TMI Blog1969 (11) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted by the assessing authority when he revised the assessments for the earlier years. The assessing authority was of the view that the accounts were maintained under the cash system and that while computing the agricultural income of the assessee for the assessment year 1960-61, the opening and the closing stocks of paddy for the assessment year were not taken into account when the original assessment order was passed, and in this view there has been an escapement of the assessable income of the assessee. In those circumstances he exercised his jurisdiction under section 35 of the Act, and discountenanced the objections of the assessee that he had no jurisdiction to reopen closed assessments and in any event the basis of reassessment was wrong. One other contention raised by the assessee was that the advance of paddy received by him during the earlier accounting year 1959-60, which was noticed in the relevant assessment year since they were returned in that year, can never form part of his agricultural income for the assessment year in question, and if at all they represented the income of the earlier years which was the subject-matter of a composition proceeding and hence it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal assessments made were in order and the reassessments undertaken by the assessing authority for the years 1960-61 and 1961-62 were without jurisdiction, and even if he could reopen such assessments, it was irregular and on a misappreciation of the words " agricultural income " appearing in the Act. The Tribunal once again came to the conclusion that the system of accounting was the cash system and it ought to be held to be so because the assessee did not object to such a characterisation of his account before the appellate authority and that such an objection for the first time before the Tribunal cannot be entertained. It held that the proceedings initiated by the assessing officer under section 35 of the Act was valid. It is curious, however, to note that the Tribunal after having come to the conclusion that it is impossible to decide on the basis of the entries in the books whether the petitioner is following the cash system of accounting or not, held that the method of accounting followed by the petitioner was the cash system because he raised no objection to such a finding before the assessing or the appellate authorities. Regarding the other objection raised by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paddy received by the petitioner from others and which admittedly was not referable to the produce of the accountable year, cannot be deemed to be agricultural income of that year and that the original order for the assessment year 1962-63 based on above erroneous assumption is illegal. The learned Assistant Government Pleader, however, supported the order and urged that the contentions of the petitioner are untenable. Before noticing the respective contentions of the parties, it is common ground that the material made available before the assessing officer as also the accounts scrutinised by him do not disclose that the paddy was ever the subject-matter of sale or performance of any process by the assessee to render the produce raised or received by him fit to be taken to the market. As a matter of fact, no manufacturing process or sale of the produce of the crop raised was ever indulged in by the assessee and it is not the case of the revenue that such is the nature of the agricultural income in the instant case. On the other hand, it is common ground that it is the agricultural income derived from the land in the State by agriculture within the meaning of section 2(a)(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipts and actual cash payments. They reflect cash dealings as they occur. The entries are made only if cash is received or cash is disbursed. In this system, income would be taxable when actually received, whereas in the mercantile system it would be taxable in the year of receipt or on the date of entry of such receipt--See Puthutotam Estates (1943) Ltd. v. Agricultural Income-tax Officer and State of Kerala v. Bhavani Tea Produce Co. Ltd. It is not suggested in this case that the entries in the books ever disclosed a cash receipt or disbursement. In fact, there is no suggestion that the produce was ever subject to a sale or a manufacturing process with intention to sell. The entries disclosed only the receipt of income in kind. Even the other entries regarding the refund of advances of paddy are entries in kind. This is one method of accounting of the agricultural produce. The account books are regularly kept and the finding is that they are regularly maintained. The system may be a queer one, but it is an acceptable one. Whether the quantification as made in the books is correct or not is a different matter. At this stage we are concerned with the system of accounting which is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. On the other hand, the agricultural income fits into the definition as contained in sub-clause (i) of clause (a)(2) of section 2 of the Act. In such a case, as there is no actual sale and as no mechanics are there in the Act to find the money equivalent to the produce raised or received, the Act provides a machinery to evaluate the income notionally and in accordance with the market value thereof. It is now well settled that for income to be " agricultural income ", the produce which is the subject-matter need not have been the subject-matter of a sale resulting in a profit or gain. The word " income ", in the context in which it appears in the Madras Agricultural Income-tax Act, does not derive colour from any antecedent transaction such as sale in relation to the agricultural produce receipted or derived. If the produce is subject to a sale or a manufacturing process with intent to sell, then the money equivalent of the ultimate result of such an activity becomes chargeable. But in the absence of a clear postulate in the language of the definition of " agricultural income ", envisaging a sale of the produce as a condition precedent for charging agricultural income to tax, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produce respectively raised or received by such a person. But where a person raises a crop and realises the produce, such realisation itself amounts to the receipt of agricultural income ............ The definition of 'agricultural income' however indicates that a sale of the produce is not always necessary before one can expect the receipt of agricultural income............" Again at page 380 it was observed : " What the legislature has endeavoured is to specify the receipt of income by two different classes of persons, one by a person who derives income by agriculture, the income being represented by the crop itself and which presumably is not subsequently sold by him but utilised by him for his own needs. In such a case, the income is received when the crop is harvested. In the other case, where the cultivator raises principally for the purpose of marketing it, it is the sale of the produce that results in the realisation of income. If any process necessary to render the produce fit for the market such as ordinarily employed by such persons, is performed, that presumably results in an increased value of the crop obtained by the sale. The money realised by the sale is trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter of a concluded assessment, though it might be on a composition basis. Thus, the closing. balance as on March 31, 1959, or the opening balance as on April 1, 1959, reflected the produce grown during the accounting year 1958-59. This suffered tax already under the composition arrangement. Therefore, for the accounting year April 1, 1959, to March 31, 1960, relating to the assessment year 1960-61, it is illegal to take the above opening stock for any purpose and for reckoning agricultural income-tax for the accounting year ending with March 31, 1960. Th e assessee carried the surplus stock of the previous year only for purposes of accounting. This has no impact or hearing on the agricultural income for the year of account. Even so, the inclusion and consideration of such opening stock in the account books of the assessee for the assessment years 1961-62 and 1962-63 are without authority in law. In the light of our explanation of " agricultural income ", the entries relating to opening and closing stocks have no relevancy to exigibility to tax. This is so, as far as the entries relating to return of deposits or loans are concerned. These entries do not connote the produce raised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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