Dividend income received from a company which derives its profits from agricultural activities and whose income or part of it is exempt from tax on the ground that it constitutes agricultural income is not liable to tax in the hands of the assessee.

CHAGLA, C.J. :- A very important question arises on this reference as to the liability of an assessee to pay tax on his dividend income when the dividend has been received from a company which derives its profits from agricultural activities and whose income or part of it is exempt from tax on the ground that it constitutes agricultural income.

2. The facts are very few. The assessee held shares in two tea companies, Patrakola Tea Co., Ltd., and the Bishnauth Tea Co., Ltd., and in the year of account she received dividends aggregating to Rs.2,750 on the shares that she held. These two tea companies carry on the business of growing and manufacturing tea. 40 per cent of the income of the tea companies was taxed as income from the manufacture and sale of tea, while 60 per cent was exempt from tax as agricultural income. This was pursuant to R.24 of the Indian Income-tax Rules. The contention of the assessee before the Tribunal was and it is before us that 60 per cent of this dividend income was agricultural income in her hand and therefore was exempt from tax. A large number of authorities have been cited at the bar and our attention has been drawn to various observations made by different High Courts and the Privy Council. There is no direct decision on this point and therefore it is advisable first to look at the Act itself and to consider what are the principles which should govern this case before we turn to the authorities.

3. Now, exemption from tax can only be claimed under S.4(3), Income-tax Act and that section provides that any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them. Therefore, it is for the assessee to satisfy us that the income received by her falls within any of the classes enumerated in S.4(3), and the contention of the assessee is that her income falls in the category of agricultural income mentioned in S.4(3)(viii). Therefore, it is only if her income is agricultural income that she is entitled to exemption from tax. "Agriculture income" is defined in the Act itself and the definition is "any rent or revenue derived from land which is used for agricultural purposes." Therefore, the assessee must satisfy us that the dividend which she has received from the two tea companies is a revenue derived from land which is used for agricultural purposes. It seems difficult to understand how it could possibly be urged by the assessee that the dividend which she has received as a share-holder from these two companies is revenue derived from land which is used for agricultural purposes. But Sir Jamshedji with his usual skilful advocacy has tried to persuade us that on the authorities and on the true position of a share-holder and on the rights that a share-holder has, the dividend income of the assessee is the same identical income which the company derives from agricultural processes.

4. Now, let us look at the position of a company and its share-holders under the general law and under the Income-tax Act. It is elementary and unnecessary to repeat that a company is a separate entity from its share-holders. Sir Jamshedji tried to draw an analogy between a partnership which does agricultural business and whose income is agricultural income and a company whose income is agricultural income. In my opinion the analogy is entirely unsustainable. Law does not recognise a partnership as a separate entity and in law there is no such thing as partnership independently of partners. A partnership is merely a compendious expression to describe various persons who are carrying on business in partnership. It is true that when a partnership has agricultural income and the partnership is registered under the Indian Income-tax Act, in the assessment of individual partners the agricultural income would be exempted, because there is no distinction in law between the income of the partners and the income of the partnership. Entirely different is the