1. In this reference, the following question of law is referred to us for our opinion in terms of the Income-Tax Act:
Whether under the facts and in the circumstances of the case, the Hon'ble Tribunal was right in holding that the income from the sale of latex was not agricultural income/ ignoring the fact that the assessee had a right by way of profit-a-pander having interest in the land in the light of the decision of Supreme Court in Smt. Shanbha Bai v. State of Bombay 1958 AIR 532 and the fact that the applicant itself did not have to carry basis agricultural operations personally and also that the extraction of latex is an agricultural operation and the income derived was not Agricultural income?
2. The assessee is a registered firm trading in timber. During the relevant assessment year, during the course of its business, the assessee acquired from a third party the right to cut the standing timber and take away the wood. There was some time lag between the date of agreement and the date of felling of the trees. The assessee derived an income of Rs. 60/790/- by way of sale of the latex. The assessee returned the said income as agricultural income. The same was accepted by the Income Tax Officer. Subsequently, the Commissioner of Income Tax issued a notice under Section 263 on the ground that the order of the I.T.O is erroneous and is prejudicial to the interest of revenue. After hearing, he rejected the plea of agricultural income in terms of the order. The said order was challenged before the Tribunal. The Tribunal has chosen to accept the case of the assessee. At the instance of the assessee, the above referred questions of law is referred to us for our opinion.
3. Heard Sri. Shankar, learned Counsel appearing for the assessee. He takes us to the material on record to say that the authorities are wrong in not treating this income as agricultural income for the purpose of levy of tax in the given circumstances. He would refer to us the definition in terms of the Income Tax Act and also the case laws to say that the authorities are wrong in rejecting the case of the assessee.
4. Per contra, Sri., Seshachala, learned Counsel invites our attention to the case laws to say that the authorities are right in treating this income as non agricultural income in terms of the order.
5. After hearing, we have carefully seen the material on record. From the material made available on record, it is seen that the income officer has accepted the return of Rs. 60,7 90/-being agricultural income. The same was revised by the Commissioner and the Commissioner ruled that the cannot be treated as an agricultural income. The Tribunal, by a detailed order has chosen to accept the findings of the Commissioner. Let us see as to whether the said order is acceptable or not in the case on hand. Material on record would reveal that the asessee acquired the right to enter the land and cut the standing rubber trees and carry away the wood for the purpose of its own business. There was some delay in obtaining necessary permission from the authorities. The felling operations got delayed. During that interval period, the assessee gave a sub-licence to another to tap and take latex from the standing rubber trees. The assessee derived income in the above manner. The said income as mentioned earlier was treated as agricultural income by the authorities.
6. To consider as to whether this income is agricultural income or not, we have to see the definition in terms of the Act. Agricultural income has been defined under Section 2(1)(a) of the Income Tax Act. It reads as under:
agricultural income' means any rent or revenue derived from land which is situated in India and is used for agricultural purposes.
The agricultural income is also considered by Courts of law in terms of the Judgments rendered by the Apex Court as well as various High Courts.
7. Sri. Shankar, learned Counsel strongly relies on 1958 SC 532. According to him, the present case is one of profit-a-prendere. The petitioner strongly relies on 1977 ITR 237, 1990 ITR 496, 1998 ITR 282 and : [1993]202ITR450(Ker) . We have carefully seen each one of the Judgments.
8. In 1990 ITR 497, the Court was considering an agreement to remove old rubber trees and the income received by slaughter-tapping of such rubber trees. The Court, after noticing the provisions of the agricultural Income Tax Act has chosen to hold in favour of the petitioner.
9. In : [1975]98ITR283(Ker) (Cherian Dominic v. Commissioner of Agricultural Income-Tax), the Kerala High Court again notices the income from slaughter tapping of rubber trees. After noticing, the Court ruled that the assessee carried on agricultural operations and hence the income was agricultural income. That was also a case that arose in terms of the agricultural income Tax Act.
10. The petitioner relies on : [1993]202ITR450(Ker) . All the above Judgments, if read carefully would show that those Judgments were rendered under different circumstances. Those Judgments cannot be made applicable to the facts of this case. On the other hand, the Apex Court has considered agricultural income in terms of the Indian Income Tax Act itself. The Apex Court in the case of Commissioner of Income Tax, v. Kunwar Trivikram Narain Singh noticed the Judgment of the Supreme Court in 1963 SC 799. It also notices the definition of agricultural income. The Apex Court in the said Judgment noticed 1935 (3) ITR 237. In the said case, the privy Counsel held that 'annual payment was not agricultural income as it was not rent or revenue derived from land but money payable under a contract imposing a personal liability on the covenanter the discharge of which was secured by a charge on land.'
11. The Court also noticed the Judgment in 1961(41) ITR 169 and thereafter the Court came to the conclusion that the amount received by the assessee was revenue income and was therefore taxable. The Supreme Court also noticed the case of Commissioner of Income Tax, West Bengal v. Raja Benoy Kumar Sahas Roy. The Supreme Court noticed agricultural income/agricultural purposes for the purpose of levy of tax under the Indian Income Tax Act. The Supreme Court ruled that agriculture in its primary sense denotes the cultivation of the field and is restricted to cultivation of the land in the strict sense of the term meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land. These are basic operations and require the expenditure of human skill and labour upon the land itself. The Court further ruled that:
the mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations, would not be enough to characterise them as agricultural operations; in order to invest them with the character of agricultural operations these subsequent operations must necessarily be in conjunction with and in continuation of the basic operations which are the effective cause of the products being raised from the land. The subsequent operations divorced from the basic operations cannot constitute by themselves agricultural operations.
Only if this integrated activity which constitutes agriculture is undertaken and performed in regard to any land can that land be said to have been used for 'agricultural purposes' and the income derived therefrom be said to be 'agricultural income' derived from the land by agriculture, under Section 2(1) of the Indian Income-tax Act, 1922.
Agriculture comprises within its scope the basic as well as the subsequent operations described above regardless of the nature of the products raised o the land. These products may be grain or vegetable or fruits which are necessary for the sustenance of human beings, including plantations and groves, or grass or pasture for the consumption of beasts or articles of luxury, such as betel, coffee, tea, spices, tobacco, or commercial crops like cotton, flax, jute, hemp, indigo. All these are products raised from the land but the term agriculture cannot be confined merely to the production of grain and food products for human beings and beasts; it must be understood as comprising all the products of the land which have some utility either for consumption or for trade and commerce and would also include forest products such as timber and sal and piyasal trees, casuarina plantations, tendu leaves and horra nuts.
There is no warrant at all for extending the term 'agriculture' to all activities which have some relation to the land or are in any way connected with the land, for the term agriculture cannot be dissociated from the primary significance thereof, which is that of cultivation of the land. The extension of the term 'agriculture' to denote such activities as breeding and rearing livestock, dairy farming, butter and cheese-making, and poultry farming, is an unwarranted distortion of the term.
12. In the light of this Apex Court Judgment, what is clear to us is that the activity carried on by the appellant cannot be termed as an agricultural activity for the purpose of exemption in terms of the Act. Agriculture is serious in nature. The same cannot be extended to those who otherwise are not engaged in agricultural operation. Any extension to such non-agriculturist would result in conferring certain benefits which is not otherwise available to them on the facts in terms of this law. In the given circumstances, we are satisfied that the authorities are right in their decision. A question of law referred to us is thus answered against the assessee and in favour of the revenue. No costs.