STATE OF KERALA AND OTHERS versus BHAVANI TEA PRODUCE CO. LTD.

Citation: [1966] 2 S.C.R. 92 · Decided: 07-10-1965 · Supreme Court of India · Bench: P.B. GAJENDRAGADKAR · Disposal: Dismissed

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Judgment (excerpt)

9.2 
STATE OF KERALA AND OTHERS 
A 
v. 
BHAVANI TEA PRODUCE CO. LTD. 
October 7, 1965 
{P. 
B. 
GAJENDRAGADKAR, 
C.J., K. 
N. 
WANCHOO, 
B 
M. HIDAYATULLAH, J. C. SHAH AND S. M. SIKRI, JJ.] 
Madras Plantations Agricultural Income-tax Act, 1955 (as extended to 
Kerala State) s. 3--Charge of income-tax on income of previous year-
Accounts maintained on mercantile system-Coffee supplied to Coffee Board 
under s. 25 of the Coffee Act, 1942 and price entered in accounts though 
not received-Price received in next accounting year-Income 1vhcn accrues 
C 
-Sale when occurs-Whether in year of supply or year in l'.Jhich price 
received. 
Under s. 3 of the Madras Plantations Agricultural Income-tax Act, 1955 
(as extended to Kerala State) income-tax was to be assessed in each financial 
year on the income of an asses-see during the previous year. 
"fhe first 
assessment under the Act could be for 1955-56 so that income of any 
period before April 1, 1954 could not be taxed under the Act. 
The 
D 
respondent company was assessed for the years 1955-'56 and 1956-'57 on 
its income of the relevant previous years. 
The company objected to the 
inclusion in its income for these years of certain sums on the g.round that 
they represented income of the period before April 1, 1954 to which 
the Act did not apply. 
The controversy was in respect of certain sales 
·Of coffee which, according to the company, took place in its accounting 
years ending March 31, 1953 and March 31, 1954. The sales were to 
the Coffee Board under s. 25 of the Coffee Act and as the company main-
E 
tained its accounts on the mercantile system the price \.Vas also entered 
in the accounts at the time of the sale itself although it was received 
later i.e. in the previous years relevant to the assessment years 1955-56 
and 1956-57. The Appellate Assistant Commissioner of Agricultural Jn-
, come-tax and the Appellate Tribunal held that the income arose when 
the price was received and thus upheld the inclusion of the income from 
the aforesaid sales in the assessment for 1955-56 and 1956-57. Th0 com-
pany filed writ petitions in the High Court challenging the said assess-
F 
ment;;. 
A single judge decided in favour of the company and so did the 
Division Bench. 
The State of Kerala appealed by special leave to this 
Court. 
HELD : All Coffee which the Coffee Board obtains under the C,offee 
Act is put in a pool and gets mixed up· with other coffee. 
Coffee in the 
pool is disposed of on behalf of the Coffee Board which pays only a pro-
portionate price to the planter. Even though the planter does not actually 
G 
sell coffee to the Coffee Board there is in reality a sale by operation of 
law as a result of which the planter ceases to be the owner of coffee 
the moment he has handed over his produce to the Coffee Board. 
The 
fact that the price is received la1ter does not make it any the less a sale. 
[99 R; 100 A-Bl 
The system of accounting must make a difference as to the time when 
the income arises. If it were a cash system income would be taxable when 
H 
actually received but in the mercantile system it would be taxable in the 
year ih which the relevant entry is made 
about the sale of the coffee 
to the Coffee Board. [100 C] 
" 
. ' 
STATE v. BHAYANI TEA co. (Hidayatullah, ).) 
93 
A 
B 
The appellant company maintained its accoWlts on the mercantile svs-
tem. When it handed over coffee to the Coffee Board it entered the price 
of coffee accordmg to the valuation of the Coffee B.oard in its books of 
account although it did not receive payment immediately. 
The payment 
for coffee handed over before April J, 1954 was recei\·ed after that date. 
No doubt actual payment was received in the previOus years relevant to 
the assessment years 1955-56 and 1956-57 but coffee was handed over to the 
Coffee Board in the earlier years for which no tax could be demanded. The 
High Court therefore rightly held that the income in question was not taxable 
in the said. assessment years. [99 F-G; 101 A] 
D 
Puthuthotottam Estates (1943) Ltd . . v. Agricultural fncome-tax Officer, 
·Coimbatore, 34 I.T.R. 765, Puthuthotottam Estates (1943) Ltd. v. Agri-
cultural Income-tax Officer, 45 I.T.R. 87 & amalgamated Coffee 
Estates 
Ltd. v. State of Kera/a, 45 I.T.R. 353, referred to. 
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 
650 
and 651 of 1964. 
Appeals by special leave from the judgment and order dated 
January 9, 1962 of the Kerala High Court in Writ Petitions Nos.

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