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Issues Involved:
1. Whether any portion of the ground rent received from the assessees tenants in respect of certain lands on which shops had been erected is agricultural income within the meaning of Section 2(1)(a) of the Indian Income Tax Act, 1922, and is exempt from tax under Section 4(3)(viii) of the said Act? 2. Whether the interest of Rs. 3,109, which the assessee received under Section 18A(5) of the Income Tax Act, was liable to be included in the assessee's total income for the year 1948-49? 3. Whether any part of the dividend income of Rs. 36,229, received by the assessee from tea companies, is agricultural income under Section 2(1) of the Income Tax Act and is exempt from tax under Section 4(3)(viii) of the said Act and if so, what part of such dividend income is so exempt? Issue-wise Detailed Analysis: Issue 1: Ground Rent as Agricultural Income This issue pertains to the assessment years 1946-47, 1947-48, and 1948-49. The assessee received ground rent from tenants for lands on which shops were erected. The rent was split into two portions: one for the floor area of the shops and another for the remaining vacant area. The assessee included only the rent for the floor area in the return, excluding the vacant land portion. The Income Tax Officer found no agricultural operations were performed on the vacant land and added the income from the vacant portion to the assessee's returns. The Appellate Assistant Commissioner dismissed the assessee's appeals but reduced the estimated income. The Tribunal also rejected the assessee's contention but directed the Income Tax Officer to ascertain the actual ground rent for the vacant land. The court held that the test to determine whether the income is agricultural is the actual use of the land for agricultural purposes, not the purpose of the lease. Since the land was used for non-agricultural purposes, the income derived from it could not be considered agricultural income. The assessee failed to produce evidence to show the land was used for agricultural purposes. Therefore, the first question was answered against the assessee and in favor of the Income Tax Department. Issue 2: Taxability of Interest under Section 18A(5) The court referred to a previous ruling in Commissioner of Income Tax v. Kameshwar Singh, which held that interest on advance payment of tax was neither a capital receipt nor a casual receipt and was liable to be included in the assessee's total income for taxation. Based on this precedent, the court held that the interest of Rs. 3,109 received by the assessee under Section 18A(5) was liable to be taxed. Thus, the second question was answered in favor of the Department and against the assessee. Issue 3: Dividend Income from Tea Companies as Agricultural Income The assessee received dividends from tea companies and argued that only 40% of the dividend should be taxed as per Rule 24 of the Income Tax Rules, which states that income from the sale of tea grown and manufactured by the seller should be computed as business income, with 40% deemed taxable. The Tribunal rejected this argument, stating that dividends cannot be identified with any particular class of income. The court held that dividend income is not identical in quality with the profits made by the company. A company is a separate juristic entity from a shareholder, and the income of the company cannot be deemed the income of the shareholder. Dividends, once declared, become a debt due to the shareholder and may be recovered from the company's assets, which may not necessarily be agricultural. The immediate and effective source of the dividend is the statutory contract between the company and the shareholders, not the agricultural operations of the company. The court cited several cases, including Commissioner of Income Tax v. Kamakshya Narayan Singh and Premier Construction Co. Ltd. v. Commissioner of Income Tax, to support this view. Therefore, the court held that no part of the dividend income of Rs. 36,229 received by the assessee from tea companies is agricultural income within the meaning of Section 2(1) and is exempt from being taxed under the Indian Income Tax Act. The third question was also answered against the assessee and in favor of the Income Tax Department. Conclusion: All three questions referred by the Income Tax Appellate Tribunal were answered against the assessee and in favor of the Income Tax Department. The assessee was ordered to pay the costs of the reference, with a hearing fee of Rs. 250.
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