TaxTMI 
TaxTMI 
TaxTMI 
1950 (5) TMI 35
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.... the amount realised by the petitioners from the Sal trees in question being held as revenue receipts, such receipts can be regarded as agricultural income within the meaning of Section 2(a) of the Assam Agricultural Income-tax Act, 1939? (iii)Whether the amount received by the assessee as salami for settlement of agricultural holding is agricultural income within the meaning of Section 2 (a) (I) of the Assam Agricultural Income-tax Act? (iv)Whether the petitioner is entitled to a deduction of 15 per cent, on the amount salami as collection charges? 3. In Reference No. 8 of 1949, besides the four questions mentioned above, there is another question (No. 5), which is as follows : - "Whether the amount paid to the ladies mentioned in para. 11 above under the will of the late Raja P.C. Barua, and charged on Lakheraj Srijangram (Touzi No. 34 of Goalpara Collectorate) should be deducted from the agricultural income, " 4. In Reference No. 1 of 1949, only three out of the first four questions have been referred. The third question was not included in the reference. But we have before us a petition praying that the Member, Assam Board of Agricultural Income-tax, be direct....
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....a Estate. 1946-47 54,483 Parbatjoar 36,015 Mechpara 3,971 Parbatjoar 3,882 Mechpara 1947-48 22,956 Parbatjoar 51,159 Mechpara 4,838 Parbatjoar 18,800 Mechpara 1948-49 93,254 Parbatjoar 34,059 Mechpara 4,728 Parbatjoar 5,497 Mechpara 6. Ranjit Narayan Choudhury. Co-sharer in Parbatjoar and Mechpara Estates. 1946-47 1947-48 39,105 Parbatjoar 36,015 Mechpara 16,886 Parbatjoar 51,1 59 Mechpara 2,801 Parbatjoar 3,882 Mechpara 3,517 Parbatjoar 18,800 Mechpara 1948-49 67,138 Parbatjoar 34,059 Mechpara 3,436 Parbatjoar 5,497 Mechpara 7. Raja Bhairaben-dra Narayan Bhup Bahadur. Proprietor of the Bijni Raj Estates. 1946-47 1947-48 24,08,980 4,01,219 45,230 34,052 8. Kumar Pramathesh Chandra Barua, Executor to the Estate of late Raja Prabhat Chandra Barua. Zamindary Estate at Gauripur. 1945-46 1946-47 1947-48 1948-49 56,056-5-6 60,140 50,311 39,910 98,987 72,092 70,298 13,616 9. Sreejukta Beda bala Debi, Trustee of Chapor Trust Estate. 1945-46 1946-47 1947-48 1948-49 8,772 6,463 20,421 46,778 46,204 28,827 66,531 37,4:2 7. The above statement shows that each assessee had receipts described as banker (receipts) from the sa....
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....-tax." 10. Agricultural income-tax, according to the Act, means tax payable tinder this Act. Under Section 3 of the Act, agricultural income-tax is chargeable at the rate or rates specified in the annual Assam Finance Acts subject to the provisions of Section 6 for each financial year in accordance with and subject to the provisions of the Act on the total agricultural income of the previous year. Agricultural income is exempt from taxation under the Income-tax Act. It is not included in the total income which is assessable under that Act by virtue of provisions contained in Sections 3 and 4 of the Act. The total income for purpose of Section 4 includes all income, profits and gains except income, profits and gains falling within any of the sub-clauses of clause (3) of Section 4. Sub-clause (8) exempts agricultural income from the scope of total income assessable. Agricultural income for the purposes of the Indian Income-tax Act is defined in section 2(1) of the Act. 11. The Central Government has no power to tax agricultural income. Under the Government of India Act 1935, it was excluded from the ambit of the jurisdiction of the Central Legislature. Agricultural income was ....
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....9; with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often loosely spoken of as 'capital', But capital, though possibly the source in the case of income from securities, is in most cases hardly more than an element in the process of production." 15. This definition was followed in Gopal Saran Narain Singh v. Commissioner of Income-tax, Bihar and Orissa [1935] 3 ITR 237; 14 Pat. 552. In that case the assessee had transferred an estate in consideration of a lump sum and of the discharge of certain debts and of the payment to himself for life of an annuity of ₹ 2,40,000. This annuity was held to be the yearly income of the assessee. It was held in this case that the word " income" was not limited by the words " profits" and "gains" occurring in the Indian Income-tax ....
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.... to the Court was whether the assessee's net receipts from the sale of forest trees were assessee's income liable to income-tax or merely capital converted into cash and not liable to income-tax. The annual profit over a period of 13 years was found to be ₹ 2,132 from grass and ₹ 4,425 from trees-covered land. The position appeared to have remained much the same until 1928 when wholesale cutting commenced with a view to clearing the forest in order to make the land arable. During the next ten years the whole forest was cut down and as it was cut, the land was let out to tenants. It was not until 1938-39 that the sale proceeds were assessed to income-tax. It was argued on behalf of the assessee that the trees were not sold in the course of a business but as a matter of capital realisation. It was also argued alternately that at any rate, the last sale should be regarded in this light. This contention was repelled. In the course of the judgment, their Lordships observed as follows :- "One general principle governing such cases is now well settled, being found in English and Indian authorities. It is that receipts from capital which is exhausted in the proce....
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....essable as such. 23. The authorities referred to above yield the result that the forms which income may assume would baffle attempts at enumeration. A precise definition covering all cases is not possible and the Legislature, has not attempted to define it. It is generally though not necessarily a recurrent return from a definite source. Receipts from capital which is exhausted in the process of realisation may none the less be income. The fact that the receipts are from a source which is a wasting asset like that of a mine is an irrelevant consideration and anything which could properly be described as income would be taxable unless expressly exempted from taxation. 24. Judged in the light of the above test, receipts from the sale of forest trees cannot be excluded from the scope of the word "income" The only contention raised on behalf of the assessee is that these receipts represent capital inasmuch as the felling of trees causes a gradual exhaustion of capital. From the admitted facts of this case, it appears that the forests are not being worked in a way that the gradual sale of trees from portions of the forest would result in their extinction. In the references b....
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....ncome for the purposes of the Assam Act. 28. In order that income should be described as agricultural under Section 2 of the Act, it is necessary that it should be rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in Assam or subject to a local rate assessed and collected by officers of the Crown as such or it should be income derived from such land by agriculture or by the performance by a cultivator or receiver of rent in kind of any process ordinarily employed by a cultivator or receiver of rent in kind to render the produce raised or received by him fit to be taken to market. It would appear from the definition of agricultural income given in the Act that the two ingredients which can make income agricultural are, (1) that the land from which income is derived should be used for agricultural purpose; and (2) that the land should either be assessed to land revenue in Assam or be subject to a local rate assessed and collected by officers of the Crown as such. 29. There is no dispute about the existence of the second ingredient. The references before us assume it. The controversy centres round the question whether on....
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....imply the same basic conception. Some include ' forestry ' in the term. It is to be observed, however, that the word used when forestry is included, is forestry and not forests. The distinction is important because when one turns to the definition of forestry in the dictionaries, one finds that it is also an art or science. Thus, Webster says it is the art of farming or cultivating forests; the management of growing timber' and the Oxford English Dictionary says much the same thing. Therefore, throughout we find that the essence of agriculture, even when it is extended to include 'forestry', is the application of human skill and labour. Without that it can be neither an art nor a science. And that we feel must be the determining factor in this class of cases. " 32. It is noteworthy that "agriculture" described by Webster as "an art or science of cultivating the ground" includes in it the rearing and management of livestock, animal husbandry, farming and so forth. "Forestry" which again is an art or science is included within the scope of agriculture by some dictionaries including Webster. Now, whether agriculture is an art or ....
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....follows :- "It is sufficient for the purpose of the present appeal to say (1) that in their opinion no assistance is to be got from the meaning ascribed to the word ' agriculture ' in other statutes and (2) that, though it must always be difficult to draw the line, yet, unless there is some measure of cultivation of the land, some expenditure of skill and labour upon it, it cannot be said to be used for agricultural purposes within the meaning of the Income-tax Act. " 36. Their Lordships have not laid down that some measure of cultivation is absolutely necessary before it can be said that land is used for agricultural purposes. In fact "some measure of cultivation" is placed on a par with some expenditure of skill and labour. If either of the two conditions exists, the land could be said as being used for agricultural purposes. Tillage or actual cultivation would not in their view be an essential pre-requisite of "agriculture" in its wider implication. 37. In Hedayet Ali v. Kamalanand Singh [1913] 17 CLJ 411; 20 IC 332, it was held that the term "agriculture" was of wider import than the term "cultivation," which accordin....
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.... of 1000 acres each, Trees in each block were sold when the trees were about 15 years old. (2) To prevent damage of the new shoots in the early stages of their growth and to give new vigour to the new shoots and saplings, the ground is kept free from undergrowth of jungle and by removal of leaves. (3) During the early stages of the growth in each block, the areas cut down are closely guarded by forest guards at least for one year from the time when the block in question is cut down thus keeping out both men and cattle off from the lands so that they may not damage the growing shoots by trampling and/or browsing as the case may be. (4) Cutting the trees in each particular block after 15 years in a particular season. 41. There was admittedly no cultivation of the soil. The test laid down by their Lordships of the Privy Council was interpreted. The meaning assigned to it was that it was not necessary, in the view of their Lordships, that there must always be some measure of cultivation of the land and some expenditure of skill and labour upon it, but that the proof of either would be sufficient to bring the case within clause (a) or clause (b) of Section 2(1) of the Bengal Agricultur....
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....se the ground, cutting of trees at special heights, reservation of blocks by turns and their operation in cyclic order, preservation of mother trees for the spread of seed, protection of forests from fire, etc., are admittedly regularly carried on and this is further testified to by an Officer of the Mechpara Ward's Estate." 44. According to him, the trees in these forests were not of spontaneous growth as regular operations were being undertaken for their growth, preservation and regeneration. The Member, Assam Board of Agricultural Income-tax, agreed with the finding of the Appellate Assistant Commissioner. He stated that it was admitted by the assessees that the Sal forests in question are to be nursed, preserved and developed at considerable expenses; labour and trouble on these forests had to be carefully looked after ; the noxious creepers which kill Sal trees have to be cut and destroyed ; the undergrowths which hinder the proper growth of plants have got to be destroyed every year and that various other steps have to be taken for their conservation. He further found that Silvicultural operations such as "burning", "Kukt felling", "rains te....
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....at the salami was income and that it could not be treated as capital receipt. In coming to this conclusion be observed as follows : - "Salamis were realised by the appellants by granting settlement of waste lands and abandoned holdings. No loss or injury was caused to the land by such settlements. The land continued to remain the property of the appellants and the lessees were only granted the non-occupancy right for use and occupation. There was no transfer of any vital right and interest permitting waste to be committed on the land and thereby diminishing its capital value. So, salamis as realised by these landlords cannot be treated as capital receipts. Salamis are received by these zamindars in course of their zamindary business. These flow from the land as normal incidents arising in course of the life of the non-occupancy raiyat's lease whenever landlord's consent is required by law. These salamis are not non-recurring payments. The same land can yield salamis many times with changes of leases." 48. On these facts he found that the salamis were covered by the definition of "income" given by their Lordships of the Privy Council in Gopal Saran Nar....
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....re the rate of annual rent reserved for such holdings is uniform and where the salami is taken once in the period of the occupation by a particular tenant but where the period of occupation is not ascertainable as no written leases are given is agricultural income ? and (2) Whether in view of the facts and circumstances of the case, the sum of ₹ 7,934 received by the assessee as salami for settlement of agricultural holdings is agricultural income within the meaning of Section 2(a)(1) of the said Assam Agricultural Income-tax Act ? 52. The answer to these questions were in the affirmative. The reasons for the answers were that the leases were relatively for small areas of land for the purposes of cultivation for periods which were not fixed. It also appeared to the learned Judges that the holdings so granted were at times abandoned. They could be let out again and the salamis could be charged. They were not based on any idea of damage done to the land. The amount varied according to the demand for the land. The rent in the case of these holdings was a fixed figure but the salami varied according to demand. The learned Judges also referred to the receipts of the assessee unde....
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....ure or is income liable to tax. As the authorities referred to in the above mentioned three decisions show, the nature of a receipt described as 'salami' in each has to be determined as a fact. I am unable to hold that the receipt described as 'salami,' if nothing more is stated in respect of it, must be treated as a capital receipt equally so because a receipt is described as 'salami,' it will be an error to treat it as income and to assess it as such. " 55. Mahajan, J., summed up the position as regards 'salami' thus : - "The question whether salami is in the nature of a capital receipt or is income depends on the facts and circumstances of each case and cannot be decided as a mere matter of law. The latest decision on the subject is in Bit Bikram Kishore v. Province of Assam [1949] 17 ITR 220, 53 CWN 164. After giving a resume of the earlier cases on the subject it was said that it was impossible to give an answer to the question as it was not know in respect of which transactions the amount returned as salami was received. In my view the circumstances of the present case are similar to the case cited above and a similar solution of t....
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....aterial now available not being sufficient for the purpose. 59. We, therefore, direct that references 1 to 9 be referred back to the Member, Assam Board of Agricultural Income-tax, for furnishing us with a fuller statement of the case in the light of the judgment of their Lordships of the Federal Court after collecting necessary material on the five questions specifically stated in the order of that Court and also on question 6 given below which is now added to that list by this order. 60. Question 6 which is added at the request of the learned Advocate-General is as follows : - "What amount, if any, has been received as salami by the assessee in each accounting year by the settlement of waste lands?" 61. Question (4) contained in the references before up about collection charges is connected which question (3). In case it is ultimately found that receipts by way of salami are not taxable as agricultural income, the determination of question (4) would not be necessary. In these circumstances, it is advisable to defer its consideration till a fuller statement bearing on question 3 is received. 62. Reference No. 1 arises from the two assessments for the years 1947-48 a....