1965 (10) TMI 18 - SC - Income Tax

Whether the two amounts were rightly excluded from the assessable agricultural income for the two assessment years? Held that - 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.

Issues Involved:
1. Taxability of receipts from the Coffee Board under the Madras Plantations Agricultural Income-tax Act.
2. Determination of the year of income receipt under the mercantile system of accounting.
3. Interpretation of the provisions of the Madras Plantations Agricultural Income-tax Act and the Coffee Market Expansion Act.

Issue-wise Detailed Analysis:

1. Taxability of Receipts from the Coffee Board:
The primary issue was whether the amounts received by the assessee-company from the Coffee Board were rightly excluded from the assessable agricultural income for the assessment years 1955-56 and 1956-57. The company claimed that Rs. 97,090 in the first year and Rs. 10,095 in the second year were not taxable as these payments were for coffee delivered to the Coffee Board in the years 1952-53 and 1953-54, prior to the enforcement of the Madras Plantations Agricultural Income-tax Act on April 1, 1954. The High Court accepted the company's contention, leading to the State of Kerala's appeal.

2. Determination of the Year of Income Receipt:
The core question was whether the income was received when the crop was handed over to the Coffee Board and entered in the books of account under the mercantile system, or when the payment was actually received. The High Court ruled that the income should be considered received when the crop was handed over and recorded in the books, not when the payment was received. This was based on the mercantile system of accounting, which the company followed, where income is taxable in the year the relevant entry is made.

3. Interpretation of the Provisions:
The judgment involved an analysis of the Madras Plantations Agricultural Income-tax Act and the Coffee Market Expansion Act. The Madras Plantations Agricultural Income-tax Act defines "agricultural income" and "total agricultural income" and lays the charge of agricultural income-tax on the total agricultural income of the previous year. The Coffee Market Expansion Act, which regulates the sale and export of coffee, was also pivotal. The Act mandates that coffee produced in excess of the internal sale quota must be delivered to the Coffee Board, which then controls its storage, curing, and marketing. The payment to the registered owners is based on the value of the coffee delivered to the surplus pool.

The court concluded that the handing over of coffee to the Coffee Board amounted to a sale by operation of law, and the planter ceased to be the owner once the coffee was handed over. The Coffee Board then became responsible for selling the coffee and paying the planter proportionately. Thus, under the mercantile system, the income was considered received when the coffee was handed over and recorded in the books, not when the payment was actually received.

Conclusion:
The High Court was correct in holding that the income was not taxable in the assessment years 1955-56 and 1956-57, as the sale had occurred in the earlier years, before the Madras Plantations Agricultural Income-tax Act came into force. The appeals by the State of Kerala were dismissed, affirming the High Court's decision that the amounts were rightly excluded from the assessable agricultural income for the relevant years. The judgment emphasized the distinction between cash and mercantile systems of accounting and upheld the principle that under the mercantile system, income is taxable in the year it is entered in the books of account.

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