TMI Blog1976 (9) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ured from leaves bought from outsiders. By an indenture dated October 21, 1964, the assessee took on lease for a period of ten years, all those pieces and parcels of land situate in the village of Hubathalai in the sub-registration district of Coonoor, measuring 54.51 acres at a rental of Rs. 550 per acre per annum. The period of lease was to commence from October 20, 1964. The first year's rent of Rs. 29,925.50 was payable on the execution of the lease deed and the rents for the following years were to be paid in two equal half-yearly instalments on or before the 19th day of April and 19th day of October each year. Clause 2(b) of the deed empowers the assessee to use the estate only as a tea estate and on the determination of the said term, to deliver the same to the lessors in the same order and condition as at the commencement of the lease ; loss and damage due to accidental fire, storm or other acts of God are excepted. The lessee under clause 2(f) was given powers to weed, prune, cultivate and work the estate in a proper and husbandlike manner according to approved methods of cultivating and working tea estates in the Nilgiris ; and in the course of such cultivation and workin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the subsequent operations were in conjunction with it, and, therefore, the income would be partly agricultural and partly business and, consequently, rule 8 of the Income-tax Rules, 1962, would apply. Against this order of the Appellate Assistant Commissioner, the department went up in appeal to the Income-tax Appellate Tribunal. The Tribunal observed that rule 8 of the Income-tax Rules, 1962, provided that income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business and forty per cent. of such income shall be deemed to be income liable to tax and the said rule enunciated the position that in cases where the tea is grown and manufactured by the seller in India, forty per cent. shall alone be liable to tax. It further held that this rule would come into play if the tea is grown and manufactured by the seller in India. The Tribunal, after referring to the decision of the Supreme Court in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC), pointed out that the mere regeneration or preservation of trees could not be said to be expenditure of human skill and labour upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the subsequent operations would not render the income derived from such forest as an agricultural income since the original growth was a spontaneous and natural one. As a matter of fact, the Supreme Court itself in a subsequent decision of it, in Commissioner of Wealth-tax v. Officer-in-charge (Court of Wards), Paigah [1976] 105 ITR 133 (SC) observed as to what the above earlier decision decided, in the following terms : "In Raja Benoy Kumar Sahas Roy's case [1957] 32 ITR 466 (SC) the question before this court was whether income from forest lands derived from sal and piyasal trees 'not grown by human skill and labour' could constitute agricultural income. The test applied there was whether there was some integrated activity which could be described as agricultural operation yielding income. It was pointed out that although a mere wild or spontaneous growth of trees not involving the employment of any human labour or skill for raising them, could not be agricultural income, yet, when there was a forest more than 150 years old, which had been carefully nursed and attended to by its owners, the income would be agricultural." Thus, the decision of the Supreme Court in Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see will henceforth get the hoeing and pruning done at his own cost receiving from the perpetual lessee the sum of Rs. 4,000 annually. The combined operation of the two agreements was that the assessee merely obtained a right to enter the tea estate for the purpose of plucking, picking up, gathering and collecting tea crop in all seasons and the hoeing and pruning operations were the responsibility of the perpetual lessee to the extent of an expenditure of Rs. 4,000 and even by the subsequent agreement, when the responsibility was entrusted to the lessee on his receiving a sum of Rs. 4,000 from the permanent lessee, he was doing it only as an agent or on behalf of the permanent lessee. Consequently, the right which the assessee acquired in the tea estate was a very limited one. As a matter of fact, he did not acquire any interest whatever in the estate at all and merely acquired the right to pluck the tea leaves and nothing beyond that. In that context, the conclusion of the Allahabad High Court, we may say so with respect, was certainly correct in holding that the income derived by the assessee could not be said to be agricultural income and it would not attract rule 24 of the Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing tea from the tea leaves so plucked could be characterised to be agricultural income attracting rule 24 of the Income-tax Rules, 1922, and, consequently, the further observation extracted by us will constitute only an obiter dicta. If it is contended that the learned judges had intended to lay down any principle in those observations, with respect, we would express our disagreement with the same. We have already pointed out that the Supreme Court in the latest judgment while understanding the decision in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC) pointed out that the income derived even by nursing the trees which are of spontaneous growth would constitute agricultural income. Even assuming that without there being any basic operations, there cannot be an agricultural income, no decision was brought to our notice or no principle was drawn to our attention which shows or holds that both the basic operations and the subsequent operations must be carried out by one and the same person for the purpose of getting the benefit of rule 8 of the Income-tax Rules, 1962. Having regard to the special nature of growth and manufacture of tea, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out by one and the same person. As a matter of fact, what is to be understood in this context is as to what is meant by the expression "tea grown" appearing in the rule in question. "Tea grown" in the context in which the expression occurs must necessarily refer to tea leaves and not to the tea plants. This view of ours derives support from the following observations contained in the judgment of the Supreme Court in Tea Estate India P. Ltd. v. Commissioner of Income-tax [1976] 103 ITR 785, 795 : "Income which is realised by sale of tea by a tea company which grows tea on its land and thereafter subjects it to manufacturing process in its factory is an integrated income. Such income consists of two elements or components. One element or component consists of the agricultural income which is yielded in the form of green leaves purely by the land over which tea plants are grown. The second element or component consists of non-agricultural income which is the result of subjecting green leaves which are plucked from the tea plants grown on the land to a particular manufacturing process in the factory of the tea company. Rule 24 prescribes the formula which should be adopted for ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, when the plant is about 18 inches high, 'centring' is done, i.e., the main stem is cut a few inches above ground. The new laterals developed by the plant are again cut a little higher up. This process is repeated. In four or five years, the plant becomes a mature bush of 18 to 24 inches height and is ready to yield a crop." To the same effect is the statement contained in The Wealth of India Industrial Products, Part 8, published by the Council of Scientific Industrial Research, New Delhi. What important part pruning plays in tea is discussed in the book Tea by T. Eden published by Longmans, Green Co., London. At page 56 the book states as follows : "The technique of pruning itself plays a significant part in ensuring good results, and neglect of elementary principles can vitally affect the subsequent development and health of the bush." At page 57, the author further says as follows : "After pruning a period ensues in which growth of new foliage is unrestricted. The bush is thus re-clothed with the maintenance foliage upon which the metabolism of the plant depends. At the same time, the new shoots are produced, which will mature into new wood in due course, and whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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