(1.) THE question that has been referred to us under Section 66(2) of the Indian Income-tax Act runs:
"Whether on the facts and circumstances of the case, the income from the sale of milk received by the assessee during the accounting year is not 'agricultural income' within the meaning of the Income-tax Act,"
THE accounting year of the assessee ended with 31st March 1946. THE assessment year was 1946-47. THE assesses, an undivided Hindu family, owned about 70 acres of agricultural land at Perur near Coimbatore. THE family also owned 65 cows & 10 pairs of bulls. With reference to the cows the statement of the assessee furnished to the Income-tax Officer was:
"THE cows are purely pasture-fed and not stall-fed. It is not being run as a commercial proposition. THE cows are maintained purely for manuring and other purposes connected with agriculture and only surplus milk after satisfying assessee's needs is sold to outsiders."
During the year of account,- the assesses received about Rs. 28,000 as sale proceeds of milk. THE milk was sold to the Co-operative Milk Supply Union at Coimbatore. THE assessee claimed that the profits of the sale of milk constituted agricultural income which was exempt from the payment of income-tax. THE Income-tax Officer rejected that contention. In the absence of any accounts with reference 10 these cattle, the Income-tax Officer estimated the profits of the sale of milk in the year of account at Rs. 4000 and assessed the amount to income-tax. THE Assistant Commissioner, & on further appeal, the Appellate Tribunal upheld that assessment.
(2.) INCOME and agricultural income have been defined by Section 2, INCOME-tax Act. The expression "agriculture", however, has not been defined by the Act. "Agricultural income" has been defined by Section 2(1) of the Act. "Agricultural income" means:
"(a) any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land revenue in British India or subject to a local rate assessed and collected by officers of the Crown as such;
(b) any income derived from such land by--(i) agriculture, or
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him lit to be taken to market, or '(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in Sub-clause (ii);
(c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator, or the receiver of rent in kind, of any land with respect to which, or the produce of which, any operation mentioned in Sub-clauses (ii) and (iii) is carried on;"
In -- 'Commr. of Incometax, Burma v. Kokine Dairy. Rnngocn', 1933-6 I T R 502 Rang. '(FB) Roberta C. ,T. delivering the leading judgment of the Full Bench of the Rangoon High Court, observed at page 509:
"What is exempted from tax by the Income-tax Act Is agricultural income and for the purpose of considering the position of a dairy farm and the milk which is derived from it, it is necessary to enquire whether the cattle are kept in an urban area and stall-fed or whether they are pastured upon the land. Where cattle are wholly stall-fed and not pastured upon the land at all, doubtless it is trade and no agricultural operation is being carried on; where cattle are being exclusively or mainly pastured and are nonetheless fed with small amounts of oil cake or the like, it may well be that the income derived from the sale of their milk is agricultural income."
The learned Chief Justice observed further:
"......the Income-tax Officer has to see whether the cattle derived sustenance to a material extent from the produce of the ground, and whether they did so or not is entirely a question of fact for him and one which cannot be reviewed by this Court."
Those observations were not specifically correlated by the learned Chief Justice to the definition of agricultural income in Section 2 (1) o the Act. However, we respectfully agree with the principles as enunciated by the Full Bench, of the Rangoon High Court, On an examination of the implications of the statutory definition of agricultural income in Section 2(1) of the Act, we are satisfied that the principles enunciated in that case and extracted above are correct.
The question that arose for consideration in this case was, whether the income derived from the sale of milk by the assessee in the accounting year was agricultural income. It was neither rent nor revenue within the meaning of Section 2 (1) (a) of the Act, and that clause could not apply; nor can Section 2(1)(b)(ii) or Section 2 (1) (c) of the Act apply to the facts of this case. That leaves Section 2 (1)(b)(i) and 2(1) (b)(iii). Even before either of these provisions could be invoked, the condition to be satisfied by the assessee was that the income had been derived from "such land" within the meaning of Section 2 (1) (b). The expression "such land" has to be construed with reference to the definition in Section 2 (1) (a), i.e., it must have been land used for agricultural purposes and assessed to land revenue. That this test was satisfied by the assessee in the accounting year was really never in dispute. The 70 acres of land that the assessee owned at Perur were agricultural lands, held obviously on ryotwari tenure, subject to liability for payment of land revenue to the Government.
So the question is, was the income derived during the accounting year by the assessee by the sale of milk, income derived from "such land" by agriculture within the meaning of Section 2 (1)(b)(i)? As we have already pointed out, the expression "agriculture" itself was not defined by the Act.. In --'Commr. of Incometax, Madras v. K. E. Sundara Mudaliar', 1950-18 I T R 259, to which decision one of us was a party, after referring to the meaning given to the word "agriculture" by the Oxford Dictionary, which treated agriculture as synonymous with husbandry, Viswanatha Sastri J. observed at p. 272:
"In my opinion the word 'agriculture' is used in Section 2 of the Income-tax Act in a wide sense so as to denote the raisins; of useful or valuable products which derive nutriment from the soil with the aid of human skill and labour. It would include horticulture, which involved intensive cultivation of land as garden in the production of fruits, flowers or vegetables. It would also include growing of trees or plants whose growth is effected by the expenditure of human effort, skill and attention in such operations, as those of ploughing, sowing, planting, pruning, manuring, watering, protecting etc. as held by Spencer J. in -- 'Pavadai Pathan v. Ramaswami Chetti', 45 Mad 710. The word 'agriculture' applied to the cultivation of the soil for food produce or any other useful or valuable growth of the field or garden and is wide enough to cover the rearing, feeding, and management of livestock, which live on the land and draw their sustenance from the soil."
We respectfully agree with those observations. It should therefore be unnecessary for us to review again the case law on the subject which was considered in -- 'Commr. of Incometax, Madras v. K.E. Sundara Mudaliar', 1950-18 I T R 259 (Mad). We shall content ourselves with a reference to the dicta of Lord Wright at pages 638, 639 in -- 'Lord Glanely v. Wight-man', 1933 A C 618:
"......equally it is obvious that the rearing of animals, regarded as they must be as products of the soil -- since it is from the soil that they draw their sustenance and on the soil that they live -- is a source of profit from the occupation of land, whether these animals are for consumption as food (such as bullocks, pigs, or chickens) or for the provision of food (such as cows, goats or fowls), or for recreation (such as hunters or racehorses), or for use (such as draught or plough horses). All these animals are appurtenant to the soil, in the relevant sense for this purpose, as much as trees, wheat crops, flowers or roots, though no doubt they differ in obvious respects."
(3.) IT is with reference to these principles that we have to answer the primary question that arose for consideration in this case: "Was the milk the assessee sold in the accounting year an agricultural produce?" If it was, the profits of sale of the milk should be viewed either as income derived from "such land" by agriculture within the meaning of Section 2(1)(b) (i), or as income derived from such land "by the sale by a cultivator of the produce raised .........by him in respect of which no process has been performed other than a process of the nature described in Sub-clause (ii)" within the meaning of Section 2(1)(b)(iii). In fact, it would satisfy the requirements of both the subsections, though even one would be sufficient to treat the income as agricultural income to secure for it the exemption granted by the Act.
While there was nothing in the material before the Tribunal to establish that the milk in this case was not an agricultural produce, the evidence on record really justified only one conclusion, that it was agricultural produce. The assessee had 70 acres of agricultural lands. The cows were fed primarily on the produce of those agricultural lands. There was no indication that they were stall-fed. The assessee satisfied the test formulated by the Full Bench of the Rangoon High Court in --'Commr. of Income-tax, Burma v. Kokine Dairy, Rangoon', 1938-6 ITR 502 Rang. (FB) with which test, as we have pointed out, we agree.
The grounds -given by the Tribunal for holding that it was not agricultural income were set put in the statement of the case: "The Tribunal was not satisfied that this was agricultural income for the reasons inter alia:
(i) it was not explained why 65 cows were . necessary for obtaining manure;
(ii) there was nothing to show how much manure was actually required for agricultural operations;
(iii) that the account for the maintenance of these cows had been deliberately withheld;
(iv) that milk sales exceeded Rs. 2000 a month;
(v) that it was difficult to believe that cows just let loose on pasture lands would yield milk of that value; and
(vi) the supply of milk to the Co-operative Milk Supply Union shows that sales were on, organised business lines."