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TMI Blog1964 (4) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for writs of mandamus or mandatory directions to the concerned Agricultural Income-tax Officers, to forbear from levying or collecting taxes under the Mysore Agricultural Income-tax Act, 1957, on their cash receipts ("dividends") relating to their coffee crop of 1955-56 or earlier seasons and delivered to the Coffee Board before October 13, 1957, the date on which the Mysore Agricultural Income-tax Act, 1957, came into force. In W.P. No. 913 of 1959 the petitioner had already been assessed holding that the "dividends" received by him during the relevant "previous year" was a part of his agricultural income of that year. It will be convenient if we first deal with W.P. No. 499 of 1961 (M/s. Volkart Bros., Tellicherry v. The Agricultural Income-tax Officer, Chickmagalur) and thereafter apply the principles decided in that case to the facts of the other cases. In none of these cases, the facts are in dispute. One Sri B. Narayana Rao, the Internal Auditor of M/s. Volkart Bros., Tellicherry, had filed an affidavit in support of the application, W.P. No. 499 of 1961, wherein he has set out the relevant facts. Messrs. Volkart Bros. (a registered partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the grantee." "Agricultural income" is defined in section 2(a). The portion that is material for our purpose is section 2(a)(1), which says: "'Agricultural income' means any rent or revenue derived from land used for growing all or any of the commercial crops and is either assessed to land revenue in the State or subject to a local rate assessed and collected by officers of the Government as such." "'Previous year' is defined in section 2(p), which says: 'Previous year' means-- (i) the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of any year ending in any date other than the said 31st day of March, then, at the option of the assessee, the year ending on the day to which his accounts have so been made up: Provided that, if the option has once been exercised by an assessee, he shall not exercise it again so as to vary the meaning of the expression 'previous year' as then applicable to him except with the consent of the Agricultural Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1942. Under that Act more or less all growers of coffee must get themselves registered and it is obligatory for the registered growers to deliver their marketable coffee to the Coffee Board and the Coffee Board became the owner of that coffee. The coffee collected from the growers is pooled together and sold by the Coffee Board. The growers are only entitled to "dividends" as and when the "dividends" are declared by the Coffee Board. These "dividends" represent the price of the coffee delivered to the Coffee Board. These "dividends" were and are received in driblets. It generally takes two to three years to get the entire value of the coffee delivered in any year. As mentioned earlier, M/s. Volkart Bros. are adopting the mercantile system of accounting, i.e., they estimate the value of the "points" awarded to them by the Coffee Board and credit the same in their accounts and thus arrive at the profits or losses of any particular year. For the assessment year 1958-59, M/s. Volkart Bros. submitted their return on the basis of the estimated value of their coffee marketed during the "previous year". Therein, they did not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "to draw, take, obtain, or receive from a source or origin." "Income" need not be necessarily cash. It only means a periodical receipt from one's business, land or work or investment. Therefore, the coffee gathered is also income derived. In taxation statutes, the word "derived" is used synonymously with the words "arising" or "accruing". In Commissioner of Taxation v. Kirk [1900] A.C. 588, Lord Davey dealing with section 15(3) of the New South Wales Income Tax Act, 1895, observed: "Their Lordships attach no special meaning to the word "derived" which they treat as synonymous with arising or accruing." Dealing with the meaning of the words "arises" and "accrues", Mukherjea J. (as he then was) observed thus in Commissioner of Income-tax v. Ahmedbhai Umarbhai & Co. [1950] 18 I.T.R. 472, 514; [1950] S.C.R. 335: "It was pointed out by Mukherji J. in Rogers Pyatt Shellac & Co. v. Secretary of State [1925] I.L.R. 52 Cal. 1, 30 that etymologically the word 'accrues' connotes the idea of a growth, addition or increase by way of accession or advantage, while the word 'arises' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into consideration for the purpose of assessment. The same ratio would apply to the subsequent compositions. Otherwise, it would amount to double taxation. In this view, the contention of the learned counsel for the revenue that the compositions referred to earlier were in lieu of the tax due on the income actually realised during the relevant "previous year" does not appear to be correct. The stand taken by the revenue, if accepted as correct, would result in defeating the purpose of the compounding provision under section 7 of the "Act". "Agricultural income" has to be computed as noticed earlier in accordance with the method of accounting regularly employed by the assessee. It further provides that in the case of coffee crop of an assessee, the agricultural income therefrom may be computed on the basis of the valuation on points declared by the Indian Coffee Board in respect of such crop. Messrs. Volkart Bros., as mentioned earlier, have been maintaining accounts in accordance with the mercantile system. They have been assessed on that basis. In the mercantile system of accounting, income and outgoings of each year except in respect of cash dealings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was contended that the combined effect of sections 3 and 4 of the Travancore-Cochin Agricultural Income-tax Act, 1950, was that the income assessed for the particular year should not only have reference to the "previous year" but also must have been derived from land situated within the State during that previous year. Hence, in assessing the income of the financial year 1957-58, the authorities could not have taken into consideration any portion of the income derived from land in the Malabar area during the period before November 1, 1956, when it stood outside the State of Kerala. The Full Bench held that: "The general principle was well settled that a territorial nexus or connection may be enough to save extra-territorial legislation. However, the test of territorial nexus should be satisfied in respect of every year for which the taxation is proposed. So understood, there would be no territorial connection established in this case unless the statutory test laid down in section 4 of the Travancore-Cochin Agricultural Income-tax Act, 1950, was satisfied by the situation within the State and during the year concerned of the land yielding the income sought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the factors, the year of the produce, the year of sale or the year of receipt of the sale proceeds is relevant in interpreting the scope of agricultural income as defined by section 2(a). I have said that 'total agricultural income', despite the definition attempted in section 2(t), is really explained only in section 4 of the Act. Section 4 explains what is the total agricultural income of the previous year in relation to the relevant year of assessment. Three conditions have to be satisfied: (1) the total agricultural income must be of the previous year; (2) it should be agricultural income derived from a plantation situated within the State; and (3) agricultural income should have been received by the assessee, whether that receipt was within or without the State. I see no basis in the language of section 4 for imposing the limitation of the time factor on the second of these requirements (items). Item 3 makes receipt of income the basis of liability to tax. What constitutes receipt, especially where the system of accounting is mercantile, it is not necessary for me to discuss or decide in these proceedings. Since receipt of income is made the basis of liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that the assessee therein maintained his accounts according to the mercantile system. In his judgment, the learned Chief Justice elaborately considered as to what is meant by "mercantile system of accounting". In the course of the judgment, he referred [1962] 45 I.T.R. 86, 96 to the following observations of the Supreme Court in Keshav Mills Ltd. v. Commissioner of Income-tax [1953] 23 I.T.R. 230, 239; [1953] S.C.R. 950: "The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book-keeping under which a record is kept of actual cash receipts and cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred, before it is actually disbursed. The profits or gains of the business which are thus credited are not realised, but having been earned are treated as received though in fact there is nothing more than an accrual or arising of the profits at that stage. They are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tentatively fixed at the time but it is liable to adjustment subsequently. Often it takes time before the entire sale price is realised. Keeping in mind these facts, if we take a particular accounting year, the computation of income will in a way depend upon the system of accountkeeping adopted by an assessee. If it is the mercantile system, the income from the sale will be entered as income which has accrued, though the money might not have been actually paid either in whole or in part. But if it is the cash system which is adopted by the assessee, then though the transaction of sale might be in a particular year of account, yet only the actual amounts realised from the transaction would be entered in the books of account. If the balance is received in a succeeding year, then it would be entered in the account of the succeeding year. In such a case the actual money received during an accounting year would be the income which would be liable to tax. In the mercantile system, however, the actual receipt of the moneys would not be the decisive factor from the point of view of time. In our opinion, whether it is the mercantile system or the cash system that is adopted by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 3 and 4 of the "Act". Further, that view does not accord with the view taken by the Supreme Court in Dooars Tea Co. Ltd. v. Commissioner of Agricultural Income-tax [1962] 44 I.T.R. 6 (S.C.). Therein the court was called upon to consider the scope of section 2(1)(b) of the Bengal Agricultural Income-tax Act which spoke of income "derived" from land. The Supreme Court held that as the section in terms takes the income "derived" from agricultural land by agriculture and giving the material words their plain grammatical meaning there is no doubt that agricultural produce constitutes agricultural income under the clause, and there is no indication in the context which would justify the importing of the concept of sale in the clause. The same would be true here. But, we respectfully concur with the view that no tax liability is imposed by the charging section on the prices of the crop that had already been sold prior to the "previous year", though the price was realised in the "previous year". We are also in agreement with the view that an assessee who adopts the mercantile system of accounting and pays tax on that basis cannot be agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the respondent cannot be sustained. Hence the respondent is directed 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 the earlier years. The respondent shall pay the costs of the petitioner. Advocate's fee ₹ 100. W.P. No. 913 of 1959: The petitioner is a partner in the firm, Messrs. Sadashiva Setty & Bros. This partnership firm owns coffee plantations in Chikmagalur district. It had compounded under section 64(1) of the "previous Act" its tax liability and has paid tax accordingly for the assessment year 1957-58. For the assessment year 1958-59, it submitted its return on July 14, 1958. In that return it did not include the "dividends" received by it during the year ending March 31, 1958, but pertaining to the coffee delivered to the Coffee Board in the years 1955-56 and 1956-57. The respondent has included that amount in his order and taxed the same. In this writ petition, the correctness of that inclusion is challenged. For the reasons mentioned above, that amount should not hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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