cases he gets the right to gather the fruits or the timber on the land but the profit realised by

the merchant on a sale of the commodity is not agricultural income derived from land but is
business profit. In Yagappa Nadar v. Commissioner of Income-tax [(1927) I.L.R. 50 Mad.
923], this Court held that income earned by a person who had a licence to tap toddy from
trees belonging to the licensors and who sold the toddy extracted by him at a profit was non-
agricultural income, though if the same income was earned by the owner or the lessee of the
land on which the trees grew, it would be agricultural income. The learned counsel for the
Commissioner of Income-tax referred us to the decision of the Judicial Committee in
Commissioner of Income-tax v. Kamakshya Narain Singh [(1948) 16 I.T.R. 325] which
decided that interest on arrears of rent payable in respect of land used for agricultural
purposes was not agricultural income within Section 2(1) of the Income-tax Act. It was held
that the interest was neither rent nor revenue derived from the land. The relationship between
the tenant who executed the bond for arrears of rent with interest and the landlord was held to
be that of a debtor and creditor. There is however one observation of the Judicial Committee
which might be helpful in connection with the present case. Their Lordships while holding
that interest on rent was revenue derived by the landholder, went on to hold that it was not
revenue ―derived‖ from land. They observed: The word ‗derived‘ is not a term of art. Its use
in the definition indeed demands an enquiry into the genealogy of the product. But the
enquiry should stop as soon as the effective source is discovered. In the genealogical tree of
the interest, land indeed appears in the second degree, but the immediate and effective source
is rent, which has suffered the accident of non-payment. Here also the land indeed appears in
the history of the trading operations of the assessee but it cannot be said to be the immediate
or the effective source of the income made by the assessee firm. The immediate and effective
source was the trading operation of purchase of the standing crop and its resale in the market
after harvesting the produce at an advantageous price. For these reasons we hold that the sum
of Rs. 7,500 was not exempt from liability to assessment to income-tax and that the answer to
the question referred to must be in the negative and against the assessee. The assessee shall
pay Rs. 250, the costs of the Commissioner of Income-tax on this reference. * * * * *

Vodafone International Holdings B.V. v. Union of India (UOI) and Anr

34

C.I.T. v. H.G. Date (1971) 82 ITR 71 (Bom.) K.K. DESAI, J. – In this reference under
section 66(2) of the Indian Income-tax Act, 1922, made at the instance of the revenue, the
following two questions of law arise for decision: (1) Whether, on the facts and in the
circumstances of the case, there was any evidence before the Tribunal to justify the finding
that there was no market for sugarcane produced by the assessee? and (2) Whether, on the
facts and in the circumstances of the case, the income received by the assessee was
agricultural income within the meaning of the Indian Income-tax Act? For a number of years
prior to the assessment year 1952-53, the respondent-assessee, being the owner of about 93
acres of land situated at Phaltan on the southern and/or right bank of river Nira, cultivated
sugarcane on his lands. He owned three heavy horse power engines for crushing sugarcane
and converted sugarcane into jaggery for sale in the market. He was assessed to income-tax in
respect of the income from the sales of jaggery under the Income-tax Act, and had not
claimed exemption in respect of this income on the footing that it was agricultural income. In
respect of the income from sales of jaggery for the assessment years 1952-53 and 1954-55,
being the accounting years S.Y. 2007 and S.Y. 2008, he claimed that the income was
agricultural income; and that he was entitled to exemption from income-tax in respect thereof
having regard to the provisions in section 2(1)(b)(iii) read with section 4(3)(viii). This
exemption was refused to him. The Income-tax Appellate Tribunal by its order dated August
10, 1956, held that proper attempt had not been made to ascertain the truth whether there was
in fact a market for the sale of sugarcane grown by the assessee. The Tribunal remanded the
case to the Income-tax Officer for further investigations and report with particular reference
to the above assessment years on 11 points formulated by the Tribunal in its order. The
assessee was given opportunity to tender further evidence in support of his case that his
income was agricultural income and that he was entitled to exemption having regard to the
above provisions of the Act. The case of the assessee was in great particulars mentioned in
the affidavit dated August 9, 1956, which was made the part of the record before the
Tribunal‘s order of remand. Before the Income-tax Officer further evidence was taken on the
record in a large way. The Income-tax Officer issued a questionnaire on the Phaltan Sugar
Works being a factory which carried on business of manufacturing sugar and was situated
approximately at a distance of 7 miles from the fields of the assessee. A questionnaire was
also served on the Walchandnagar Factory and Brihan Maharashtra Sugar Factory which
were situated at a long distance from the fields of the assessee. Now, what appears to be the
findings made by the Income-tax Officer in this report and in his affidavit may be clearly
stated as follows:

On the southern bank of river Nira, within a radius of 15 miles from the Phaltan Sugar
Factory, there were in all 419 sugarcane cultivators, big and small. These cultivators owned
5,253 cultivable acres, 3,109 acres of sugarcane blocks and on a rotation basis only 1,036
acres were used for growing sugarcane. The above acreage excluded farms taken on lease by