TEA ESTATE INDIA (P) LTD. versus COMMISSIONER OF INCOME-TAX

Citation: [1976] SUPP. 1 S.C.R. 145 · Decided: 26-04-1976 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Dismissed

Judgment (excerpt)

• 
TEA ESTATE INDIA (P) LTD. 
v. 
COMMISSIONER OF INCOME-TAX 
April 26, 1976 
[H. R. KHANNA AND P. K. GOSWAMI, JJ.] 
145 
4 " 
Income Tax Act 1922-Sec. 2(1), 2(4A), 2(6C), 2(3)(8) and 2(6A) C. 
Incon1e Tax Rules 1922-Rules 23 and 24-Dividends-Accumulated profits 
-Conzposite business activity including a!ricultural and non-agricul1ural-
Exccss over book value on Land account-Profit and loss account-General 
restTve account and reserve created on revaluation whether accumulated profits 
-Interpretation of statutes-Whether court can add words to a section. 
The assessee company held ~ertain shares in Dibru Darang Tea Co. Ltd. 
(D.D.T. Company) and Taikron Tea Company Ltd. (IT Company). Both 
the companies were companies growing, manufacturing and 
s~Uing tea and 
A 
B 
c 
owned large tea estates consisting of land, building plant, machinery etc. In 
1 
1947. both the said companies soid their entire tea estates including all assets 
!" 
to Brooke Bond Estate India Ltd. Consequently DDT Company rec~ived a 
surplus is R!;. 17,18,081/- over the book Value of its assets. 'fhe amount 
reialing to the land of D1DT Company was Rs~ 19,30,374/- and that retaang 
D 
·to the T.T. company was Rs. 10,11,216/-. Both the companies went into 
voluntary liquidation in 1954. On account of the liquigation of the two com-
panies tne assessee company became entitled to receive Rs. 57,69,186/- out of 
the total distributable assets of DDT Company Hlld Rs. 36,53,453/- out of 
the total distributable assets of T:f. Company, 
Section 2(1) defines agricultural income. Section 2(4A) defines capital 
asset to mean property ot any kind held by an assessee whether or not 
connected with his business, profession or vocation but does not include any 
E 
land from which the incon1e derived is agricultural income. It was defmed 
to include any distribution made to the shareholders of a co1npany on its 
liquidation to the extent to which the distribution is attributable to the accu-
mulated profits of the company immediately before its liquidation, whether 
capitalised or not. Explanation provides that expression "accumulated profits" 
shall not include capital gain arising during certain periods. The income has 
been defined by s. 2(6C) to include dividend. 
Section 2(3)(8) provides that 
_agricultural income shall not be included in the total income chargeable to 
F 
tax under s. 3 of the Act. Rule 23 provides for assessment of income which 
is partly agricultural income and partly income chargeable to income tax. 
Rule 24 provides that income derived" from the sale of tea grown and manu-
factured by the seller in the taxable territories shall be computed as if it were 
incom:e derived from business and 40 per cent of such income shail be deemed 
to be income, profits and gains liable to tax. 
The assessee contended before the Income Tax. Officer that apart from 
Rs. 2.47,921/- which had been assessed as capital gain under s. 12B of 
G 
Income Tax Act 1922 in respect of T.T. company, no other amount could 
be included in the computation of the 
accumulated 
profits 
available 
for 
distribution under s. 2(6A) (c) of the Act. The Income Tax Officer rejected 
the claim of the assessee. 
On an appeal, the Appellate Assistant Commissioner 
rejected the main claim of the assessee. 
On further appeal the Tribunal held as far as item I (land) and item 4 
(reser\"e on revaluation) are concerned that since the lands of the two tea 
~states were utilised for producing and selling tea it cannot be said that the 
H 
said assets were lands Jrom which the income derived was agricultural income. 
A.t best, what could be said is that barring 40 per cent of such income the 
balance was agricultural incont.e. 
As far as item 2 (profit and loss a/c) 
12-833Sup Cl/76 
A 
B 
c 
D 
E 
F 
G 
H 
146 
SUPREME COURT REPoRTS 
(1976] SUPPLEMENTARY 
an<l item 3 (general reserve) are concerned, the Tribunal held that the ratio 
of 60 : 40 as laid down in rule 24 of the Income Tax Rules, 1922 could not 
be applied for finding out the proportion of accumulated profits in a tea 
business and that profits whether capitalised or not did not admit of such a 
bifurcation for the determination of accumulated profits. The ·rribunal held 
that the general and taxation reserves were accumulated profits and the share 
received by the assessee compa!l-Y on the distribution of such accuµiulated 
profits was taxable as dividend within the m~aning of s. 2(6A)(c) of the 
Act. 
' 
Both the assessee

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