‘Derived From’ Is A Narrower Expression
Posted: Monday, Aug 04, 2003 at 0000 hrs IST
Updated: Monday, Aug 04, 2003 at 0000 hrs IST
: The expressions “derived from” and “attributable to”, under the provisions of Income-tax Act, 1961 (“the Act”), have come up for interpretation before several courts. All these decisions show that the words “derived from” are narrower in their scope than the words “attributable to”. In CIT vs. Raja Bahadur Kamakhya Narayan Singh, 16 ITR 325, 328 (PC), the word “derived” had been explained as under : “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 geneological tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition.” This definition was approved and reiterated by a Constitution Bench of the Supreme Court in the decision of Mrs. Bacha F. Guzdar vs. CIT, 27 ITR 1, 7 (SC). In this case, the assessee had claimed that the dividend received from two tea companies had an element of agricultural income in the dividend and 60 per cent of the dividend should be exempt as agricultural income. What was exempt was any rent or revenue derived from land which was used for agricultural purposes. The Court while turning down the plea of the appellant that the dividend contained an element of agricultural income stated, at pages 4 and 5 as under: “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 thereof 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 shareholder 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 purposes but to give...
