IN RE: MOHANPUR TEA CO LTD Vs. STATE

JUDGEMENT

(1.) The assessees are a company incorporated under the Indian Companies Act with their registered office in Calcutta. Their income, profits and gains, are derived from the sale of tea grown and manufactured on a tea estate in the Indian State of Tipperah, and then sent to Calcutta and sold there. For the year 1935-36 the Income-tax Officer assessed the company on a taxable income of Rs. 1029 on which an income-tax of Rs. 162-10.0 has been demanded. The assessees claim that 60 per cent. of their assessed income is not liable to tax. The assessees rely on the principle laid down in Killing Valley Tea do. Ltd. V/s. Secy. of State (1921) 8 AIR Cal 40, where it was held that when tea is grown and manufactured in British India a portion of the income, profits and gains, derived from its sale in British India must be regarded as "agricultural income" and therefore outside the scope of the Income-tax Act by reason of Section 4 (3) (viii), Income-tax Act. This principle has subsequently been recognized by Rule 24 made under Section 59 of the Act. The material paragraph of the Rule is as follows: Income derived from the sale of tea grown and manufactured by the seller in British India shall be computed as if it were income derived from business and 40 per cent. of such income shall be deemed to be income, profits and gains liable to tax.

(2.) In the present case, however, the assessees are admittedly not entitled to the exemption provided by Section 4 (3) (viii) of the Act, because income derived from tea grown in an Indian State is not "agricultural income" as defined in Section 2, Sub-section (1), which limits agricultural income to income 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 Government as such. Accordingly, if the income of the assessees is income, profits or gains accruing or arising or received in British India within the meaning of Section 4 Sub-section (1), the charging sections of the Act will apply. The assessees maintain that their income is not income, profits or gains arising or accruing or received in British India, but they admit that but for a proviso with which I shall deal shortly it would be income, profits or gains deemed under the provisions of the Act to be income, profits or gains received in British India within the meaning of Sub-section (1). Sub-section (2) defines what income, profits or gains, shall be so deemed; the material words are as follows: Income, profits and gains, accruing or arising without British India to a person resident in British India, shall if they are received in or brought into British India, be deemed to have accrued or arisen in British India,

(3.) As I have said, the assessees admit that these words prima facie cover the whole of the income, profits and gains in respect of which they have been assessed, but they rely on the following proviso to Sub-section (2) introduced into the Act by the Income-tax Amendment Act, 1933: Provided further that nothing in this sub-section shall apply to income from agriculture arising or accruing in a State in India from land for which any annual payment in money or in kind is made to the State.