1971 (10) TMI 19 - HC - Income Tax

Agricultural income - assessee had taken 332 acres of land on lease - Whether on the facts and in the circumstances of the case the income of Rs. 21, 000 was liable to be exempt as agricultural income under section 4(3)(viii) of the Indian Income-tax Act 1922 equal to section 10(1) read with section 2(1)(a) of the Income-tax Act 1961 question is answered in the negative i.e. in favour of the department and against the assessee

Summary

Issues Involved:
1. Whether the income of Rs. 21,000 was liable to be exempt as agricultural income under section 4(3)(viii) of the Indian Income-tax Act, 1922, equal to section 10(1) read with section 2(1)(a) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

Issue 1: Agricultural Income Exemption Criteria
The core issue revolves around whether the income derived from the leased land qualifies as agricultural income and is thus exempt from tax under section 4(3)(viii) of the Indian Income-tax Act, 1922, and section 10(1) read with section 2(1)(a) of the Income-tax Act, 1961.

Key Points:
- The Income-tax Officer included Rs. 21,000 in the total income of each assessee, arguing that the income was not agricultural.
- The assessees claimed exemption under section 4(3)(viii) of the 1922 Act, which was denied by the Income-tax Officer because the land was not assessed to land revenue or a local rate.
- The Tribunal accepted the assessees' contention, treating the rent paid to the Central Government as land revenue, and ordered the deletion of Rs. 21,000 from each assessee's total income.

Tribunal's Reasoning:
The Tribunal's decision was based on the interpretation that the rent paid to the Central Government by the assessees for the leased agricultural land was equivalent to land revenue. The Tribunal argued:
- The army authorities, representing the Central Government, treated the rent as land revenue.
- The income from the cultivation was acknowledged as agricultural income by the department, but the exemption was denied due to the land not being assessed to land revenue in the traditional sense.
- The Tribunal posited that exemption from land revenue presupposes an initial assessment to land revenue, and the land in cantonments, though exempt, was once assessed to land revenue.

High Court's Analysis:
The High Court disagreed with the Tribunal's reasoning, emphasizing that:
- Rent paid to army authorities for leased land cannot be equated with land revenue.
- Land revenue is a State subject, and the Central Government cannot levy land revenue or local rates.
- There is no evidence that the land was assessed to land revenue during the current settlement and later exempted.
- The mere fact that sums due to the Central Government are recoverable as arrears of land revenue does not make them land revenue.
- The income derived by the Union of India as a lessor is not land revenue but rental income.

Legal Precedents:
The High Court referred to Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy and Srish Chandra Sen v. Commissioner of Income-tax to highlight that two conditions must be met for income to be considered agricultural:
1. The income must be derived from land used for agricultural purposes.
2. The land must be assessed to land revenue or subject to a local rate.

Conclusion:
The High Court concluded that the Tribunal's decision was unsustainable, both on principle and authority. The income derived from the leased land did not satisfy the conditions of section 2(1)(a) for being classified as agricultural income. Therefore, the income of Rs. 21,000 was not exempt from tax.

Final Judgment:
The question referred was answered in the negative, in favor of the department and against the assessee, with each party bearing its own costs.