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TMI Blog1974 (12) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... dically replenished to the crystallisers to allow the salt crust to from into sufficient thickness. The salt crystals so formed are then collected by means of manual labour. The appellant contended before the Income-tax Officer that salt is produced in its lands which are assessee is to land revenue and the process, as the basis of salt is a result of agricultural process as the basic agricultural operations like ploughing tilling watering etc. are carried on in the lands for producing salt and claimed and that the income derived from production of salt should be exempt u/s 10(1) of the Income-tax Act, 1961 as it falls with in the definition agricultural income u/s 2(1) (b). The Income-tax Officer came to the conclusion that there is no warrant for extending the term "agriculture" to all activities which have some relation to the land or in any way connected with the land and the term agriculture cannot be dissociated from the primary significance thereof namely tilling of the land sowing of the seed, planting and similar operations on the land and the income derived from production of salt cannot be treated as agricultural income. 3. Before the Appellate Assistant Commissioner t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly and without the intervention however there of human agency is not agricultural income. However there was a conflict of judicial opinion on the question whether in cases where these is no tilling or cultivation of the land and the trees are all of spontaneous germination regular operations in forestry to aid the growth of the trees would constitute agriculture. This conflict was resolved the Supreme Court in CIT vs. Raja Benoy Kumar Sahas Roy(3) and the Supreme Court laid down the following principles : (1) Some basic operation prior to germination involving expenditure of human skill and labour on the land itself and not merely on the growths from the land is essential to constitute agriculture. (2) Subsequent operations, i.e., operations performed after the produce sports from the land, e.g., weeding, digging the soil around the growth removal the soil around the growth, removal of undesirable undergrowth tending pruning, cutting etc. cannot by themselves constitute agriculture. (3) Agriculture connotes not merely the raising of grains and food products for human being and animals but also raising of all commercial crops. (4) Activities not involving any basic operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration carried on in the land must have the effect of fostering the growth, preservation maintenance and regeneration of the products of the land. Webster s New International Dictionary, Vol. 1, at page 643, while talking of cultivation says that to cultivate means to prepare or to prepare and use for raising crops to cultivate the soil to loosen or breakup the soil (growing crops on lands) for the purpose of killing weeds etc. as to cultivate the crop. So, to constitute agricultural process the basic agricultural operations must be such that they have the effect of breaking and loosening the soil to facilitate germination of seeds and the crop sprouting out from the land. In the present case the basic agricultural operations such as ploughing tilling etc. are carried on to as make the soil impervious. The appellant produces salt by solar evaporation of natural brine from wells. Since brine has to be concentrated by allowing exposure over extensive areas it is imperative that it should not be allowed to percolate throughout the soil and necessary precessions are therefore taken to prevent such leakage Brine increases in value as the concentration raises because of the money time an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocity during those days. The salt worked are laid out in such a manner that a condenser adjoins a crystallise or a set of two or three crystallises adjoins one condenser. The condenser is used to get concentrated brine and the brine so obtained is led into the crystallise for evaporation and deposit of salt. The process of evaporation is allowed to continue in these beds until magnesium salts tend to crystallise at 32oc. But before this formation salt is scrapped when it forms 1/7" to 1/4" crust every third or fifth day depending upon the season. As the crust of salt is very thin, skill is utilised in scrapping the same from the clay bed without contamination with mud the above analysis of the production of salt as gathered from the Govt., of India publication. The salt Industry in India" established that: (a) the salt produced does not derive any nutriment from the soil for its formation or production; (b) Since growth of vegetation is essential to impress the land with the character of agricultural land, it can be seen that there is no growth of any kind much less any growth of vegetation is involved when salt is extracted from brine: (c) "agriculture" connotes products ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f salt from the brine. 13. The Supreme Court in CIT vs. Raja Kumar Sahas Roy(3) pointed out that in considering the connotation of the term "agriculture", the product raised from the land cannot be confined merely to the production of grain and food products for human being and beasts but must be understood as comprising all the products of the land which has some utility either for consumption or for trade and commerce. Based on the observations and taking cue from the idiomatic expression "grain of salt" it is contended for the appellant that salt is a grain produced by agricultural process. As pointed out in the Govt. of India publication referred to above salt is a condiment and it misnomer to term it as a grain and the contention is just stated to be rejected. 14. We now proceed to apply the third test. While applying the first and the second test, we have already set out in detail the mode of manufacturing salt from brine by the process of solar evaporation. It is evident that in this process the land is used only as a receptacle or drying pan for eliminating the water contention of the brine by solar evaporation. The activity has no doubt some relation to land and in som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India", salt is a mineral of universal distribution. Salt crust is dissolved in sea in spring in lakes stored in earth, in mines, spread out in swamps or effrascing of plants in every part of the world. The sea is stated to be the biggest store house of salt. Common salt forms 76% of the total salt dissolved in sea. Though there was abolition of salt duty on production and manufacture of salt in 1947, the system of manufacturing salt under excise license still continues. On the abolition of slat duty from 1st April, 1947, a uniform charge of 2 annas per maund is levied on all salts removed from factories and the levy of cess is regulated by the Govt. of India passing an Act called that "Salt Cess Act, 1953". Proceeds of the cess levied under the Act are utilised for certain specified purposes mentioned in the Act. The attention of the officers is in administering and controlling then salt industry is now focussed on the production of salt. The main duties of the officers on in the factories are to conduct brine test and to give technical advice and assistance to the manufacture to help them to produce better quality and increased quantity of a salt. All these factors go to establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross profit shown is solely due to the efforts of the managing agents and there is absolutely no justification for holding that any portion of the managing agency commission was dictated by any extra commercial consideration. The chart filled by the appellant showing the turnover and the gross profit for assessee year 1960-61 to 1969-70 is as under: Asst. year Turnover Gross Profit Rate of G.P. . Rs. Rs. % 1960-61 10,05,500 53,595 5.3 1961-62 12,04,583 1,75,084 14.5 1962-63 8,27,696 2,46,477 29.8 1963-64 16,51,070 2,66,818 16.1 1964-65 14,85,168 2,72,785 18.4 1965-66 18,41,874 3,41,841 17.1 1966-67 19,29,378 6,26,134 32.5 1967-68 22,47,448 6,07,911 27.0 1968-69 27,87,004 7,58,990 27.2 1969-70 29,44,861 8,86,896 29.0 The above chart showing the increase in the turnover and gross profit bears eloquent testimony to the effort taken by the managing agent re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the car expenses as being attributable of to personal user for all the years 1966-67 to 1971-72. 19. The next point in dispute relates to the disallowance of the part of the commission paid to the four employees in Keeranur Salt Scrapping for assessment year 1967-68 and 1968-69.The appellant has been paying commission to the employees at 65 paise commission to the employees at 65 paise per ton whereas for the employees at Keeranur Salt Scrapping commission has been paid at the rate of 95 paise per ton. The Income-tax Officer limited the payment of the commission to the four employees to 65 paise per ton for assessment years, 1967-68 and 1968-69. 20. It is contended for the appellant that the commission payments have been made in pursuance of the agreements entered into between them and the employees and the extra commission has been paid on account of their special skill in scrapping salt in the salt pans and there is no basis for disallowing any portion of the commission payment paid to the four employees at Keeranur Salt Factory is not dispute. In view of the fact their that the payments have been made in pursuance of the agreements with the employees and in view of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by Kanga and Palkhivalla in their book Income Tax, Sixth Edition, Volume 1, at page 147 in the following manner : "Whether subsides or grants are given by the Govt. to assist a trader in his business, they are generally speaking payments of a revenue nature. They are supplementary trade receipts and not capital payments although they might be called advance and might be subject to contingencies of repayments. But where the grant is given not as a supplementary trading receipt but for a specific purpose e.g., to enable a company to undertake works to relieve unemployment, it is not taxable as income. In the instance case the appellant received the grant according to it for a specific purpose ITO namely to cover the expenses incurred in effecting repairs to the salt pans on account of damages caused by floods. For deciding the issue it is necessary to the ascertain the exact terms under with which the grants were made with reference to the relevant Government orders etc. The utilisation of the grants have also to be examined in the light of expenditure already incurred or to be incurred. Thereafter alone a decision can be arrived at on the taxability or other wise to of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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