TMI Blog1976 (4) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... pectively, against the judgment of the Calcutta High Court answering the following question referred to it under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act"), partly in favour of the assessee and partly in favour of the revenue : " Whether, on the facts and in the circumstances of the case, the balances in the undernoted accounts are includible in the 'accumulated profits' within the meaning of section 2(6A)(c) and, if so, to what extent ? " Dibru Tea Co. Ltd. Rs. Darang Taikrong Tea Co. Ltd. Rs . Land A/c. ... 19,30,374 10,11,216 Profit Loss Account ... 16,69,285 18,73,125 General Reserves and liabilities for taxation 3,50,799 2,243 Reserves created on writing up the value of the assets of the tea estates 15,69,828 58,772 " The matter relates to the assessment year 1956-57, the corresponding accounting year for which ended on June 30, 1955. The assessee-company held 52,350 shares out of the total issued shares of 54,600 in Dibru Darang Tea Co. Ltd. (hereinafter referred to as " DDT Co.") and 22,998 shares out of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Assistant Commissioner rejected all other contentions of the assessee, including the contention that 60 per cent of the amounts appearing under the head "balance of appropriation account" in the balance-sheets as also the general reserves and liabilities for taxation appearing in the books of the two tea companies should be excluded from the computation of accumulated profits. On further appeal before the Tribunal, two main contentions were raised on behalf of the assessee : (1) that in determining the quantum of the accumulated profits, the surplus arising from sale of lands of the two tea estates as also the reserves created on the revaluation of the agricultural assets should be left out, and (2) that only 40 per cent. of the balance in the profit and loss account and the general reserves of the two companies should be included, as only 40 per cent. of these amounts had been assessed under the Act. Regarding the first contention, the Tribunal observed : " In the case before us, since the lands of the two tea estates were utilised for producing and selling the tea, it cannot be said that the said assets could be termed as 'land from which the income derived was agri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal thereupon referred the question reproduced above in a composite reference to the High Court. Dealing with items 1 and 4 mentioned in the question, the High Court held as under : " As both the learned counsel agree that the same treatment should be given to the reserves created on writing up the value of the assets as to the excess and/or profit realised on sale either of the lands or of the assets of the tea estates, it should be sufficient to consider the case of such excess arising from the sale and/or transfer by the two tea companies. Whether the excess of the price realised over the book value of the lands as shown in the land account balance and as envisaged in the question referred or whether the excess on the sale of the entire tea estates over the book value of the assets are to be considered for inclusion in the 'accumulated profits' under section 2(6A)(c), there can be no doubt that such excess or profit is a realisation of capital rise and not profit of the business. As according to the decision of the Supreme Court in Short Brothers' case, unless such appreciation has been included in capital gains, a distribution thereof by the liquidator will not be dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough a bifurcation is necessary for the purpose of assessment and imposition of tax no further bifurcation could be made once the balance of profit was finally determined. Of such balance it could not be said that a part represents agricultural income and the rest represents income from business. So far as the general and taxation reserve is concerned, Mr. Ray agrees that such reserve is usually built up out of the profits to meet future liabilities but contends that as in this case also such reserve had been built up of 60 per cent. agricultural profit such reserve should again be disintegrated into the component parts. We are entirely unable to accept this contention. As pointed out by Mr. Pal, the Supreme Court in Girdhardas's case advocated disintegration of the amount distributed into two components, namely, capital and accumulated profits. There is no scope for further disintegration of profits into its component parts. " The amounts mentioned in items 2 and 3 of the question were accordingly held to be wholly includible in the accumulated profits within the meaning of section 2(6A)(c) of the Act. Before dealing with the contentions advanced by the counsel for the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. Section 6 enumerates the six heads of income to be : (i) salaries, (ii) interest on securities, (iii) income from property, (iv) profits and gains of business, profession or vocation, (v) income from other sources, and (vi) capital gains. According to section 12(1A), income from other sources shall include dividends. Under section 12B, as it stood at the relevant time, capital gains tax shall be charged in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected after the 31st day of March 1946, and before the 1st day of April, 1948, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place. Section 59 empowers the Central Board of Revenue, subject to the control of the Central Government, to make rules for carrying out the purposes of the Act. The Indian Income-tax Rules, 1922, were framed in pursuance of that section. Rule 23 of the said rules provides for assessment of income which is partly agricultural and partly income chargeable to income-tax. Rule 24, with which we are concerned, reads as under : " Income derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company out of accumulated profits of the company on the liquidation of the company : Provided that only the accumulated profits so distributed which arose during the six previous years of the company preceding the date of liquidation shall be so included. " By the Finance Act, 1955, the proviso to sub-clause (c) of clause (6A) was omitted. There was a further amendment made by the Finance Act, 1956, and clause (c) to the amended section read as follows : " 'Dividend' includes--...... (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not. " As a result of the above, distribution which is attributable to the accumulated profits of the company immediately before its liquidation is deemed to be dividend and as such liable to be taxed. Sixty per cent. of the profits made by DDT Co. and TT Co. by sale of tea grown and manufactured by them were not liable to be taxed under the Act in view of rule 24 of the 1922 Rules because they were to be treated as agricultural income of those two com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 per cent. of the dividend income received by her on her shares in those companies was also exempt from tax as agricultural income. This claim was rejected and it was held that the dividend income received by the assessee was not agricultural income but was income assessable under section 12 of the Act. Agricultural income as defined in the Act, according to that decision, was intended to refer to revenue received by direct association with the land which is used for agricultural purposes and not by indirectly extending it to cases where that revenue or part thereof changes hands either by way of distribution of dividends or otherwise. Mr. Ray has assailed the correctness of the view taken by the Constitution Bench of this court in the above decision and has submitted that the matter should be reconsidered. Apart from the fact that this Bench is bound by the decision of the Constitution Bench, we find nothing in that decision which warrants reconsideration of the matter. We would, therefore, uphold the answer given by the High Court in respect of items 2 and 3 of the question. In appeal by the Commissioner of Income-tax his learned counsel, Mr. Hardy, has submitted in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Karimtharuvi Tea Estates Ltd. it was observed while dealing with the income derived from the sale of tea grown and manufactured by the seller in the context of rule 24 : " Of the income so computed, 40 per cent. is, under rule 24, to be treated as income liable to income-tax and it would follow that the other 60 per cent. only will be deemed to be 'agricultural income' within the meaning of that expression in the Income-tax Act. " In the case of Anglo-American Direct Tea Trading Co. the Constitution Bench of this court held that income, from the sale of tea grown and manufactured by the assessee is derived partly from business and partly from agriculture. This income has to be computed as if it were income from business under the Central Income-tax Act and the Rules made thereunder. Forty per cent. of the income so computed is deemed to be income derived from business and assessable to non-agricultural income-tax. The balance of 60 per cent. of the income so computed is agricultural income within the meaning of the Central Income-tax Act. So far as the lands held by DDT Co. and TT Co. were concerned, they yielded purely agricultural income in the shape of green ..... X X X X Extracts X X X X X X X X Extracts X X X X
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