2024 (3) TMI 382 - HC - Income Tax

Levy of tax on income derived from sale of saplings - Charging Section 3 of the Bengal Agricultural Income Tax Act, 1944 - Petitioner contended that Tea saplings are not tea and thus not subject to taxation u/s 3 - Calculation of depreciation in accordance with Section 7A of the Bengal Agricultural Income Tax Act, 1944 - HELD THAT - Entry 46 of List II-State List under Schedule VII to the Constitution of India provides field of Legislation on Taxes on Agricultural Income . Thus, in view of the provisions of Article 246(3) read with aforesaid Entry 46 of List-II under Schedule VII to the Constitution of India, the State Legislature has exclusive power to enact a law with respect to Tax on Agricultural Income in exercise of power so conferred, the Bengal State Legislature has enacted the Bengal Agricultural Income Tax Act, 1944 (Bengal Act IV of 1944). Section 3 of the Act of 1944 is the charging Section and Sections 7 and 7A provides for computation of tax and allowances under the head Agricultural Income from Agriculture . The findings of the tribunal in the impugned order holding that saplings are included in tea for the purposes of tax under the Act of 1944, is wholly erroneous and baseless. In paragraph 19 of the impugned order the tribunal has held that non-obstante Section 7A, being silent about the allowances to be made from such income for computation of tax; the deduction on account of depreciation is required to be made as per stipulation of Section 7 of the Act of 1944 - The tribunal has incorrectly held that Section 7A does not provide for allowances or depreciation for computation of agricultural income of an assessee which is a company or a firm or other association of persons. Bare reading of Section 7A of the Act of 1944 makes it clear that agricultural income of such assessee (a company or a firm or other association of persons) shall be computed in accordance with method of accounting regularly employed by such assessee for such computation. Therefore, agricultural income of the petitioner company is liable to be computed in accordance with the method of accounting regularly employed by it provided that, if, in any case, the method of accounting as aforestated is such that in the opinion of the Agricultural Income Tax Officer, the agricultural income cannot be computed, the computation shall be made on such basis and in such a manner as the Agricultural Income Tax Officer may determine. Matter is remitted back to the Agricultural Income Tax Officer/competent authority to pass afresh an assessment order for the year 2002- 03 in accordance with law, in the light of the findings/directions recorded above, within four months from the date of submission of a certified copy of this judgment, after affording reasonable opportunity of hearing to the petitioner assessee - Petition allowed by way of remand.

Summary

Issues Involved:
1. Taxability of income derived from the sale of tea saplings under the Bengal Agricultural Income Tax Act, 1944.
2. Applicability of Section 7A for calculating depreciation for companies under the Bengal Agricultural Income Tax Act, 1944.

Summary:

Issue 1: Taxability of Income from Tea Saplings
The petitioner argued that under Section 3 of the Bengal Agricultural Income Tax Act, 1944, only income from "tea" is taxable, and "tea" does not include tea saplings. The Tribunal's decision to uphold the imposition of tax on tea saplings was challenged as a manifest error of law. The Court examined the common parlance test and dictionary definitions, concluding that saplings are not treated or used as tea. The Court held that "tea" does not include saplings, and thus, income from saplings is outside the scope of the charging Section 3 of the Act of 1944. Consequently, saplings are not liable to tax under the Act of 1944.

Issue 2: Applicability of Section 7A for Depreciation Calculation
The petitioner contended that Section 7A, which is specifically for companies, should apply for calculating depreciation instead of Section 7 and Rule 3 of the Bengal Agricultural Income Tax Rules, 1944. The Court agreed, noting that Section 7A, introduced in 1980, mandates that the agricultural income of a company should be computed according to the method of accounting regularly employed by the company. Rule 3 does not apply to Section 7A. The Tribunal's interpretation that Section 7A does not provide for allowances or depreciation was found to be incorrect. The Court emphasized that Section 7A has an overriding effect over Section 7 and should be applied for the computation of agricultural income for companies.

Conclusion:
The impugned order dated 08.08.2012 by the West Bengal Taxation Tribunal was quashed. The matter was remitted back to the Agricultural Income Tax Officer to pass a fresh assessment order for the year 2002-03 in accordance with the Court's findings, within four months, after providing a reasonable opportunity of hearing to the petitioner. The writ petition was allowed to the extent indicated.