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1963 (12) TMI 44

..... r section 54 of the Coorg Agricultural Income-tax Act, 1951, to be hereinafter referred to as "the Act", two questions of law have been referred to us for our opinion. They are: "1. Whether there were materials for the Commissioner of Agricultural Income-tax to hold that the status of the applicant is an 'association of persons' for purposes of assessment under the Coorg Agricultural Income-tax Act, 1951? 2. Whether the sale proceeds of timber removed from the petitioners' estate can form part of agricultural income?" [The learned judge set out the statement of case, which ran as follows:] HEGDE J.-Sri E.M. Muthappa Chettiar, the former owner of the estate called the "Cotacaudu and Jeynacaudu Estates", Sontikoppa, Coorg, by a deed of settlement dated December 19, 1955, transferred the right of ownership of the estate to his three sons in shares who continued to administer and cultivate the lands of the estate as equal partners. As the ownership of the estate was merely transferred from the father to the sons, the Agricultural Income-tax Officer, Coorg, treated the status of the assessee as that of an "association of persons" and a .....

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..... eaning of section 3 of the Coorg Agricultural Income-tax Act, 1951, and hence the finding of the Agricultural Income-tax Officer with reference to the status of the assessees as an association of persons was upheld by me. The second question of law which the petitioner has raised is: Whether income from timber removed from the petitioners' estate is liable to agricultural income-tax? The definition of agricultural income as set out in the Coorg Agricultural Income-tax Act, 1951, includes "any income derived from the land which is used for agricultural purposes. The income from the sale of timber in question was derived from the estate which is used for agricultural purposes." [After setting out the statement of case as above, HEGDE J. continued:] Now, coming to the first question referred to us, the finding of the Commissioner of Agricultural Income-tax, to be hereinafter referred to as "Commissioner", is as follows: "The deed of settlement dated December 19, 1955, has transferred the right of ownership of the estate from the father to the sons. From that day onwards the three brothers joined themselves for a common purpose, namely, to work the estate t .....

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..... n such cases, the true test is to see whether they had joined in a joint venture to raise produce or to earn income, profits or gains from the estate inherited or received by them. This question came up for consideration in Commissioner of Income-tax v. Laxmidas Devidas [1937] 5 I.T.R. 584; A.I.R. 1938 Bom. 41. Speaking for the court, Beaumont C.J. held in that case: "The words 'other association of individuals' in section 3 have to be construed in their plain ordinary meaning. The only limit to be imposed on the words 'other association of individuals' is such as naturally follows from the fact that the words appear in an Act imposing a tax on income, profits and gains, so that the association must be one which produces income, profits or gains. An association of two or more persons for the acquisition of property which is to be managed for the purpose of producing income, profits or gains falls within the words, 'other association of individuals' in section 3, and under section 9 of the Act, the association of individuals is the owner of the property, and as such is assessable." This decision was cited with approval by the Supreme Court in Commis .....

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..... association of persons." This decision was cited with approval by a Bench of this court in Civil Petition No. 88 of 1957. Hence, the decision on the question whether the assessee in this case are an "association of persons" does not depend on the fact that they jointly own the coffee estate in question, but on the fact that they earn or help to earn income by reason of their association. On this point, the finding of the Commissioner is clear and unambiguous and the same is against the assessees. The learned counsel for the assessees placed strong reliance on the decision of the Lahore High Court in Nizam-ud-din Amir-ud-din of Lahore, In re [1934] 11 I.T.R. 443. Therein, the assessees, who were the co-heirs of a Mohammadan, inherited after his death under Mohammadan law specific shares of the property left by him. The assessees did not partition the property and the rent deeds stood in their joint names. They had jointly employed a munshi to manage the property and collect the rents and the income; after deducting the cost of collection and other expenses, the balance was distributed in accordance with their respective shares. In the assessment year 1937-38 the incom .....

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..... , 1922. Therefore, the decisions rendered on the latter provision bear on the point under consideration. But, before going to the decisions in question, it is necessary to state that the contention of the assessees was, as mentioned earlier, that the timber sold had spontaneously grown. It was not the case of the department that the timber in question was grown with the aid of human agency. It is for the department to establish that the income, which is tried to be reached by the department, is exigible to tax. In other words, it is for the department to establish that the timber sold was not spontaneous growth. Having said this much, we may now proceed to consider the decisions bearing on the point. We shall first refer to the decision of the Judicial Committee in Raja Mustafa Ali Khan v. Commissioner of Income-tax [1948] 16 I.T.R. 330 (P.C.). Therein the Judicial Committee held that, though it must always be difficult to draw a line yet, unless there is some measure of cultivation of the land, some expenditure of skill and labour upon it, it cannot be said to be used for agricultural purposes within the meaning of the Income-tax Act, 1922. Their Lordships further held that the in .....

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