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HIGH COURT OF CALCUTTA
DEB, SABYASACHI MUKHERJI
COMMISSIONER OF INCOME-TAX - Appellant
Versus
B. GUPTA (TEA) PRIVATE LTD. - Respondent
Income-Tax Reference 168 Of 1964
Decided On : FEBRUARY 05, 1969
INCOME TAX - Agricultural income - Insurance money received for damage to green leaf by hail storm - Whether agricultural income - Held, yes.
Fact of the Case:
The assessee, a limited company engaged in growing and manufacturing tea, received a sum of Rs. 15,465 from an insurance company for damage caused to green leaf forming part of its tea estate by hail storm. The Income-tax Officer and the Appellate Assistant Commissioner included this receipt in the total income of the assessee, holding that it was incidental to the assessee's carrying on business of manufacture of tea and as such could not be treated as agricultural income. The Income-tax Appellate Tribunal, however, held that the receipt was entirely a receipt connected with the agricultural operation and as such represented agricultural profit and was, therefore, exempt from income-tax under Section 4 (3) (viii) of the Indian Income-tax Act, 1922.
Finding of the Court:
The court held that the sum of money paid by the insurance company under "Hail Clauses" was in respect of the crop being damaged by hail and that related to the agricultural operations carried on by the assessee. The court further held that the amount received from the insurance company represented nothing but agricultural income and as such exempt under Section 4 (3) (viii) of the Indian Income-tax Act, 1922.
Issues: Whether the sum of Rs. 15,465 received by the assessee from the insurance company for damage caused to green leaf by hail storm was agricultural income and, therefore, exempt from income-tax under Section 4 (3) (viii) of the Indian Income-tax Act, 1922.
Ratio Decidendi: The court held that the insurance money received by the assessee was agricultural income and, therefore, exempt from income-tax under Section 4 (3) (viii) of the Indian Income-tax Act, 1922, on the following grounds: * The insurance policy covered the risks against fire, theft, pilferage and non-delivery, fresh water damage and also loss or damage occasioned by collision, breakage of bridges, derailment or accidents of a like nature whilst being conveyed by train or motor-truck. * The insurance policy contained a special clause called "Hail Clauses" which provided for payment of 50% of the loss suffered by the assessee due to damage to standing crops by hail storm. * The amount received by the assessee from the insurance company represented 50% of the total loss assessed in respect of the damaged green leaf by hail storm. * The insurance money was paid in respect of the damage done by hail storm to the growing crop only and that crop represented agricultural operation. * Any sum which represents profits of agricultural operations must be considered to be income from agricultural operations.
Final Decision: The court answered the question referred to it in the affirmative and against the revenue, holding that the sum of Rs. 15,465 received by the assessee from the insurance company was agricultural income and, therefore, exempt from income-tax under Section 4 (3) (viii) of the Indian Income-tax Act, 1922.
( 1 ) THE assessee is a limited company engaged in growing and manufacturing tea. In the assessment year 1960-61, the corresponding previous year being the calendar year 1959, the assessee received a sum of Rs. 15,465 from Messrs. London Assurance for damage caused to green leaf forming part of the assessee's garden called " Bundook-mara Tea Estate " in the district of Cachar, Assam. Damage was caused by hail storm some time in May, 1959, and on the basis of the assessment it was found that 773 mds of green leaf had been lost by the assessee. There was an insurance policy. It appears from the said insurance policy that the insurance primarily covered the risks against fire, theft, pilferage and non-delivery, fresh water damage and also loss or damage occasioned by collision, breakage of bridges, derailment or accidents of a like nature whilst being conveyed by train or motor-truck. The said insurance policy contained a special clause called " Hail Clauses " which, inter alia, provided as follows :" In the event of any crop being damaged by hail the assured's garden manager shall forthwith summon two neighbouring planters who shall certify to the area so damaged (in acres) and furnish an estimate in (green leaf) of the season's loss consequent thereon, detailing fully their reasons for the conclusions arrived at. . . "
( 2 ) UNDER the policy the insurance company undertook the liability to pay 50 per cent. of such loss suffered. In fact in the instant case the amount actually received by the company roughly represents 50 per cent. of the total loss assessed in respect of the damaged green leaf by hail storm.
( 3 ) BEFORE the Income-tax Officer it was contended by the assessee that this sum of Rs. 15,465 is exempt from taxation being agricultural income. The Income-tax Officer disallowed this claim and included this receipt in the total income of the assessee. It appears from the assessment order that the taxable income was computed at the rate of 40 per cent. of the total income as computed. The same has been done by applying the provisions of Rule 24 of the Indian Income-tax Rules, 1922.
( 4 ) THERE was an appeal before the Appellate Assistant Commissioner who upheld the order of the Income-tax Officer. The Appellate Assistant Commissioner was of the opinion that the said receipt was incidental to the assessee's carrying on business of manufacture of tea and as such could not be treated as agricultural income.
( 5 ) THERE was a further appeal to the Income-tax Appellate Tribunal. The Tribunal came to the conclusion that the insurance against damage to standing crops by hail storm has got nothing to do with the manufacturing business of the assessee and as such is connected with the agricultural operation, namely, planting, growing and maintaining tea bushes. The Tribunal, therefore, came to the conclusion that the receipt in question was entirely a receipt connected with the agricultural operation and as such represented agricultural profit. Therefore, it is entitled to exemption from income-tax under Section 4 (3) (viii) of the Indian Income-tax Act, 1922.
( 6 ) ON an application being made, the Tribunal referred to this court the following question under Section 66 (1) of the Indian Income-tax Act, 1922 :"whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 15,465 was agricultural income within the meaning of Section 2 (1) of the Indian Income-tax Act, 1922, and was, therefore, exempt from income-tax under Section 4 (3) (viii) of the said Act ? "
( 7 ) IN our opinion, Rule 24 of the Income-tax Rules, 1922, is not applicable to the receipt of this nature. The same rule is only applicable when the income is derived from the sale of tea grown and manufactured by the seller. When tea is sold by one who both grows tea and manufactures it, the income therefrom is resultant from the combined operations of agriculture and manufacture. In cases
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