TMI Blog1965 (10) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... tain receipts were not taxable in those assessment years and the State of Kerala is the appellant before us. The assessment year in each case ended on March 31 of the year and tax was leviable on the results of the previous year. For the first of the two assessment years, corresponding to the previous year ended on March 31, 1955, the net agricultural income was assessed at Rs. 1,32,198 and a tax of Rs. 45,443-1-0 was demanded by the department and in the succeeding assessment year, corresponding to the previous year ended on March 31, 1956, the amounts of net agricultural income and the tax were respectively Rs. 1,14,339 and Rs. 42,810-5-0. The assessee-company claimed that Rs. 97,090 in the first year and Rs. 10,095 in the second year were not taxable although received by the company from the Coffee Board during the relevant accounting years. The company contended that these payments were in respect of coffee delivered by the company to the Coffee Board under section 25 of the Coffee Market Expansion Act, 1942; in the years 1952-53 and 1953-54, that is to say, prior to April 1, 1954, when the Madras Plantations Agricultural Income-tax Act came into force and were not assessable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly received when the payment was received or when the produce was handed over to the Coffee Board and under the mercantile system of accounting it was entered in the books of account of the assessee-company. If the answer is that income was received when the crop was handed over to the Coffee Board and the entry was made in the books of account under the mercantile system, the judgment under appeal must be considered to be right but if it is the other way, then the action of the department was correct. We shall now consider this question. Before we proceed we shall analyse the provisions of the two Acts with which we are concerned. The Madras Plantations Agricultural Income-tax Act consists of 65 sections. It is not necessary to give a full analysis of that Act. For our purpose it is sufficient to refer to some of the provisions only. Section 2 defines "agricultural income", inter alia, as any income derived from a plantation in the State and Explanation II says that agricultural income derived from such plantation by the cultivation of coffee means that portion of the income derived from the cultivation, manufacture and sale of coffee as may be defined to be agricultural incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advisory Committee of the legislature attached to the commerce department, the present Act was passed. This Act has been frequently amended and today it is called the Coffee Act after the amendment of its title in 1954. We have referred, and shall refer, to it by this name. The Coffee Act constituted a board which was known as the Indian Coffee Market Expansion Board, now called the Coffee Board. The Coffee Board is a body corporate (having perpetual succession and a common seal) with power to acquire and hold property, both movable and immovable and to contract (section 5). The Coffee Act imposes a duty of customs on all coffee produced in India and exported from India (section II) and a duty of excise on all coffee which an estate registered under section 14 is permitted, under a scheme of internal sale quota allotted to it, to sell in the Indian market, whether such coffee is actually sold or not, and on all coffee released for sale in India by the Coffee Board from its surplus pool (section 12). The proceeds of these duties (though first credited to the Consolidated Fund of India) may be paid to the Coffee Board and when so paid are credited to a General Fund (section 13). All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time whether the internal sale quota has been exceeded or not and the Coffee Board may reject any defective consignment (sub-section (2)). Coffee delivered to the Coffee Board for inclusion in the surplus pool must represent fairly in kind and quality the produce of the estate, and such coffee remains under the control of the Coffee Board and the Coffee Board is responsible for its storage, curing (when necessary) and marketing (sub-section (3)). The Coffee Board must prepare,from time to time, a differential scale for the valuation of such coffee. In accordance with that scale the Coffee Board must classify each consignment delivered for inclusion in the surplus pool and make an assessment of its value based on its quantity, kind and quality (sub-section (4)). Sub-section (5) is not material. Sub-section (6) then provides as follows :--- "25. Surplus coffee and surplus pool .---- ...... (6) When coffee has been delivered or is treated as having been delivered for inclusion in the surplus pool, the registered owner whose coffee has been so delivered or is treated as having been so delivered shall retain no rights in respect of such coffee except his right to receive the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the proportion which the value of coffee delivered by the owner bears to the value of all coffee delivered to the surplus pool out of one year's crop. But an owner need not wait and may accept an immediate settlement for his coffee. It follows that coffee delivered to the Coffee Board becomes the property of the Board no sooner it is delivered. The Coffee Board can borrow money by pledging it and is not required to return any part of that coffee to the producer. It only sells it and gives to the planter price proportionate to the value of all coffee in the surplus pool for that year, unless the planter settles for an immediate payment. The appellant-company maintains its accounts on the mercantile system. When it handed over coffee to the Coffee Board it entered the price of the coffee according to the valuation of the Coffee Board in its books of account although it did not receive payment immediately because as has been shown above the payment is delayed unless immediate settlement is made. The payment for coffee handed over before April 1, 1954, was received after that date. No doubt actual payment was received in the previous years relevant to the two assessment years, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er year but if the sale took place earlier than that date, tax would not be payable even if the price was realized later. In the Kerala High Court distinction was made between entries under cash and mercantile systems of book-keeping. In Amalgamated Coffee Estates Ltd. v. State of Kerala, the assessee followed the mercantile system and payments entered in the accounting period April 1, 1953, to March 31, 1954, were held not taxable even though actually received after April 1, 1955. The reasoning in these two cases is the same as in this judgment. It is, therefore, not necessary to refer to them. The judgment under appeal follows the earlier decision of the same court and the. Divisional Bench decision of the Madras High Court, and in our opinion the High Courts have taken the right view of the matter. The High Court was thus right in holding that there was no sale in the years relevant to the assessment years for which the tax was demanded. The sale had taken place in the earlier years over which the Agricultural Income-tax Act did not operate. The appeals will therefore be dismissed with costs. One set of hearing fees. Appeals dismissed. - - TaxTMI - TMITax - Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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