1954

Kun.jilal and

Another

v.

The State of

Madhya Pradesh.

Ghulam Hasan].

1954

October 28.

876 SUPREME COURT REPORTS [1955]

to the contention raised on behalf of the appellants.

That sub-section reads :

"403 (2) .-A person acquitted or convicted of any

offence may

be afterwards tried for any distinct offence

for which a separate charge might have been made

against him on the former trial under section

235, sub­

section

(I)."

The appellants were not tried again for the same

offence as contemplated under section 403(1) but for a

distinct offence

as contemplated by sub-section (2). It

is true that in order to sustain the charge under

sections

332 and 392, Indian

Penal Code, the Court had

to consider whether the seizure

was legal and was made

by a public servant in the discharge of his duty but

once that was found against the appellants the further

question to

be determined was as to whether they

committed the offence of robbing the Head

Constable of

the goods lawfully seized and whether they voluntarily

caused

hurt to him while he was acting in the discharge

of his duties

as a public servant.

Upon both these

points the finding of the Courts below

is concurrent.

We hold that there is no substance in this contention.

We accordingly dismiss the appeal.

Appeal dismissed.

BACHA F.

GUZDAR

v.

COMMISSIONER OF INCOME-TAX, BOMBAY.

[MEHR CHAND MAHAJAN C.J., S. R. D~s,

GHULAM HASAN, BHAGWATI and

VENKATARAMA AYYAR JJ.J

Indian Income-tax Act (XI of 1922), ss. 2(1), 4(3) (viii), 59 and

rule 24-Agricultural Income, Meaning of-Growing and manu·

facturing tea company's dividend, Nature of-Dividend how arises

·-Distinction bettveen shareholder and partner-Difference between

company and firm-Decided cases on English Tax Uw, Use of.

Agricultural income as defined ins. 2(1) of the Indian Income­

tax Act, 1922, signifies income proximately derived from direct

association with land by a ·person who actually tills the · land 01

-

-

-

...

•

S.C:.R. SUPREME COURT REPORTS 877

r gets it cultivated by others. Agricultural income

income which can

be ultimately or indirectly

connection with agricultural operations.

does not mean

traced to have

Even though a tea company growing and manufacturing

tea

gets an exemption of

60 per cent. of the profits as agricultural

income in accordance with rule

24 framed under s. 59 of the Act,

it must

be held that the dividend of such company is not derived ;

I

by the shareholder owing to his direct connection with the land

in which tea

is grown and such dividend is not agricultural income

within the meaning of

s. 2 (1) of the Act and hence is not exempted

from income-tax under

s. 4(3) (viii) of the Act.

..

•

The dividend of a shareholder is the outcome of his right to

participate in the profits of the company arising out of the

con­

tractual relation between the company and the shareholder and

this right exists independently of any declaration of the dividend

though until such declaration the enjoyment

of the profits is post­

poned.

The shareholder by purchase of the share does not acquire any

interest in the assets of the company till after the company is

wound up.

The position of a shareholder of a company is al­

together different from that of a partner of a firm. A company is

a juristic entity distinct from the shareholders but the firm

is a

collective name or an alias for all the partners.

Decisions based on the peculiarities of Income-tax law of

England are hardly safe guides for determining the true meaning

of the term "agricultural income" under the Indian Income-tax

Act,

1922.

Chiranjit Lal

ChowdhU1·i v. The Union of India [1950] S.C.R.

869) followed.

Commissioners of Inland Revenue v. Forest (1924) 8 T.C. 704,

Borland's Trustee v. Steel Bmthers & Co. Ltd. L.R. [1901] 1 Ch.

279, Commissioner of Income-tax, Bihar and Orissa v. Raja Bahadur

Kamakshya Narayan Singh and Others [1948] 16 I.T.R. 325,

Premier Construction Co. Ltd. v. Commissioner of Income-tax,

.Bombay City [1948] 16 I.T.R. 380 and Maharajkumar Gopal Saran

Narain Singh v. Commissioner of Income-tax, Bihar and Orissa

[1935] 3 I. T.R. 237 referred to .

CrvrL APPELLATE

No. 104 of 1953.

JuRrsorcnoN : Civil Appeal

Appeal from the Judgment and Order dated the

28th day of March,

1952, of the High Court of Judicature

at Bombay in Income-tax Reference No.

39 of 1951

arising out of the

Order dated the 23rd day of April,

1951, of the Income-tax Appellate Tribunal in Income­

tax Appeal No.

5228 of

1950-51.

1954

Bacha F. Guzd«r

Y.

Commissioner •f

Income-tax,

Bamba . .v.

1954

Bacha F. Guzdar

v.

Commissioner of

lncome·tax,

Bombay.

Ghulam Hasan j.

878 SUPREME COURT REPORTS [1955]

/amshedji Kanga, (R. /. Kolah, M. M. Jhaveri

and Rajinder Narain, with him) for the appellant.

M. C. Setalvad, Attorney-General for India, ( G. N.

Joshi, with him) for the respondent.

1954. October 28. The Judgment of the Court was

delivered

by

GHULAM

HASAN J.-This appeal raises an interest­

ing point of law under the Indian Income-tax Act.

The question referred

by the Tribunal to the High

Court of Judicature at Bombay

was stated thus :

"Whether 60% of the dividend amounting to

Rs. 2,750---received by the assessee from the two Tea

companies

is agricultural income and as such exempt

under section 4(3) (viii)

of the

Act."

Chagla C.J. and Tendolkar J., who heard the refer­

ence, answered the question in the negative. by two

separate but concurring judgments dated March

28,

1952.

The facts lie within a narrow compass. The

appel­

lant, Mrs. Bacha F. Guzdar, was, in the accounting

year

1949-50, a shareholder in two Tea compa111es,

Patrakola Tea Company Ltd., and Bishnauth Tea

Company Ltd., and received from the aforesaid com­

panies dividends aggregating

to Rs. 2,750. The two

-companies carried on business of growing and manu­

facturing tea.

By rule 24 of the Indian Income-tax

Rules,

1922, made in exercise of the powers conferred

by section

59 of the Indian Income-tax Act, it

is provided that

"income derived from the sale of tea

.grown and manufactured by the seller in the taxable

territories shall

be computed as if it were income

derived from business and

40% of such income shall

be deemed to

be income, profits and

• gains, liable to

tax." It is common ground that 40%. of the income

-0f the Tea companies was taxed as income from the

manufacture and

sale of tea and

60% of such income

was exempt from tax as agricultural income. According

to the appellant, the dividend income received

by her

in respect of the shares held

by her in the said Tea

<:ompanies is to the extent of 60% agricultural income

in her hands and therefore

pro tanto exempt from tax

while the Revenue contends that dividend income

is

..

•

•

i

S.C.R. SUPREME COURT REPORTS ~9

"'!" not agricultural income and therefore the whole of the

income

is liable to tax. The Income-tax

Officer and,

on appeal, the Appellate Assistant Commissioner both

concurred in holding the whole of the

said income to

be liable to tax. The Income-tax Appellate Tribunal

confirmed

the view that the dividend income could not

i

be treated as agricultural income in the hands of the

shareholder and decided in favour

of the Revenue, but agreed that its order gave rise to a question of law and

formulated the same

as set out above and referred it

to the High Court. The High Court upheld the order

of the Tribunal but granted leave

to appeal to this

Court.

The question,

we comprehend, is capable of an easy

solution and can best be answered by reference to the

material provisions of the Income-tax Act.

Under

section 2(1) 'agricultural income' means:

"(a) any rent or revenue derived from land which

is used for agricultural purposes, and is either assessed

to land-revenue in the taxable territories or subject to

a local rate assessed and collected by officers of the

Government

as such ;

(b) ....................... ' ' .......... .

(i)

............... .

\~9 . ' .. ' .......... .

(111) ..........•.....

(c) .......................... "

Sub-section ( 15) of section 2 defines "total income"

as total amount of income, profits and gains, referred

to in sub-section (

1) of section 4 computed in the

manner laid down in this Act, Section 3 authorises

income-tax

to be charged upon a person in respect of

the total income of the previous year. Section 4 lays

down that the total income of any previous year of

any person

to be charged must include all income,

profits and gains, from whatever source derived and

defines the

scope of its application for purposes of tax.

Sub-section (3) of the same section enacts

c;ertain

exemptions upon the chargeability of the income and

clause (iii) includes agricultural income in the category

of exemptions. Section 6 mentions the various heads

of income, profits and gains, chargeable to income-tax

1954

Bacha F. Guzdar

v.

Commissioner of

I ncomt-tax,

Bombay.

Ghulam Hasan :J.

1954

Bacha F. Gut:dar

v.

CommissioTUr of

lnromeMtax,

Bombay.

GhuJam Hasan ].

880 SUPREME COURT REPORTS [1955]

including in that category clause ( v) 'income from

other sources.' It

is common ground that dividend

falls under this category.

In order, however, that dividend may

be held to be

agricultural income it will be incumbent upon the

appellant to show that, within the terms

of the

defini­

tion, it is rem or revenue derived from land which is

used for agricultural purposes. Mr. Kolah, for the

appellant, contends that it

is revenue derived from

land because

60% of the profits of the company out of

which dividends are payable are referable

to the

pur­

suit of agricultural operations on the part of the

company.

it is true that the agricultural process

renders

60% of the profits exempt from tax in the

hands

of the company from land which is used for

agricultural purposes but can it

be said that when such

company decides

to _distribute its profits to the

share­

holders and declares the dividends to be allocated to

them, such dividends in the hands of the shareholders

also partake of the character of revenue derived from

land which

is used for. agricultural purposes

? Such a

position if accepted would extend the

scope of the vital words 'revenue derived from land' beyond

its legitimate limits. 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

there­

cf changes hands either by way of distribution of

dividends or otherwise.

In fact and 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

share­

holder by his direct relationship with the land. There

can

be no doubt that the initial source which has

produced the revenue is land used for agricultural

pur­

poses but to give to the words 'revenue derived from

land' the unrestricted meaning, apart from its direct

association or relation with the land, would

be quite

unwarranted. For example, the proposition that a

creditor advancing money on interest to an agriculturist

..

-li

S.C.R. SUPREME COURT REPORTS 881

and receiving interest out of the produce of the lands

in the hands of the agriculturist can claim exemption

of tax upon the ground that it

is agricultural income

within the meaning of section

4, sub-section (3) (viii), is

hardly statable. The policy of the Act as gathered from

the various sub-clauses of section 2(1) appears to

be to

exempt agricultural income from the purview of Income­

tax Act. The object appears

to be not to subject to

tax either the actual tiller of the

soil or any other person

getting land cultivated

by others for deriving benefit

therefrom, but

to say that the benefit intended to be

conferred upon this class of persons should extend to

those into whosoever hands that revenue falls, however

remote the receiver of such revenue may

be, is hardly

warranted.

It was argued by Mr. Kolah on the strength of

an observation made by Lord Anderson in

Commis­

sioners of Inland Revenue v. Forrest (1), that an investor

buys in the first place a share of the

assets of the

industrial concern proportionate to the number of

shares he has purchased

an<l also buys the right to

participate in any profits which the company may

m::ike

in the future. That a shareholder acquires a right to

participate in the profits of the company may be

readily conceded but it is not possible to accept the

contention that the shareholder acquires any interest

in the

assets of the company. The use of the word

'assets' in the passage quoted above cannot

be exploited

to warrant the inference that a shareholder, on invest­

ing money in the purchase of shares, becomes

entitled

to the assets of the company and has any share in the

property of the company. A shareholder has got no

interest in the property of the company though he has

undoubtedly a right to participate in the profits if and

when the company decides to divide them. The interest

of a shareholder vis-a-vis the company was explained in

the

case of

Chiranjitlal Chowdhuri v. The Union of India

and Others(2). That judgment negatives the position

taken up on behalf of the appellant that a shareholder

has got a right in the property of the company.

It is true that the shareholders of the company have

(r) [1924] 8 T.

C. 704, 710. (2) [1950] S. C. R. 869, 904.

1954

Bacha F. Guz:dar

v.

Commissioner of

Income-tax,

Bombay.

Ghulam Hasan J.

1954

Bacha F. Gui:.dar

v.

Commissioner of

Income-tax~

BomOtg.

Ghulam Hll.fanJ.

882 SUPREME COURT REPORTS [1955}

the sole determining voice m administering the

affairs of the company and are entitled, as provided

by the Articles of Association, to declare that dividends

should

be distributed out of the profits of the company

to the shareholders but the interest of the shareholder

either individually or collectively

does not amount to

more than a right to participate in the profits of the

company.

The company is a juristic person and is.

distinct from the shareholders. It is the company

which owns the property and not the shareholders.

The dividend

is a share of the profits declared by the

company

as liable to be distributed among the

share­

holders. Reliance is placed on behalf of the appellant

on a passage in Buckley's Companies Act, 12th Ed.,

page

894, where the etymological meaning

of, dividend

is given as dividendum, the total divisible sum but in

its ordinary

sense it means the sum paid and received as

the quotient forming the share of the divisible sum

payable to the recipient. This statement does not

justify the contention that shareholders are owners of

a divisible sum or that they are owners

of the property

of the company. The proper approach

to the solution

of the question is to concentrate on the plain words of

the definition of agricultural income which connects in

no uncertain language revenue with the land from

which it directly springs and a stray observation in a

case which has no bearing upon the present question

does not advance the solution

of the question. There

is nothing in the Indian law to warrant the

assump­

tion that a shareholder who buys shares buys any

interest in tlle property of the company which

is a

juristic person entirely distinct from the shareholders.

The true position of a shareholder is that on buying

shares an investor becomes entitled to participate in

the profits

of the company in which he holds the shares

if and when the company declares, subject to the

Articles of Association, that the profits or any portion

thereof should

be distributed by way of dividends

among the shareholders. He has undoubtedly a further

right to participate in

the assets of the company which

rvould be left over after winding up but not in the assets

as a whole as Lord Anderson puts it.

I

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S.C.R. SUPREME COURT REPORTS 883

The High Court expressed the view that until a

dividend

is declared there is no right in a shareholder

to participate in the profits and according to them the

declaration of dividend

by the company is the effective

source of the dividend which

is subject to tax. This

statement of the law

we are unable to accept. Indeed

the learned Attorney-General conceded that he

was

not prepared to subscribe to that propos1t1on. The

declaration of dividend

is certainly not the source of

the profit. The right to participation in the profits

exists independently of any declaration by the

com­

pany with the only difference that the enjoyment of

profits is postponed until dividends are declared.

It was argued that the position of shareholders in a

company

is analogous to that of partners

inter se. This

analogy

is wholly inaccurate. Partnership is merely an

association

of persons for carrying on the business of

partnership and in law the firm name

is a compendious

method of describing the partners.

Such is, however,

not the case of a company which stands as a separate

juristic entity distinct from the shareholders. In

Halsbury's Laws of England, Volume 6 (3rd Ed.),

page 234, the law regarding the attributes of shares is

thus stated :

"A share is a right to a specified amount of the

share capital of a company carrying with it certain

rights and liabilities while the company

is a going

concern and in its winding up. The shares or other

interest of any member in a company are personal

estate transferable in the manner provided

by its

articles, and are not of the nature

of real

estate."

In Borland's Trustee v. Steel Brother/ & Co. Ltd. (1),

Farwell J. held that "a share in a company connot

properly

be likened to a sum of money settled upon

and subject to executory limitations

to arise in the

future; it

is rather to be regarded as the interest of the

shareholder in the company, measured, for the pur­

poses of liability and dividend, by a sum of money

.........................

" It was suggested that the

dividend

arises out of the profits accruing from land

and

is impressed with the same character as the profits

(1) L. R. [1901] I

Ch. 279.

1954

Bacha F. Guzdar

v.

Commissioner of

lnconu-tax,

Bomhqy.

Ghulam Hasan J.

1954

Bacha F. Guzdar

v.

Commissionn nf

lncorru-tax,

Bombqy.

Chulam Hasan J.

884 SUPREME COURT REPORTS fl9551

and that it does not change its character merely

because of the incident that it reaches the hands of the

shareholder. This argument runs counter to the defini­

tion of agricultural income which -emphasizes the

necessity of the recipient of income having a direct

and an immediate rather than an indirect and remote

relation with land.

To accept this argument will

be tantamount to saying that the creditor recovering

interest on money debt due from the agriculturist

who pays out of the produce of the land is equally

entitled to the exemption. In fairness to Mr. Kolah it

must, however,

be stated that the contention was not

so broadly put but there is no reason why one should

stop at a particular stage and not pursue the analogy

to its logical limits.

English decisions resting upon the peculiarities of

the English Income-tax law can hardly

be a safe guide

in determining upon the language of the Indian

Income-tax Act the true meaning of the words

'agri­

cultural income.' A few cases of the Privy Council

decided with reference to the provisions of the Indian

Income-tax Act, howeyer, deserve

notice_ The first

-case, viz., Commissioner of Income-tax, Bihar and Orissfl

v. Raja Bahadur Kamakshya Narayan Singh and

Others( 1 ), dealt with the question whether interest on

.arrears of rent payable. in respect of land used for

agricultural purposes

is agricultural income . and

there­

fore exempt from income-tax. It was held that it was

neither rent nor revenue derived from land within

tl1e

meaning of section 2(1) of the Income-tax Act. Lord Uthwatt who delivered the judgment of the Privy

Council used the following piquant language in coming

to that conclusion :

"The word 'derived' is not a term of art. Its use

in the definition indeed demands an enquiry into the

genealogy of the product. But the enquiry should stop

as soon as the effective source is discovered. In the

_genealogical tree of the interest land indeed appears in

the second degree, but the immediate and effective

~ource is rent, which has suffered the accident of

(1) [1948] 16 I. T. R. 325.

••

•

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S.C.R. SUPREME COURT REPORTS 885

non-payment. And rent is not land within the

meaning

of the

definition."

The second case, viz., Premier Construction Co Ltd.

v. Commissioner of Income-tax, Bombay City('), dealt

with the nature of the commission of a managing agent

of the company a part of whose income

was agricultural

income. The

assessee claimed exemption from tax on

the ground that

his remuneration at

10 per cent. of the

profits

was calculated with reference to the income of

the company part of which

was agricultural income. It

was held that the

assessee received no agricultural

income

as defined by the Act but that he received a

remuneration under

.a contract for personal service

·calculated on the amount of profits earned by the

employer, payable n.ot in specie out of any item of such

profits, but out of any moneys of the employer avail­

able for the purpose, and that the remuneration there­

fore was not agricultural income and

was not exempt

from tax.

Sir John Beaumont in the above case

·observed :,

"In their Lordships' view the principle to be

derived from a consideration of the terms of the Income­

tax Act and the authorities referred

to is that where an .asses see receives income, not itself of a character to fall

within the definition of agricultural income contained

in the Act, such income

does not assume the character

of agricultural income by reason of the source from

which it

is derived, or the method by which it is -calculated."

In the third case, viz., Maharajkumar Gopal Saran

Narain Singh

v. Commissioner of

Income-tax, Bihar and

Orissa(2), an annual payment for life to the assessee was

not held to be agricultural income and therefore not

·exempt from tax where the annuity arose out of a

transfer made

by the assessee of a portion of his estate

for discharging

his debts and for obtaining an adequate

income for his life it being held that it

was not rent or

revenue derived from land but money paid

under a

-contract imposing personal liability on the convenantor

the discharge of which was secured by a charge on

(1) [1948] 16 I. T. R. 380 (2) [1935] 3 I. T. R. 237.

1951

Bacha F. Guzdar

v.

Commissioner of

Income-tax,

Bombay.

Ghu/am Hasan].

1954

.J!acha F. Gut:dar

v.

Commissioner of

lnco~-tax,

Bombqy.

G!mlam H(JjarJ J.

886 SUPREME COURT REPORTS [1955T

land. But reliance was placed upon another judgment

of the Privy Council in the same volume at page 305

in Commissioner of Income-tax, Bihar and Orissa v.

Sir Kameshwar Singh('). That was a case of a usufruc­

tuary mortgagee the profits received

by whom were

exempt from income-tax en the ground that they

were agricultural income in his hands. Lord Macmillan,

after referring

to certain sections of the Act, observed

that

"the result of those sections is to exclude agricul­

tural income altogether from the

scope of the Act

howsoever or

by whomsoever it may

be received."

These observations must be held to be confined to the

facts of that particular

case which was a case of

usufructuary m()rtgagee who had received profits

directly from the land.

The obvious implication of the

words used

by Lord Macmillan was that whosoever

receives profit from

the land directly is entitled to the

exemption.

Reference was also made

to some English decisions

but they have no bearing upon

the present case as they

were founded on the English Income-tax law and the

provisions

of the particular statute.

The learned Attorney-General also contended that

the conclusion that dividend

is not agricultural income

also follows from the provisions

of section 16,

sub­

section (2) and the proviso to the Act. According to

him, this section compels the

assessee to show in

his

return the whole dividend including the portion which

is excluded on the ground of agricultural income. We

do not consider it necessary to express any opinion

upon this contention

as our conclusion reached as a

result

of the foregoing discussion is sufficient to dispose

of the appeal. We accordingly dismiss the appeal

with

costs.

Appeal dismissed.

(t) [1935] 3 I. T. R. 305.

..

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