1966 (10) TMI 9 - HC - Income Tax

U.P. Agricultural Income Tax Act, 1948 - agricultural income - income from the nursery - rental demand

Summary

Issues Involved:
1. Basis of agricultural income computation (current rental demand vs. actual realization).
2. Classification of income from the nursery as agricultural income.

Issue-Wise Detailed Analysis:

1. Basis of Agricultural Income Computation:

The primary issue was whether the agricultural income should be computed based on the entire amount of the current rental demand or the actual realization of rent. The assessee argued that under Section 5 of the U.P. Agricultural Income-tax Act, 1948, agricultural income should be deemed as the sum realized in the previous year. The Additional Commissioner and the Commissioner initially upheld the practice of assessing income based on the total rental demand for convenience, despite the assessee's contention that actual realization should be the basis.

The Revision Board, however, noted that Section 5, read with Section 2(a) of the Act, indicated that agricultural income should be computed on actual realization rather than total rental demand. The court agreed with this interpretation, emphasizing that no practice or convenience could alter the law, which required assessment based on actual realizations. The court found the State's argument-that realizations meant whatever income was derived from land and should be deemed realized-untenable and a misinterpretation of the term "derived."

2. Classification of Income from the Nursery as Agricultural Income:

The second issue was whether the income from the nursery constituted agricultural income. The assessee contended that the nursery income should not be classified as agricultural income, pointing out that it had already been taxed by income-tax authorities as business income. The Additional Commissioner initially deleted the nursery income from the total agricultural income for 1362 Fasli, but the Commissioner later included it under Section 6 of the Act, although it was not assessed for 1363 Fasli.

The court analyzed the definition of agricultural income under Section 2(1)(b), which includes income derived from land used for agricultural purposes. The court referred to the Supreme Court's interpretation in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy, which emphasized that agricultural operations must involve basic operations on the land itself, such as tilling and sowing, and subsequent operations must be in conjunction with these primary operations.

The court noted that maintaining a nursery typically involves processes not carried out on land in the traditional sense of agriculture and often operates independently as a business. The court found that the materials before the agricultural income-tax authorities were insufficient to justify classifying the nursery income as agricultural income. The court emphasized that the nursery operations did not meet the technical definition of agricultural operations as they did not involve primary agricultural activities on the land.

Conclusion:

The court answered both questions in favor of the assessee, concluding that agricultural income should be computed based on actual realizations and that the income from the nursery did not constitute agricultural income. The court allowed costs of the reference to the assessee, fixing it at Rs. 100 and assessing counsel's fee at Rs. 100.