Composite tea income taxability: only the non-agricultural portion is taxable, and the assessment must be restricted accordingly.

Profits from tea operations were treated as a composite receipt because cultivation and plucking were agricultural, while withering, rolling, drying, fermentation, sorting and packing were manufacturing stages. The agricultural element fell within the exemption, but the non-agricultural element remained taxable. Where income is derived partly from agriculture and partly from business or manufacture, the assessment can stand only to the extent of the taxable portion; a taxing statute cannot be extended beyond its clear words by practice or equitable construction. The assessment therefore had to be restricted to the portion not qualifying as agricultural income.

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Issues: (i) Whether the profits from cultivation and processing of tea bushes constituted agricultural income wholly exempt from assessment under the Indian income tax law. (ii) Whether, where income was derived partly from agriculture and partly from business or manufacture, the assessment could stand only to the extent of the taxable portion.

Issue (i): Whether the profits from cultivation and processing of tea bushes constituted agricultural income wholly exempt from assessment under the Indian income tax law.

Analysis: The statutory scheme charged all income to tax unless it fell within the exception for agricultural income. The cultivation of tea bushes and plucking of leaf could be treated as agricultural activity, but the later stages of withering, rolling, drying, fermentation, sorting and packing were manufacturing processes. The entire operation was therefore a composite of agriculture and manufacture, and the produce could not be treated as wholly agricultural income within the exemption.

Conclusion: The profits were not wholly exempt as agricultural income and were not entirely outside assessment.

Issue (ii): Whether, where income was derived partly from agriculture and partly from business or manufacture, the assessment could stand only to the extent of the taxable portion.

Analysis: The governing provisions contemplated that income partly derived from agriculture and partly from business could be separated for taxation. In the absence of rules for apportionment, the Court held that the whole assessment already made could not be sustained because it exceeded the lawful taxable portion, though the company was liable to tax on the non-agricultural part. The prior administrative practice could not override the clear words of the statute, and a taxing statute must be confined to its letter.

Conclusion: The income was assessable only to the limited extent of the non-agricultural portion, and the assessment had to be restricted accordingly.

Final Conclusion: The reference was answered by holding that the company's tea profits were not wholly exempt, but only the portion not falling within agricultural income was liable to tax, with no order as to costs.

Ratio Decidendi: Where a business combines agricultural and manufacturing elements, only the portion that is not agricultural income is taxable, and a taxing statute cannot be extended beyond its clear words by practice or equitable construction.

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