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TMI Blog1980 (7) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... re granted for agricultural purposes. The income which is claimed to be agricultural income had accrued from the land situate in village, Berkhera Rajput, the area of which was 385.89 acres. The assessee had obtained a permanent lease of this land from its zamindar, Raja Hari Chand Raj Singh, by a registered deed dated September 6, 1950, which was in favour of a firm, Gauri Shankar Agrawal Co., of which the assessee and his wife were partners. The land which the assessee had taken was at that point of time being claimed by Bachan Singh and four others. These persons alleged that they were lessees of the land, and they had obtained lease from the Punjab Farmers' Association, which in turn obtained a lease in 1946 from the court of wards of the zamindar. The court of wards, however, had not formalised the lease by a written deed in favour of the Punjab Farmers' Association, as the estate of Raja Hari Chand Raj Singh was released from its custody. Thereafter one Kashi Nath, the agent of the Raja executed a lease. As a result of these conflicting claims to the land, protracted litigation between the assessee and Bachan Singh and others took place. It began by proceedings under s. 145 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed the amount deposited by the petitioners shall be returned to them, but if the petition is dismissed the amount so deposited shall be made over to the respondents Nos. 4 and 5. Dt. 19-7-65. Sd. R.S.P". The writ petition filed by Bachan Singh and others was allowed on 13th July, 1967, by a single judge of this court, but a letters patent appeal filed against it, succeeded, as the Division Bench by its order dated 28th August, 1969, upheld the decision of the Board of Revenue. Special appeal preferred against this order was dismissed by the Supreme Court on 26th March, 1971. To return to the monies deposited under the stay order, Bachan Singh and others had deposited an amount of Rs. 1,25,000 in compliance with the orders of this court, which had been invested in Defence Savings Certificates, and an amount of Rs. 9,675 had accrued as interest thereon. Thus, a total sum of Rs. 1,34,675 had accumulated, which was to be distributed to the assessee and his brothers. He received an amount of Rs. 67,337 as his share, and the dispute in the present reference is as to whether this amount represents the agricultural income of the assessee, and as such was exempt from tax. The ITO held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause." Now before the amount in question can be treated as agricultural income it must fall either under sub-cl. (a) or sub-cl. (b) of s. 2(1). The income received by the assessee cannot possibly fall under sub-cl. (b). Sub-clause (ii) of cl. (b) contemplates the performance by the cultivator of any process to render the produce raised by him fit to be taken to the market. No agricultural produce was raised or processed by the assessee at all. Sub-clause (iii) is also out of the way, for it applies only in cases where the cultivator sells the produce raised by him. So far as sub-cl. (i) is concerned that is also out of the picture, for, though it applies to income derived from agricultural land, the income must be derived by the process of the agriculture. Mere income from agricultural land without resorting to the process of the agriculture for deriving the income will not do. The Supreme Court in the case of CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC), had this to say on this aspect of the matter at pages 505 and 507 (t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith these basic operations could it be said that even though they are divorced from these basic operations they would nevertheless enjoy the characteristic of agricultural operations ? Can one eliminate these basic operations altogether and say that even if these basic operations are not performed in a given case the mere performance of these subsequent operations would be tantamount to the performance of agricultural operations on the land so as to constitute the income derived by the assessee therefrom agricultural income within the definition of that term ? We are of opinion that the mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations which we have described above would not be enough to characterise them as agricultural operations. In order to invest them with the character of agricultural operations, these subsequent operations must necessarily be in conjunction with and a continuation of the basic operations which are the effective cause of the products being raised from the land. It is only if the products are raised from the land by the performance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh [1948] 16 ITR 325 has held that rent is a technical conception, its leading characteristic being that it is a payment in money or in kind by one person to another in respect of the grant of a right to use the land. The assessee did not grant any right to Bachan Singh and others to use the agricultural land. They did so under the orders of the court. Thus, the receipt is not rent. We are then left with the question as to whether it is revenue. Now assuming, that the word " revenue " is a term of wider import than rent, the revenue must be derived from the land. The Privy Council in Kamakshya Narayan Singh's case [1948] 16 ITR 325 has held that the word " derive " is not a term of art. It requires an inquiry into the genealogy of the product, and if the effective source from which the income accrues was not land, the fact that there is some nexus between the land and the income received would not convert it into agricultural income. It would be better to quote the Privy Council's decision. The observations of the Privy Council in this regard are to be found on page 328 of the report. Their Lordships have this to say: "The word 'derived' is not a term of art. Its use in the defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax either the actual tiller of the soil or any other person getting land cultivated by others for deriving benefit therefrom, but to say that the benefit intended to be conferred upon this class of persons should extend to those into whosoever hands that revenue falls, however remote the receiver of such revenue may be, is hardly warranted." It will be seen that the Privy Council adopted the " effective source test and brought in the " genealogical tree " or the " offspring test ". The Supreme Court has applied the " direct association " test. Both the tests are substantially the same. For, what constitutes the " effective source " or that which stands in the first degree of the " genealogical tree " its first offspring, must be necessarily directly associated with the source of the income. We propose to apply these tests in this case too. Before we do so we may dwell on the cases cited at the Bar. The decisions relied upon are: CIT v. Manna Ramji and Co. [1972] 86 ITR 29 (SC), CIT v. All India Tea Trading Co. Ltd. [1978] 113 ITR 545 (Cal), CIT v. B. Gupta (Tea) P. Ltd. [1969] 74 ITR 337 (Cal), Simrathmull v. CIT [1967] 64 ITR 166 (Mad), CIT v. Sir Kameshwar Singh [1935 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78] 113 ITR 545 (Cal) agricultural land was requisitioned under the Assam Land (Requisition Acquisition) Act, 1948, and compensation was paid for the requisition. The question arose as to whether the compensation paid was agricultural income and exempt from income-tax. The Calcutta High Court held that as payment of compensation was directly associated with the requisitioned land, and the source of compensation was the land itself, as such, the compensation received had to be treated as agricultural income. In CIT v. B. Gupta (Tea) P. Ltd. [1969] 74 ITR 337 (Cal), the assessee had insured its tea crops against damage from hailstorm. The insurance company became liable under the policy as soon as the crops were damaged. It was held that the money received from the insurance company was agricultural income. The " substituted profit or representing the profits " test applied by the Supreme Court in Raghuvanshi Mills' case [1952] 22 ITR 484 (SC) was applied. In Province of Bihar v. Maharani Janki Kuer [1947] 15 ITR 360 (Pat), the assessee had realised damages from a trespasser for wrongful occupation of the land. The Patna High Court took the view that the income received was tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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