http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

PETITIONER: COMMISSIONER OF INCOME TAX

       Vs.

RESPONDENT: M/S. ALL INDIA TEA AND TRADING CO. LTD.

DATE OF JUDGMENT:       01/03/1996

BENCH: KIRPAL B.N. (J) BENCH: KIRPAL B.N. (J) VERMA, JAGDISH SARAN (J)

CITATION:  JT 1996 (3)    76        1996 SCALE  (2)613

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N I KIRPAL.J.      The only  question for  consideration in this appeal is whether the  compensation received by the respondent, on its agricultural land  being requisitioned.  was exempt from the levy of income tax or not.      The respondent  is a  company  having  tea  estates  in Assam. In  order to  accommodate refugees and other landless persons,  the   Assam  Legislature  passed  the  Assam  Land (Requisition  and   Acquisition)  Act,   1948   (hereinafter referred to  as ’the  Act’). Section  3 of this Act provided for requisitioning  of land  and according  to Section 4 the requisitioned land  could be  used or  dealt  with  An  such manner as  may seem  expedient to  the State Government. The land could  also be  acquired by  the State Government after necessary  notice.   Section  7  of  the  Act  sets-out  the Principles of  determining compensation  for  acquisition/or requisition of  land. Sub-section  (3) of Section 7 provides that where  any land  is  requisitioned  then  every  person interested in  such land  is to be paid such compensation as may be  agreed upon in writing between the person interested and the  Collector. Compensation  is also payable in respect of any  damage which  may be  done to  the land  during  the period of  requisition. The  maximum amount  of compensation which may be payable is also stipulated.      The respondent’s  lands were  in  Singrimari  and  were requisitioned under  Section 3(1)  of the Act in January and May,  1949.   The   respondent   got   Rs.   1,24,638/-   as compensation.      The claim  of the respondent during the assessment year 1958-59, with  which we  are concerned  in this  appeal, was that the  amount to  compensation received  was exempt  from levy  of   income  tax   as  this   amount  represented  the respondent’s agricultural income. The Income Tax Officer did not accept  this claim.  On appeal  however,  the  Appellate Assistant Commissioner  found that  the respondent was using

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

the requisitioned land for agricultural purposes at the time of requisition  and also earlier to that. He, therefore,held that the  compensation raceived  by the  respondent was  its agricultural income  and, therefore,  not liable to tax. the department then  filed an  appeal before  the Tribunal,  but without  success.  Upholding  the  order  of  the  Appellate Assistant Commissioner.  the Tribunal  found as  a ’act that after requisition  the Government  of Assam  had given  that land to  refuses who  continued to  cultivate the  name.  In other words,  the finding  of fact  of the Tribunal was that the land  in question  was being  used by the respondent for agricultural purposes  in the  relevant accounting year, and also in  the earlier  years, and  the said  land even  after requisition,  was   being  cultivated   by   the   refugees. Therefore, the  agricultural character  of the  land did not undergo any change.      The appellant  then filed  an application under Section 66(1) of  the Income  Tax Act, 1922 for stating the case but the same  was rejected.  Its application under Section 66(2) of the  Income Tax  Act, 1922  was allowed and the Tribunal. thereupon  stated   the  case  and  referred  the  following question of law to the High Court:      "Whether on  the facts  and in  the      circumstances  of   the  case   the      Tribunal was  right in holding that      the  sum   of  Rs.  1,24,638/-  was      exempt from tax".      The High  Court answered  the aforesaid question of law in favour  of the respondent and came to the conclusion that the source  of compensation  was the  land itself end though the payment  was discharged of the statutory liability, none the less, it was the liability which arose directly from the requisition of  the agricultural  land.  It  concluded  that amount of  compensation paid  under the Act was agricultural income and, therefore, exempt from tax.      The high  Court therefore,  granted Leave,  hence  this appeal.      It has  been contended  by the  learned counsel for the appellant that  the compensation  paid for requisitioning of the agricultural  land was  not agricultural  income and the same was liable to tax.      In support  of this  contention.  the  learned  counsel relied upon the decision of Andhra Pradesh High Court in the case of  Pydah  Survanarayana  Murthy  Vs.  Commissioner  of Income Tax,  42 ITR  83. Our attention was also drawn to the decision of  the Assam  High Court  in the  case of Senairam Doonoarmall Vs.  State of Assam. Air 1953 Assam 63 which was a case  arising under  the Assam  Asricultural Income and it was held  therein that  the  compensation  received  on  the requisitioning of  the factory and some other buildings of a tea estate did not represent agricultural income.      In our opinion the decision of the High Court calls for no  interference.   Agricultural  income  is  defined  under Section 2(1)  of the  Income Tax  Act, 1922 and the relevant portion thereof is as follows:      " ’Agricultural income means:      (1)  Any rent  or  revenue  derived      from  land   which  is   used   for      agricultural   purposes.   and   is      either assessed  to land revenue in      taxable territory  or subject  to a      local rate  assessed and  collected      by officers  of the  Government  as      such".      The finding  of fact  in the  present case is that even

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

after the requisition of the land, the refuges were carrying out  agricultural   operations  on  the  land  in  question. Therefore, one  of the  requirements of  Section 2(1) of the Income Tax  Act. 1922  namely: that  the land  is  used  for agricultural purposes  stands satisfied.  The only  question which  has   been  considered   is  whether  the  amount  of compensation which  was received  can be required as rent or revenue which  can be  said to  ba derived from land. In our opinion, the  answer to  the said  question is  obvious. The land in  question continued  to  vest  with  the  respondent during the  relevant assessment  year. On the requisitioning of the  land. possession  of the  same  was  taken  and  the refugees were  put in  possession for which compensation was paid to  the respondent.  In a  sense  the  refugees  became statutory or  compulsory tenants  and for  parting with  the physical possession  of  the  land,  on  which  agricultural operations continued to be carried on, compensation was paid This compensation  clearly had  the character  of rent or in any case,  has to  be regarded  as being  revenue which  was derived from  the land.  If the  respondent had  voluntarily given the  land on  lease and  had received  the sum  of Rs. 1,24,638/- as  rent, the same would not have been taxable as lt would admittedly be agricultural income. What happened in this case  was that  instead of voluntarily giving this land on rent to the refugees the said land has been given to them by the  order of  requisition being  passed by  the State of Assam. The  amount  received  is  directly  related  to  the requisitioned  land   on   which   agricultural   operations continued to  be carried  on by the refugees during the year in  question   and  this   amount  has  to  be  regarded  as agricultural income as defined by Section 2(1) of the Income Tax Act, 1922.      The decision  in Suryanarayana Murthy’s case (supra) is clearly distinguishable  because in that case the facts were that the  agricultural land  was requisitioned  for military purposes  under   the  Defence   of  India   Act.  1939  and compensation was  paid in  respect thereof. It was held that as the  military authorities had not carried on agricultural operations on  the lands.  the compensation  received by the assessee was  not agricultural  income. In the present case, however, the  finding of  fact is that the refugees, to whom the  lands   were  allotted   did  carry   out  agricultural operations. Therefore,  the compensation  has to be regarded as  agricultural   income.  In   Senairam  Doongarmall   Vs. Commissioner of  Income Tax. Assam, 42 I.T.R. 392, buildings had  been   requisitioned  for   defence  purposes  and  the manufacture of  tea had  stopped. The  question arose  as to whether the  compensation received tor the requisitioning of the building  was taxable  as income. This Court came to the conclusion that  the assessee  did not carry on any business after the  requisition of  its factory  and other  buildings and, therefore, the amount received could not be regarded as profits and  gains of  business taxable  under Section 10 of the Income Tax Act. This decision can be of no assistance to the appellant  because in  the present  case the  respondent continued  its  business  activities.  Further,  whereas  in Senairam Coongarmall’s  case (supra)  what was requisitioned was factory  and buildings. in the present case. however, it is agricultural land which was requisitioned.      The other  decision relied  upon by the learned counsel for the  appellant namely;  Board of Agricultural Income Tax Vs. Sindhurani,  A.I.R. 1957  S.C.729 has also no bearing on the point  in issue  because in that case the question which arose for  was whether  the salami paid by the tenant to the landlord could be regarded as agricultural income or not. It

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

was held that the "salami" was neither rent nor revenue. But an the present case we are not concerned with the Payment of "salami". This  case relates  to payment of compensation for the requisition of land which is very different from payment of "salami"  by a  tenant. The  decision of  the Assam  High Court in  Senairam Doongarmall’s case (supra). which related to the  Assam Agricultural  Income Tax  Act,  is  again  not relevant because that case related to requisition of factory and buildings  of the  assessee and  not of any agricultural land.      Before concluding  we may  note that  the  respondent’s land which  was requisitioned  was subsequently  acquired by the  State   of  Assam   and  compensation   was  paid.   In Commissioner of Income-tax. West Bengal-II Vs. All India Tea and Trading Co. Ltd., 117 I.T.R. 525 it was held that as the land in  question was agricultural land which was being used for   agricultural    purposes   even    after   its   being requisitioned,  the  amount  of  compensation  paid  on  its acquisition was  not taxable  under the head ’capital gains’ as the  said land  was not  a capital  asset. It  is  clear, therefore, that  at no  point of  time or  atleast till  its acquisition the  land lost  its  character  of  agricultural land. Therefore,  compensation  paid  for  the  use  by  the refugees of the said land for agricultural purposes can only be regarded  as agricultural  income which admittedly is not taxable.      For the  aforesaid reasons.  the decision  of the  High Court is affirmed and the appeal is dismissed with costs.