BHAGAVANDAS NARAYANDAS Vs. AGRICULTURAL INCOME TAX OFFICER

JUDGEMENT

(1.) THESE seven writ petitions can be considered in two groups for dealing with common questions which arise out of them. In the first group consisting of Writ Petitions Nos. 2095, 2098 and 2099, the petitioner is Bhagavandas Narayandas who was assessed to agricultural income-tax by the Agricultural Income-tax Officer, Coonoor, respectively for 1958-59, 1959-60 and 1961-62. The common question which arises for decision in these three petitions can be considered first and arises in the following way. Bhagavandas Narayandas, the petitioner, is a partner in the registered firm of Messrs. Ben Gorm Nilgiri Plantations Company. There are as many as nine partners in that firm including the petitioner and his wife. This firm owns 351 and odd acres of tea plantation. It was treated as a registered firm both for computation of the Central income-tax and the agricultural income-tax. It was supplied with a copy of the deed of partnership of this firm. Paragraph 12 of the deed states that Bhagavandas Narayandas shall devote his whole time and attention to the business of the partnership and diligently and faithfully employ himself therein and use his best skill and endeavour to carry on the same for the at most benefit of the partnership and shall be entitled to Rs. 1,000 per mensem as his salary with effect from April, 1957. Paragraphs 13 and 14 give directions as to how he should carry on the above work. The question arose as to how this salary of Rs. 1,000, which Bhagavandas Narayandas received under the above agreement should be computed both for the Central income-tax as well as the agricultural income-tax. The Central Income-tax Officer excluded the salary paid to him for being allowed as deduction in computing the Central income-tax, under section 10(4) (b) of the Income-tax Act, 1922, and arrived at the total income of the firm and separating 60% of it is agricultural income under rule 24 of the Central Income-tax Rules, assessed the remaining 40% to the Central income-tax. Thereafter, the share in this income of Bhagavandas Narayandas was computed, and thereto his salary of Rs. 12,000 per annum was added for the purpose of fixing his Central income-tax liability. But the Agricultural Income-tax Officer, after adopting share of agricultural income which Bhagavandas Narayandas received from the partnership on the basis of the computation of the Central Income-tax Officer, added thereto 60% of his salary on the view that, since the salary which Bhagavandas Narayandas got was derived by looking after the plantation of tea, it was also assessable to agricultural income-tax In actual fact, the Agricultural Income-tax Officer did not set down any precise reason for departing in the above manner from the view of the Central Income-tax Officer in regard to the assessability of salary income but the Commissioner of Agricultural Income-tax to whom Bhagavandas Narayandas filed revision petitions gave more specific reasons. He observed :

(2.) THE above observations will be relevant in the context of section 10(4) (b) of the Income-tax Act, as justifying the principle stated in that section, for not allowing the salary paid to a partner for purposes of deduction. But those observations cannot be viewed as authority for the step taken by the agricultural income-tax authorities for constraining the salary obtained by a partner for services rendered to the firm as agricultural income. THE nature of this income cannot be agricultural income as defined either in the Central Income-tax Act or the Agricultural Income-tax Act. It is only salary proper paid as remuneration for services which a partner rendered to the firm.

(3.) IN the case of interest payable to a partner on loan advanced by him, the position appears to me be in no way different from the position of salary which a partner gets under an agreement with the partnership for the services which he did to the partnership. Since interest cannot be allowed as deduction under the INcome-tax Act, on account of section 10 (4) (b) of that Act, consequently without making any deduction for interest the computation of the total income of the firm was made. Thereafter, 40% of that income was assessed under the INdian INcome-tax Act and the remaining 60% was assessed as agricultural income. The Central INcome-tax Officer thereafter added the interest, just as he added the salary to the share of each partner in the partnership income for assessing the partners individually treating both the salary and interest in their entirety as income, no part of which could be excluded as agricultural income. The Agricultural INcome-tax Officer differed from this view.