Wp(C)/2190/2008 Of The Velimalai Rubber Co. Ltd v. Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE P.D.RAJAN MONDAY, THE 21ST DAY OF JULY 2014/30TH ASHADHA, 1936WP(C).No. 2190 of 2008 (I) --------------------------- PETITIONER:-------------- THE VELIMALAI RUBBER CO. LTD. OOPPOOTTIL BUILDING, KOTTAYAM REPRESENTED BY ITS MANAGING DIRECTOR, SRI. A.JACOB. BY ADVS.SRI.JOSEPH KODIANTHARA SRI.TERRY V.JAMES RESPONDENTS:-------------- 1. ASSISTANT COMMISSIONER OF INCOME TAX (ASSESSMENT, CIRCLE 1, KOTTAYAM. 2. AGRICULTURAL INCOME TAX OFFICER, NAGERCOIL, TAMIL NADU. 3. INSPECTING ASSISTANT COMMISSIONER(SPL) OF AGRICULTURAL INCOME TAX, KOTTAYAM. 4. THE UNION OF INDIA, REPRESENTED BY SECRETARY TO REVENUE DEPARTMENT, MINISTRY OF FINANCE, NEW DELHI-110 001. 5. THE STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY TO THE GOVERNMENT, TRIVANDRUM. 6. THE STATE OF TAMIL NADU, REPRESENTED BY THE CHIEF SECRETARY TO THE GOVERNMENT, CHENNAI. R,R3,5 BY ADV. GOVERNMENT PLEADER (Tax) SMT.LILLY K.T. R,R1,4 BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) R,R1,4 BY ADV. SRI.GEORGE K. GEORGE, SC FOR IT RR1 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON21-07-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 2190 of 2008 (I) APPENDIX PETITIONER'S EXHIBITS: EXT. P1 - TRUE COPY OF THE ASSESSMENT ORDER DATED 10.12.2004 FORASSESSMENT YEAR 2002-03 UNDER THE KERALA AIT ACT. EXT.P2 - TRUE COPY OF THE ASSESSMENT ORDER DATED 20.6.2003 FORASSESSMENT YEAR 2002-03 UNDER THE TAMIL NADU ACT. EXT.P3 - TRUE COPY OF THE RETURN FOR ASSESSMENT YEAR 2002-03 FILEDBY THE PETITIONER. EXT.P4 - TRUE COPY OF THE NOTICE OF INTIMATION UNDER SECTION 151DATED 17.3.2003. EXT.P5 - TRUE COPY OF THE OBJECTIONS TO THE REASONS RECORDED DATED28.7.2007 FILED BY THE PETITIONER. EXT.P6 - TRUE COPY OF THE OBJECTIONS TO THE REASONS RECORDED DATED31.8.2007 FILED BY THE PETITIONER. EXT.P7 - TRUE COPY OF THE PRELIMINARY ORDER DATED 22.11.2007ISSUED BY THE 1ST RESPONDENT. EXT.P8 - TRUE COPY OF THE OBJECTIONS AND LEGAL OPINION ALONG WITHCOVERING LETTER DATED 10.12.2007. EXT.P9- TRUE COPY OF THE AGREEMENT DATED 30.4.2001 GIVINGPERMISSION TO SLAUGHTER TAP RUBBER TREES. EXT.P10 - TRUE COPY OF THE AGREEMENT DATED 2.4.2001 WITH RESPECT TOPERMISSION IN RESPECT OF COCONUT AREA. EXT.P11 - TRUE COPY OF THE ORDER DATED 17.12.2007 ISSUED BY THE 1STRESPONDENT. EXT.P12 - TRUE COPY OF THE AGREEMENT DATED 4.4.2000 WITH RESPECT TOSLAUGHTER TAPPING AT KOOTHATTUKULAM ESTATE IN KERALA EXECUTEDBETWEEN THE PETITIONER AND MR.VINO ABRAHAM AND ANOTHER. /TRUE COPY/ rka P.S. To Judge. P.D. RAJAN, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - W.P.(C) No. 2190 of 2008 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 21[st] day of July, 2014 J U D G M E N T The challenge in this writ petition is whether the receipts by the assessee derived from latex in slaughtertapping and yield of coconut will come underAgricultural Income Tax Act, 1991 and as such assesseeexempt from the Income Tax Act, 1961?. 2. This writ petition is filed under Article 226 of the Constitution of India by the petitioner challenging theassessment order of the year 2002-2003 for slaughtertapping and yield from coconut and consequentimposition of interest by the Assistant Commissioner ofthe Income Tax Circle I, Kottayam. The petitioner,being a limited company engaged in the business ofgrowing and selling rubber produce and other W.P.(C) No. 2190 of 2008 J U D G M E N T The challenge in this writ petition is whether the receipts by the assessee derived from latex in slaughtertapping and yield of coconut will come underAgricultural Income Tax Act, 1991 and as such assesseeexempt from the Income Tax Act, 1961?. 2. This writ petition is filed under Article 226 of the Constitution of India by the petitioner challenging theassessment order of the year 2002-2003 for slaughtertapping and yield from coconut and consequentimposition of interest by the Assistant Commissioner ofthe Income Tax Circle I, Kottayam. The petitioner,being a limited company engaged in the business ofgrowing and selling rubber produce and other W.P.(C) No. 2190 of 2008 agricultural product in its estates in Kerala and TamilNadu State, is an assessee under the Kerala AgriculturalIncome-tax Act, 1991 (hereinafter referred to as the(KAIT Act) and under Tamil Nadu Agricultural IncomeTax Act, 1955 (hereinafter referred to as the 'TNAITAct'). The company has also income from dividends andinterest which were taxable under the Income Tax Act,1961 and in respect of such income the company is anassessee under the Income Tax Act, 1961. It iscontended that as per Ext.P11 assessment order, thefirst respondent on one hand and 2[nd] and 3[rd] respondentson the other hand, cannot simultaneously assess theincome from the slaughter tapping of the rubber treesand yield from the coconut trees under theIncome Tax Act and KAIT Act, 1961 and TNAIT Act,1955. 3. The first respondent in their statementcontended that the petitioner is liable to pay income tax under the Act, notwithstanding the fact that it haswrongly taxed under any other legislation. The assesseehas not performed any agricultural operation in supportof his claim, but the operations have been performed bythe lessee alone. Since the lessor has not carried outany slaughter tapping, it is difficult to hold that theowner himself had undertaken slaughter tapping and itwill not come within the purview of agricultural income. 4. In the counter affidavit 3[rd] respondentcontended that the petitioner is having properties inKerala and Tamil Nadu and is liable to pay AgriculturalIncome Tax in both States and that the petitioner isalso an assessee under the Central Income Tax Act, 1961.During the assessment year 2002-2003, theassessments under KAIT Act 1991 has been completedon 10.12.2004 by fixing a loss of Rs.3,56,986/-. Whilefinalizing the assessment, the income received by thecompany from slaughter tapping of rubber trees was alsoincluded. The Central Income Tax Assessment of the W.P.(C) No. 2190 of 2008 company have been revised on the ground that leaseincome from rubber and coconut is to be assessed underCentral Income Tax. Hence the question now arises iswhether the income received from slaughter tapping isagricultural income or not. The above income is purelyagricultural income. 5. Brief history summarized by both parties isthat the assessee, who is the owner of the rubber treesentered into an agreement with 3[rd] person forslaughter tapping of the trees for valid consideration.Exts. P9, P10 and P12 are the various agreementsentered into by the petitioner with different parties.Those agreements were executed only to extract latexfrom the rubber trees. Therefore the question underchallenge is whether the consideration received by theowner of the rubber tree will come under agriculturalincome or not. There are also situations where theowner of rubber trees enters into an agreement forslaughter tapping, cutting and removing of trees by a W.P.(C) No. 2190 of 2008 5. Brief history summarized by both parties isthat the assessee, who is the owner of the rubber treesentered into an agreement with 3[rd] person forslaughter tapping of the trees for valid consideration.Exts. P9, P10 and P12 are the various agreementsentered into by the petitioner with different parties.Those agreements were executed only to extract latexfrom the rubber trees. Therefore the question underchallenge is whether the consideration received by theowner of the rubber tree will come under agriculturalincome or not. There are also situations where theowner of rubber trees enters into an agreement forslaughter tapping, cutting and removing of trees by a W.P.(C) No. 2190 of 2008 composite agreement. In such a situation the party whohas got right to slaughter tapping of the trees for aspecified period has a right to pay certain amount tothe owner of the tree which will not come under capitalreceipt. In certain cases there was composite agreementwith 3[rd] party to extract latex and also to cut andremove rubber trees. Such amount received as per thecomposite agreements are not agricultural income whichis to be bifurcated. Here agreement is only for takinglatex from slaughter tapping and to take yield from thecoconut trees. Before answering the question whetherthe income derived from slaughter tapping will comeunder the agricultural income or income liable to betaxed under the Income Tax Act, it is better to extractthe relevant statutory provision. 6. The word “agricultural income” has beendefined under Section 2(1) of the Kerala AgriculturalIncome Tax Act, 1991 as follows: “2. Definitions.- In this Act, unlessthe context otherwise requires, (1) “agricultural income” means- (a) any rent or revenue derived from land which is used for agriculturalpurposes; (b) any income derived from such landby-(i) agriculture, or (ii) the performance by a cultivator orreceiver of rent-in-kind of any processordinarily employed by a cultivator orreceiver of rent-in-kind to render theproduce raised or received by him fit to betaken to market, or (iii) the sale by a cultivator or receiver ofrent-in-kind of the produce raised orreceived by him, in respect of which noprocess has been performed other than aprocess of the nature described in sub-clause (ii); © any income derived from any buildingowned and occupied by the receiver of therent or revenue of such land, or occupiedby the cultivator or the receiver of rent-in-kind, of any land with respect towhich, or the produce of which any operation mentioned in sub-clauses (ii)and (iii) of clause (b) is carried on: Provided that- i) the building is on or in the immediatevicinity of the land, and is a building whichthe receiver of the rent or revenue or thecultivator, or the receiver of rent-in-kind,by reason of his connection with the land,requires as a dwelling house, or as astore-house, or other out-building, and (ii) the land is either assessed to landrevenue or is subject to a local rateassessed and collected by officers of theGovernment as such or, where the land isnot so assessed to land revenue or subjectto a local assessed and collected byofficers of the Government as such or,where the land is not so assessed to landrevenue or subject to a local rate it isnot situated- (A) in any area, which is comprisedwithin the jurisdiction of a municipality(whether known as a municipality,municipal corporation, notified areaCommittee, town area Committee, townCommittee or by any other name) or a contonment board and which has apopulation of not less than ten thousandaccording to the last preceding census ofwhich the relevant figures have beenpublished before the first day of theprevious year: or (B) in any area within such distance, not (A) in any area, which is comprisedwithin the jurisdiction of a municipality(whether known as a municipality,municipal corporation, notified areaCommittee, town area Committee, townCommittee or by any other name) or a contonment board and which has apopulation of not less than ten thousandaccording to the last preceding census ofwhich the relevant figures have beenpublished before the first day of theprevious year: or (B) in any area within such distance, not being more than eight kilometers, fromthe local limits of any municipality orcontonment board referred to in item (A),as may be specified by the CentralGovernment under the proviso to sub-clause © of clause (1) of Section 2 of theIncome Tax Act, 1961 (Central Act 43 of1961):” 7. In the Income Tax Act, 1961, “agricultural income” is defined under Section 2(1A) as follows: ”(IA) agricultural income” means- (a) any rent or revenue derived from landwhich is situated in India and is used foragricultural purposes”. 8. The main difference of opinion of first respondent after referring various judicial opinion is that W.P.(C) No. 2190 of 2008 9 the lease rent derived by the assessee is not“agricultural income” in view of the test laid down bythe Apex Court in Raja Binoy Kumar's case. The ApexCourt in Commissioner of Income-Tax v. Raja BenoyKumar Sahas Roy (1957) 32 ITR 466) explained themeaning and scope of the word “agricultural purposes”which reads as follows: “Only if this integrated activity whichconstitutes agriculture is undertaken andperformed in regard to any land can thatland be said to have been used for“agricultural purposes” and the incomederived therefrom be said to be“agricultural income” derived from theland by agriculture, under section 2(1) ofthe Indian Income-tax Act, 1922”. 9. The discussions in the Raja Benoy Kumar's casewas that the respondent owns an area of 6,000 acresof forest land grown with sal and piyasal treesdemanded that the income derived by the assessee W.P.(C) No. 2190 of 2008 from the sale of trees, which is to be assessed underland revenue. Actually, the forest was originally ofspontaneous growth, “not grown by the aid of human skilland labour” in existence for about 150 years. Aconsiderable income has been derived by the assesseefrom sale of trees from this forest. The forest incomelast taxed under the Indian Income-tax Act was in theassessment year 1923-24, but, thereafter and till 1944-45, it was always left out. The assessment for 1944-45also was first made without including therein any forestincome, but the assessment was subsequently re-opened under section 34 of the Act. The respondentsubmitted a return showing the gross receipt ofRs.51,798/- from the said forest. A claim was, however,made that the said income was not assessable under theAct as it was agricultural income and was exemptedunder the Act. The Income-tax Officer rejected this claimand added a sum of Rs. 34,430/- to the assessableincome as income derived from the forest after allowing a W.P.(C) No. 2190 of 2008 11 W.P.(C) No. 2190 of 2008 11 sum of Rs.17,548/- as expenditure. The AppellateAssistant Commissioner confirmed the assessment andthe Income-tax Appellate Tribunal also was of opinionthat the said income was not agricultural income but wasincome derived from the sale of jungle produce ofspontaneous growth and as such was not covered bysection 2(1) of the Act. At the instance of the assessee,the Tribunal referred the matter to the High Court.Subsequently, it came up before Supreme Court andthe above dictum was laid. It is pertinent to note thatthe above question was referred not aboutagricultural product but about a forest product sal andpiyasal trees. The question under challenge in this caseis whether income from rubber tree under slaughtertapping and income from coconut are agriculturalincome or not. As I understood from the above decision,Lordships in their judgment discussed that if basicagricultural operations are performed for raisingproduct from the land and all operation which foster W.P.(C) No. 2190 of 2008 12 growth and preservation then it amounts toagricultural operation. In this case they have no casethat basic agricultural operations with regard to rubbertrees and coconut plants were not made out by thegrower of those trees. 10. A large number of decisions were cited onboth sides but they did not help greatly, since thequestion in challenge never arise in those casesdirectly. A consistent view was taken by this Courtwith regard to income derived from slaughter tapping inE.J. John v. State of Kerala (I.T.R Nos.76 and 77 of1965) and held that income from slaughter tapping isagricultural income. In E.J. John v. State of Kerala(I.T.R Nos.76 and 77 of 1965) the principles emergedare as follows: ”(i) The consideration paid by thepurchaser allowed to 'slaughter-tap'represents payment for permission totake latex as well as for permission to cutand remove the trees. (ii) there is an element of paymenttowards capital, namely, the value of thetrees which are ultimately to be cut down;(iii) There is also payment towards latexwhich represents agricultural income. ( iv) The amount of consideration receivedby the owner for the permission given byhim to 'slaughter-tap' and cut and removethe trees is to be bifurcated into thatpertaining to latex, and that which isattributable to the value of trees. (v) The part pertaining to latex isagricultural income liable to tax, and theother part which is attributable to the valueof the trees is not liable to tax.” 11. The challenge in the decision reported in Kanthimathi Plantations Limited v. State of TamilNadu (S.C) (2002) 254 ITR 785) was with regard tofuel value of the rubber trees and the latex derivedfrom the rubber trees. The Apex Court held thatconsideration for latex was income and that for the fuelvalue was a capital receipt. Further it observed as follows: “...In this light, the view taken by theCommissioner of Agricultural Income-tax,that a portion of the amounts realisedunder the two agreements by the assesseeshould relate, in some measure, to thevalue of latex and scrap realised from thestanding rubber trees, appears to betenable. In this case the Commissioner hasremitted the matter to the assessingauthority for the purpose of determiningthe value of the latex and scrap and forassessing such value as agriculturalincome....” 12. The point discussed in Thirumbady Rubber Co. Ltd. v. Commissioner of Agrl.Inc.-Tax (Ker.) (110 I.T.R.639) is more relevant to the facts of thecase because similar facts were discussed not in anarrow sense. This Court held as follows: “the principles emerging from the abovedecision of M.S.Menon C.J. andGovindan Nair J. have been set out in 12. The point discussed in Thirumbady Rubber Co. Ltd. v. Commissioner of Agrl.Inc.-Tax (Ker.) (110 I.T.R.639) is more relevant to the facts of thecase because similar facts were discussed not in anarrow sense. This Court held as follows: “the principles emerging from the abovedecision of M.S.Menon C.J. andGovindan Nair J. have been set out in another case decided by us today(I.T.R.No.16 of 1972 - K.C. Jacob v.Agricultural Income-tax Officer (1977)110 ITR 402 (Ker) as follows: (i) The consideration paid by the purchaser allowed to 'slaughter-tap'represents payment for permission totake latex as well as for permission tocut and remove the trees. ii) There is an element of paymenttowards capital, namely, the value ofthe trees which are ultimately to be cutdown. iii) There is also payment towardslatex which represents agriculturalincome iv) The amount of considerationreceived by the owner for thepermission given by him to 'slaughter-tap' and to cut and remove the trees isto be bifurcated into that pertaining tolatex, and that which is attributable tothe value of trees. v) The part pertaining to latex isagricultural income, liable to tax, and the other part which is attributable to the value of the trees is not liable totax”. xxxx The documents are composite ones.The entire amounts received as per theagreements, Annexures 'D' and 'D-1', arenot liable to agricultural income-tax.These amounts must be bifurcated, thatpertaining to latex and that which isattributable to the value of the trees. Theformer will be income liable to tax andthe latter cannot be taken into accountfor the purpose of imposing agriculturalincome-tax”. 13. In Vaniampara Rubber Co. Ltd. v State of Kerala (1998) 230 ITR 449) the court considered inlength the position when there was an agreement touproot and remove the trees within a period of 3 yearsand for slaughter tap. In that case the assessingofficer viewed that the agreement was of a compositenature and the income from slaughter tapping and thevalue of the timber were bifurcated. In that case this Court held as follows: “.......Accordingly, considering all the aspectsof the case, the Tribunal said that 60 per cent,of the receipts shall be treated as sale valueof the rubber trees and the balance 40 percent. as income from slaughter tapping, whichis exigible to agricultural income-tax. Thetribunal further ordered that apportionmentshall be made for every year and the samecannot be deferred and fastened to the thirdyear of the agreement. In other words, theassessing authority shall take only 40 percent of the receipt of the particular year asincome of that year. We feel that theconclusion arrived at by the Tribunal isreasonable and fair in the circumstances ofthe case. What is involved is satisfaction ofrelevant material by the Tribunal and itsreasonable conclusion therefrom. We do notsee any warranting circumstances to holdthat the Tribunal has acted erroneously. Thatbeing the position, we confirm the orderpassed by the Tribunal in respect of theassessment years in question.” 18 14. Inanother case it was held that the incomefrom trees which were permitted to be slaughter-tapped, cut and removed, does not come underagricultural income. This was discussed in the decisionreported in Commissioner of Agricultural Income-Tax, Kerala v. George Varghese and Co. (1973) 90ITR 496) the assessee entered into a contract with arubber estate to uproot rubber trees of 303 Acres of land,the vendor had agreed to sell and the purchaser hadagreed to purchase all the trees with roots with right toslaughter tap. This court held as follows: “We think that in substance what the Tribunal 18 14. Inanother case it was held that the incomefrom trees which were permitted to be slaughter-tapped, cut and removed, does not come underagricultural income. This was discussed in the decisionreported in Commissioner of Agricultural Income-Tax, Kerala v. George Varghese and Co. (1973) 90ITR 496) the assessee entered into a contract with arubber estate to uproot rubber trees of 303 Acres of land,the vendor had agreed to sell and the purchaser hadagreed to purchase all the trees with roots with right toslaughter tap. This court held as follows: “We think that in substance what the Tribunal has held is that under the agreement therehas been no intention on the part of thecontracting parties that the trees which werepermitted to be slaughter-tapped, cut andremoved, should derive sustenance from theland and continue to afford income to thetransferee, the assessee before us. Theprovisions in the agreement that we haveread would clearly show that the definiteintention was to have the trees annihilated. There was an out and out sale of the treesand considering the extent of the land onwhich the trees stood, 303 acres, it is quiteconceivable that the removing of the treeswould take considerable time and theprovisions in the agreement that theassessee had three years time to removethem does not at all imply any intention thatthe trees should continue to receivenourishment from the land and affordagricultural income to the assessee. The mostapt passage that we have been able to findwhich can be applied to the facts of the caseis that contained in Marshall v. Green. Thepassage is in these terms: The principle of these decisions appearsto be this, that wherever at the time of thecontract it is contemplated that the purchasershould derive a benefit from the furthergrowth of the thing sold, from furthervegetation and from the nutriment to beafforded by the land, the contract is to beconsidered as for an interest in land; butwhere the process of vegetation is over, orthe parties agree that the thing sold shallbe immediately withdrawn from the land, the 20 land is to be considered as a mere warehouseof the thing sold, and the contract is forgoods”. 15. It was conceded by the 1[st] respondent that when slaughter tapping was done by the owner himself,and the rubber obtained by him was by tapping of histrees by himself, the receipts obtained by him from thesale of such rubber obtained by such tapping wasdeclared as income derived from agricultural income.This position was discussed in the decision reported inK.C.Jacob v. Agrl.I.T.O.(Ker 1977 (110 ITR 402)which held as follows: “ The question whether income receivedfrom “slaughter-tapping” (we willconveniently use this term to mean thepractice of rubber trees being ruthlesslytapped for getting as much latex aspossible and ultimately felling down thetrees for replanting the area) is agriculturalincome has come up for consideration ofthis court on prior occasions. This courtconsidered the nature of the income received by the owner of the trees as wellas the nature of the income received by theperson “slaughter-tapping”. In these casesthere were agreements whereby the ownerallowed another to “slaughter-tap“ for aconsideration....” xxxxxx ....Here the slaughter-tapping was by theowner himself. The rubber obtained byhim, in whatever manner he tapped histrees, is his, and the receipts by him fromsale of rubber obtained by such tapping is“income derived from land which is usedfor agricultural purposes” ...... In substance the principles discussed in received by the owner of the trees as wellas the nature of the income received by theperson “slaughter-tapping”. In these casesthere were agreements whereby the ownerallowed another to “slaughter-tap“ for aconsideration....” xxxxxx ....Here the slaughter-tapping was by theowner himself. The rubber obtained byhim, in whatever manner he tapped histrees, is his, and the receipts by him fromsale of rubber obtained by such tapping is“income derived from land which is usedfor agricultural purposes” ...... In substance the principles discussed in Commissioner of Agricultural Income-tax, Kerala v.George Varghese & Co. (1973) 90 ITR 496) have noapplication to the facts of the case in hand because theassessee in that case is a third party who has noconnection with the agricultural operation. 16. The Assistant Commissioner (Spl) AgriculturalIncome Tax contended that if the argument of the 1[st] W.P.(C) No. 2190 of 2008 22 respondent is accepted, the law is too harsh, whichdeprives their right under Agricultural Income TaxAct. Therefore the main thrust of the argument can beanswered in the light of the contract entered intobetween the owner of the estate and the 3[rd] party. Theagreement period was only for 1½ years. Theprovisions in the agreement clearly shows that after 1½years, the trees will be cut and removed. But therewas no agreement for sale of the rubber trees given forslaughter tapping. In such a situation, I cannotobserve that the land has to be considered as awarehouse of the things sold since there was noagreement for sale of trees. If lessor is getting anyrent on the basis of slaughter tapping, I can say that itis an income derived from agriculture. If the lessee isconcerned, it can be termed as income and that will comewithin the purview of Income Tax Act. The basicoperation for those periods was restricted by Exts. P9,P10 and P12 agreements, which is only for taking the W.P.(C) No. 2190 of 2008 23 latex and coconut for a shorter period with the help ofother labourers. If after taking these latex it ismarketed by the lessee, it cannot be considered as anagricultural operation and he will not get the benefit onthe basis of the above two decisions. 17. Agricultural income is defined in Article 366 ofthe Constitution of India as “agricultural income meansagricultural income as defined for the purpose of theenactments relating to Indian Income Tax.” At thesame time, Section 2(1A ) of the Income Tax Act, 1961defines agricultural income and the States haveincorporated this definition in their Agricultural IncomeTax Acts. The State's power to levy tax on agriculturalincome, is in accordance with Entry 82 of List `1 ofthe Seventh Schedule. Therefore, it is undisputed thatthe power is mutually exclusive and accordingly anyincome can either be agricultural or non-agriculturalbut not under both. W.P.(C) No. 2190 of 2008 24 18. Therefore the controversy over the matter can be settled in the following way: (a) The revenue derived from the latex by the grower when the “slaughter tap” of rubber trees is doneby the owner himself is agricultural income. Like sothe amounts received by the owner of the trees fromthird parties (lessee) for the right to take the latex during“slaughter tap” continues to be agricultural income. (b) The income from latex in the hands of thelessee is not agricultural income but there is an elementof payment towards capital. (c) The latex and coconuts are derived from the trees and the payment made by the lessee to thelessor for the said latex and coconuts, the receipts inthe hands of the owner (lessor) in this case can onlybe agricultural income. can be settled in the following way: (a) The revenue derived from the latex by the grower when the “slaughter tap” of rubber trees is doneby the owner himself is agricultural income. Like sothe amounts received by the owner of the trees fromthird parties (lessee) for the right to take the latex during“slaughter tap” continues to be agricultural income. (b) The income from latex in the hands of thelessee is not agricultural income but there is an elementof payment towards capital. (c) The latex and coconuts are derived from the trees and the payment made by the lessee to thelessor for the said latex and coconuts, the receipts inthe hands of the owner (lessor) in this case can onlybe agricultural income. (d) The income received from the lessee and theincome received by the lessor on the basis of the rentagreement is to be bifurcated, in such cases when dispute arises. (e) In case of permission given by owner of the tree to 'slaughter tap' with agreement to cut and removetrees, then income derived from the latex and the valueof trees must be bifurcated. (f) The part of income deducted by the owner from latex is agriculture income and the value of treeswill not come under agricultural income. Here the agreements are made only to draw income from latex and coconut which will come underAgricultural Income Tax Act. In the circumstance Ext.P11 issued by the first respondent is hereby quashed by invoking thejurisdiction under Article 226 of the Constitution of Indiaand this petition is allowed. P.D. RAJAN, JUDGE rka