1964 (4) TMI 127 - HC - Income Tax

Summary

Issues Involved:
1. Whether the "dividends" received by the assessees in the relevant "previous years" in respect of coffee delivered to the Coffee Board in prior years can be considered as their agricultural income of the year in which the "dividends" were received for the purpose of agricultural income-tax.
2. The impact of the compositions under Section 64 of the Mysore Agricultural Income-tax Act, 1955, on the tax liability of the assessees.
3. The relevance of the mercantile system of accounting in determining the tax liability.
4. The territorial applicability of the Mysore Agricultural Income-tax Act, 1957, to income derived from lands that were not part of the present Mysore State before November 1, 1956.

Issue-Wise Detailed Analysis:

1. Dividends as Agricultural Income:
The principal question was whether the "dividends" received by the assessees in the relevant "previous years" for coffee delivered to the Coffee Board in prior years can be considered as their agricultural income of the year in which the "dividends" were received. The court held that the value of coffee delivered to the Coffee Board before September 13, 1957, represents the agricultural income of the assessee "derived" on or before that date. Therefore, the "dividends" received in that regard cannot be said to have been "derived" during the year 1957-58. The court emphasized that the word "derived" is synonymous with arising or accruing and that the income need not be necessarily cash; it only means a periodical receipt from one's business, land, work, or investment.

2. Impact of Compositions under Section 64:
The court considered the compositions under Section 64 of the Mysore Agricultural Income-tax Act, 1955, which allowed assessees to compound their tax liability by paying a lump sum calculated on the basis of the extent of land cultivated. The court held that the compositions debar the State from levying any assessment on the value of crops gathered in the years to which the compositions relate. The court found that the compositions were in lieu of the tax due on the income derived during the "previous year," and therefore, the value of the coffee crops realized during the "previous year" could not be taken into consideration for assessment again.

3. Relevance of Mercantile System of Accounting:
The court noted that the assessees had been maintaining accounts according to the mercantile system, which means that income and outgoings of each year are estimated, and profits and losses are struck on that basis. The court held that if the assessee maintains his accounts in accordance with the mercantile system of accounting, his cash receipts in respect of the previous year's dealings are irrelevant in determining the tax due from him during the relevant assessment year. The court referenced several cases to support this view, including Amalgamated Coffee Estates Ltd. v. State of Kerala, Gajapathi Naidu v. Commissioner of Income-tax, and Commissioner of Income-tax v. Shrimathi Singari Bai.

4. Territorial Applicability of the Act:
The court addressed the issue of the territorial applicability of the Mysore Agricultural Income-tax Act, 1957, noting that the present State of Mysore came into being only on November 1, 1956. The court held that the Act could not impose any tax liability on the agricultural income "derived" at a time when the lands from which they are derived were not part of the present Mysore State. The court referenced a similar case from the Kerala High Court, N.N. Ananthanarayana Iyer v. Agricultural Income-tax and Sales Tax Officer, to support this view.

Separate Judgments Delivered:

W.P. No. 499 of 1961:
The court allowed the writ petition and directed the respondent to forbear from levying or collecting tax under the Act on the cash receipts relating to the petitioner's coffee crop of 1955-56 and earlier seasons, and delivered to the Coffee Board before August 31, 1956.

W.P. No. 581 of 1961:
The court directed the respondent to forbear from levying tax under the Act on the amounts received by the petitioner during the assessment years ending March 31, 1958, and March 31, 1959, from the Coffee Board for the coffee delivered in 1956-57 and earlier years.

W.P. No. 582 of 1961:
The court directed the respondent to forbear from levying tax under the Act on the amounts received by the petitioner during the assessment years 1957-58 and 1958-59 for the coffee delivered to the Coffee Board in the year 1957-58 and earlier years.

W.P. No. 913 of 1959:
The court issued a writ quashing the impugned order of assessment, directing the respondent to correct the order of assessment to conform with the requirements of law as interpreted in the judgment.