1948 (10) TMI 12 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income derived from the sale of timber from forests of spontaneous growth is agricultural income.
2. Whether the income derived from letting out pasture meadows with spontaneously growing grass is agricultural income.

Detailed Analysis:

Issue 1: Income from Sale of Timber from Forests of Spontaneous Growth
The primary question was whether the income derived from the sale of timber from forests of spontaneous growth qualifies as agricultural income under Section 2(1) of the Indian Income-tax Act, 1922, and thus is exempt from taxation under Section 4(3)(viii).

The court referred to the definition of "agricultural income" in Section 2(1) of the Income-tax Act, which includes:
- Any rent or revenue derived from land used for agricultural purposes and assessed to land revenue.
- Any income derived from land by agriculture, or by processes employed by a cultivator or receiver of rent-in-kind to render the produce fit for market, or by the sale of such produce.

The court examined the case of Raja Mustafa Ali Khan v. Commissioner of Income-tax, United Provinces, Ajmer and Ajmer-Merwara [1948] 16 ITR 330, where the Privy Council held that income from the sale of trees growing naturally without human intervention is not agricultural income. The court emphasized that unless there is some measure of cultivation or expenditure of skill and labor upon the land, it cannot be said to be used for agricultural purposes.

Based on this precedent, the court concluded that income from the sale of timber obtained from forests of spontaneous growth does not qualify as "agricultural income" because no human skill or labor was expended on the land. Thus, the amount of Rs. 14,208 derived from the sale of timber is not exempt from taxation.

Issue 2: Income from Letting Out Pasture Meadows with Spontaneously Growing Grass
The second question was whether the income derived from letting out pasture meadows with spontaneously growing grass qualifies as agricultural income.

Mudholkar, J., argued that income from pasture lands where no human skill or labor is expended does not qualify as agricultural income. He referenced the same Privy Council case and other similar judgments to support his view that the mere description of land as pasture land is not conclusive.

However, Bose, Ag C.J., disagreed, emphasizing that pasturage is closely allied to agriculture and should be considered part of it. He referred to definitions and historical contexts where pasturage was considered an agricultural purpose. He argued that the rearing and management of livestock, which requires pasturage, is an agricultural activity.

Hidayatullah, J., was called upon to resolve the difference of opinion. He agreed with Bose, Ag C.J., stating that the notion of cattle-breeding and dairy-farming is part of agriculture. He emphasized that the expenditure of skill and labor in rearing cattle on pasture land satisfies the test laid down by the Privy Council. Therefore, the income derived from letting out pasture meadows should be considered agricultural income, provided the animals pastured are agricultural animals.

Final Judgment:
The court answered the reference as follows:
1. The amount of Rs. 14,208 derived from the sale of timber is not agricultural income and is not exempt from taxation under Section 4(3)(viii) of the Income-tax Act.
2. The amount of Rs. 1,275 derived from letting out pasture meadows is agricultural income to the extent that it is derived from agricultural animals pastured thereon. If the animals are not agricultural, the income is liable to taxation.