Law:

Section:

Section 2(1) of the I ncome-tax Act, 1961-Agricultural income-Assessee-firm entered into agreement with government of India to supply water from open tank on its agricultural lands to defence department employees residing near said lands-P rovisions of agreement showed that it was a commercial bargain for sale of water as such and there was no nexus between supply of water and agricultural land held by assessee-Whether amounts received by assessee in consideration for supply of water were in nature of agricultural income-H eld, on facts, no Facts The assessee-firm was carrying on business in ginning cotton and manufacture and sale of groundnut oil and cottonseed oil. It owned extensive agricultural lands which were supplied with water from a huge well. On 1-5-1963, the assessee-firm entered into a contract with the Ministry of Defence, Government of India, to supply water from its open water tank to the employees of the Defence Department residing in a housing colony situated near the said lands. The assessee claimed that the receipts from the Defence Department (on account of the aforesaid arrangement for supply of water) constituted agricultural income and were, therefore, exempt. The ITO rejected this claim by holding that the income in question arose from the contract with the defence authorities and should be regarded as fees for service rendered by the assessee in supplying water. On appeal, the AAC held that the receipts from supply of water should be regarded as rent or revenue derived from land used for agricultural purposes and deleted from the assessment made by the ITO the receipts from sale of water for all the assessment years. On second appeal, the Tribunal restored the ITO's order. On reference: Held The agreement between the assessee and the Defence Department showed that the undertaking was to supply water from the assessee's "open tank" which was situated within the precinct of the assessee's agricultural lands at a bulk supply point. The other provisions of the contract dealing with the mode of supply showed that the subject-matter of the contract was the water in the open tank. There was no reference whatever in the agreement that the…

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