Suhas Chandra Sen, J.
1. This case relates to an assessment of income of a tea company and the relevant assessment year is the assessment year 1970-71, for which the accounting period was the year ending on March 31, 1970. The assessee is a non-resident company. It owned a number of tea estates. Under different agreements with various parties, it wanted to sell some of its tea estates. The assessee sold four tea estates, namely, (1) Seleng Tea Estate, (2) Baisahabi Tea Estate, (3) Jaipur Tea Estate and (4) Namsang Tea Estate, under different agreements and all these agreements contained more or less identical terms and conditions. One such agreements is dated September 15, 1969, for the sale of Seleng Tea Estate, a copy of which has been annexed to the statement of case.
2. The Tribunal has found that the assessee-company had agreed to sell Seleng Tea Estate with effect from January 1, 1969, and the other three tea estates with effect from January 1, 1970, but the deeds of conveyance in favour of the purchasers were not executed within the relevant previous year which ended on March 31, 1970. The conveyance deeds in respect of Seleng Tea Estate, Baisahabi Tea Estate, Jaipur Tea Estate and Namsang Tea Estate were executed on April 2, 1970, March 4, 1971, February 12, 1971, and December 11, 1971, respectively. The delay in execution of the deeds of conveyance was due to the delay in obtaining permission from the Reserve Bank of India and in complying with some other formalities which had to be observed because the assessee was a non-resident company.
3. The Tribunal found that:
'Having undertaken, under the agreements, to sell the estates with effect from January 1, 1969, in the case of Seleng Tea Estate and with effect from January 1, 1970, in the case of each of the other three estates, the assessee-company got certain provisions entered into the sale agreements with regard to the management of the tea estates, the ownership of the tea manufactured in those tea estates, and the proceeds realised by the sale of the tea and the liability to pay the expenses, etc., with effect from January 1, 1969, in the case of Seleng Tea Estate and with effect from January 1, 1970, in the case of other three estates.'
4. The dispute is about the assessment of income from these tea estates for the assessment year 1970-71 (accounting period January 1, 1969, to March 31, 1970).
5. The Income-tax Officer found that the trading results pertaining to the period from January 1, 1969, to March 31, 1970, in the case of Baisahabi Tea Estate, Jaipur Tea Estate and Namsang Tea Estate had not been incorporated in the accounts of the assessee-company. The income from these four tea estates pertaining to the aforesaid period has not been included in the return of income of the assessee-company. The Income-tax Officer observed that till the end of the relevant previous year, the sale deeds had not been executed in favour of the purchasers and possession of the tea estates had also not been delivered to the purchasers. The Income-tax Officer also examined the agreements entered into by the purchaser with the vendor and came to the conclusion that the income from the four tea estates had to be included in the hands of the assessee-company. Therefore, he added back a sum of Rs. 7 lakhs on account of income from the aforesaid four tea estates to the assessee's returned total income for the relevant year.
6. On appeal, the Appellate Assistant Commissioner was of the view that the Income-tax Officer was not justified in including the sum of Rs. 7 lakhs in the assessment of the assessee on the footing that the income from the four tea estates for the periods mentioned above had accrued to the asses-see. The Appellate Assistant Commissioner was of the the view that the purchasers of those four tea estates would be entitled to the income of the tea estates for the intervening period, viz., Seleng (April 1, 1969, to March 31, 1970), Baisahabi, Jaipur and Namsang (January 1, 1970, to March 31, 1970), during the assessment year 1970-71.
7. Another point that was recorded by the Appellate Assistant Commissioner is as under :
'24. It is further found that the purchasers of these tea estates had included the income for the period between the agreement for sale and the conveyance for sale in their printed accounts. The profit/loss of this period had been considered in the assessment of the purchasers. The appellant's counsel produced before me copies of assessment orders and other correspondence confirming this position.'
8. The Department preferred an appeal to the Tribunal. The Tribunal held that even though the legal ownership of the tea estates had remained with the assessee-company, the income that was to be assessed was not income from any immovable property. It was not a case of assessment of income from house property under Section 22 or capital gains arising out of transfer of immovable property. The income that was to be taxed was profit earned from the business of growing, manufacturing and selling of tea and the same had to be taxed under Section 28 of the Income-tax Act, 1961.
'This was a clear case of diversion of income by an overriding title and not a case of application of income for a specific purpose after its accrual. The obligation to credit the net proceeds realised by the sale of tea to the purchaser was attached to the very source of the income and not to the income.'
9. The Tribunal also noted the finding of the Appellate Assistant Commissioner that the same income was assessed to tax in the hands of the purchasers also but that was not challenged by the Department in the appeal.
10. In the above facts and circumstances, the Tribunal, at the instance of the Revenue, has referred the following questions of law to this court under Section 256(1) of the Income-tax Act, 1961 :
'(1) Whether, on the facts and in the circumstances of the case and on a correct interpretation of the relevant clauses of the sale agreements, the Tribunal was right in holding that there was diversion of income by overriding title prior to its accrual and, therefore, the income from the tea business from January 1, 1969, in the case of Seleng Tea Estate and from January 1, 1970, in the case of Baisahabi Tea Estate, Jaipur Tea Estate and Namsang Tea Estate, was not liable to be assessed in the hands of the assessee ?
(2) Whether, on the facts and in the circumstances of the case and on a correct interpretation of the relevant provisions of the sale agreements, the Tribunal was right in holding that there was a transfer of the sources of income, namely, the tea business by the assessee to the purchasers of the tea estates, even before the transfer of the title to the tea estates from the assessee to the purchasers and that from January 1, 1969, or, as the case may be, from January 1, 1970, the assessee carried on the tea business as the agent of the purchasers and that the income from the tea business from January 1, 1969, or, as the case may be, from January 1, 1970, had accrued to the purchasers and not to the assessee ?'
11. On behalf of the Revenue, it has been contended that though there was an agreement for sale, such agreement could come into effect only from the date on which deeds of sale were executed and the immovable properties could not be transferred by any other process. During the relevant period of account, the ownership of the four tea estates remained with the assessee-company and, therefore, the assessee-company will have to pay tax on the income accruing or arising out of any business activity in the tea estates.
12. This argument is clearly fallacious. The income arising out of agricultural operations in the tea estates would not come within the ambit of the provisions of the Income-tax Act because that would be income from agriculture. The manufacturing process after the tea is grown gives rise to business income. The sale proceeds of such manufactured tea is assessed to tax after making allowances for the agricultural activities. Rule 8 of the Income-tax Rules provides the procedure for assessment of the composite income and apportionment of the income between two heads, 'Agriculture' and 'Business'. The income arising out of manufacturing activity is not an income arising out of ownership of land. Any person may use somebody else's land or building for the purpose of earning income through manufacturing process and the income arising out of such activity will belong to the person who carries on the manufacturing activity and not to the person who owns such land.
13. The next question is about the effect of the agreements. There is no allegation that the agreements have not been acted upon. The agreements clearly provide that the terms and conditions of the agreement will come into effect from a date anterior to the date of execution of the deeds of conveyance. It has been categorically provided in the agreement that all rents, taxes, cesses, income-tax, super profits tax, surtax, sales tax, agricultural income-tax, Assam carriage tax, road tax and all other taxes and outgoings, etc., regarding the tea estates, agreed to be sold, in respect of the period prior to the first day of January, 1969, and also expenses for garden management and upkeep actually incurred prior to the said date and/or expenses for cold weather work for 1969 season incurred prior to the said date would be paid or provided by the vendor and all the expenses subsequent to the period ending on December 31, 1969, on account of rents, taxes, cesses, etc., would be borne by the purchasers. Under clause 9 of the agreement, it has been agreed that the purchaser would bear the expenses incurred by the vendor as from January 1, 1969, on the outlay in respect of the said tea estate for the period subsequent to January 1, 1969. Clause 14 of the agreement contains Sub-clauses (a) and (b). Sub-clause (a) provided that the vendor would have absolute control over the operational function of the tea estate and the purchaser could offer suggestions, which suggestions the vendor would consider but would not be under any obligation to accept such suggestions. All expenses incurred by the vendor for the period from January 1, 1969, including the salaries of the manager, the assistant managers, other employees and wages of labourers, including all claims of the employees and labourers on account of bonus, gratuity and pensions as also claims under the Workmen's Compensation Act, etc., from January 1, 1969, would be borne by the purchaser. The vender would also be paid Rs. 1,000 per month towards remuneration from January 1, 1969, till the date of delivery of possession. All other expenses by the vendor in connection with the work in the tea garden including payment of Government revenue, cess, rents, rates and taxes and other impositions and outgoings or purchase of stores, garden appliances, tea seeds, manure, fuel and other items necessary for the working of the tea garden would also be on the account of the purchaser. Sub-clause (b) of Clause 14 provided that all tea manufactured from January 1, 1969, and the proceeds of sale of such tea and all income arising from the land and all the profits of the said tea estate as from January 1, 1969, subject to the other provisions of the agreement, would belong to the purchaser and the vendor would be entitled to retain out of the sale proceeds any sum that might be payable by the purchaser to the vendor under the agreement.
14. It is true that the income-tax liability cannot be assigned by any agreement. The Revenue is entitled to proceed against the person who earned the income but where the income has been diverted by an overriding title even before accrual, then the Income-tax Officer cannot proceed to assess the income thus diverted as the income of the transferor. In this case, not only had the tea estates been transferred but the income accruing therefrom had also been transferred to the purchaser with effect from January 1, 1969. All its manufacturing activities as from that date were on behalf of the purchaser. The income attributable to the manufacturing activity accrued to the purchaser. I fail to see how the income realised from sale of such tea can be assessed as the income of the vendor.
15. In this connection, reference may be made to the observations made by G. K. Mitter J. in the case of CIT v. Tea Producing Co. of India Ltd. [1963] 48 ITR 200, where it was stated that before a person could be assessed under Section 10, it must be shown that it was he who carried on the business, profession or vocation and in the case of a business, it was open to any person to put another person in charge thereof although ostensibly such person appeared to be carrying on the business, in reality the business was that of the person who owned it and under Section 10 of the Act such owner of the business would be the assessee. It was observed in that case that (at p. 206) :
'If a business carried on by A is transferred to B as from a certain point of time, B alone can be assessed to tax in respect of the period subsequent to the change of the ownership. A and B may agree that any profits or loss of the business as from a date anterior to that of the change of ownership will be on B's account. In such a case, A will have to account to B for the income and profits of the business covered by the period of the agreement and A may be held to have carried on the business as B's agent from the agreed date.'
16. Therefore, the question is whether the business has been transferred from the date on which the assessee is being sought to be assessed. The finding of the Tribunal is that the business had been transferred and the assessee had acted and managed the estate only as agent of the purchaser.
17. In our opinion,' the Tribunal has not committed any error of law in coming to its decision.
18. Therefore, both the questions are answered in the affirmative and in favour of the assessee.
19. There will be no order as to costs.
Baboo Lall Jain, J.
20. I agree.