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Section 2(1A) of the Income-tax Act, 1961 - Agricultural income - CASE REVIEW Phaltan Sugar Works Ltd. v. Commissioner of Income-tax [1949] 17 ITR 499 and Premier Construction Company v. Commissioner of Income-tax [1948] 16 ITR 80; 75 I.A. 246 - followed and relied upon. JUDGMENT Chagla, CJ.-A very important question arises on this reference as to the liability of an assessee to pay tax on his dividend income when the dividend has been received from a company which derives its profits from agricultural activities and whose income or part of it is exempt from tax on the ground that it constitutes agricultural income. The facts are very few. The assessee held shares in two tea companies, Patrakola Tea Co. Ltd. and the Bishnauth Tea Co. Ltd., and in the year of account she received dividends aggregating to Rs. 2,750 on the shares that she held. These two tea companies carry on the business of growing and manufacturing tea. 40% of the income of the tea companies was taxed as income from the manufacture and sale of tea, while 60% was exempt from tax as agricultural income. This was pursuant to Rule 24 of the Indian Income-tax Rules. The contention of the assessee before the Tribunal was and it is before us that 60% of this dividend income was agricultural income in her hand and therefore was exempt from tax. A large number of authorities have been cited at the Bar and our attention has been drawn to various observations made by different High Courts and the Privy Council. There is no direct decision on this point and therefore it is advisable first to look at the Act itself and to consider what are the principles which should govern this case before we turn to the authorities. Now, exemption from tax can only be claimed under Section 4(3) of the Income-tax Act and that section provides that any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them. Therefore, it is for the assessee to satisfy us that the income received by her falls within any of the classes enumerated in Section 4(3), and the contention of the assessee is that her income falls in the category of agricultural income…

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