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1948 Supreme(SC) 53
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD SIMONDS, LORD QAKSEY AND SIR JOHN BEAUMONT.
PREMIER CONSTRUCTION COMPANY, LIMITED - Appellant
Versus
COMMISSIONER OF INCOME-TAX, BOMBAY CITY - Respondents
On appeal from the High Court at Bombay.
Decided On : June. 28. 1948.
Solicitors for appellant : Sanderson, Lee & Co.
Solicitor for respondent: The Solicitor, High Commissioner for India.
Income does not become "agricultural income" simply because it is calculated as a percentage of agricultural profits or derived from a source earning such profits; it must independently meet the statutory definition of agricultural income to be exempt.
Headnote:(A) Indian Income-tax Act, 1922 - Sections 2(1) and 4(3)(viii) - Agricultural income - Exemption from tax - Remuneration of managing agent calculated as a percentage of profits - Whether such remuneration is agricultural income if a portion of the profits is derived from agricultural sources - Income does not assume the character of agricultural income by reason of the source from which it is derived or the method by which it is calculated - If the income received does not fall within the definition of agricultural income, it is not exempt, regardless of the employer's source of income.
(B) Character of Income - Remuneration received under a contract for personal services, calculated on the amount of profits earned by the employer, is not agricultural income, as it is not rent or revenue derived from land.
Facts of the case:
A managing agent was entitled to remuneration based on a percentage of the annual net profits of a principal company. A portion of the principal company's income was derived from the manufacture of sugar from its own cane, which was agricultural income and exempt from tax. The managing agent claimed that the portion of its commission proportionate to the agricultural income of the principal company was itself agricultural income and therefore exempt from tax.
Findings of Court:
The remuneration was paid in consideration of services rendered and was calculated as a percentage of profits without regard to the sources of those profits. It was not paid in specie out of agricultural profits but out of available moneys of the employer.
Issues: Whether the portion of income received by a managing agent, which is proportionate to the agricultural income earned by the principal company, is agricultural income within the meaning of the Act and exempt from assessment.
Ratio Decidendi: Where an assessee receives income that does not itself fall within the definition of agricultural income, such income does not acquire that character simply because of the source from which it is derived or the method by which it is calculated. Remuneration for personal services is distinct from rent or revenue derived from land.
Result: Appeal dismissed.
Legal Category Hierarchy
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taxation
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income tax
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agricultural income
- exemption
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agricultural income
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income tax
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contract law
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service contracts
- remuneration
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service contracts
Judgement
Appeal (No. 41 of 1947) from a judgment of the High Court (March 27, 1945) given on the reference of a question of law made to the court under s. 66, sub-s. 1 of the Indian Income-tax Act by the Appellate Tribunal.
The following facts are taken from the judgment of the Judicial Committee. The assessee, at all material times, was the managing agent of Marsland Price and Company, Ld. (hereinafter called "the principal company"), under an agreement dated February 1, 1926, and made between the principal company of the one part and the assessee (by its then name of the Tata Construction Company, Ld.) of the other part. The remuneration of the assessee was regulated by cl. 2 of the agreement, and under sub-cl. (b) the assessee was entitled to "A commission at the rate of ten per cent, per annum oh " the annual net profits of the principal company after making "all proper allowances and deductions from revenue for " working expenses chargeable against profits but without " making any deduction for depreciation or in respect of any " amount carried to reserve or sinking fund or any payment " on account of super-tax or any deduction for expenditure " on capital account provided that such commission shall not "in any year amount to a less sum than rupees ten thousand.” The year of assessment was the year 1942/ 1943. In that year the assessee received as remuneration under the managing agency agreement a commission at the rate of 10 per cent, of the net profits of the principal company, that sum being in excess of the minimum salary secured by the agreement. The whole of that remuneration, less certain deductions which were not in question, was assessed to income tax by the income tax officer. One of the sources of income of the principal company was the manufacture of sugar from cane grown on it own farms and from other cane bought from outside, and it was not disputed that in so far as its income was derived from sugar manufactured from its own cane such income was agricultural income and, as such, was exempt from income tax. The assessee claimed that as its remuneration was calculated with reference to the income of the principal company, part of which was agricultural income, such part of the remuneration as was proportionate to the agricultural income of the principal company was itself agricultural income and, as such, exempt from income tax. That claim was rejected by the income tax officer, and in appeal by the assistant commissioner of income tax and the appellate tribunal. At the request of the assessee the appellate tribunal referred to the High Court the following question " Whether, in the circumstances of this case, that " portion of the income received by the assessee from the " principal company of Marsland Price and Company, Ld., " which is proportionate to the agricultural income earned " by the principal company, is agricultural income within the " meaning of s. 2, sub-s. 1, of the Indian Income-tax Act, 1922, " and exempt from assessment under the provisions of s. 4, "sub-s. 3 (viii), of the Act."
The High Court (Kania and Chagla JJ.) answered that question in the negative, taking the same view of the law as had been taken by the income tax officer, the Appellate Assistant Commissioner of Income-Tax, Bombay, and the Income Tax Appellate Tribunal.
" Agricultural income" was rendered exempt from income tax by s. 4, sub-s. 3 (viii.), of the Indian Income-tax Act. " Agricultural income u was defined by s. 2, sub-s. 1, of the Act, so far as relevant, as " (a) Any rent or revenue derived from land which is used " for agricultural purposes.....
" (b) Any income derived from such land by—
" (i.) Agriculture, or" (ii.) The performance of certain specified acts which may be paraphrased as acts necessary to render agricultural produce fit for market and sale. Nothing turned on the exact words of that sub-section.
1948. May 25, 26. Sir Cyril Radcliffe K.C. and R. P. Hills for the appellant. The question, one of principl
