Premier Construction Co. Ltd. v. C.I.T., Bombay City

FACTS

• The appellant was the Managing Agent of a company called Marsland Price and Company Limited.

• Under their agreement, the appellant received remuneration based on a percentage of the annual profits of the company, with a minimum salary guaranteed.

• The company derived income from various sources, including manufacturing sugar from its own farms and purchased cane.

• The appellant argued that a portion of their remuneration corresponding to the agricultural income of the company should be exempt from income tax.

• The lower authorities rejected this claim, and the matter was referred to the High Court.

• High Court also answered in favour of revenue.

• Hence, the present appeal in SC against HC judgment. (Note: The case was adjudicated by the Privy Council, which was the highest appellate authority at the time.)

ISSUE

• Whether the portion of the appellant's remuneration, corresponding to the agricultural income of the company, qualifies as agricultural income exempt from income tax.

RULE

• Income does not inherit the character of agricultural income solely based on its source or calculation method unless it falls within the definition of agricultural income in the Income-tax Act. [Correspondence to sec 2 (1A) of IT Act, 1961]

HELD

• In Gopal Saran Narain Singh v. Commissioner of Income-tax, Bihar, and Orissa (A. I. R. 1935 P. C. 143): An annuity payable under a contract secured by a charge on agricultural land was not considered agricultural income.

• Nawab Habibulla v. Commissioner of Income-tax, Bengal (1942) 70 I. A. 14: A. I. R. 1943 p. c. 20): The case involved remuneration received by the Mutawalli of a wakf (endowment) estate, where it was held that such remuneration was not agricultural income.

• In the present case, the appellant's remuneration was received for personal services rendered, not directly from agricultural activities.

• As the remuneration did not fall within the definition of agricultural income under the Act, it was subject to taxation.

• Therefore, the court concluded that the portion of the appellant's remuneration corresponding to agricultural income of the company was not exempt from income tax.

• The appeal was dismissed, and the appellant was ordered to pay the costs.

• In essence, the court clarified that income must meet the statutory definition of agricultural income to qualify for exemption from taxation, regardless of its source or calculation method.

COMMENTARIES RATIO/NOTE

• Instances of non-agricultural income - The following are held as non-agricultural income:

  • Annuity - Annual annuity received by a person in consideration of transfer of agricultural land even if it is charged on land, as source of annuity is covenant and not land-Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 (PC).

  • Interest on arrears-Interest on arrears of rent payable in respect of agricultural land as it is neither rent nor revenue derived from land-CIT v. Kamakhya Narain Singh [1948] 16 ITR 325 (PC)

• --TAXMANN’s direct taxes law & practice