TMI Blog1989 (2) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... , (3) Jaipur Tea Estate and (4) Namsang Tea Estate, under different agreements and all these agreements contained more or less identical terms and conditions. One such agreements is dated September 15, 1969, for the sale of Seleng Tea Estate, a copy of which has been annexed to the statement of case. The Tribunal has found that the assessee-company had agreed to sell Seleng Tea Estate with effect from January 1, 1969, and the other three tea estates with effect from January 1, 1970, but the deeds of conveyance in favour of the purchasers were not executed within the relevant previous year which ended on March 31, 1970. The conveyance deeds in respect of Seleng Tea Estate, Baisahabi Tea Estate, Jaipur Tea Estate and Namsang Tea Estate were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id period has not been included in the return of income of the assessee-company. The Income-tax Officer observed that till the end of the relevant previous year, the sale deeds had not been executed in favour of the purchasers and possession of the tea estates had also not been delivered to the purchasers. The Income-tax officer also examined the agreements entered into by the purchaser with the vendor and came to the conclusion that the income from the four tea estates had to be included in the hands of the assessee-company. Therefore, he added back a sum of Rs. 7 lakhs on account of income from the aforesaid four tea estates to the assessee's returned total income for the relevant year. On appeal, the Appellate Assistant Commissioner wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it earned from the business of growing, manufacturing and selling of tea and the same had to be taxed under section 28 of the Income-tax Act, 1961. "This was a clear case of diversion of income by an overriding title and not a case of application of income for a specific purpose after its accrual. The obligation to credit the net proceeds realised by the sale of tea to the purchaser was attached to the very source of the income and not to the income." The Tribunal also noted the finding of the Appellate Assistant Commissioner that the same income was assessed to tax in the hands of the purchasers also but that was not challenged by the Department in the appeal. In the above facts and circumstances, the Tribunal, at the instance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only from the date on which deeds of sale were executed and the immovable properties could not be transferred by any other process. During the relevant period of account, the ownership of the four tea estates remained with the assessee-company and, therefore, the assessee-company will have to pay tax on the income accruing or arising out of any business activity in the tea estates. This argument is clearly fallacious. The income arising out of agricultural operations in the tea estates would not come within the ambit of the provisions of the Income-tax Act because that would be income from agriculture. The manufacturing process after the tea is grown gives rise to business income. The sale proceeds of such manufactured tea is assessed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period ending on December 31, 1969, on account of rents, taxes, cesses, etc., would be borne by the purchasers. Under clause 9 of the agreement, it has been agreed that the purchaser would bear the expenses incurred by the vendor as from January 1, 1969, on the outlay in respect of the said tea estate for the period subsequent to January 1, 1969. Clause 14 of the agreement contains sub-clauses (a) and (b). Sub-clause (a) provided that the vendor would have absolute control over the operational function of the tea estate and the purchaser could offer suggestions, which suggestions the vendor would consider but would not be under any obligation to accept such suggestions. All expenses incurred by the vendor for the period from January 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crual, then the Income-tax Officer cannot proceed to assess the income thus diverted as the income of the transferor. In this case, not only had the tea estates been transferred but the income accruing therefrom had also been transferred to the purchaser with effect from January 1, 1969. All its manufacturing activities as from that date were on behalf of the purchaser. The income attributable to the manufacturing activity accrued to the purchaser. I fail to see how the income realised from sale of such tea can be assessed as the income of the vendor. In this connection, reference may be made to the observations made by G. K. Mitter J. in the case of CIT v. Tea Producing Co. of India Ltd. [1963] 48 ITR 200 (Cal), where it was stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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