CIT v. Vazir Sultan and Sons (1959)
Table of Contents
Quick Summary
This case asks a simple question: when tendu leaves are grown and then processed for bidi wrappers, does the money from their sale stay agricultural income or turn into business income?
The Supreme Court said the income remained agricultural. The post-harvest steps did not break the link between the land and the produce. So, the income was exempt under the 1922 Act.
Issues
- Do the processes on tendu leaves change the character of income from agricultural to business?
- If agricultural, does it fall under Section 2(1) of the Income-tax Act, 1922 and get the Section 4(3)(viii) exemption?
Rules
Basic vs. Subsequent Operations: Basic operations are on the land (sowing, tending, growing). Subsequent operations are after harvest (sorting, drying, bundling) to make the produce marketable.
If the income flows from produce raised by basic operations, and later steps only help saleability, the income stays agricultural.
Agency & Contracts: Where contracts show control over cultivation and a right to purchase, the land-income link stays strong.
Facts (Timeline)
Arguments
Appellant (Revenue)
- Processing after plucking changed the income’s character.
- Contracts showed a business model; treat proceeds as business income.
- Exemption should be read narrowly.
Respondent (Assessee)
- Income springs from land-based basic operations.
- Post-harvest steps only make leaves saleable; they don’t convert the income type.
- Contracts kept a clear link with cultivation and purchase at source.
Judgment
The Supreme Court held that the income from the sale of tendu leaves was agricultural income and thus exempt.
The post-harvest processes (sorting, drying, bundling) were only to make the leaves marketable. They did not break the chain from land to income.
Ratio Decidendi
If income originates from produce raised by basic operations on land, and later steps only aid saleability, the income remains agricultural under Section 2(1). Exemption under Section 4(3)(viii) applies.
Why It Matters
- Clarifies the test for agricultural income vs. business income.
- Helps in cases about post-harvest processing.
- Useful for exam answers on Section 2(1) and exemptions.
Key Takeaways
- Land operations anchor the income’s character.
- Subsequent operations that aid sale do not change it to business income.
- Contracts showing cultivation control can strengthen the agricultural link.
Mnemonic + 3-Step Hook
Mnemonic: “BAS: Basic — After — Still”
- Basic land work grows the produce.
- After harvest steps help selling.
- Still agricultural income if the land link stays.
IRAC Outline
| I | R | A | C |
|---|---|---|---|
| Whether tendu-leaf income is agricultural or business income. | Section 2(1) & Section 4(3)(viii) (1922 Act); test of basic vs. subsequent operations. | Leaves grown by cultivators under contracts; post-harvest processing done for saleability. | Income remains agricultural; exemption applies; processing did not change its nature. |
Glossary
- Agricultural Income: Income directly linked to operations on land (growing and raising produce).
- Basic Operations: On-land acts like sowing, tending, harvesting.
- Subsequent Operations: After-harvest steps to prepare produce for the market.
- Agency Elements: Rights and control in contracts that show a close link to cultivation.
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