COMMISSIONER OF INCOME TAX Vs. HAROOCHARAI TEA COMPANY

JUDGEMENT

(1.) THE following question of law has been referred to the High Court for decision by the Tribunal, Gauhati Bench, under S. 256(1) of the IT Act, 1961, hereinafter referred to as "the Act" :

(2.) THE dispute relates to the lease rent received by the assessee from another partnership firm. The assessee is a partnership firm called M/s. Haroocharai Tea Company. It purchased a tea estate known as Samaguri Tea Estate from Moabund Tea Co. Ltd. on 24th Jan., 1963. For this purchase it has taken a loan from the Assam Financial Corporation by mortgaging the same tea estate. The partners of this firm and the partners of another firm called Gatoonga Tea Estate are the same. The two firms with common partners entered into an agreement according to which Gatoonga Tea Estate should manage Samaguri Tea Estate. This agreement was effective from 1st Jan., 1963, though the agreement was drawn up on 5th Feb., 1963. The lease was for a period of 10 years and the important clauses in the lease agreement to be noticed are cl. 5 and cl. 8, which are as under :

(3.) ON appeal, the AAC held that r. 8 of the IT Rules, 1962, would apply and that only 40 per cent would be assessable. In the assessee's appeal it was submitted on behalf of the assessee that income was from lease of agricultural holdings on which agricultural operations are carried on and, therefore, the income was agricultural. It was further pointed out that Samaguri Tea Estate had no factory of its own and green leaves had to be carried to some other factory in order to manufacture. Since no manufacturing works were involved, the entire proceeds were agricultural only. On that basis the assessee took the stand before the AAC that the entire sum of Rs. 10,000 was not taxable.