Commisioner of Income Tax Vs. Tamil Nadu Forest Plantation Corporation Ltd. - Court Judgment

R. Jayasimha Babu, J.

The questions referred to us at the instance of the revenue are :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the registration fee receipts should be treated as agricultural receipts ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the whole of the amount of compounding fee received by the assessee during the year constitute agricultural income which is exempt from taxation under section 10(1) read with section 2(1) of the Income Tax Act, 1961'. ?

The assessment year is 1977-78.

2. The assessee is the Tamil Nadu Forest Plantation Corporation Ltd., Trichy, which raises plantations such as eucalyptus, cashew and casuraina and sells the plantations, products. The registration fee levied by it at the rate of Rs. 30 and Rs. 20 per annum respectively, was for registering the names of the contractors intending to bid in the auction for sale conducted by the assessee. Such registration fee clearly had no nexus with the land. It merely enables the registrant to enter into contractual relationship with the assessee. The Tribunal was in error in holding that such registration fee can be regarded as income from agricultural land.

3. The Privy Council in the case of CIT v. Raja Bahadur Kamakhaya Narayan Singh & Ors. (1948) 16 ITR 325, the earliest decision on what constitutes agricultural income, has pointed out that the word 'derived' used in the definition of agricultural income in the Act would necessitate an enquiry into the genealogy of the income claimed as agricultural income. It must be found to relate to the land and unless it is regarded as revenue derived from the land it would not be regarded as agricultural income. In that case, interest on arrears of rent was held to be income which was not agricultural in character as the interest was payable only because, rent had fallen in arrears and not because the rent was payable for the land. Had the rent not fallen into arrears, no arrears, no interest was payable.

4. The Supreme Court in the case of Mrs. Bacha F. Guzdar v. CIT : [1955]27ITR1(Mad) upheld the decision of the Bombay High Court which had held that the dividend received from a company having tea plantation did not constitute agricultural income as such dividend could not be regarded as income derived from the land. In the case of State Farming Corporation v. CIT : [1990]181ITR271(Ker) it was held by the Kerala High Court that the sale of tender forms by the company owning land and the income derived from the land (sic) not constitute agricultural income as income was from the sale of the tender forms and such sale has nothing to do with the land owned by the company.

5. The registration fee levied on the contractors who were desirous of binding at the auction conducted by the assessee is a levy imposed by the assessee on those who were desirous of entering into contracts with it and that did not have any direct nexus with the land owned by the company. The Tribunal was in error in holding that the registration fee can be regarded as agricultural income. The first question referred to us is, therefore, answered in favour of revenue and against the assessee.

6. As regards the amount collected as compounding fees, the Tribunal has elaborately considered all the details concerning that receipt and has hold that the amount so received was compensation for the loss suffered by the assessee with reference to its agricultural activities by reasons of the removal of the agricultural products from its land by the persons who paid compounding fee. The Tribunal has held that the fee so paid was intended to compensate the assessee for its physical loss suffered by it.

7. Counsel for the revenue, however, contended that the amount collected as compounding fee should be further separate into that part which is compensatory, and that part which is a penalty, and only the compensatory part treated as agricultural income would alone be entitled to deduction. The Tribunal after considering the facts before it has recorded a definite finding that the entire amount was compensatory. Counsel relied on the decision of the Supreme Court in the case of Prakash Cotton Mills (P) Ltd. v. CIT : [1993]201ITR684(SC) wherein the court held that the investigation into the scheme of the Act for the purpose of determining true nature of the levy was required whenever there was a claim that the amount paid under the enactment was in fact compensatory or by way of interest and not penalty.

8. In this case, the Tribunal has in fact examined all the relevant facts and applicable statutory provisions and has held that the compounding fee is compensatory. We, therefore, answer the second question referred to us in favour of the assessee and against the revenue .