TMI Blog1989 (9) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ffected a partial partition which was registered on August 17, 1978, in which no share was allotted to the wife or the daughter with the result that his status after the partition in question was that of a member of a joint Hindu family. He stated that the act of impressing the estate with the character of joint Hindu family property came about only on August 10, 1978, and the coffee points declared in respect of the coffee crop delivered by him during 1977-78 coffee season and prior thereto were collected by him in the status of an individual. He contended that impressing the property with the character of joint family property and the subsequent partition would absolve him of the liability to pay tax in respect of the receipts which came to him in the form of coffee points. According to him, he no longer held the property as an individual, but held it only as Hindu undivided family. During the previous year relevant to the assessment years in question, he had no agricultural income in his status as Hindu undivided family, and in his individual capacity or status he owned or held land only for a part of the accounting year between April 1, 1978, and August 9, 1978, and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, the supplementary points received by the petitioner which relate to crops of earlier years, not being the crops of the previous year, cannot be charged to tax. According to learned counsel, the coffee-picking season commences in the month of November and terminates about the end of March of next year after the picking is completed. The growers supply coffee to curers under the directions of the Coffee Board and even at the point of picking, there is a statutory sale of the coffee grown pursuant to the directions of the Coffee Board and the Coffee Board thereafter allots points to the growers and declares certain value per point, and it is submitted that, depending upon the price realised on sale in auctions, there were subsequent declaration of dividends. Thus, in a year, grower may receive dividends in respect of the crops raised in any of the earlier crop seasons. It is submitted that there is no provision in the Act to bring to tax dividends received by a grower in respect of coffee grown and surrendered to the curers in earlier years and, in view of such absence, there cannot be tax in respect of the supplementary points received for earlier years. Learned counsel brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the meaning attributed to it for the purpose of enactments relating to income-tax, to ascertain the meaning of the expression "agricultural income", we have to look to enactments under the Income-tax Act. The Act incorporates the very definition and the concepts enumerated in the Income-tax Act, 1961, to the expression "agricultural income" as provided in section 2(1)(a) thereof. Section 2(1)(a) of the Act defines "agricultural income" to mean any rent or revenue derived from land which is used for agricultural purposes and is assessed to land revenue and also any income derived from such land by agriculture, or by subjecting an agricultural crop grown thereon to a process to render such produce fit to be taken to market or sale of such crop or user thereof. "Person" is defined as any individual or association of individuals owning or holding property for himself or for any other, or partly for his own benefit and partly for another as owner, trustee, receiver, common manager and includes an undivided Hindu Mitakshara family, a firm, company, etc. "Previous year" is defined to mean the twelve months ending on the 31st day of March preceding the year for which the assessment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plantation was received in earlier years, income derived by the assessee from the sale proceeds of that produce in the year of account is not exempt from tax under the Act in that year. In that case, the court was concerned with section 3 of the Madras Plantations Agricultural Income-tax Act, 1955. It has been explained that (headnote) "'income' in its normal connotation does not mean mere production or receipt of a commodity which may be converted into money. Income arises when the commodity is disposed of by sale, consumption or use in the manufacture or other processes carried on by the assessee qua that commodity. There is no reason to think that the expression 'income' has any other connotation in that Act. A tax on income whether agricultural or non-agricultural is, unless the statute otherwise provides, a tax on monetary return-actual or notional. Merely because the produce of his plantation was received in the earlier years, income derived by the assessee from the sale of that produce in the year of accounting is not exempt from tax under the Act in that year." This position has been reiterated in the case of Tara Chand Hoti Lal Babu Ram v. ITO [1973] 89 ITR 298 (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the crop grown and consigned by the assessee to the Coffee Board or the estimated value of such crop shall be taken into account as the income of the year according to the method of accounting regularly employed by the assessee : Provided that if the estimated value declared by the assessee is less than the average of the rates declared by the Coffee Board for three immediate previous years, the Agricultural Income-tax Officer or the Assistant Agricultural income-tax Officer shall take into consideration the average rates for the purpose of assessment : Provided further that any receipt in respect of the earlier season's coffee crop received during the accounting period in excess of the amount already taken into consideration in the assessments of preceding years shall be considered as the income of the previous year." These provisions prescribed the manner of computation of income. The question at what point of time it is chargeable is answered by the method of accounting adopted by the assessee either when it is received by him or when it accrues or arises to him during the previous year. Taxability is attracted even when income has accrued and it is clear that r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as to chargeability of agricultural income, it becomes clear that rule 9(c) is framed to carry out the purposes of the Act. Since the method of accounting by itself Will not determine the nature or ambit of tax, the Act itself can provide for a mode, apart from the cash system or mercantile system to bring to tax an income which is really intended to be subjected to tax. Considering the nature and complexity of the matter involved in respect of the income from coffee estate, as the coffee is supplied to the Coffee Board, and such supply takes place in pursuance of the statute which holds it to be a sale, the sale proceeds, therefore, constitute income. Such income will fall under section 2(1)(a) as it is income derived from land in the State by the sale by the cultivator of the produce raised by him. The price is tentatively fixed at the time of sale but is liable to adjustment subsequently. Often, that process takes time before the entire sale price is paid. If we bear these aspects in mind, demonstrating the complexity of the nature of transaction, it cannot be said that the Legislature cannot provide for any other mode of ascertaining income for purposes of taxation apart fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the petitioner that sub-section (4) of section 26 of the Act is unconstitutional as the same was beyond the competence of the State Legislature, and, therefore, the same should be declared as invalid by this court. Section 26 of the Act came to be substituted by the Karnataka Act 10 of 1987. Sub-section (4) of section 26 provides that receipts after discontinuance of the business or profession can be treated as agricultural income in the year of receipt in the hands of the recipients. The petitioner's contention is that this provision is applicable only to cases in respect of a company, firm or association of individuals discontinuing the business yielding agricultural income and is not attracted to a case of the nature on hand. According to learned counsel for the petitioner, since the State has no power to bring within the net of taxation an item which does not bear the character of agricultural income, sub-section (4) is legislated beyond the purview of article 366(1) of the Constitution and, therefore, it is liable to be struck down. Supplementary receipts received by the petitioner were at a point of time when he ceased to have an interest in the agricultural land and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission, it was contended that agricultural income can be brought to tax as provided in entry 46, List II of the Seventh Schedule read with entry 82 of List I. It was submitted that the concept of income would include only such income as agricultural income as defined in the Income-tax Act. The Act incorporates the very definition given in the Income-tax Act in respect of agricultural income. What is really contended in this case is that the income derived being not from agricultural land and being merely receipt from the Coffee Board, such income has no connection or nexus to the agricultural activities and, therefore, the same is invalid. It is clear that the income is derived as a result of supply of coffee to the Coffee Board. The Coffee Board was enjoined with the duty to make payments for coffee received and the assessee is entitled to receive payment though not concerned any more with the coffee supplied by him. Since the sale proceeds received is income relating to agricultural activity carried on during the earlier years, it must be deemed to be the income of the recipient, as the original assessee is no longer continuing the business and, therefore, is liable to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge to tax is not justified as section 3 and section 2 (1) (s) contemplated only a full previous year. What is brought to tax under section 3 of the Act is agricultural income during the previous year. If the income earned by the petitioner is agricultural income, whether it is for a broken period or for a full period does not matter at all, because, in any agricultural operation, the income is not earned throughout the year, but mostly seasonal ; and, therefore, the contention raised on behalf of the petitioner has no basis at all. Now what remains for consideration is the challenge to the impugned assessment orders. We have upheld the constitutional validity of section 26(4) of the Act. Section 13 of Act 10 of 1987 (hereinafter referred to as "the Amending Act"), has made the same retrospectively applicable from April l, 1975, and the assessments made which fulfil the conditions thereto are validated. These petitions have been filed in the year 1981 while section 26(4) was introduced into the Act in the year 1987. It is doubtful if the action of the respondent impugned herein could be sustained without recourse to the amended provisions. Moreover, section 13(1) of the Amen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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