipt to qualify as agricultural income, the immediate and effective source of the assessee's income must be land used for agricultural purposes; a dividend declared by a company is not so derived merely because the company's profits arose in part from agricultural income.

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