Per Shri F. C. Rustagi, Judicial Member - The only ground raised in his appeal by the assessee Justice R. S. Narula is to challenge the treatment to income in a sum of Rs. 2,400 from orchards, held as rental income by the two lower authorities, rejecting the contention of the assessee that the same was agricultural income.
2. The assessment year involved is 1978-79 for which the relevant previous year ended on 31-3-1978. The assessee owned House No. 28.
Sector 9-A, Chandigarh, surrounded by a fruit garden beside the lawn in front, back and sides. The property in question was rented out to the Indian Explosives Limited at a total monthly rent of Rs. 2,000 per month with rental bifurcation in respect of different parts of the property, as under : (g) Fixed price of fruits of all the fruit trees (except one Mango Langra plant and one Alichi plant near the servant quarters) at the rate of Rs. 2,400 per annum As is apparent from the above figures, an amount of Rs. 2,400 per annum was on account of fixed price of fruits of all the fruit trees except one Mango Langra plant and one Alichi plant near the servant quarters.
In respect of this sum of Rs. 2,400 per annum the assessees claim was that it was agricultural income. The ITO rejected the contention of the assessee in the following words : ".... The assessee has not produced any evidence to show that the rental income of Rs. 2,000 includes Rs. 2,400 on account of value of fruit in the compound of the building. Moreover, this cannot he said to be agricultural income in view of definition to section 2 of the Income-tax Act." As per this observation, the ITO rejected the assessees claim of exemption in respect of Rs. 2,400 having held the same as non-agricultural income.
3. When this dispute came before the AAC, she in the end of paragraph 3 of her order making the following observations, confirmed the action of the ITO : ".... This income cannot be categorised as agricultural income within the meaning of section 2 of the Income-tax Act. This income is part and parcel of rental income." 4. While disputing this finding of the AAC, the learned counsel for the assessee S. S. Rikhy submitted that three requirements, stipulated as per definition of agricultural income are there, viz., (i) rent or revenue derived from, (ii) land which is situated in India, and (iii) is used for agricultural purposes. He submitted that from the deed of tenancy, it was apparent that the garden was separately rented out and he made available to us the copy of letter dated 5-3-1981/11-3-1981 and 3-7-1976 in that regard. His submission was that after the substitution of section 2(1) (a) of the Income-tax Act, 1961 (the Act) with retrospective effect from 1-4-1962, as per the Taxation Laws (Amendment) Act, 1970, it was apparent that the income in question was agricultural income by mere reading of the definition given in the said section.
5. The learned senior departmental representative R. K. Bali, on the other hand, beside relying on the orders of the two lower authorities, submitted that the sale of fruits cannot be agricultural income. He posed a problem otherwise, income from sale of fruits trees and pointed out the tenancy agreement as very vague. He, however, could not controvert the fact that it was only on the basis of legal aspect pertaining to the question that the assessees claim was not allowed by the two lower authorities, mainly. He relied on the cases of Raja Mustafa Ali Khan v. CIT [1948] 16 ITR 330 (PC), Maharaja Pratap Singh Bahadur v. Province of Bihar [1949] 17 ITR 202 (Pat.), CIT v. Kunwar Trivikram Narain Singh [1965] 57 ITR 29 (SC) and Rani Ratnesh Kumari v.CIT [1966] 62 ITR 830 (All.) and reading the headnotes of the said decisions at length, attempted his utmost to support the decision of the two lower authorities.
6. After taking into consideration the rival submission and going through the facts available on record, we find the following uncontroverted facts : (i) House No. 28, Sector 9-A, belonged to the assessee and the same being surrounded by a garden comprising of ground floor, first floor, garage, servant quarters, fixtures and fittings etc., was rented out for total sum of Rs. 2,000 per month.
(ii) As per bifurcation available in the tenancy note, Rs. 2,400 was to be paid per annum to the assessee as fixed price of fruits of all the fruit trees except one Mango Langra and one Alichi plant near the servant quarters.
The ITO, however, challenged in the assessment order, as per his observations, extracted and placed above, that no evidence was produced to show that rental income of Rs. 2,000 per month included Rs. 2,400 on account of value of fruits but when it came up to the stage of the AAC, she only confirmed the finding on the interpretation of section 2 giving definition of agricultural income.
With the above stated uncontroverted facts, it is also apparent that plants in the garden surrounding the bungalow of the assessee, were not of spontaneous growth and there is nothing vague once it is mentioned that all the plants are given to the tenant for plucking the fruits except the two which are specifically there near the servant quarters.
With the above stated facts and background, when we look to section 2(1) (a) which was substituted by the Taxation Laws (Amendment) Act, with retrospective effect from 1-4-1962, the same reads as under : (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes".
From the above, it is clear that there are three limbs given in the definition of agricultural income. It is to be rent or revenue; secondly, which is used derived from land which is situated in India; and thirdly, which is used for agricultural purposes. By mere reading of the section, it is clear that the assessees case falls squarely in the definition available under the Act. Both the lower authorities were in error when they observed that the income in question could not be categorised within the meaning of section 2.
7. Reliance of the learned departmental representative on all the case law, is misplaced. On the other hand, some of those cases support the contention that of the assessee. The first case of Raja Mustafa Ali Khan (supra), which was relied upon by the learned departmental representative was in respect of malikana payments and in that case the forest trees were growing on the land naturally and without the intervention of human agency. If the case in question in carefully read, distinction would be apparent that in the instant case it was not a question of spontaneous growth but of plants which were growth being fruit trees. Similarly, the case of Maharaja Pratap Singh Bahadur (supra) again pertains to malikana and there also it was held that the malikana was not agricultural income inasmuch as it was not established by the revenue authorities that it was rent or income derived from land which was used for agricultural purposes. This was a case under the agricultural income-tax and even careful reading of this supports the contention that of the assessee. Reliance of the learned departmental representative on the case, of Kunwar Trivikram Narain Singh (supra) is also misplaced. In that case, facts in the background were that there occurred a compromise between the British Government and the then jagirdar, whereby the Government granted a pension to the jagirdar and his heirs in perpetuity, the quantum of pension being calculated on the basis of one-forth of the net revenue collections of the jagir. The zamidars paid the revenue and land collections to the British Government directly and the question before their Lordships was whether the amount received by the assessee during the relevant period on account of the pension was agricultural income and in this regard the finding of the Honble Supreme Court was as under : "(i)... That under the arrangement arrived at in 1837, the respondent had no interest in land or in the land revenue payable in respect thereof. State of Uttar Pradesh v. Kunwar Sri Trivikram Narain Singh [1962] 3 SCR 213 followed.
(ii) That the source of the income was the arrangement arrived at in 1837 : the income was not derived from land and was, therefore, not agricultural income within the meaning of section 2(1) (a) of the Indian Income-tax Act 1922.
Maharajakumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 (PC) CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325 (PC). Bacha F. Guzdar v. CIT [1955] 27 ITR 1 (SC) and Maharajadhiraja Sir Kameshwar Singh v. CIT [1961] 41 ITR 169 (SC) applied.
(iii) that the amount received by the respondent was revenue income and was, therefore, taxable.
Where an owner of an estate exchanges a capital asset for a perpetual annuity, it is ordinarily taxable income in his hands. The position will be different, if he exchanges his estate for a capital sum payable in instalments : the instalments when received would not be taxable income." (p. 29) Coming to the last case relied upon by the learned departmental representative which was that of Rani Ratnesh Kumaris case (supra), that was a case also of malikana which was an allowance payable under the various engagements entered into at the time of settlement of revenue and was not in the nature of a share in the land revenue or rent arising from the villages and, therefore, malikana income was not held to be agricultural income by their Lordships of the Allahabad High Court. Reliance of the learned departmental representative on this case as well, is misplaced, The summarise ratio of all the judgments, if carefully gone through, supports the contention of the assessee because there is no controversy about the fact that receipt of Rs. 2,400 per annum was rent of land which was utilised for agricultural purposes, the trees having been planted and attended to, could not be termed as spontaneous growth. The contention of the assessee is, therefore, accepted and the AACs action is reversed.