Agricultural income-tax cannot be imposed on a transferor who has fully settled lands on wife and minor children.

A person who settles all agricultural lands on his wife and minor children ceases to "hold" those lands for purposes of agricultural income-tax where holding under the Act requires possession and enjoyment as owner, tenant, mortgagee in possession or maintenance holder. Section 9(2) does not create a fiction that the transferor continues to own or possess the gifted lands; it only deals with income derived from assets transferred to a minor child. On that basis, there was no legal foundation to assess the transferor on the settled lands, and the proposed agricultural income-tax action was invalid.

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Issues: Whether a person who transfers all his lands by gift/settlement to his wife and minor children can still be subjected to agricultural income-tax under the Madras Agricultural Income-tax Act; and whether section 9(2) permits clubbing of income in such a case notwithstanding section 10(1).

Analysis: Section 10(1) exempts a person who holds land not exceeding the prescribed limit, and the expression "to hold" contemplates possession and enjoyment as owner, tenant, mortgagee in possession or maintenance holder. On the transferor denuding himself of the entire land by settlement in favour of his wife and minor children, he ceases to hold land within the meaning of the Act. Section 9(2) only provides for inclusion of income derived from assets transferred to a minor child; it does not create a fiction that the transferor continues to own or possess the lands themselves. There is therefore no deeming basis to assess the transferor as if the gifted lands still belonged to him.

Conclusion: The petitioner was not liable to be proceeded against for agricultural income-tax in respect of the settled lands, and the impugned action was invalid.

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