HAVAKKAL ESTATE CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Madras Bench, under Section 256(1) of the Income-tax Act, 1961, has referred the following questions of law for the opinion of this court:

(2.) THE assessee is a firm carrying on business in the manufacture of tea. It owns tea estates as well as a factory for the manufacture of tea. Sometimes tea is also manufactured from leaves bought from outsiders. By an indenture dated October 21, 1964, the assessee took on lease for a period of ten years, all those pieces and parcels of land situate in the village of Hubathalai in the sub-registration district of Coonoor, measuring 54.51 acres at a rental of Rs. 550 per acre per annum. THE period of lease was to commence from October 20, 1964, THE first year's rent of Rs. 29,925.50 was payable on the execution of the lease deed and the rents for the following years were to be paid in two equal half-yearly instalments on or before the 19th day of April and 19th day of October each year. Clause 2(b) of the deed empowers the assessee to use the estate only as a tea estate and on the determination of the said term, to deliver the same to the lessors in the same order and condition as at the commencement of the lease; loss and damage due to accidental fire, storm or other acts of God are excepted. THE lessee under Clause 2(f) was given powers to weed, prune, cultivate and work the estate in a proper and husbandlike manner according to approved methods of cultivating and working tea estates in the Nilgiris ; and in the course of such cultivation and working of the estate to manure the tea plants at least twice a year. THE supply of vacancies and diseased and dead plants were not the responsibilities of the lessee. THE lessee was not to assign or underlet or part with the possession of the said estate or any part or portion thereof without the written consent of the lessors. Under the terms of the lease deed the assessee was not authorised to cut any trees without the lessor's written permission. Even in the event of the trees being cut, it could remain the property of the lessors and would be handed over to their agent.

(3.) THE other decision relied on by the Income-tax Officer as well as the Tribunal is that of the Allahabad High Court in Maharaj Prashad Jain v. Commissioner of Income-tax [1966] 61 ITR 297 (All). In that case the assessee obtained the right to pluck the tea leaves from the perpetual lessee of the tea estate. THE assessee entered into an agreement with the perpetual lessee on January 8, 1954. THE agreement is substantially reproduced in the judgment. In that agreement, it was made clear that what was sought to be sold by the perpetual lessee to the assessee was the crop of tea bushes in the tea estate concerned. THE terms of the agreement made it absolutely clear that the sale of tea crop was made for a period of five years till the end of 1958, but the assessee will have the option to collect and gather tea for another two years. THE agreement further stipulated that the possession of the tea estate will always remain with the perpetual lessee and the only right which the assessee had was the right to enter and reside in the estate to pluck, pick up, gather and collect, that the hoeing and pruning would be done by the perpetual lessee at his own cost, but the perpetual lessee would not spend more than Rs. 4,000, it shall be done at the cost of the assessee. Thus, the terms of the agreement made it absolutely clear that the assessee was not the lessee of the estate and he merely obtained the right, to use the language of the agreement, "to pluck, pick up, gather and collect tea crop in all seasons". A subsequent agreement was entered into on January 30, 1954, and that agreement made provision for the expenditure in excess of Rs. 4,000 for the purpose of hoeing as well as pruning. This agreement stated that the perpetual lessee had given a contract for hoeing and pruning of the tea cultivated in the said estate to the assessee for a consideration of Rs. 4,000 per annum from 1st January to 30th December, each year and the assessee will henceforth get the hoeing and pruning done at his own cost receiving from the perpetual lessee the sum of Rs. 4,000 annually. THE combined operation of the two agreements was that the assessee merely obtained a right to enter the tea estate for the purpose of plucking, picking up, gathering and collecting tea crop in all seasons and the hoeing and pruning operations were the responsibility of the perpetual lessee to the extent of an expenditure of Rs. 4,000 and even by the subsequent agreement, when the responsibility was entrusted to the lessee on his receiving a sum of Rs. 4,000 from the permanent lessee, he was doing it only as an agent or on behalf of the permanent lessee. Consequently, the right which the assessee acquired in the tea estate was a very limited one. As a matter of fact, he did not acquire any interest whatever in the estate at all and merely acquired the right to pluck the tea leaves and nothing beyond that. In that context, the conclusion of the Allahabad High Court, we may say so with respect, was certainly correct in holding that the income derived by the assessee could not be said to be agricultural income and it would not attract Rule 24 of the Indian Income-tax Rules, 1922, corresponding to Rule 8 of the Income-tax Rules, 1962. However, what is pressed into service from this judgment are certain observations found therein at page 300 to the following effect :