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Income‑tax References Nos. 31 to 38 of 1955, decided . on 20th February 1962.
Bidi manufacture‑Pollarding and coppicing of tendu shrubs‑Whether agricultural operation‑In come‑tax Act, 1922, S. 2(1).
Pollarding and coppicing of tendu shrubs‑ by a manufacturer of bidis who has taken forests on lease for plucking tendu leaves are not "agricultural operations" in view of the principles laid down by the Supreme Court in Raja Benoy Kumar Sahas Roy's case (1957) 32 I T R 466.
[Case‑Law referred]
In compliance with the requisitions of the High Court under section 66(2) of the Indian Income‑tax Act in the matter of Haji Latif Abdullah v. Commissioner of Income‑tax, Calcutta; dated 11th July 1956, copies of which were served on the Appellate Tribunal on 20th July 1956, we consolidate the refer ence and submit a single statement of case covering all of ;h9m to the High Court of Judicature at Calcutta,
2. The question of law in respect of which the Appellate Tribunal is directed to state a single statement of case are:
" (1) Whether the pollarding and coppicing as carried out by the assessee amounted to agricultural operations within the meaning of section 2(1) of the Act
(2) If the answer to the above question be in the affirmative, whether in order that the assessee could claim exemption for tax 'on the' ground that the income from tendu leaves was agricultural income, it was necessary ,that he should have had some interest in the lands concerned and
(3) If the answer to the foregoing question be also in the affirmative, whether the assessee had, under the documents under which St collected the tendu leaves, an interest in the lands concerned and whether the income from the same could be held to be income derived from such lands "
3. This consolidated statement of case pertains to the assess ments made on the applicant in the status of an individual for the assessment years 1945‑46, 1946‑4.7, 1947‑48, and 1948‑49 the relevant accounting periods being 30th October 1943, to 17th October 1944 (2000 D. G.), 18th January 1944 to 4th November 1944 (2001 D.G.), 5th November 1945 to 24th October 1946 (2002 D. G.), and 25th October 1946 to 12th November 1947 (2003 D. G.). ,
4. The assessed's head‑office is at Calcutta. He has branches at Raipur and other places. He deals in tendu (bidi) leaves which are used to roll up tobacco in the manufacture of bidis. The said leaves grow in forests. The assessee took on lease certain forests from the State Government, the then Indian Native States, Zamindaris and Malguzaris, for the purpose of his business.
5. During the earlier assessment years, the income‑tax authorities exempted income from 50 per cent. of the tendu leaves as agricultural income and charged the balance of 50 per cent. as non‑agricultural income. Likewise, for the assess ment years under consideration, the Income‑tax Officer regarded income from 50 per cent. of the leaves as agricultural income. The assessee preferred appeals to the Appellate Assistant Com missioner objecting to the calculation of the agricultural income and certain other matters. The Appellate Assistant Commis sioner remanded the appeals for re‑enquiry.
6. On remand, the second Income‑tax Officer called upon the assessed to produce evidence to show that:
" (1) the forests in question were assessed to land revenue.
(2) the details of the agricultural operations performed by the assessee from the stage of plucking the leaves to their sale or despatch'.
(3) otheir particulars to establish the percentage of the leaves that the assessee claimed as agricultural income."
7. The assessee filed a written statement on 25th November 1952, along with certain enclosures, In one of them, he set out the various operations he is said to have carried out from the stage of taking the leaves till making the produce fit for the market. In a second statement filed on 26th November 1952, he set out the expenditure in coppicing and pollarding and other soil works for regeneration. The above‑said statements are annexed hereto marked Exhs: "D" and "E" and form part of the statement of case.
The Income‑tax Officer stated as follows:
"17. The assessee claims that a major portion of his leaves come from artificial regeneration (which includes the processes of pollarding and coppicing). Leaflet No. 60 of 1943 entitled A short note on the beedi leaf Industry' published by the Forest Research Institute of Dehra Dun says the following about pollarding and coppicing
"Pollards":
"Systematic pollarding of Diospyros melanoxylon (tendu shrub) is not done in the Government forests on a large scale. Trees bigger than six inches in girth are pruned in the private forests in February in the Central Provinces."
"Coppice shoots"
"In private forests in the Central Provinces Diospyros melanoxylon plants up to about six inches in girth are cut back in February."
I have also come across an article on "Beedi Leaf Industry in Orissa" by a Government Forest Officer Published in "The Indian Forester" of April 1952, a magazine of the Forest Research Institute, Dehra Dun. In that article the writer says:
"Coppicing"
"At present coppicing is not done on a large scale. This is due to abundance of kendu (in Oriya it is not tendu) leaves and labour difficulties. It is done by some contractors in limited areas where there is no dearth of labour. It is done generally in February and mostly small shrubs are coppiced . . .
I have discussed this matter with several experienced kendu leaf contractors. They say this is possible and some actually claim to have done two pluckings from the same area by coppicing twice. But they are not able to follow this practice on a large scale due to dearth of cheap labour."
The two writers referred to above are agreed that:
(1) at present coppicing or pollarding is done in limited areas.
(2) even in those areas only some of the shrubs are thus artificially regenerated.
"18. The assessee has invited my attention to Table No. 7(b) in the book The Indian Forest Statistics, March 1949' which . shows that in 1946‑47, in the Central Provinces and Berar only 63.06 square miles of forests were naturally regenerated while 14434 square miles were artificially regenerated. This does not prove anything because' the chief product of the forest concerned is lac for which artificial regeneration is necessary. Presumably there is artificial regeneration for fodder also. Moreover, the table relates to progress in regeneration and afforestation' and deals with only an area of 207 square miles of Madhya Pradesh forests whereas the total area of forests in Madhya Pradesh for the same year was 47,057 square miles. From the same book I find that the total value of minor forest produce in C. P. & Berar during 1946‑47 was Rs. 1,14,00,000 out of which Rs. 43 lakhs were on account of fodder, 37 lakhs on account of lac. Tendu leaf has not been separately classified. It comes under other minor forest produce' valued at Rs. 15 lakhs."
"19. So much about external evidence. Now about internal evidence. According to the assessee's books of accounts the total amount spent on coppicing of tendu shrubs during the .previous year was Rs. 3,094. This amount was spent over an area covering hundreds of thousands of acres in .two districts of two different Provinces. Assessee's collection work is undertaken from about 180 temporary village depots. These depots are closed immediately after the collection season is over, i.e., in May or June, and re‑open only in April next. The coppicing has to be done in January or February. It is stated that cropping work is undertaken from the assessee's headquarters at Bhimkhoj and two permanent depots one in Raipur and the other in Sambhalpore. The books of accounts contain only narrations like this:
Cropping charges of Singpore village from 31st January 1944, to 4th February 1944, Rs. 143‑12‑0.
It is stated that the assessee's men take money from the three depots mentioned above on suspense account and then go out to the various villages and arrange the cropping. When exactly the money is taken on suspense, how much was taken, bow much returned, how the money was spent, these details are not available in the books of account. I find it difficult to believe that a person takes money from the depot and goes to some villages a hundred miles away and prunes some shrubs and after two months some other person goes there for collection and somehow manages to spot out those very trees that have been cropped two months back and collects the leaves. I cannot understand how such work of artificial regeneration can be done unless the assessee has a permanent headquarters in every village. My own impression is that in order to show that he is doing artificial regeneration he is showing imaginary figures of expenditure in the books. He may be doing some pruning but that can be only in a very limited area near the permanent depots."
8. The Income‑tax Officer held that no portion of the assessee's income is agricultural income, inasmuch as, besides other reasons, none of the lands from which he collected leaves is assessed to, land revenue. He also held that on a liberal estimate not more than 25 % of the leaves collected by the assessee was through "artificial regeneration". He further stated that if it was 1 held that all the lands from, which the assessee collected the tendu leaves were assessed to land revenue, and if the assessee did‑ not purchase any leaves from outsiders and the assessee's activities were to be held to be entirely that of an agriculturist and not of a trader, 25 % of the assessee's income could be taken as agricultural income. He also held that out of 25 % of the leaves 40 % alone could be grown in the areas leased from zamindars and malguzars and if these areas should be regarded as having been ‑ assessed to land revenue, the assessee would be entitled to an exemption to the extent of 40 % out of the 25 % that is, to an exemption of 10% of the total income. A copy of the order of the Income‑tax Officer for the assessment year 1945‑46 is annexed marked Exh. "A" and forms part of the statement of case.
9. The assessee preferred appeals to the Appellate Assistant Commissioner. He held differing from the Income tax Officer that the areas held under leases from zamindars and malguzars were assessed to land revenue. But he declined to grant relief to the assessee on the ground that in order to constitute agricultural income, the assessee should have an "interest in land" and that, under the leases in question, ‑ the assessee had no. such interest. Consequently, no portion of the income was exempt. But to provide for the contingency of the higher authorities taking a different view on the necessity for "an interest in land", he proceeded to discuss the allocation of the agricultural income. as between the portion derived from the zamindari and malguzari areas and other income derived from non‑zamindari and non‑malguzari areas or from purchase of leaves as a trader. He held that in such event the percentages of 25 % and 40% estimated by the Income‑tax Officer were meagre and that they should be estimated at 50 % and 60 % respectively. Accordingly, he decided that 30 % and not merely 10 % of the total income of the assessee was entitled to exemption. On certain other matters, he gave reliefs. A copy of his order is annexed hereto marked Exh. "B" and forms part of the statement of case.
10. The assessee preferred Appeals Nos. 6102, 6103, 6104 and 6105 of 1953‑54 to the Appellate Tribunal on various matters and ‑particularly against the refusal to treat any portion of the income as agricultural income. The Income -tax officer preferred cross Appeals Nos. 6108, 6109, 6110 and 6111 of 1953‑54 to the Appellate Tribunal particularly against the allocation of the leaves attributable to the artificial regeneration as determined by the Appellate Assistant Commissioner and certain other matters.
11. Before the Appellate Tribunal, the following conten tions (and certain others not relevant to this statement of case) were argued:
"(1) Whether pollarding and coppicing alleged to have been carried out by the assessee constituted agricultural operations
(2) Whether to claim exemption it was necessary that the assessee should have some interest in the lands concerned
(3) Whether the leases produced by the assessee conferred on him an interest in lands "
12. During the course of the arguments, the assessee produced an album of photographs said to have been taken at the time various operations in the forests were carried out, and tools and implements, and stated as to how some of them were used for land operations while others were used for operations on the plants. Packets of two kinds of leaves were also exhibited. One packet was said to be of leaves grown, by the assessee and that the other contained leaves of spontaneous growth. It was also submitted that the leaves sold by the assessee were of high quality and grade and that he had trade marks and trade names for his leaves and that such leaves could be produced only by artificial regeneration methods and could not be had amongst leaves of natural growth.
13. On behalf of the assessee, printed publications on bidi leaf industry were also produced. It was said that they show the custom and practices in that industry to carry on the processes of "artificial regeneration" in order to produce quality leaves fit for the manufacture of bidis. Correspondence from the district forest authorities and the Government authorities referring to the operations carried on id that industry was also produce. He also produced written permission granted by court of wards and the Government authorities to permit the assessee to carry on operations on lands for the growth of leaves.
14. In paragraphs 21 to 26, the Appellate Tribunal considered the claim of the assessee that pollarding and coppicing constituted agricultural operations. It was conceded on behalf of the assessee that pollarding is done only on the top of the tree or bush and nowhere else. The Appellate Tribunal was not satisfied that coppicing operations had anything to do with the lands. On account of the argument of the learned counsel for the assessee that coppicing operations interfered with the land, the Appellate Tribunal was inclined to have that matter clarified by further investigation either by the Appellate Assistant Commissioner or by the Income‑tax Officer. The learned counsel for the assessee, however, submitted that further investigation was not necessary and that the case should be decided, on the materials already on record. The Appellate Tribunal came to the conclusion that coppicing operations were not on the land but only on the trunks of the plants and the operation is said to be "cutting back of plants." Finally, the Appellate Tribunal held that coppicing and pollarding did not constitute agriculture.
15. The contention whether to constitute "income derived from land" interest in that land was necessary, was considered by the Appellate Tribunal in paragraph 16. Relying upon the case in Commissioner of Income‑tax v. Maddi Venkatasubbayya ((1951) 20 I T R 151) which is on all fours with the facts of this case, the Appellate Tribunal gave an affirmative finding.
16. The assessee produced three leases. The first of them is dated 10th January 1941. It was between the Commissioner, Chhaitisgarh Division, as lessor, and the as sessee, as lessee. Material portion of it for our present purpose is as follows
"2. Now this indenture witnesseth . . . . that in considera tion of Thekajama of Rs. 21,000 agreed to be paid to him by the said assessee, the said lessor agrees to permit the said lessee to collect and remove from the said forest the above‑mentioned produce and the said lessee agrees not to collect or remove any kind of produce other than this . . .
7. That the said lessee further agrees that the granting of the present lease does not interfere with any right of private persons in the said zamindary and its forests to exercise their ordinary rights of nistar . . .
9. The said lessee further agrees to get at his own expenses as many men. as may suffice to look after the leased produce and to pay the labourers engaged for plucking and collecting the tendu leaves according to the rules prevailing in the State . . . .
14. that the lessee further agrees that he shall not break or cut branches of trees above six inches in girth and such only as are absolutely necessary for the work of extracting the produce leased to him under this agreement . . . ."
17. The next lease relied upon by the assessee is dated 7th September 1942. The material portion of it is as follows:
"7 he agreement for the sale and purchase of forest produce made this 7th day of September 1942" between the Governor of Orissa of the one part and Haji Latif Abdullah of the other part.
Whereby it is agreed as follows:
The forest produce sold and purchased under this agreement hereinafter referred to as the said forest produce is specified in Schedule I below and is situated in the area indicated in Schedule V hereinafter referred to as the contract area.
2. The quantity of forest produce sold and purchased under this agreement is of the said forest produce which may now exist or may come into existence in the contract area which the forest contractor may remove from the said area in accordance with the terms of this agreement during the period from the 1st Octo ber 1942 to the 30th day of June 1945, both days inclusive and it is hereby agreed that the said forest produce may be extracted by the forest contractor only during the aforesaid period.
Schedule I.‑The forest produce sold and purchased under this agreement consists of tendu leaves...
Schedule III.‑The forest produce sold and purchased under this agreement may be removed from the said area by the following routes ....
18. The last lease relied upon by the assessee is dated 2nd December 1942. The material portion of it is as follows:
"The agreement for the sale and purchase of forest produce made this 2nd day of December 1942" between the Conserva tor of Forests, E.C.C.P., Nagpur, hereinafter called the forest officer, of the one part and Haji Latif Abdullah of the other part.
Whereby it is agreed as follows:
1. The forest produce sold and purchased under this agree ment hereinafter referred to as the said forest produce is speci fied in Schedule I below and is situated in the area indicated in that Schedule hereinafter referred to as the contract area.
2. The quantity of forest produce sold and purchased under this agreement is of the said forest produce which may now exist or may come into existence in the contract area which the forest contractor may remove from the said area in accord ance with the terms of this agreement during the period from the 26th day of October 1942, and the 30th day of June 1945, both days inclusive and it is hereby agreed that the said forest produce may be extracted by the forest contractor only during the aforesaid period.
Schedule I.‑The forest produce sold and purchased under this agreement‑right to collect leaves growing on Diospyros Melanoxylon (tendu) trees.
Schedule III.‑The forest produce sold and purchased under this agreement may be removed from the said area by the following routes..."
Copies of the three leases are annexed hereto marked Exhs. "F", "G" and "H" and form part of the statement of case. They are not registered.
19. The question whether the assessee had interest in the lands concerned was considered by the Appellate Tribunal in paragraphs 7 to 15 and it was held that the assessee had no interest in the lands leased or conveyed to him. A copy of the order of the Appellate Tribunal is annexed hereto marked Exh. "C" and forms part of the statement of case.
20. On the facts stated above, the following questions of law are referred to the High Court
"(1) Whether the pollarding and coppicing as carried out by the assessee amounted to agricultural operations within the meaning of section 2(1) of the Act
(2) If the answer to the above question be in the affirmative whether, in order that the assessee could claim exemption from tax on the ground that the income from tendu leaves was agricultural income it was necessary that he should have had some interest in the lands concerned and
(3) If the answer to the foregoing question be also in the affirmative, whether the assessee had, under the documents under Which he collected the tendu leaves, an interest in the lands concerned and whether the income from the same could be held to be income derived from such lands "
21. Copies of the draft statement of case were sent to both parties. The Commissioner of Income‑tax did not offer any suggestions. Such of the suggestions as were made by the applicant which, in our opinion, were reasonable and proper, were incorporated in the statement of case.
A. C. Sampath Iyengar with S. B. Sen for the Assessee.
E. R. Meyer with B. L. Pal for the Commissioner.
The following questions of law have been referred:
"(1) Whether the pollarding and coppicing as carried out by the assessee amounted to agricultural operations within the meaning of section 2(1) of the Act
(2) If the answer to the above question be in the affirmative, whether, in order that the assessee could claim exemption from tax on the ground that the income from tendu leaves was agricultural income it was necessary that he should have had some interest in the lands concerned and
(3) If the answer to the foregoing question be also in the affirmative, whether the assessee had, under the documents under which he collected the tendu leaves, an interest in the lands concerned and whether the income. from the same could be held to be income derived from such lands "
The assessee deals in tendu (bidi) leaves which are used to roll up tobacco in the manufacture of bidis. The said leaves grow in forests. The assessee took on lease certain forests from the State Government, the then Indian Native States, zamindaries and malguzaris, for the purpose of its business. The assessee conceded before us that pollarding was not an agriclutural operation but contended that coppicing was so. As to what is coppicing operation will appear according to the statement of the assessee set out at page 93 of the paper‑book and counsel for the assessee relied on items Nos. marked 1, 2, 5, 6, and 7.
"The said items Nos. 1, 2, 5, 6 and 7, are as follows:
" (1) Cutting out of the tendu plants, by shovel and axe. to about 3 inches below the ground level and prodding and relay ing of the earth, to give fresh feed to the plant, to make better off‑shoots, known in forestry as coppicing. This is the first process before the actual start of the season.
(2) Taking proper care of the off‑shoots from the root suckers, by strengthening and making them firm in the ground by tamping earth round about the root‑suckers, and giving them proper feed and making them active, without which, the plants, die down.
(5) While coppicing, earth is prodded and relaid, and the forest fire‑ashes and dried up fallen leaves are stored at the plant base, thus manuring the plants and giving them proper punishment to grow better.
(6). The above processes have to be adopted to safeguard the plants to give them proper feed, to remain alive, and yield more leaves.
(7) Due to untimely clouds and weather conditions, tendu plants get diseased and with a view to save their life and yield, coppicing processes have to be repeated when the whether is clear and thus a new feed and nourishment is provided to the plants."
Before the Appellate Tribunal the assessee contended that coppicing is an operation on the land at the roots of the plants are cut even below the surface. The Appellate Tribunal held that coppicing operations were not on the land but on the plants.
Counsel for the Commissioner contended, first, that the Tribunal found as fact that the operation described as coppicing were not operations on the land and were not therefore agricultural operations within the meaning of section 2(1) of the Income tax Act, and, secondly, that the coppicing operations claimed by the assessee to be agricultural operations were not so, in view of the recent decisions of the Supreme Court to which I shall now refer.
Counsel for the assessee contended that the finding of the Tribunal was ' a legal inference from facts and therefore it was open to the assessee to impeach the conclusion as perverse or wrong inference. I am unable to accept the contention of the assessee. The operations claimed by the assessee to be agri cultural operations have been examined by the Appellate Tribunal and the finding is that no operations on the land were carried out.
In the case of Commissioner of Income‑tax v. Raja Benoy Kumar Sahas Roy ((1957) 32 I T R 466) the Supreme Court laid down the law as to the meaning of "agricultural income", "agriculture" and agric ultural operations". Two conditions are necessary to be satisfied in order to be agricultural income. First, that the land from which the income is derived should be used for agricultural purposes and the land should be assessed for land revenue in the taxable territories or subject to local rates assessed and collected by the officers of the Government and, secondly, the income should be derived from such land by agriculture or by one or other of the operations described in clauses 2 and 3 of sec tion 2(1) (b) of the Indian Income‑tax Act. At page 154 of the report it is stated that the term "agriculture" in the strict senses .of the term means "tilling of the land sowing of the seeds, planting and similar operations on the lands." These are described by the Supreme Court as the basic operations which require expenditure of human skill and labour upon the land. Other operations which have to be resorted to by the agriculturist for the purpose of effectively raising the produce from the land like weeding, digging the soil around the growth, removal of undesirable undergrowths and operations which foster the growth and preserve the same not only from insects and pests but also from depredation from outside, tending pruning, cutting harvesting and rendering the produce fit for the market, are agricultural operations, when taken in conjunction with the basic operations mentioned before. At page 155 of the report Supreme Court held that "the mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the perform ance of the basic operations ...would not be enough to characterise them as agricultural operations ...It is only if the products are raised from the land by the performance of these basic opera tions that the subsequent operations attach themselves to the products of the land and acquire the characteristic of agricultural operations." Again at page 158 of the report the Supreme Court said: "If the term agriculture' is thus understood as compris ing within its scope the basic as well as the subsequent operations in the process of agriculture there the present all through‑out the basic idea that there must be at the bottom of it cultiva tion of land in the sense of the tilling of the land, sowing of the seeds, planting, and similar work done on the' land itself. This basic conception is the essential sine qua non of any opera tions performed on the land constituting agricultural operations ......If these basic operations are wanting the subsequent operations do not acquire the characteristic of agricultural operations."
In the case of Commissioner of Income‑tax v. Sri Ramakrishna Deo ((1959) 35 I T R 312) the Supreme Court said that apart from the operations as tilling of the land, sowing of the seeds, plantation and the like, there cannot be an agricultural operation.
In the present case there is no finding of any operation by the assessee on the land like tilling of the land or sowing of the seeds of plantation or similar operations. The operations described by the assessee as cutting out of the plants to about 3" below the ground level and prodding and relaying of the earth are said by the assessee to give fresh feed to the plant‑root to make better off‑shoots. The other operations of taking proper care of the off‑shoots of the root‑suckers by strengthening and making them firm in the ground by tamping earth round about to root‑suckers, and giving them proper feed and making them active, and storing of forest fire‑ashes and dried up fallen leaves are all intended for the purpose of manuring, nourishing, and preserving plants. In the case of Raja Benoy Kumar Sahas Roy the Supreme Court held that it is only the association of the basic operations with the subsequent operations that the integrated activity of basic operation along with subsequent operations is agricultural operations or an user of the land for agricultural purposes.
In the light of the principles of law laid down by the Supreme Court I am of opinion that the coppicing operations claimed by the assessee to be agricultural operations are not agricultural within operations the meaning of the Act. The answer to question No. 1 is therefore in the negative. In view of this answer questions Nos. 2 and 3 do not call for any answer in the present case. The assessee is to pay the costs. Certificate for two counsel.
Question answered in the negative.
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