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TMI Blog1951 (3) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... fly these. The assessee, a firm of merchants, purchased a standing crop of tobacco on an area of 93 acres 12 cents for ₹ 13,833 in January, 1943, from the person who had raised the tobacco on the land. The tobacco was harvested, cured and sold in the market by the assessee before 21st March, 1943, for ₹ 33,498. The plucking of the ripe leaves, the pruning and flue-curing of the harvested tobacco were all done by the assessee firm. It is also stated that there was some sort of ploughing on the land, by the assessee. The curing of tobacco is said to be a process which is ordinarily employed by a cultivator of tobacco to render it fit for sale in the market. The assessee was not a landholder or a ryot or a lessee of the land on wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 4(3)(viii) of the Income-tax Act to prove that the income is "agricultural income" as denned in the Act: see Raja Mustafa Ali Khan v. Commissioner of Income-tax [1948] 16 ITR 330 (PC). It is true, as pointed by the learned advocate for the assessee, that the exemption is conferred by the Act upon a particular kind of income and it does not depend on the character of the recipient. "Agricultural income" as denned in the Act is exempt from tax even though it can be brought under one or the other of the heads of income set out in Section 6 of the Act. Agricultural income has been held not to be assessable as business profits merely because the recipient of the income is a moneylender who has lent monies on a mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land and derives his income from the land. He may actually cultivate the land or he may receive the rent from cultivating tenants. In either case, the rent is the immediate and effective source of income and if the rent is derived from agriculture, the exemption from tax is attracted. Section 2(1) (a), (b)(ii ) and (iii) and (c) of the Act clearly indicate that the persons entitled to exemption are the persons falling within the following categories:-The owner who lets agricultural land to cultivating tenants for a stipulated rent; the owner of agricultural land in which the tenant has a permanent right of occupancy with liability to pay a fixed rent or revenue ; the owner of agricultural land who cultivates it himself; the lessee of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from the land by the performance of agricultural operations on it. A merchant who purchases the standing crop appears on the scene when the crop is ripe or very nearly ripe for harvest, and pays a price for the commodity in which he is trading. No doubt he has a right to enter upon the land to preserve the crop, to tend it and to harvest it but he has no right or interest of any kind in the land itself nor has he any right to the exclusive possession of the land for any period. Growing crops are movable property under Section 3 of the Transfer of Property Act and Section 2, clause (6), of the Registration Act. See also the definition of immovable property in the General Clauses Act. In English law a sale of growing crops is regarded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nor his tenants or servants ever performed any agricultural operation on the land. The assessee earned a profit by the sale of the tobacco at a price over and above the cost price paid for the standing crop and the expenses incurred in harvesting and curing the tobacco. The pruning and ploughing operations were ancillary operations of an unsubstantial character and were conducted under an arrangement1 with the person who raised the crop. Once the standing crop passed from the ownership of the cultivating tenant to that of the trader who purchased it, it lost the quality of agricultural income at that point and any profit made by the trader thereafter by a sale of the produce at a higher price than his cost price would, in our opinion, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of his trade is "agricultural income" as defined in the Act. A fruit merchant may purchase only the produce of an orchard belonging to another and a timber merchant may purchase only the trees planted by the owner of the grove. In these cases he gets the right to gather the fruits or the timber on the land but the profit realised by the merchant on a sale of the commodity is not agricultural income derived from land but is business profit. In Yagappa Nadar v. Commissioner of Income-tax [1927] ILR 50 Mad. 923, this Court held that income earned by a person who had a licence to tap toddy from trees belonging to the licensors and who sold the toddy extracted by him at a profit was non-agricultural income, though if th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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