Agricultural character of receipts: immediate-source test applied; rents, dividends and tax-interest held taxable, not agricultural.

Whether receipts qualify as agricultural income turns on their immediate and effective source; the court applied the immediate-source test and held the ground rent from vacant land (not actually used for agriculture) is not agricultural income, so it is taxable. Interest received under the statutory provision for advance tax payments is not a capital or casual receipt but falls within taxable total income, and therefore includible. Dividends from tea companies derive from the company's declaration as the immediate source; they do not assume agricultural character from the company's underlying profits and are not exempt as agricultural income.

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Issues: (i) Whether ground rent from lands with shops (vacant portion) is agricultural income within the meaning of Section 2(1)(a) of the Indian Income Tax Act, 1922 and exempt under Section 4(3)(viii) of the said Act; (ii) Whether interest of Rs. 3,109 received under Section 18A(5) of the Income Tax Act, 1922 is includible in total income for the year 1948-49; (iii) Whether any part of dividend income of Rs. 36,229 from tea companies is agricultural income within the meaning of Section 2(1)(a) of the Income Tax Act, 1922 and exempt under Section 4(3)(viii) of the said Act, and if so what part.

Issue (i): Whether the ground rent attributable to the vacant portion of land on which shops were erected is agricultural income under Section 2(1)(a) of the Income Tax Act, 1922 and exempt under Section 4(3)(viii) of the said Act.

Analysis: The statutory definition requires that rent be derived from land used for agricultural purposes. The proper test is the actual use of the land for agricultural operations, not the contractual purpose of the lease. The burden of proof to establish agricultural use rests on the assessee. The income tax authorities found that no agricultural operations were carried on the vacant land and the assessee failed to produce material to discharge the onus.

Conclusion: Answered against the assessee; the ground rent attributable to the vacant portion is not agricultural income and is taxable.

Issue (ii): Whether interest received under Section 18A(5) of the Income Tax Act, 1922 is includible in the assessee's total income for taxation.

Analysis: Precedent of the Division Bench establishes that interest on advance payment of tax under Section 18A(5) is not a capital or casual receipt and falls within taxable total income.

Conclusion: Answered against the assessee; the interest of Rs. 3,109 is includible in total income and taxable.

Issue (iii): Whether dividends received from tea companies are agricultural income under Section 2(1)(a) of the Income Tax Act, 1922 and therefore exempt under Section 4(3)(viii) of the said Act; if so, what portion is exempt.

Analysis: Dividend income arises from the statutory contract and declaration between the company and its shareholders and is a distinct species of income from the company's profits. The inquiry into agricultural character must stop at the immediate and effective source; where the immediate source of the dividend is the company's declaration, the dividend does not assume the character of agricultural income merely because the company's ultimate source of profit may be agricultural. Authorities applying the immediate-source test were followed.

Conclusion: Answered against the assessee; no part of the dividend income of Rs. 36,229 is agricultural income or exempt from tax.

Final Conclusion: All three referred questions are decided against the assessee and in favour of the Revenue; the reference is disposed of accordingly and costs are awarded against the assessee.

Ratio Decidendi: Agricultural character depends on the immediate and effective source of the receipt; where rent or dividend is not immediately derived from land used for agriculture, such receipts are not agricultural income under Section 2(1)(a) of the Indian Income Tax Act, 1922.

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