Law:

Section:

Section 10(1) of the Income-tax Act, 1961 read with rule 8 of the Income-tax Rules, 1962 – Agricultural income – Assessee-firm carrying on business of growing and manufacturing tea, leased out tea estate to another firm for management – Whether lease rent received by assessee was agricultural income and, hence, was assessable only at forty per cent in view of rule 8 – Held, yes FACTS The assessee-firm doing the business of growing and manufacturing tea, purchased a tea estate and leased out same to another firm for ten years for management. For this the assessee firm was to receive fixed annual lease rent irrespective of whether there was any profit or not. The assessee-firm claimed that the lease rent was not taxable being agricultural income. The ITO however, taxed it cent per cent. On appeal, the AAC held that rule 8 would apply and that only 40 per cent would be assessable. The Tribunal affirmed the view taken by the AAC. On reference: HELD If a tea estate engaged in producing agricultural product is leased out, the rent or share of profits derived from it will certainly be included under agricultural income, and, normally, agricultural income is excluded in computing total income under section 10(1). In a tea garden, it is well known, growing of green tea leaves and manufacturing of tea are carried on. That being the position, rule 8 would be attracted to the produce of the tea gardens in question and since the lease rent also came within the definition of agricultural income and since this agricultural income was derived in part form agriculture and in part from business, rule 8 would be attracted to the amount of the lease rent or the guaranteed profits from the tea estate in question. Therefore, the Tribunal was justified in holding that the lease rent received by the assessee was assessable at 40 per cent in view of rule 8. Note : The case was decided in favour of the assessee. JUDGMENT Pathak, CJ.—The following question of law has been referred to the High Court for decision by the Income-tax Appellate Tribunal, Gauhati Bench, under section 256(1) of the Income-tax Act, 1961, hereinafter referred to as "the Act": "Whether, on the facts and in the…

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