Law:

Section:

Section 2(1)(a), read with section 10(1) of the Income-tax Act, 1961 [Corresponding to section 2(1), read with section 4(3)(viii) of the Indian Income-tax Act, 1922] - Agricultural Income - Assessment year 1949-50 - Assessee was a shareholder of a company which carried on business of growing and manufacturing tea - Whether dividend income received by assessee could not be treated as agricultural income - Held, yes FACTS The assessee was a shareholder in two tea companies, which carried on business of growing and manufacturing tea. For the relevant assessment year, the appellant claimed that the dividend income received by her in respect of the shares held by her in the said tea companies was to the extent of 60 per cent agricultural income in her hands and, therefore, pro tanto exempt from tax while the revenue contended that dividend income was not agricultural income and, therefore, the whole of the income was liable to tax. The ITO, and on appeal, the AAC both concurred in holding the whole of the said income to be liable to tax. The Tribunal confirmed the view that the dividend income could not be treated as agricultural income in the hands of the shareholder and decided in favour of the revenue. On reference the High Court confirmed the order of the Tribunal. On appeal to the Supreme Court: HELD In order, however, that dividend might be held to be agricultural income it would be incumbent upon the appellant to show that, within the terms of the definition, it was rent or revenue derived from land which was used for agricultural purposes. Agricultural income as defined in the Act is obviously intended to refer to the revenue received by direct association with the land which is used for agricultural purposes and not by indirectly extending it to cases where that revenue or part thereof changes hands either by way of distribution of dividends or otherwise. In fact and in truth dividend is derived from the investment made in the shares of the company and the foundation of it rests on the contractual relations between the company and the shareholder. Dividend is not derived by a shareholder by his direct relationship with the land. There can be no doubt that…

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