TMI Blog1964 (4) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 partnership firm) have their branch officer at Tellicherry, in the State of Kerala. They have also coffee p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Officer and upon such conditions as he may think fit; or (ii) such period as may be determined by the Commissioner in the particular ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffee. 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 include the dividends received by them from the Coffee Board in the previous year in respect of the coffee delivered on or before August 31, 1957. The Agricultural Income-tax Officer has opined that those dividends form part of the agricultural income of the assessee derived during the prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir 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' suggests the idea of growth or accumulation with a tangible shape so as to be receivable. The two expressions denote almost the same idea and the difference only lies in the fact that one is more appropriate than the other when applied to particular cases. It is clear, however, as the learned judge pointed out that these words have been used in contradistinction to the word 'received' and both of them represent a stage anterior to the point of time when the income becomes receivable; they connote a character of income which is more or less inchoate. As I have stated alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides 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 are estimated and profits and losses struck on that basis. That system materially differs from the cash system of accounting. 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 (see Amalgamated Coffee Estates Ltd. v. State of Kerala [1962] 45 I.T.R. 353; Gajapathi Naidu v. Commissioner of Incometax [1960] 40 I.T.R. 282 and Commissioner of Income-tax v. Shrimathi Singari Bai [1945] 13 I.T.R. 224. # A.I.R. 1959 Ker. 182 (F.B.)). Prior to November 1, 1956, the Mysore State referred to in the Act was not in existence. The My ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfied 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 assessed. In fact, the fetter of extra-territoriality could never be got over because the legislation here was in essence territorial. Reliance was placed by the learned counsel for the revenue on the decision of Rajagopalan J. in Puthutotam Estates (1943) Ltd. v. Agricultural Income-tax Officer, Coimbatore [1957] 2 M.L.J. 495, 498. Undoubtedly, that decision supports the revenue. The provisions of the Madras Plantations Agricultural Income- tax Act, so far as they are relevant for our present purpose, are in pari material with the provisions of the Act with which we are concerned in these cases. The petitioner therein received from the Coffee Board during the relevant year of account 1954-55 an amount of ₹ 2,39,206-8-6, which represented in part of the sale proceeds of the coffee produced in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be assessed, the receipt must necessarily be in the previous year to make the income taxable as the income of this previous year; it really gets linked up with item No. 1. But there is no such limiting factor for the second item, which requires that the agricultural income must have been derived from a plantation situate within the State. The Privy Council pointed out in Commissioner of Income- tax v. Kamakhya Narayan Singh [1948] 16 I.T.R. 325 (P.C.): 'The word derived is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered.' Judged by this test, the sale proceeds of agricultural produce certainly constitute income derived from a plantation within the meaning of section 4. The use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 book profits. Receipt being not the sole test of chargeability and profits and gains that have accrued or arisen or are deemed to have accrued or arisen being also liable to be charged for income-tax, the assessability of these profits which are thus credited in the books of account arises not because they are received but because they have accrued or arisen. He also quoted with approval the following observations of Iqbal Ahmed C.J. in Commissioner of Income-tax v. Shrimali Singari Bai [1945] 13 I.T.R. 224, 227: Under this system (mercantile accountancy system) the net profit or loss is calculated after taking into account all the income and all the expenditure relating to the period, whether such income has been actually received or not and whether such expenditure has been actually paid or not. That is to say, the profit computed under this system is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee, there will be no practical difficulty at all in the computation of income except in the case of income relating to transactions completed before 1st April, 1954. The charge under the Act took effect as and from the 1st April, 1955, and section 3, the charging section, makes the tax leviable for the financial year commencing from 1st April, 1955, on the total agricultural income of the previous year, that is, the year commencing 1st April, 1954. It follows that the Act does not make the agricultural income of any year prior to 1st April, 1954, subject to tax. While we agree with the learned Advocate-General that the fact that the crop was grown during a period prior to 1st April, 1954, would not by reason of that fact only take such crop away from the liability under the Act, we do not agree with him that even when the sale of the crop is completed before 1st April, 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 again asked to pay tax on his actual cash receipts during the previous year in respect of the crops of the prior years. For the reasons mentioned above, Writ Petition No. 499/1931 is allowed and the respondent therein is directed 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. The respondent shall pay the costs of the petitioner. Advocate's fee ₹ 100. W.P. No. 581 of 1961: The petitioner herein owns coffee estates in Mudigere taluk of Chikmagalur district. He had compounded his tax liability for the assessment years 1955-56, 1956-57 and 1957-58 and paid tax accordingly. The petitioner received dividends in the year 1957-58 and 1958-59 for the coffee delivered by him to the Coffee Board previously. He did not include those receipts in his return for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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