The main legal point established in the judgment is that for an amount to be considered as agricultural income and allowable as a deduction, it must meet the criteria specified in the relevant provisions of the Agricultural Income-tax Act, 1950.

1. The Agricultural Income tax Appellate Tribunal has made this reference under S.60 (1) of the Agricultural Income-tax Act, 1950 (hereinafter referred to as the Act). The year of assessment is 1962-63 and the question referred reads thus:

"Whether on the facts and in the circumstances of the case, the managing agency commission on rubber replanting subsidy is allowable expenditure."

During the relevant accounting period pertaining to the year of assessment, 1962-63, a sum of Rs. 50,388/-has been received as rubber replanting subsidy by the assessee company. The assessee company is engaged in the business of running a rubber estate. The company claimed 9 per cent of the amount of Rs. 50,388/-as an item of expenditure which they urged, should be deducted in computing its income for the purpose of taxation under the Act. This has been negatived.

2. It is not contended before us that this amount can be claimed as a deduction under any provision other than S.5 of the Agricultural Income-tax Act, 1950. The relevant sub-section is sub-section 0) which is in these terms:

"Computation of agricultural income:

The agricultural income of a person shall be computed after making the following deductions, namely:

0) any expenditure (not being in the nature of capital expenditure or personal expanses of the assessee) laid out or expended, wholly and exclusively for the purpose of deriving the agricultural income;"

3. The deductions allowable under S.5, we think, must relate to deductions from agricultural income earned by the person sought to be assessed. So the question arises as to whether the sum of Rs. 50,388/-received from the Rubber Board by the assessee company as rubber replanting subsidy can be said to be agricultural income. This is as amount paid to the assessee company by virtue of the provisions in the Rubber Act, 1947. A reference to S.9A and 9B as well as S.12 of that Act indicates that these must be payments either from the general fund or from the pool fund as envisaged by that statute. And it also seems to be clear that the bulk of it must have come out of the amounts that have been collected from persons like the assessee company by way of cess as envisaged by S.12 (1) of the Rubber Act, 1947. Even so it is difficult to treat the amount received from the Rubber Board by the assessee company as agricultural income. Dealing with the question what is agricultural income the Privy Council observed in Commissioner of Income tax v. Raja Bahadur Kamakhaya Narayan Singh reported in (1948) 16 ITR. 325:

"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 geneological trees of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of nonpayment. And rent is not land within the meaning of the definition."

This passage has been quoted with approval by the Supreme Court in Commissioner of Income tax U.P. v. Kumar Trivikram Narain Singh reported in(1965) 57 ITR. 29 and we said following these decisions in Commissioner of Agricultural Income, tax v. K. S. Narayanan Tratan Nambudiripad reported in 1965 KLT. 913:

"If the immediate and effective source is not land the income cannot be considered to be agricultural income."

4. We therefore are of the view that the sum of Rs. 50,388 received by the company as rubber replanting subsidy is not agricultural income of the assessee company. In fact it has not been suggested either by the company or by the department that this is agricultural income. Admittedly the company had not included this amount in its return and the amount has not been taxed as such.

5. The deduction claimed is 9 per cent of the sum of Rs. 50,388/-which is admittedly not treated as agricultural income and such an amount we do not think, can be claimed as a deduction under S.5 0) of the Agric