1938 (11) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Assessability of income from coffee as profits of a business.
2. Applicability of the second proviso to Section 4(2) of the Indian Income Tax Act.
3. Determination of the assessable income under Section 4(1) of the Act.

Detailed Analysis:

1. Assessability of Income from Coffee as Profits of a Business:
The High Court initially held that the income derived from the coffee estates in Mysore was "income from agriculture" and thus exempt from taxation under the second proviso to Section 4(2). The assessee argued that his income from coffee was not assessable as profits of a business. However, the judgment clarified that the assessee was indeed carrying on a "business" within the meaning of Section 10 of the Act, as defined by Section 2(4). It was stated that "such profits as the petitioner derives from his possession of land in Mysore is derived by means of a business; and the fact that agricultural operations form an element in the business does not render it any the less a business." The High Court's reliance on Kirk's case was noted, but the judgment emphasized that the business operations must be regarded as a whole and not arbitrarily divided.

2. Applicability of the Second Proviso to Section 4(2) of the Indian Income Tax Act:
The second proviso to Section 4(2) exempts income from agriculture arising or accruing in a State in India from land for which any annual payment is made to the State. The High Court held that the income was "income from agriculture" and thus exempt under this proviso. However, the judgment clarified that the proviso does not apply to income received in British India. It was emphasized that the proviso is intended to prevent the widening of liability under sub-section (2) and does not relieve the resident from liability under sub-section (1). The judgment stated, "the widening of liability shall not attach to the incomes therein mentioned."

3. Determination of Assessable Income under Section 4(1) of the Act:
The judgment focused on whether the income in question accrued or arose within or without British India. The High Court had concluded that the income was received in British India and thus assessable under Section 4(1). The judgment supported this view, stating that the income was received as proceeds of sales paid to the assessee in Mangalore. The historical amendments to the section were discussed, highlighting that the central words "income accruing or arising or received in British India" must be interpreted to include income received in British India. The judgment concluded that the assessee's income was not exempt under the second proviso to Section 4(2) and was assessable under Section 4(1).

Conclusion:
The appeal was allowed, and it was determined that no part of the income derived from the coffee estates in Mysore is exempt from taxation under the second proviso to Section 4(2) of the Indian Income Tax Act. The assessee was held liable to tax under Section 4(1). The High Court's order as to costs was set aside, with each party bearing its own costs in the High Court.