Taxation of tea estate sale as business income, not property income under Income-tax Act

The High Court held that income from the sale of tea estates by a non-resident company for the assessment year 1970-71 was to be taxed as business income under section 28 of the Income-tax Act, not as income from immovable property. The Court found that the business had been effectively transferred before the execution of conveyance deeds, making the purchasers liable for tax from the transfer date. The Court ruled in favor of the assessee, affirming the Tribunal's decision and dismissing the Revenue's appeal.

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Issues involved: Assessment of income of a tea company for the assessment year 1970-71 based on the sale of tea estates and the timing of income accrual.

Summary:
The case involved the assessment of income from the sale of four tea estates by a non-resident company for the assessment year 1970-71. The Tribunal found that the deeds of conveyance were executed after the relevant previous year due to delays in obtaining permissions. The Income-tax Officer added back income from the tea estates to the assessee's total income. On appeal, the Appellate Assistant Commissioner disagreed, stating that the income accrued to the purchasers during the relevant period. The Tribunal held that the income was from the business of growing, manufacturing, and selling tea, to be taxed under section 28 of the Income-tax Act, and not as income from immovable property. The Tribunal also noted that the same income was assessed in the hands of the purchasers. The Revenue appealed, arguing that the ownership remained with the assessee during the relevant period.

The High Court analyzed the agreements and found that the terms were effective before the execution of conveyance deeds. The agreements detailed the division of expenses and income between the vendor and purchasers from specific dates. The Court emphasized that income from manufacturing activities belongs to the person conducting the activity, not the landowner. It cited previous case law to support the principle that if a business is transferred, the new owner is liable for tax from the transfer date. The Court agreed with the Tribunal's decision that the business had been transferred, and the assessee acted as an agent of the purchaser. Therefore, the Court answered both questions in favor of the assessee, concluding that the Tribunal did not err in its decision.

The judgment was delivered by Suhas Chandra Sen J., with agreement from Baboo Lall Jain J.

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