R VAIDYANATHA MUDALIAR Vs. STATE OF MADRAS

JUDGEMENT

(1.) THESE three tax cases are connected and arise out of three appeals filed before and disposed of by the Madras Agricultural Income-tax Tribunal. T. Cs. Nos. 75 and 76 of 1966 relate to the assessment years 1960-61 and 1961-62 in which the assessing officer invoked his jurisdiction under section 35 of the Madras Agricultural Income-tax Act, 1955. T. C. No. 77 of 1966 concerns itself with the original assessment made for the year 1962-63 For the years 1960-61 and 1961-62 the assessee, an individual, was assessed on the net income reckoned originally by the Agricultural Income-tax Officer, Sirkali, who was the assessing authority. Later, the assessing officer, in the purported exercise of his powers under section 35 of the Act, revised the assessments and the tax payable thereon. For the year 1962-63, an original order of assessment was made based on the principle adopted by the assessing authority when he revised the assessments for the earlier years. The assessing authority was of the view that the accounts were maintained under the cash system and that while computing the agricultural income of the assessee for the assessment year 1960-61, the opening and the closing stocks of paddy for the assessment year were not taken into account when the original assessment order was passed, and in this view there has been an escapement of the assessable income of the assessee. In those circumstances he exercised his jurisdiction under section 35 of the Act, and discountenanced the objections of the assessee that he had no jurisdiction to reopen closed assessments and in any event the basis of reassessment was wrong. One other contention raised by the assessee was that the advance of paddy received by him during the earlier accounting year 1959-60, which was noticed in the relevant assessment year since they were returned in that year, can never form part of his agricultural income for the assessment year in question, and if at all they represented the income of the earlier years which was the subject-matter of a composition proceeding and hence it was urged that such items added on in the revised proceedings ought to be deleted and the reassessment order corrected.

(2.) THE Agricultural Income-tax Officer, Sirkali, as already stated, negatived the objections of the assessee and reassessed him since there was an escapement of assessment within the meaning of lawTHE Assistant Commissioner of Agricultural Income-tax, Thanjavur, as appellate authority, on appeals filed by the assessee, agreed with the assessing officer and held that the reassessment proceedings were in order. He was of the view that the opening and the closing stocks as found in the accounts have to be noticed for a correct reckoning of the income of the assessee. He was also of the view that inasmuch as the assessee had at closing stock at the close of the accounting year 1958-59, which obviously represented the opening stock for the assessment year 1960-61, it should be concluded that the earlier composition proceedings under section 34 of the Act relating to and inclusive of the accounting year 1958-59 could only relate to the tax which was levied on the sale proceeds of paddy which the assessee had actually realised during the accounting year 1958-59. In that view he upheld that the opening stock as on April 1, 1959, which relates to the assessment year 1960-61, has escaped assessment. A similar view was taken regarding the assessment year 1961-62 as well. THE assessee's contention that including the opening stock as if it represented the income during the accounting year would amount to double taxation did not find favour with the appellate authority. Even so, the items of paddy which were reflected in the accounts as if they were receipts of paddy advance during the earlier years should be omitted from the computation was also rejected. It may be stated immediately that for the assessment year 1962-63, a similar process was adopted by the assessing authority and upheld by the appellate authority as wellSecond appeals against the three orders of the Assistant Commissioner of Agricultural Income-tax, Thanjavur, relating to the assessment years 1960-61, 1961-62 and 1962-63 were filed before the Madras Agricultural Income-tax Appellate Tribunal.

(3.) THERE is no evidence or suggestion in the case to say that the agricultural income is derived by the assessee performing any process so as to render the produce raised or received by him fit to be taken to the market. It is not the case of the revenue that the income in question was derived by the assessee from the lands in the State by the sale of the produce raised or received by him. THEREfore, the agricultural income in the instant case does not fall under sub-clauses (ii) and (iii) of clause (2) of section 2 of the Act. On the other hand, the agricultural income fits into the definition as contained in sub-clause (i) of clause (a)(2) of section 2 of the Act. In such a case, as there is no actual sale and as no mechanics are there in the Act to find the money equivalent to the produce raised or received, the Act provides a machinery to evaluate the income notionally and in accordance with the market value thereof. It is now well settled that for income to be "agricultural income", the produce which is the subject-matter need not have been the subject-matter of a sale resulting in a profit or gain. The word "income", in the context in which it appears in the Madras Agricultural Income-tax Act, does not derive colour from any antecedent transaction such as sale in relation to the agricultural produce receipted or derived. If the produce is subject to a sale or a manufacturing process with intent to sell, then the money equivalent of the ultimate result of such an activity becomes chargeable. But in the absence of a clear postulate in the language of the definition of "agricultural income", envisaging a sale of the produce as a condition precedent for charging agricultural income to tax, it would be straining its language to superimpose such a condition. It, therefore, follows that once it is established that agricultural produce has been received or raised during the accounting year, then such produce becomes chargeable to taxThe Supreme Court, after fully explaining the, implications of a similar section under the Bengal Agricultural Income-tax Act (IV of 1944), concluded in Dooars Tea Co. Ltd. v. Commissioner of Agricultural Income-tax thus"THEREfore it is clear that income derived from sale of agricultural produce has been provided for by clauses (ii) and (iii) and prima facie that would show that clause (i) which does not refer to sale even indirectly cannot be intended to cover cases of income derived from the sale of agricultural produceConsidered in the light of clauses (ii) and (iii) of section 2(1)(b) what is the true scope and effect of the income contemplated by clause (i) ? In terms the clause takes in income derived from agricultural land by agriculture and as we have already pointed out, giving the material words their plain grammatical meaning, there is no doubt that agricultural produce constitutes income under this clause. Is there anything in the context which requires the introduction of the concept of sale in interpreting this clause as suggested by the appellant ? In our opinion this question must be answered in the negative. Not only is there no indication in the context which would justify the importing of the concept of sale in the relevant clause, but as we have just indicated the indication provided by clauses (ii) and (iii) is all to the contrary. What this clause seems clearly to have in view is agricultural produce itself which has been used by the assessee."