Commissioner of Income Tax       VERSUS       Raja Benoy Kumar Sahas Roy

Commissioner of Income Tax       VERSUS       Raja Benoy Kumar Sahas Roy                                                      

1957 AIR 768, 1958 SCR 101

• ANANYA SINGH (Vivekananda Institute of Professional Studies) 

LEGAL POINTS: 

Main Statute is the Indian Income Tax Act (XI OF 1922) equivalent of Income Tax Act, 1961.

Section 2(1A) of the Income Tax Act 1961 read with Section 10(1) [equivalent of Section 2(1) read with Section 4(3)(viii) of the Indian Income Tax Act 1922]

The Constitution forbids Parliament from taxing agricultural revenue. The State Governments alone have the authority to tax agricultural revenue. Therefore, agricultural income is exempt from central income tax under Section 10(1) of the Income-tax Act of 1961. However, starting with the assessment year 1974-1975, agricultural revenue was taken into account for determining the tax on non-agricultural income. Consequently, figuring out what constitutes agricultural revenue becomes vital. Section 2(1A) of the Act, provides the definition:- 

Section 2(1A) defines agricultural revenue as follows:

1. Any rent or revenue received from a land located in India and utilized for agricultural purposes; Rent can be paid in money or in kind. The assesse may be the land’s owner or tenant.

2. Any agricultural revenue from such land.

3. Any income from such land from the performance by:- 

a. cultivator.

b. a receiver of rent in kind, of any procedure typically used by them to make the produce grown or received by him fit to be sent to market.

4.  Any revenue gained from such land by a farmer selling the crops he grows; or recipient of rent-in-kind for the product they have received, provided that no additional processing has been done to make the produce marketable.

The procedure must only be used to transform “the produce or rent in kind” into a form that may be sold. If the “production or rent in kind,” which may be sold in its raw form in the market, is subjected to the marketing process, then the revenue obtained from such a commodity is comprised of both agricultural and non-agricultural income.

5. Any revenue from a building is subject to the following requirements:

a. The farmer or recipient of rent in kind must occupy the building.

b. The land, which is located in India and is utilized for agricultural purposes, should have the building on it or close by.

c. The structure should be utilized as a home, a store, or another outbuilding.

d. The land is either located in a rural region or an urban location and is subject to local rates and land revenue.

BENCH:

Justice Bhagwati, Justice Natwarlal H.

FACTS OF THE CASE:- 

1. Raja Benoy Kumar Sahas Roy, the respondent, was assessed land revenue and held 6000 acres of forest. Sal and piyasal trees that grew on their own were present in the forest. The forest was of spontaneous growth, and it was 150 years old.
2. Every year, a significant amount of labor and expertise had to be put into preserving the forest, guarding the offspring from the stumps of the trees that had been cut and sold from which the income was generated, and reviving its depleted areas via new plantation.
3. Although the respondent had engaged a sizable workforce for weeding, falling, clearing, cutting of channels to facilitate the flow of rainwater, protecting the trees against pests and other damaging forces, as well as for spreading seeds after preparing the soil in denuded regions.
4. The respondent claimed revenue from the sale of trees totaling Rs 51,718 in his return for the assessment years 1944-1945 but added a disclaimer that the income from the forest was not taxable under the Income Tax Act. As per Section 4 (3)(viii) of the Income-tax Act of 1922 [equivalent to Section 10(1) of the Income-tax Act of 1961], this income was exclusively agricultural, it was free from taxation.
5. The income tax official denied the request and added the net proceeds of Rs. 34,430 from the sale of forest trees after deducting Rs. 17,548 for forest maintenance costs.

HISTORY:-

1. Respondent did not agree with the decision of income tax officer he went to Appellate Assistant Commissioner and Appellate Tribunal.

2. Both the Revenue Tax Appellate Tribunal and the Appellate Assistant Commissioner, after going through all the facts of the case, agreed that the order of assessment was correct, and that the aforementioned income did not qualify as agricultural income under the Act. The Appellate Tribunal determined that because there were very few seeds sown and because the money came from jungle products, it did not qualify as agricultural income under the Act.

3. The case was then referred to the High Court of Calcutta, With respect to the question of “Whether on the facts and in the circumstances of this case, the sum of Rs. 51,977/- as agricultural income and as such is exempt from payment of tax,” the High Court of Calcutta was consulted at the Raja’s (assesse) request.

1. The income from the sale of Sal and Piyasal trees in the forest, which was initially a forest of spontaneous growth, and the trees weren’t grown with the help of human skill and labor but on which the forestry operations described above had been carried out, was the basis for the assessment of the said income to income tax.

2. In contrast, the High Court ruled that cultivation of the soil was not necessary, that the revenue was agricultural income because human labor and skill had been used to improve the land itself, and that the question was answered in the assesses favor. However, the Income-tax Authorities made no attempt to determine the income actually derived from the trees planted by the assesse, nor were any materials placed on the record from which its exact amount could be determined. This Court, however, held that a substantial portion of it must have been derived from the trees planted by the assesse in light of the magnitude of the expenditure shown by the assesse relative to the total income.

3. Following a referral, the High Court ruled that while real land cultivation was not necessary and since human labor and resources were still needed for the forest’s growth, the revenue from the forest qualified as agricultural income.

4. Commissioner of Income Tax (CIT) preferred an appeal to the Supreme Court.

ISSUE BEFORE THE SUPREME COURT:

Whether income derived from the sale of Sal and Piyasal trees in the forest owned by the assesse which was originally a forest of spontaneous growth “not grown by the aid of human skill and labor” but on which forestry operations described in the statement of case had been carried on by the assesse involving considerable amount of expenditure of human skill and labor is agricultural income within the meaning of section 2(1) and as such exempt from payment of tax under section 4(3)(viii) of the Indian Income-tax Act.

CONTENTIONS OF THE ASSESSEE:

The assesse argued that while the forest was 150 years old, he had a huge workforce that was responsible for weeding, falling, and removing trees, opening channels for the provision of rainwater, protecting the trees from pests, and spreading seedlings after preparing the soil in the denuded regions. Thus, there was labor, and talent required. He could barely profit from the trees till such procedures were carried out on them. If the term “agricultural activities” was freely defined, what he conducted on the trees with the help of laborers and craftsmen was truly exempt from taxation under the statute, which should be liberally interpreted. 

REASONING OF THE SUPREME COURT: 

• The court observed that the Indian Income-tax Act does not define the terms “agriculture” and “agricultural purpose,” so it relied on their common parlance understanding. Referring to dictionary meanings and interpretations in other legislations, the court highlighted that the definition of “agricultural income” in the Act aligns with various state Agricultural Income-tax Acts. The primary sense of agriculture involves field cultivation, including tilling, sowing, planting, and similar operations requiring human skill and labor.

• Apart from basic operations, agriculturists must perform subsequent operations like weeding, digging, pruning, and harvesting to effectively raise produce. These subsequent operations, when coupled with basic ones, constitute integrated agricultural activity. However, performing subsequent operations alone, without the preceding basic operations, does not qualify as agricultural.

• The term “agriculture” encompasses both basic and subsequent operations, forming an integrated activity for cultivating land. The court emphasized that the term shouldn’t be extended to all land-related activities; rather, it should maintain its fundamental concept of cultivating the land through essential operations like tilling and planting.

JUDGMENT OF THE SUPREME COURT:

1. The Apex Court noted that there was no question about the forest’s spontaneous expansion. If no further information is uncovered, it is likely that the money does not come from agriculture. Although certain areas of the forest have been cut, new trees have been planted, and tree-care operations have taken place, the Tribunal has ruled that the forest is 150 years old. Concerning those trees, it is undeniable that the money collected from them will be tied to agriculture. However, the forest is estimated to be 150 years old, and none of the trees can be considered to have developed in this way without the assistance of human labor and expertise. As a result, not all the money from the forest trees may be categorized as agricultural income.

2. It was noted that the income tax authorities need to have ordered an investigation to determine how much of the revenue is related to a forest’s natural expansion and how much is attributed to the assesses own planting of trees. Their Lordships did not feel like conducting such an inquiry at this time since so much time had gone. Their Lordships considered that, considering the cost of maintaining the forest in relation to the overall earnings, “a large percentage of the income must have been generated from trees planted by the proprietors themselves.” There are no resources on which we can build a claim that the court’s decision below is wrong since the government did not seek to identify what proportion of income is connected to forest of spontaneous growth.

3. It is widely acknowledged that items that grow wild on the land or grow spontaneously without the need of human labour or expertise are not agricultural products, and the revenue gained from them is not agricultural income. The production of these goods from the soil does not entail any agricultural processes. There are no agricultural operations performed by the assesse in respect of the same, and the only work which the assesse performs here is that of collecting the produce and consuming and marketing the same. No agricultural operations have been performed and there is no question at all that the income derived is agricultural income within the definition given in section 2(1) of the 1922 Act. Where, however, the assesse undertakes later activities on these wild or spontaneously grown land products, the character of those actions must be judged in light of the criteria outlined above.

4. The assesse’s cost for forest care was around Rs. 17,000, compared to a total revenue of around Rs. 51,000. In terms of the scale of this amount, it might be argued that a significant percentage of the revenue must have originated from trees planted by the proprietors themselves. As no attempt had been made by the Department to establish which portion of the income was attributable to a forest of spontaneous growth, there were no materials on which it could be said that the judgment of the Court below was wrong. Accordingly, the revenue appeal was dismissed.

JUDGMENT ANALYSIS:

After reading the facts and issues, I agree with the judgment given by the Supreme Court by effectively defining the meaning of ‘Agricultural’ and clarifying what constitutes ‘Agricultural Income’ by defining and dividing ‘Agricultural purposes’ into two parts i.e., Basic operations and Subsequent Operations. Because the term “agriculture” in its strictest definition would be limited to simply land cultivation, which includes tilling, sowing, plating, and other such land- based activities.

In addition to the fundamental processes, other tasks like weeding, tending, pruning, cutting, harvesting, and making products marketable can also be viewed as agricultural tasks when combined with the basic operations.

It would be insufficient to classify these following operations or activities as agricultural operations just because they include land-based items that were not cultivated on land via fundamental operations.

The court clarified that both these activities performed in isolation do not constitute agricultural operations and the income derived from these would not amount to agricultural income within the meaning of the Act.

Therefore, even though certain ancillary operations like gathering and marketing said products are carried out by assesse, products that grow wild on land or are of spontaneous growth on land without involving any human labor or skill are not agricultural products and the income derived from them is not agricultural income.

The court correctly explained that this distinction is not so important in cases where the agriculturist performs these operations as a part of his integrated activity in cultivation of the land. Where, however, the products of the land are of spontaneous growth, unassisted by human skill and labor, and human skill and labor are spent merely in fostering the growth, preservation, and regeneration of such products of land, the question falls to be considered whether these subsequent operations performed by the agriculturist are agricultural operations and enjoy the characteristic of agricultural operations.

Therefore, the Apex Court was justified in dismissing appeal of the revenue department as the department failed to differentiate between the income from forest of spontaneous growth and agricultural income of the assesse and that is why the High court correctly decided the facts and circumstances of the present case.

CONCLUSION: 

In conclusion, I agree with the Supreme Court’s judgment in effectively defining the meaning of ‘Agricultural’ and clarifying the components of ‘Agricultural Income.’ The division of ‘Agricultural purposes’ into Basic and Subsequent Operations provides a clear framework. The strict definition of “agriculture” limited to land cultivation, including fundamental operations like tilling and planting, is reasonable.

The court rightly recognizes that additional tasks such as weeding, pruning, harvesting, and preparing products for the market can be considered agricultural when integrated with basic operations. Emphasizing the necessity of both basic and subsequent operations for an activity to be deemed agricultural is crucial. Mere performance of subsequent operations on goods not grown through fundamental operations does not qualify as agricultural.

The distinction between activities performed as part of integrated cultivation and those involving spontaneous growth without human labor is well-founded. The court correctly emphasizes that income from products of spontaneous growth, unaided by human skill, is not agricultural income. The dismissal of the revenue department’s appeal is justified, as it failed to distinguish between income from spontaneous forest growth and the assesse’s agricultural income. The High Court’s decision aligns with the facts and circumstances of the case. Overall, the Supreme Court’s judgment provides clarity and coherence in interpreting the concept of agricultural income within the ambit of the Act.