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Issues Involved:
1. Whether the amount of Rs. 67,337 received by the assessee qualifies as agricultural income under section 2(1) of the Income-tax Act, 1961. 2. Whether the interest accrued on the deposits qualifies as agricultural income. Detailed Analysis: 1. Agricultural Income Qualification: The primary issue was whether the amount of Rs. 67,337 received by the assessee qualifies as agricultural income under section 2(1) of the Income-tax Act, 1961. The court examined the definition of agricultural income under section 2(1), specifically focusing on sub-clauses (a) and (b). - Sub-Clause (a): This clause refers to "any rent or revenue derived from land which is situated in India and is used for agricultural purposes." The court noted that for income to qualify under this clause, it must be directly associated with the land used for agricultural purposes. - Sub-Clause (b): This clause pertains to income derived from agricultural activities such as cultivation or the sale of agricultural produce. The court found that the income received by the assessee did not fall under this sub-clause as no agricultural operations were performed by the assessee. The court referenced the Supreme Court's decision in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466, which emphasized that agricultural income must be derived from the land by agriculture or related activities. The court concluded that the assessee did not perform any agricultural operations on the land and received the money as a result of a stay order from the court, not from agricultural activities. Therefore, the income could not be classified under sub-clause (b). 2. Effective Source of Income: The court applied the "effective source test" and the "direct association test" to determine whether the income was agricultural. The Privy Council's decision in CIT v. Kamakshya Narayan Singh [1948] 16 ITR 325 and the Supreme Court's decision in Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 were cited to emphasize that the income must be directly associated with the land used for agricultural purposes. - Effective Source Test: The court stated that the effective source of the income must be the land itself. In this case, the money was deposited by Bachan Singh and others to prevent their ejection from the land, not as a result of agricultural activities performed by the assessee. - Direct Association Test: The court found that the income was not directly associated with the land as it was received due to a court order and not from agricultural activities performed by the assessee. 3. Interest on Deposits: The court also considered whether the interest accrued on the deposits qualifies as agricultural income. It concluded that the effective source of the interest was the deposits, not the agricultural land. Therefore, the interest could not be classified as agricultural income. Conclusion: The court concluded that the deposits made in the court were to compensate the assessee for being kept out of possession of the agricultural land and were inseparably connected with the agricultural land. Therefore, the deposits qualified for exemption as agricultural income. However, the interest accrued on these deposits did not qualify as agricultural income as its effective source was the deposits themselves, not the agricultural land. Judgment: The court answered the reframed question in the affirmative, in favor of the assessee, and against the department. The assessee was entitled to exemption on the deposits as agricultural income but not on the interest accrued thereon. The assessee was also entitled to costs assessed at Rs. 200.
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