Estates and Agency Co. Ltd. vs Commissioner of Income Tax, Madras

Rajagopalan, J.—The two questions that were referred to this court for determination were :

Whether the words ""income arising in the taxable territories"" in section 4A(c) of the Income Tax Act would also include agricultural income

arising in the taxable territories ?

Whether the assessee was rightly assessed as a resident within the meaning of section 4A(c) ?

The answer to the second of these questions depends on that to the first and what decides the first questions is the interpretation of the word

income"" in section 4A(C), the relevant portion of which runs :

A company is resident in the taxable territories in any year..... if its income arising in the taxable territories in that year exceeds his income arising

without the taxable territories in that year, account not being taken in either case of income chargeable under the head capital gains.

The department authorities, and the Tribunal concurring with them, held that the assessee was resident and ordinary resident in India for purpose

of assessment to Income Tax in the assessment year 1951-52. In computing the income that arose within the taxable territories in the relevant year

the Tribunal took into account a sum of Rs. 4,40,341 which constituted agricultural income as defined by section 2(1) of the Income Tax Act. If

that were ignored the taxable income that arose to the assessee within the taxable territories would be less than the income that arose to it outside

the taxable territories in that year.

In effect the learned counsel for the assessee urged that the word ""income"" in the passage ""income arising in the taxable territories"" should be

interpreted to mean taxable income. The agricultural income of over Rs. 4 Lakhs was not taxable income, and it was not taxed. Neither principle

nor authority justifies the acceptance of that construction. The context of section 4A(c) does not, in our opinion, require us to qualify the unqualified

expression ""income"" by the addition of the word ""taxable"".

It is not all agricultural income that is not taxable but only such income of the agricultural sources as satisfies the definition in section 2(1) of the

Act. It should be obvious that even that agricultural income is income, though it is not taxable income. Apart from the fact that the Central

Legislature has no legislative competence to tax agricultural income, it stands excluded from the statutory concept of total income u/s 4(3)(viii) of

the Act. But agricultural income is not the only species of income that is not taxable. It was only on the ground that the agricultural income of the

assessee was not taxable, that the learned have been excluded from consideration in applying the statutory test imposed by section 4A(c).

The scheme of the Act makes it clear that the concept of income is much wider than that of the statutory concept of total income or that of

taxable income. Further, it should be clear that the word ""income"" in the passage ""income arising in the taxable territories"" should, in the context of

section 4A(c) be given the same meaning which should be accorded to that word in the next passage ""income arising without the taxable territories

Neither permits importation of the limitation of taxable income. It should also be noted that the Legislature specifically statutory provisions, capital

gains, which has been included in the concept of income by section 2(6C), would have to be taken into account for purpose of section 4A(C) . If

the Legislature had intended to exclude agricultural income or all classes of non-taxable income, one would have expected the Legislature to have

said so.

Learned counsel urged that the word ""income"" must be given the same meaning both in section 4A(c) and in section 4(1)(b) of the Act. That

does not take us much further. Section 4(1)(b) has to be read with section 4(3) of the Act. It is the latter that specifically excludes agricultural

income.

In our opinion, that contention reached by the Tribunal was correct. Both the questions are answered in the affirmative and against the assessee.

The assessee will pay the costs of this reference. Counsels fee Rs. 150. Questions answered in the affirmative.