1945 (4) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Society is chargeable to Assam agricultural income-tax for the cultivation and/or manufacture of tea at its Deckiajuli estate sold to its members.
2. The applicability of the Indian Income-tax Act and Assam Agricultural Income-tax Act provisions to the Society.
3. The nature of transactions between the Society and its members and whether they constitute sales.
4. The relevance and applicability of previous legal precedents and judgments.

Issue-wise Detailed Analysis:

1. Chargeability to Assam Agricultural Income-tax:
The primary question was whether the Society is chargeable to Assam agricultural income-tax concerning the cultivation and/or manufacture of tea at its Deckiajuli estate sold to its members. The Court examined the definitions and provisions under the Assam Agricultural Income-tax Act, 1939, and the Indian Income-tax Act. Specifically, Section 2(a)(2)(i) of the Assam Act defines agricultural income identically to the Indian Income-tax Act, and Rule 24 of the Indian Income-tax Rules states that 40% of the income from the sale of tea grown and manufactured by the seller in British India is liable to tax. The Court concluded that the Society is chargeable to Assam agricultural income-tax.

2. Applicability of Income-tax Provisions:
The Court referred to Section 8(1) of the Assam Act, which provides that agricultural income shall be assessed on the net amount determined by rules under the Act. The proviso to Section 8 states that agricultural income from the cultivation and manufacture of tea shall be deemed to be the portion of the income from cultivation, manufacture, and sale which is agricultural income within the meaning of the Indian Income-tax Act. Rule 5 of the Assam Agricultural Income-tax Rules, 1939, further clarifies that the portion of net income worked out under the Indian Income-tax Act and left unassessed as agricultural shall be assessed under the Assam Act. The Court determined that the method of ascertainment of agricultural income, which is 60% of the income derived from the sale of tea, is valid and applicable.

3. Nature of Transactions between the Society and its Members:
The Society argued that no profit can be made by an association trading with itself, and the transactions of supplying tea to its members are not sales but mutual dealings. The Court examined the facts and found that the Society sells tea to its members at market rates, and the transactions result in an excess of receipts over expenditure, which constitutes profit. The Court referred to the rules of the Society, which provide for the distribution of net profits in various ways, including payment of interest on share capital and dividends to members based on their purchases. The Court concluded that the transactions between the Society and its members are sales, and the profits derived from these transactions are chargeable to tax.

4. Relevance and Applicability of Previous Legal Precedents:
The Court referred to several previous judgments, including Last v. London Assurance Corporation [1885] 10 App. Cas. 438, Styles v. New York Life Insurance Co. (1889) 14 App. Cas. 381, and English & Scottish Joint Co-operative Wholesale Society Ltd. v. Commissioner of Income-tax, Madras [1929] 3 I.T.C. 385. The Court distinguished the facts of the present case from those in Styles' case and found that the transactions between the Society and its members are not mutual dealings but sales. The Court also noted that the Madras High Court's decision in the 1929 case was doubted in subsequent judgments. The Court concluded that the facts in the present case fall within the ambit of Last's case and are analogous to those in Liverpool Corn Trade Association v. Monks [1926] 2 K.B. 110, where the profits from transactions with members were held to be taxable.

Conclusion:
The Court answered the question of law in the affirmative, holding that the Society is chargeable to Assam agricultural income-tax in respect of the cultivation and/or manufacture of tea at its Deckiajuli estate sold to its members. The transactions between the Society and its members are sales, and the profits derived from these transactions are taxable. The Court's decision was based on the interpretation of relevant provisions of the Assam Agricultural Income-tax Act, Indian Income-tax Act, and applicable legal precedents.