Holding

Compensation paid for the requisition of agricultural land, where the land continues to be used for agricultural purposes by compulsory tenants, is agricultural income under Section 2(1) of the Income Tax Act, 1922 and is exempt from income tax.

Summary

All India Tea and Trading Co. Ltd. received Rs. 1,24,638 as compensation when its agricultural land in Assam was requisitioned under the Assam Land (Requisition and Acquisition) Act, 1948 and allotted to refugees who continued to cultivate it. The company claimed the compensation was agricultural income and therefore exempt from income tax under Section 2(1) of the Income Tax Act, 1922. The Income Tax Officer rejected the claim, but the Appellate Assistant Commissioner and the Tribunal held the amount to be agricultural income, a view affirmed by the Calcutta High Court. The Supreme Court examined whether the compensation could be characterised as rent or revenue derived from land used for agricultural purposes. Finding that the land remained agricultural and the refugees acted as compulsory tenants, the Court held the compensation to be agricultural income, exempt from tax. Consequently, the Revenue's appeal was dismissed with costs.

Issues considered

Whether compensation received for requisitioned agricultural land constitutes agricultural income under Section 2(1) of the Income Tax Act, 1922.
Whether such compensation is to be treated as rent or revenue derived from land used for agricultural purposes and thus exempt from income tax.

Legislation cited

Income Tax Act, 1922s. 2(1), s. 66(1), s. 66(2)

Subjects

agricultural incomecompensationrequisitionincome tax exemptionAssam Land Actrentrevenuecompulsory tenancy

Judgment

l

A COMMISSIONER OF INCOME TAX
I'.

MIS ALL INDIA TEA AND TRADING CO. LTD.

MARCH 1, 1996

B [J.S. VERMA AND B.N. KIRPAL, JJ]

Income Tax Act, 1922: Section 2( 1).

Assam Land (Requisition and Acquisition) Act, 1948 : Sections 3,4,
and 7.
c
Agricultural income-Agricultural land-Requisitiott-Allotment to
refugee;--Cultivation by refugee~ompensation amount-Held agricultural
income-Not liable to tax.

The respondent's agricultural lands were requisitioned under the
D Assam Land (Requisition and Acquisition) Act, 1948. Refugees were put
in possession and an amount of Rs. 1,24,638 was given to the respondents
as compensation. The respondent's claim that the said amount being
agricultural income was exempt from levy of income tax was rejected by
the Income Tax Officer. On appeal the Appellate Assistant Commissioner
E held that the compensation for the said land was agricultural income and
thus not liable to tax. The Tribunal upheld the order of Appellate Assistant
Commissioner and found as a fact 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 aller requisition,
was being cultivated by the refugees. Therefore, the agricultural character
F of the land did not undergo any change. The High Court held that the
source of compensation was the land itself and though the payment was
discharged under statutory liability, none.the less, it was the liability which
arose directly from the requisition of the agricultural land. Therefore the
amount of compensation was agricultural income exempted from the levy
G of Income Tax. Hence this appeal by the Revenue.

Dismissing the Revenue's appeal, this Court

HELD : The decision of the High Court calls for no interference.
Agricultural income is defined under section 2(1) of the Income Tax Act,
H 1922. The finding of fact in the present case is that even aller the requisi·
156

r
C.l.T. v. ALL INDIA TEA lliDG. CO LTD. [KIRPAL, J.] 157

lion or the land, the refugees were carrying out agricultural operations on A
the land in question. Th.erefore, one of the requirements of Section 2(1)
namely; that the land is used for agricultural purposes stands satisfied.
Further the compensation clearly had the character or rent or in any case,
has to be regarded as being revenue which was derived from the land. The
land in question continued to vest with the respondent during the relevant B
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, com·
pensation was paid. The amount received is directly related to the requi- C
sitioned land on which agritultural operations continued to be carried ou
by the refugees during the year in question. 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.
(159-G; 160-B, D, C, E, F; 162-A] D
Pydah Suryanarayane Murthy v. Commissioner of Income Tax, 42 ITR
83; Senairam Doongarmall v. Commissioner of Income Tax, Assam 42 ITR
392 and Board ofAgricultural Income Tax v. Sindhurani, AIR (1957) SC 729,
distinguished.

Commissioner of Income-tax, West bengal-ll v. All India Tea and E
Trading Co. Ltd., 117 ITR 525, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2136 of
1979.

From the Judgment and Order dated 12.9.77 of the Calcutta High
F
Court in l.T.R. No. 109 of 1%9'.

A. Raghuvir, S.N. Terdol and Ms. Luxmi Iyengar for the Appellants.

Amlan Ghosh for the Respondent.
G
The Judgment of the Courtwas delivered by

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. H
158 SUPREME COURT REPORTS [1996] 3 S.C.R.

A The respondent is a company having tea estates in Assam. In order
to accomodate 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 in such manner as may seem expedient to the
B
State Government. The land could also be acquired by the State Govern-
ment after necessary notice. Section 7 of the Act sets-out the principles of
determining compensation for acquisition/or requisition of land. Sub-sec-
tion (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
C 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.

D 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
E which we are concerned in this appeal, was that the amount of compensa-
tion received was exempt from levy of income tax as this amount repre-
sented the respondent's agricultural income. The Income Tax Officer did
not accept this claim. On appeal, however, the Appellate Assistant Com-
missioner found that the respondent was usliig the requisitioned land for
F agricultural purposes at the time of requisition and also earlier to that. He,
therefore, held that the compensation received by the respondent was its
agricultural income and, therefore, not liable to tax. The department then
filed an appeal before the Tribuna~ but without success. Upholding the
order of the Appellate Assistant Commissioner, the Tribunal found as a
fact that after requisition the Government of Assam had given that land to
G refugees who continued to cultivate the same. 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
H did not undergo any change.
J
I

C.l.T. v. ALLINDIA TEA TRDG. CO LTD. [KIRPAL, J.] 159

The appellant then filed an application under Section 66(1) of the A
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 B
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 compensa- C
tion was the land itself and 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 the amount of
compensation paid under the Act was agricultural income and, therefore ,
exempt from tax.
D
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.
E
In support of this contention, the learned counsel relied upon the
decision of Andhra_ Pradesh High Court in the case of Pydah
Suryanarayana Murthy v. Commissioner of Income Tax, 42 ITR 83. Our
attention was also drawn to the decision of the Assam High Ccurt in the
case of Senairam Doongarmail v. State of Assam, AIR (1953) Assam 65
which was a case arising under the Assam Agricultural Income Tax and it F
was held therein that the compensation received on the requisitioning of
the factory and some other buildings of a tea state did not represent
agricultural income.

In our opinion the decision of the High Court calls for no inter- G
ference. 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 1s used for H
160 SUPREME COURT REPORTS [1996] 3 S.C.R.

A 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 after the requisi-
tion of the land, the refugees were carrying out agricultural operations on
B 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 regarded
as rent or revenue which can be said to be derived from land. In our
C 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
D 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 it
E 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 requi-
sitioned land on which agricultural operations continued to be carried oli
F 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 dis-
tinguishable because in that case the facts were that the agricultural land
G 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
H the lands were allotted did carry out agricultural operations. Therefore, the
t
I

C.l.T.v. ALLINDIA 1EA TRDG. CO LTil [KIRPAL,J.] 161

compensation has to be regarded as agricultural income. In Senairam A
Doongannall v. Commissioner of Income Tax, Assam, 42 l.T.R. 392, build-
ings had been requisitioned for defence purposes and the manufacture of
tea had stopped. The question arose as to whether the compensation
received for the requisitioning of the building was taxable as income. This
Court came to the conclusion that the assessee did not carry on any B
business after the requisition of its factory and other buildings and, there-
fore, 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
t
Doongarmall's case (supra) what was requisitioned was factory and build- C
ings, in the present case, however, it is agricultural land which was requi-
sitioned.

The other decision relied upon by the learned counsel for the appel-
lant namely; Board of Agricultural Income Tax v. Sindhurani, A.I.R. (1957) D
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 tenent to
the landlord could be regarded as agricultural income or not. It was held
that the "salami" was neither rent nor revenue. But in 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 E
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. F

Before concluding we may note that the respondent's land which was
requisitioned was subsequently acquired by the State of Assam and com-
pensation was paid. In Commissioner of Income-tax, West Bengal-II v. All
India Tea and Trading Co. Ltd., 1171.T.R. 525 it was held that as the land G
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 H

l
162 SUPREME COURT REPORTS [1996] 3 S.C.R.

A 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.
B
T.N.A. Revenue's Appeal dismissed.

t