Contracts of Guarantee and Indemnity

Q. Define contract of Indemnity and explain its essentials fully. Distinguish between a contract of Indemnity and contract of guarantee. [20 marks - 2015]

Q. Define continuing guarantee [ 4 marks - 2015]

Q. Discuss liabilities and rights of a surety in contract of Guarantee. Would the liability be differ if there are more than one sureties? [20 marks - 2016]

Q. Define Continuing Guarantee [4 marks - 2017]

Q. What are the essential elements of guarantee? What is the difference between indemnity and guarantee? [20 marks - 2022]

Contracts of Guarantee and Indemnity

The contract of indemnity and the contract guarantee are the special contracts under the Indian Contract Act, 1872. Both the contracts are for providing compensation to the creditor for the failure of a third party to perform their obligation.

Contract of Indemnity

Section 124 of the Indian Contract Act, 1872 defines a contract of indemnity as a contract wherein one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person.

Essentials in the Contract of Indemnity

(1) Valid contract: The contract must be valid as per the Indian Contract Act, 1872.

(ii) Protection of loss: The contract should be for protection of loss.

(iii) Two parties: There should be two parties in the indemnity contract. The indemnifier and the holder.

(iv) Express or implied: The indemnity contract can express or implied.

Express Indemnity:

This is a type of written indemnity, where all the terms and conditions of the indemnity are mentioned specifically in the contract.

Implied Indemnity:

The indemnity where the obligation arises from the facts and the conduct of the parties involved. For example, master servant relationship. There is no written contract in this type of indemnity.

Rights of an Indemnity Holder

A per section 125 of Indian contract Act, 1872 the promisee in a contract of indemnity is entitled to recover from the promisor:

(i) All damages which he may be compelled to pay in any suit related to this contract.

(ii) All costs which he may be compelled to pay in any such suit.

(iii) All sums which he may have paid under the terms of any compromise of any such suit.

Rights of the Indemnifier

After the indemnity holder is paid for the damage incurred, the compensator shall have all the rights to all the methods and services which can save the compensator from the damage.

Case References for Contract of Indemnity

Gajanan Moreshwar vs. Moreshwar Madan, (1942)

Lala Shanti Swarup vs Munshi Singh & Others, (1967)

Contract of Guarantee

Section 126 of the Indian Contract Act, 1872 states that a "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default.

Essentials of a Contract of Guarantee

(i) Surety: The person providing guarantee is called the surety.

(ii) Principal debtor: The person for whose default the guarantee is given is the principal debtor.

(iii) Creditor: The person to whom the guarantee is given called the creditor.

(iv) Guarantee: A written or verbal guarantee.

Example of a Contract of Guarantee

Mr. X takes a loan of Rs. 5 lakhs from the ABC Bank. Mr. Y promises to pay the loan amount to UCO Bank if Mr. X fails to repay. This is a contract of guarantee and Mr X is Principal debtor, ABC Bank is creditor and Mr. Y is surety.

Liability of Surety

(i) Section 128 of the Indian Contracts Act, 1872 states the liability of the surety is same as the principal debtor, unless it is otherwise mentioned in the contract.

(ii) The surety can be sued directly by the creditor in case of default by the principal debtor.

Rights of Surety

(1) Rights against the principal debtor

(i) Right to give notice.

(ii) Rights of sub-rogation.

(iii) Right of indemnity.

(iv) Right to get securities.

(v) Right to ask for relief.

(2) Rights against the creditor

(i) Right to get securities.

(ii) Right to ask for set-off.

(iii) Rights of sub-rogation.

(iv) Right to advice to sue principal debtor.

(v) Right to insist on termination of services.

C. Rights against co-sureties

(i) Right to ask for contribution from the co-sureties.

(ii) Right to claim share in securities.

Continuing Guarantee

A form of guarantee that extends to a series of transactions is a continuing guarantee. A continuing guarantee extends to all transactions that the principal debtor enters into before the surety revokes it.

A continuing guarantee for future transactions may be withdrawn at any time by notice to the creditors. However, the responsibility of a surety for transactions completed prior to such revocation of guarantee is not diminished.

Difference between Contract of Indemnity and Contract of Guarantee

Contract of Indemnity	Contract of Guarantee
There are two parties: the indemnifier and the indemnity holder.	There are three parties: the principal debtor, the creditor, and the surety.
There is only one contract between the indemnifier and the indemnity holder.	There are three contracts between: (i) the principal debtor and the creditor. (ii) the creditor and surety (iii) the principal debtor and surety
The liability of the indemnifier is primary.	The liability of the surety is a secondary. His obligation to pay arises only when the principal debtor defaults.
The liability of an indemnifier is not conditional.	Liability of surety is conditional on the default of the principal debtor.
Once the indemnifier indemnifies the indemnity holder, he cannot recover that amount from anybody else.	After the surety has made the payment, he becomes the creditor and can recover the sums paid by him from the principal debtor.

Breach of Contract - Remedies for Breach of Contract

Q. What remedies are available to seller and buyer in case of breach of contract? Discuss. [10 marks - 2022]

Breach of Contract

When any of the parties to a valid contract fails to perform it's obligations as per the agreed upon terms and conditions, this is called breach of contract. A breach of contract is a violation of any of the agreed-upon terms and conditions of a binding contract. The following three points are essential for a breach of contract:

• A valid contract,
• Performance by one party, and
• Damages suffered by the performing party.

Remedies for Breach of Contract

1. Cancellation of Contract

When one of the parties to a contract does not fulfil his obligations, then the other party can cancel the contract. As per section 65 of the Indian Contract Act, the cancelling party must restore any benefits received. Section 75 entitles the cancelling party to receive damages.

2. Sue for Damages

Section 73 states that the party who has suffered for the breach of contract, can claim compensation for loss or damages caused to them in the normal course of business.

3. Sue for Specific Performance

The breaching party may be sued for performing the duties as per the contract. In certain cases, the courts may insist that the party carry out the agreement.

For example, A agrees to sell a piece of land to B. But later on he refuses to sell. The courts can order A to perform his duties under the contract and sell the land to B.

4. Injunction

An injunction is a court order restraining a person from doing a particular act.

5. Quantum Meruit

Quantum meruit in Latin mean “as much is earned”. At times when one party of the contract is prevented from finishing his performance of the contract by the other party, he can claim quantum meruit.

Bilateral Contract

Q. Define Bilateral Contract [4 marks - 2022]

Bilateral Contract

Sections 51–57 of the Indian Contract Act, 1872 covers bilateral agreements in detail. Bilateral contracts are agreements between two or more parties that obligate each party to perform certain actions or provide something of value to the other. They are often used in business transactions where both parties have equal bargaining power, such as the sale of goods or services or the purchase of land.

Examples of Bilateral Contract: any sales agreement, lease, or employment contract.

Doctrine of Caveat Emptor : Meaning, Definition, Exceptions and Relevance

Q. “Doctrine of Caveat Emptor has lost much of his significance in modern times.” Discuss. [20 marks - 2015]

Q. “Doctrine of caveat emptor has lost much of his significance in the modern times”. Discuss. [20 marks - 2016]

Q. The rule of “caveat emptor” has become almost the rule of “caveat venditor”. Discuss. [20 marks - 2017]

Q. What is the principle of 'Caveat Emptor'? What are its exceptions? [10 marks - 2022]

The Doctrine of Caveat Emptor

Caveat Emptor is a Latin term which means buyer be aware. The Doctrine of Caveat Emptor means that the responsibility lies on the buyer of goods and he must perform due diligence before the purchase of the goods. 

Section 16 of the Sale of Goods Act, defines Caveat Emptor as ‘“there is no implied warranty or condition as to the quality or the fitness for any particular purpose of goods supplied under such a contract of sale“

For example, a seller sells certain goods to a buyer. If the buyer later discovers a defect in the goods that could have been detected earlier by him, the seller cannot be sued.

Exceptions to the Doctrine of Caveat Emptor

1. Fitness of the Product for the Buyer’s Purpose of Purchase- Section 16 (1)

If the buyer purchases some item in good faith after explaining the purpose behind the purchase, it relieves the buyer from the responsibility. In this case, it becomes the duty of the seller to supply the right goods to the buyer. 

For example, A purchase mango from B explaining him that the mango is required to make ice cream the next day. The seller says that this will ripen the next day and will be fit for making ice cream. The seller will be responsible if the mangoes  do not ripen the next day.

2. Sale of Goods Under the Trade Name - Proviso to Section 16(1) 

If the buyer purchases a branded product or a product sold under a trading name, then he is assured of the quality that is associated with that brand name. In this case the Caveat Emptor will not be applicable.

3. Merchantable Quality of Goods- Section 16(2)

As per Section 16(2), if the goods are sold under the pretext that they correspond to a particular description, then there is an implied warranty that the goods must conform to the mercantile quality.

In McKenzie v. Nagendra Nath (1919), the seller was asked to pay for the repair of the defective car.

4. Examination by buyer - Proviso to S. 16(2)

The proviso to S. 16(2) provides that “if upon examination of the goods to be purchased, the defects ought to have been revealed, then no implied condition as regards to the defect will exist.” 

4. Conditions implied by trade usage - Section 16(3)

Section 16(3) of the Sale of Goods Act states:

“An implied condition or warranty as to the quality or fitness for any particular purpose may be annexed by the usage of trade.”

In the case of Peter Darlington Partners Ltd v Gosho Co Ltd (1964), it was held that the buyer has the right to reject the goods or to claim damages in case of any defect. 

Significance of Doctrine of Caveat Emptor in modern times

Doctrine of Caveat Emptor has lost much of his significance in modern times due to the following reasons.

1. Competition: In this age of stiff competition, customer satisfaction has taken priority over everything else. Now a days the contract of sale itself guarantees replacement or refund of the defective goods. Thus, the exceptions carved out under Section 16 lose their relevance, if not become completely obsolete.

2. Consumer protection: The doctrine of caveat emptor has also lost its relevance due to the enactment of the Consumer Protection Act, 2019. The Consumer Protection Act clearly embraces the doctrine of caveat venditor. Section 84 of the Consumer Protection imposes a liability on the manufacturer for any defect or quality issues.

Section 86 of the Act provides that even sellers who have not manufactured the product can be held liable for a defective product in the certain conditions.

Conclusion

Thus, the various provisions of the Consumer Protection Act, by imposing the liability on the seller or the manufacturer for the defective product, have adopted the doctrine of caveat venditor. This also signals the declining relevance of the doctrine of caveat emptor. 

In Smt.Rekha Sahu vs The Uco Bank (2013), the Allahabad High Court held that the Indian jurisprudence has witnessed a shift from the doctrine of caveat emptor to the doctrine of caveat venditor. Thus, the seller was liable to pay the dues. 

Bailment - Definition, Distinctions with Pledge and Sale of Goods

Q. Explain the various kinds of Bailment. [10 marks - 2015]

Q. Distinguish ‘bailment’ from ‘pledge’ and ‘sale of goods’. [10 marks - 2016]

Q. Distinguish Pledge from Bailment and Mortgage. [10 marks - 2017]

Q. Write any two differences between Sale & Bailment. [4 marks - 2018]

Q. What are the essential elements of Bailment? Differentiate between ‘Bailment’ and ‘Agency’. [10 marks - 2018]

Q. Define Bailment [4 marks - 2022]

Q. Explain various kinds of bailment [10 marks - 2021 - BA LLB]

Q. Explain bailment and discuss its essential requirements [20 marks - 2021 - BA LLB]

Bailment

Bailment is defined in the Indian Contract Act, 1872 under Section 148 as “A Bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them”.

Types of Bailment

There are three different types of bailments: those that benefit both parties, those that benefit only the bailor, and those that benefit only the bailee. 

1. Bailments That Benefit Both Bailor and Bailee

These are standard service agreement bailment. For example, a car parking service provider, the bailee gets paid for keeping the car and bailor the car owner has to pay the parking charges. The bailee has liability for the damages.

2. Bailments That Benefit Only the Bailor

These are a kind of free bailment. For example, free valet parking service. In this case, bailee the service provider doesn’t receive compensation for parking the car but can be held liable for damages.

3. Bailments That Benefit Only the Bailee

These are constructive bailments. For example, Mr. X rents a book from a library. Here Mr. X is the bailee while the library is the bailor, which gets no benefit from the relationship. The library however, expect the book to be returned at the end of the rental period.

In this type of bailout, the bailee faces liability for basically any damage to the bailed item. This is the highest standard of care required out of the three categories.

Essential Element of Contract of Bailment

1. A Valid Contract

A contract of bailment is a special type of Contract which include offer and acceptance, lawful consideration, the parties' capacity and legal intentions. There are two types of bailment based on consideration:

(a) bailment without consideration - Gratuitous Bailment

(b) bailment with consideration - Non - Gratuitous Bailment

2. Delivery of Possession

Delivery of goods in case of a bailment contract can be actual and constructive. Actual delivery of goods means the bailor physically gives goods to the position of the bailee. In the case of constructive delivery of goods, goods are not physically yielded, but a few actions imply that the bailee has been given custody of the goods.

3. Delivery at the end of Contract

After creating a contract, the goods are relaid from the bailor to the bailee. The Contract must have details about the transfer and the return of the goods. Contract of bailment can be expressly signed by parties or told by the parties.

Difference between Bailment and Sale of Goods

Contract of sale	Contract of bailment
Transfer of ownership and possession.	Transfer of possession
The buyer has complete control over the use of the purchased property	Bailee needs to use the property according to the instructions given by the bailer.
The buyer pays the price for the goods	The goods are required to return to the bailer after the specified period after accomplishing the purpose of bailment.
The buyer holds the ownership of the property until he sells the property to another person.	The bailer is not entitled to use the bailed property until the purpose of bailment is achieved.

Difference between Bailment and Pledge

Contract Bailment	Contract of Pledge
A Bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. .	The bailment of goods as security for payment of a debt or performance of a promise is called a Pledge. The Bailor in this is called the Pawnor and the Bailee is called Pawnee.
The bailee is required to return the property in the same condition and the purpose is typically for safekeeping, storage, or a specific use of the property.	Securing the payment of a debt is the aim of a pledge; ie., security against a debt.
If there is a bailment, the amount of compensation is often negotiated separately. It’s possible that the bailee won’t get paid for their labor	Until the obligation is settled, the pawnee is permitted to keep the pledged goods. The pawnee may sell the pledged property to recover the loan if the debtor defaults.
Unless otherwise agreed upon, the bailee is usually expected to return the item in the same condition as it was received.	After the debt is paid back, the pawnor receives their goods back. The pawnee may sell the property to pay off the loan if it is not paid back.
The property may be used by the bailee for the specified purpose but, any usage that goes beyond the parameters of the agreement may need the bailor’s consent.	Unless the pawnor specifically grants it or it’s required for the property’s safety, the pawnee is not entitled to use the pledged assets.
The bailment may end by mutual consent, the accomplishment of the goal, or the passage of the agreed time frame.	Once the obligation is repaid, the commitment is cancelled. The pawnee may sell the pledged property and end the pledge if the debtor is unable to make payments.
Bailment’s obligations and rights only apply to the bailor and the bailee.	In the event of the pawnor’s default, the pawnee’s rights and interests may be claimed against other parties.

Distinction between Bailment and Agency

Contract of Bailment	Agency
Voluntarily Change of possession from one person to another is called contract of bailment.	‘Agency’ is the legal relationship between an agent and Principal; to bring the principal into legal relationship with the third party.
In bailment, the Bailee does not represent the Bailor. He does not derive any authority from the Bailor.	The agent represents his principal and derives certain power from his principal.
In Bailment, A Bailee cannot sell the property  under bailment	In Agency, an agent can sell the property.
A Bailee cannot transfer the ownership of the property	An agent can transfer the ownership of the property

Partnership - Indian Partnership Act 1932

Partnership Definition

According to section 4 of the Indian Partnership Act, 1932, a partnership is an agreement between two or more people to share the profits of a business. The people who form a partnership are called partners, and the business is called a firm.

Can Partnership be formed from Status?

According to Section 5 of the Indian Partnership Act 1932, the relation of partnership arises from contract and not from status. Thus, the members of a Hindu Joint Family carrying on a business, or the co-owners of a business are not ‘partners’ because HUF and co-ownership are created by operation of law and not by contract. The agreement of partnership may be expressed or implied.

Partnership can be formed only for the purpose of carrying on some business. Section 2(b) of Partnership Act says that the term ‘business’ includes every trade, occupation or profession. 

Minor as a Partner in a Partnership Firm

Section 30 of the Indian Partnership Act 1932 states that

(1) A minor may not be a partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership.

Rights and liabilities of Minor in a Partnership Firm

(2)  The minor has right to share of the profit and property of the firm as per the agreement. The minor partner also has access to and inspect and copy any of the accounts of the firm.

(3) The minor partner's share is liable for the acts of the firm, but the minor is not personally liable for any such act.

(4) Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm.

(5) Upon attaining majority the partner may choose to become a partner or may opt out of the partnership firm with a written notice within 6 months of attaining majority.

Effect of non registration of a partnership firm

Section 69 of the Indian Partnership Act, 1932 offers a detailed explanation of the consequences of not opting for firm registration. These are:

(1) An unregistered firm cannot bring any suit in a civil court against any third party for breach of contract. Further, the person filing the suit on behalf of the firm should be in the register of the firm as a partner.

(2) An unregistered firm or its partners cannot set-off an action having a value equal to or greater than Rs. 100 brought in by any third party.

(3) No partner can bring legal action against other partners or the firm if the firm is not registered.

(4) A third party can sue the firm even if it is not registered as per the act.

Types (Modes) of Partnerships 

A partnership may be of different types depending on the state where the business operates. Few most common types of partnerships are discussed below:

General Partnership

A partnership firm comprising of two or more partners having equal rights and liabilities, is called general partnership. All partners can participate in management activities, decision making, and have the right to control the business. Similarly, profits, debts, and liabilities are equally shared and divided equally. 

Limited Partnership

Limited partnership is formed with both general and limited partners. The limited partner has limited share of profit and liabilities. Limited partners have limited control over the business (limited to his investment). They are not associated with the day to day operations of the firm. In most of the cases, the limited partners only invest and take a profit share. They do not have any interest in participating in management or decision making. 

Different modes of reconstitution of Partnership Firm

Limited Liability Partnership

A limited liability partnership (LLP) is a flexible legal entity where every partner has a limited personal liability for the debts or claims of the partnership. Each partner is guarded against other partners legal and financial mistakes. A limited liability partnership is almost similar to a Limited Liability Company (LLC) but different from a limited partnership or a general partnership. 

Partnership at Will

Partnership at Will can be defined as when there is no clause mentioned about the expiration of a partnership firm. Under section 7 of the Indian Partnership Act 1932, the two conditions that have to be fulfilled by a firm to become a Partnership at Will are:

(i) The partnership agreement should not have any fixed expiration date.

(ii) No particular determination of the partnership should be mentioned.  

Difference between Partnership and Company

Partnership Firm	Company
Partnership Firm is a mutual agreement between two or more persons to run the business and share profit and loss mutually.	Company is an association of persons with a common objective of providing goods and services to customers.
A partnership is formed as per Indian Partnership Act, 1932	A company is formed under Indian Companies Act, 2013
A minimum of 2 members are required for a partnership firm	Minimum 7 members for public limited,  Minimum 2 members  for  Private Limited,
There can be a maximum of 100 members	Maximum 200 members for a Private Limited, unlimited members for a Public Limited
Partnership Deed required for the creation of a partnership firm	Memorandum of Association and Article of Association is mandatory for incorporating a company
There is no minimum amount required for form a partnership.	1 Lakh minimum for a Pvt Ltd and 5 lakh in case of Public Company
No audit required	Mandatory audit is required every year
Consent required from all partners before transferring their share to others.	Can be transferred any time as desired by any shareholder

Dissolution of a Partnership Firm

Section 39 of Indian Partnership Act, 1932 provides methods of dissolution of partnership among all the partners of a firm. Dissolution involves winding up of business, disposal of assets and paying off the liabilities and distribution of any surplus or loss by the partners of the firm. As per the Act, a partnership firm may be dissolved in the following ways:

(1) Dissolution by Agreement

A firm may be dissolved with:

a) the consent of all the partners, or

b) the contract between the partners

(2) Compulsory Dissolution

A firm may be dissolved by:

a) the adjudication of all the partners or of all partners but one as insolvent

b) happening of an event or change in government policies that make the business unlawful.

(3) Dissolution on the happening of Certain Contingencies

Subject to the contract between the partners, a firm is dissolved

a) if formed for a specific period then on the expiry of the period

b) if formed for a specific purpose then on completion of the purpose

c) on the death of partner/partners

d) on insolvency of a partner/partners

(4) Dissolution by Notice

If partnership is at will then the partnership firm is dissolved if any partner giving notice in writing to all the other partners expressing his/her intention to dissolve the firm.

(5) Dissolution by Court

The court may order to dissolve a partnership firm when:

a) a partner becomes insane or lunatic.

b) a partner becomes permanently incapable of performing the duties.

c) a partner is guilty of misconduct and affects the business activities.

d) a partner repeatedly breaks the terms of agreement .

e) a partner transfers his interest to a third party without the consent of other partners.

f) a business persistently incurs losses.

Rights of Outgoing Partner

A partner who leaves a running partnership firm is an outgoing partner. Rights of such outgoing partner is discussed below:

(1) Right to Carry on a Competing Business

Section 36 (1) of the Indian Partnership Act, 1932 (Partnership law), imposes certain restrictions but allows an outgoing partner to carry on a business and advertise it, which competes with the partnership firm. However, it restricts him from:

1. Using the name of the partnership firm
2. Representing himself as a partner of the firm
3. Soliciting the custom of persons who were dealing with the fi­rm before he ceased to be a partner.

(2) Right to Share Subsequent Profits

According to Section 37, of the Partnership Law, if a member of the firm dies or otherwise ceases to be a partner of the firm, and the remaining partners carry on the business without any final settlement of accounts between them and the outgoing partner, then the outgoing partner or his estate is entitled to share of the profits made by the firm since he ceased to be a partner.

The surviving partners also have an option of purchasing the interest of the deceased or outgoing partner. If the surviving partners choose to purchase the interest, then the outgoing partner is not entitled to any further share in profits of the firm.

Q. Can partnership be created from status? [4 marks - 2015]

Q. Partnership is created from a contract and not from status.” Discuss. [10 marks - 2015]

Q. Can a Minor be admitted in Partnership firm? If yes, explain his rights and duties. [20 marks - 2015]

Q. Distinguish between a partnership and a company.  [4 marks - 2016]

Q. Write down the effect of non-registration of a partnership firm. [10 marks - 2016]

Q. Under what circumstances a minor can be admitted in a partnership business? Discuss his rights and liabilities. [20 marks - 2016]

Q. Partnership at will. [4 marks - 2017]

Q. “Partnership is created by contract not by status”. Discuss. [10 marks - 2017]

Q. Define partnership [4 marks - 2022]

Q. Limited Liability Partnership. [4 marks - 2022]

Q. Elaborate the right of outgoing partner. [10 marks - 2022]

Q. What are various modes of dissolution of partnership firm? What are the consequences of dissolution? [20 marks - 2022]

Q. What are the effect of non-registration of a firm? [2022 - 4 marks - BA LLB]

Q. Define Partnership. Discuss different modes for determining existence of a partnership. [2022- 20 marks - BA LLB]

Agricultural Income

Q. Define Agricultural Income [4 marks - 2022]

Q. What is Agricultural Income? Define it with scheme of partial Integration of Agricultural Income. [20 marks - 2022]

Q. What is agricultural income? What are its kinds? What are the limits of such income from income tax? [20 marks - 2028]

Q. Define Agricultural Income [4 marks - 2026]

Q. What is ‘Agricultural Income’? What are its kinds? Explain. [10 marks - 2016]

Agricultural Income

Section 2 (1A) of the Income Tax Act states the definition of agricultural income includes 

1. Renting/leasing agricultural land for agriculture, storeroom, residential place and outhouse.

2. Money earned from trees growing in nurseries as seedlings or saplings.

3. Renting/leasing agricultural land by cultivator or farmer.

4. Any income due to commercial use of agricultural land.

Following incomes are excluded: 

1. Revenue generated from the sale of processed produce without actual agricultural activity.

2. Income earned from externally processed produce.

3. Revenue derived from trees sold as timber.

Partial Integration of Agricultural Income

Agricultural Income is exempt from tax under section 10(1) subject to conditions mentioned in the definition clause of section 2(1A) of the Income Tax Act, 1961. However, the state government can levy tax on agricultural income if the amount exceeds Rs.5,000 per year. This method is called as partial integration of agricultural income with non-agricultural income.  The purpose behind this method is to tax non-agricultural income at higher rates of tax.

Types of Agricultural Income

As per the Income Tax Act, there are agricultural income 

1. Agricultural land: The income generated from farming activities such as growing crops, fruits, vegetables, and other agricultural products. The purview of this category includes income from selling livestock, dairy products, and poultry.

2. Agricultural business: This category includes profits generated from agricultural processing and manufacturing activities like sugar, textiles, jute, and other agricultural products.

3. Agricultural rent: The rental income derived by the owner from renting out the land to farmers for cultivation purposes.

Assessment Year

Q. Assessment Year [4 marks - 2022]

Q. Define ‘Assessment Year’. (4 marks - 2016]

Assessment Year

Assessment year is the year succeeding the financial year in which income is evaluated. The financial year denotes the period in which income is earned.  In India the financial year starts from April 1 to March 31 of the next year. If the financial year is 2023-24, the assessment year will be 2014-15.

Unpaid Seller - Definition, Rights

Q. Unpaid Seller [4 marks - 2022]

Q. Who is an unpaid seller? Discuss his rights. [2022 - 20 marks - BA LLB)

Q. Discuss the rights of an unpaid seller under Indian Sale of Goods Act. [2021 - 20 marks - BA LLB]

Unpaid Seller

According to section 2(f) of the Indian Contract Act, every contract of sale of goods is a reciprocal promise where the seller is under the obligation of delivering the goods and the buyer is under the obligation to pay the agreed amount in return. 

In the cases where the seller has not been paid for the goods or been paid partially is called an unpaid seller. According to section 45 of Sale of goods act An unpaid seller is one who has been given a negotiable instrument like a bill of exchange that has been dishonoured.

Rights of an Unpaid Seller

An unpaid seller has rights against buyer and the goods.

Rights against Buyer

(a) Suite for Price

Sue the buyer under Section 55(1) of the Sale of Goods Act, if the agreed amount is not paid fully or partially.

Under section 55(2) if the agreed due date of payment is passed and not paid.

(b) Suite for damage

If the buyer can be sued under section 56 if he wrongfully refuses to accept the goods.

(c) Suite for Interest

Section 61 provides that if there is a specific agreement to pay interest in case of late payment, the seller can sue the buyer for accrued interest thereupon.

(d) Repudiation of the contract before the due date

According to Section 60, the rule of anticipatory breach contract applies, wherein, if buyer repudiates the contract before the date of delivery the seller can consider the contract as rescinded and can sue for damages of the breach. .

Rights Against Goods

(a) Lien

Lien is a right which seller of goods can exercise when a buyer has not paid the price of goods, under this right seller can retain the possession of goods as an agent or bailee for the buyer. The seller can retain his possession as per Section 47 under the following circumstances:

(i) In case the buyer is insolvent.

(ii) When the term of goods sold on credit is expired.

(iii)  Goods sold without any stipulation as to credit.

(b) Stoppage

When the goods have been transferred to carrier or bailee for the purpose of transmission to the buyer, who has become insolvent, the seller has the right to stop the goods in transit in order to protect himself against the loss that may arise due to insolvency. As per Section 50, there are four essential requirements for stopping the goods in transit:

(i) Unpaid seller.

(ii) Buyer insolvent.

(iii) Property should have passed to the buyer.

(vi) Property should be in course of transit.

Case Reference

In the case of Bird v. Brown, the court discussed as to when it is wrongful to refuse the delivery of goods. In this case, the goods arrived at the destination but the buyer has become insolvent. A merchant was acting for the seller who gave stop notice to the buyer without authority.