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TMI Blog1988 (5) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... mited and a shareholder of the said Company. These petitions are directed against the State of West Bengal, Commissioner of Agricultural Income-tax of West Bengal, West Bengal Agricultural Income-tax Officer, Calcutta Range-I, Union of India and Income-tax Officer, O-Ward, Companies District-II, Calcutta. The Petitioners in Civil Writ Petitions Nos. 5411-12 of 1980 are also the Tata Tea Limited and a shareholder thereof. The Respondents are State of Kerala, Commissioner and Assistant Commissioner of Agricultural Income-tax at Kerala, Union of India and the concerned Income-tax Officer. The Petitioners in other writ petitions are Tea Companies and shareholders thereof and the Respondents are ranged on similar lines as above. The Petitioners are Public Limited Companies growing as well as manufacturing tea and selling the same. As far as the petitions directed against the State of West Bengal are concerned, the challenge therein is to the constitutional validity of Sections 3 & 5 of the Bengal Agricultural Income-tax (Amendment) Act, 1980. The Bengal Agricultural Income-tax Act, 1944 provides for the levy and collection of agricultural income-tax in the then Province of Bengal, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 4 per cent and it becomes black in colour. This manufacturing process is applied to tea leaves in a factory which is situated within the garden area owned by the Petitioner and licensed under the Factories Act. It is averred that the carrying out of the aforesaid processes is a specialised operation involving the application of modern methods of bio-chemical engineering. The cleaning of the tea is then done with machines according to various sizes like broken pekoe, broken orange pekoe, pekoe dust, dust, churmani dust and so on. There are other also other brands of tea produced by the aforesaid process. It is needless to consider these processes in detail except to state that they are quite elaborate and, in the cases before us, valuable machinery is being used for carrying out these processes which are carried out in factories. The case of the Petitioners is that the income derived from the sale of tea grown and manufactured as aforesaid is derived partly from agriculture and partly from manufacture. Under the Indian Income-tax Act, 1922 (referred to hereinafter as "the Act of 1922") and the Rules framed thereunder the income derived from the sale of tea grown and man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome computed by the Income-tax Officer concerned as aforesaid which is treated as agricultural income,namely, 60 per cent of it. In 1979, the Legislature of the State of West Bengal enacted the Bengal Agricultural Income-tax (Amendment) Act, 1979. By the said Amendment Act, sub-section (2A) was added after sub-section (2) in Section 8 of the Bengal Agricultural Income-tax Act, 1944. Very briefly put, the said sub-section (2A) gave powers to the Agricultural Income-tax Officer to make the computation of income derived from tea in cases where it had not been computed for the purposes of assessment of income-tax under the Act of 1961 or, although computed, the assessment under the Act of 1961 had been annulled or set aside under that Act and no order of assessment under Section 25 had been made within six years from the end of the year in which the agricultural income was first assessable in the manner and subject to the limitations and conditions set out in the said sub-section. It is not really necessary for us to consider this provision further in the view which we have taken. Moreover, this Amendment Act remained in force only for the period 1979-80 after which it was replaced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bill concerned and the stand taken in Court by the State of Kerala, it was clear that the entire object of the amendment was to make the entire income derived by an assessee as aforestated liable to the levy of agricultural income-tax. These submissions were adopted by the learned Counsel who appeared for the other Petitioners and by Mr. Manchanda who appeare for the Union of India. It is submitted by Dr. Paul, learned Counsel for the Tata Tea Company that the aforesaid amendments, in so far as they purport to confer power on the respective legislatures of the State of West Bengal and the State of Kerala to legislate regarding taxes on the income from the sale of tea grown and manufactured by an assessee in excess of 60 per cent of such income computed in the manner prescribed under the law relating to income-tax are void and of no legal effect as they are beyond the legislative competence of the respective legislatures of the States of West Bengal and Kerala respectively in view of the provisions of Article 246 of the Constitution read with Entry 82 in List I and Entry 46 in List II in the Seventh Schedule to the Constitution and the relevant provisions of the law relating to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws with respect to any of the matters enumerated in List II in the Seventh Schedule (referred to in the Constitution as the "State List"). Clause (2) of the said Article provides that both Parliament and State Legislatures have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule called the "Concurrent List". Entry 82 in List I or the Union List reads "taxes on income other than agricultural income." Entry 46 of List II (State List) reads "taxes on agricultural income". Article 366 of the Constitution contains definitions and sub-Article (1) thereof reads as follows: "Agricultural income means agricultural income as defined for the purposes of the enactments relating to Indian Income-tax Act." The material portion of sub-section (1) of Section 2 of the Act of 1922 (Indian Income-tax Act, 1922) defines agricultural income as follows: "Agricultural income means: (a) any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land-revenue in the taxable territories or subject to a local rate assessed and collected by officers of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in the Act of 1922 and runs as follows: "(1) "agricultural income" means (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes; (b) any income derived from such land by (i) agriculture; or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause". Clause (c) of the said sub-section is not material for our purpose. Section 295 of the Act of 1961 deals with the power to make rules. The relevant portion of that section runs as follows: "(1) The Board may, subject to the control of the Central Government, by notification in the Gazette of India, make rules for the whole or any part of India for carrying out the purposes of this Act. (2) In particular, and without prejudice to the generality of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are included in the accounts of the business subject to allowances permissible under that Act. Clause (a) of the Proviso to that sub-section makes it clear that if, for the purposes of assessment of income-tax under the Act of 1922, the market value of the produce had been determined that would be accepted as market value also for the said Bengal Act. Clause (b) of the Proviso deals with common charges on agricultural income and income chargeable under the Act of 1922. The material portion of sub-sections (2) and (3) of the said section ran as follows: "(2) Notwithstanding anything contained in this Act, in the case of tea the plant Camellia Thea (Linn.) grown in West Bengal and sold by the grower himself or his agent after manufacture, the agricultural income derived therefrom shall, as long as for the purposes of assessment of incometax under the Indian Income-tax Act, 1922, the income derived therefrom is computed under that Act in such manner as to include agricultural income, be deemed to be that portion of such income as so computed on which income-tax is not payable under that Act, and agricultural incometax at the rates specified in the Schedule shall be payable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of one year. The material portion of sub-section (2A) ran as follows: "(2A) Where the computation of the income derived from tea has not been completed for the purposes of assessment of income-tax under the Income-tax Act, 1961, or where such computation has been completed but the assessment under the Income-tax Act, 1961, has been annulled or set aside under that Act and no order of assessment under Section 25 has been made within six years from the end of the year in which the agricultural income was first assessable, the Agricultural Income-tax Officer shall, notwithstanding anything to the contrary contained in this Act, assess the agricultural income derived from tea in such manner and within such period as may be prescribed and shall determine the sum payable by the assessee on the basis of such assessment: X X X X X" In the State of Kerala, agricultural income-tax was sought to be imposed by the Agricultural Income-tax Act, 1950 passed by the Legislature of the State of Kerala. The definition of the term "agricultural income" is contained in sub-section (a) of Section 2 of the Kerala Agricultural Income-tax Act. The said definition is in line with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 in List II makes it clear the respective Legislatures of the State of West Bengal and the State of Kerala could pass laws imposing taxes only in respect of agricultural income; and in respect of income other than agricultural income, it is only Parliament which has the power to legislate in respect of taxes on such income. subarticle (1) of Article 366 of the Constitution states that "agricultural income" means such income as is defined as "agricultural income" for the purposes of enactments relating to Indian income-tax. It is significant that the words used are not "as defined by the enactments relating to Indian income-tax" but "as defined for the purposes of the enactments relating to Indian income-tax." (emphasis supplied). We have already set out the definition of the term "agricultural income" under the Act of 1922 as well as that in the Act of 1961 which replaced the Act of 1922. If these definitions are read by themselves, it would be difficult to say that there is any conflict between them and the definition of the term "agricultural income" contained in the Bengal Agricultural Incometax Act, 1944 after its ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the said rule, income from the sale of tea grown and manufactured by a seller in India has to be computed as if it were income derived from business which would imply that the deductions allowable under the Act of 1961 in respect of income derived from business would be allowable in the case of income derived from the sale of tea grown and manufactured by a seller and further allowance would be granted as set out in Rule 8(2) and 40 per cent of the income so computed would be deemed to be income liable to the levy of income-tax and the balance of the income would be liable to tax as agricultural income subject to such further deductions as the law pertaining to the levy of agricultural income-tax might allow. The question is whether Rule 24 of the Income-tax Rules, 1922 and Rule 8 of the Income-tax Rules, 1962 can be said to form part of the definition of the term "agricultural income" under the Act of 1922 and the Act of 1961 respectively. In Karimtharuvi Tea Estates Ltd. & Anr. v. State of Kerala & Ors., [1965] 48 I.T.R. 85 a Bench comprising of five learned Judges of this Court was called upon to consider the question of the power of a State Legislature to make a la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me for the purpose of the enactments relating to income-tax'. One such enactment is the Income-tax Act. Rule 24 of the Income-tax Rules 1922 has been made under the power conferred by Section 59 of the Incometax Act and has effect as if enacted in that Act. When Section 59 of the Income-tax Act provides for the Rules made under that Act to prescribe the proportions of income from business and income from agriculture in the entire income derived in part from agriculture and in part from business, the proportion so prescribed must be taken to be prescribed by the Act. These rules were in existence in 1950 when the Constitution incorporated the definition of "agricultural income" from the Income-tax Act by reference. The definition of the term was bound up with the Rules." (emphasis supplied). It was pointed out by Mr. Potti that there is a reference in the aforesaid judgment to the said Explanation contained in Section 2(a)(2) of the Kerala Agricultural Income-tax Act, which is now deleted, and which substantially incorporated the provisions of Rule 24 of the Income-tax Rules, 1922 about the computation of income derived by an assessee from the sale of tea grown and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat if, before Agricultural Income-tax Officer proceeds to make the assessment under the Kerala Act, an assessment of income by the Income-tax Officer under Rule 24 of the Income-tax Rules, 1922 or Rule 8 of the Income-tax Rules, 1962 had been made, then the Agricultural Income-tax Officer acting under the Kerala Act is bound to accept the computation of the tea income already made by the Central Income-tax Authorities as aforesaid. In the case of State of Tamil Nadu v. Kannan Devan Hills Produce Co. Ltd., [1972] 84 I.T.R. 475 a Division Bench comprising of two learned Judges of this Court followed the aforesaid decisions. In the case of Tea Estate India P. Ltd. v. Commissioner of Income-tax, West Bengal II, [1976] 103 I.T.R. 785 a Bench comprising of two learned Judges of this Court observed (at P. 795) as follows: "Income which is realised by sale of tea by a tea company which grows tea on its land and thereafter subjects it to manufacturing process in its factory is an integrated income. Such income consists of two elements or com- ponents. One element or component consists of the agricultural income which is yielded in the form of green leaves purely by the land over whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anglo-American Direct Tea Trading Co. Ltd., [1968] 48 I.T.R. 83 it has been noticed by this Court that the said Explanation to Section 2(a)(2) to the Kerala Agricultural Income-tax Act was in line with the provisions of Rule 24 of the Income-tax Rules, 1922 and Rule 8 of the Income-tax Rules, 1962 but that by itself does not make any difference and the reading of the aforesaid decisions makes it perfectly clear that even without that Explanation the position would have been the same. The conclusion which must follow is that although the Explanation has been deleted from clause (2) of subsection (a) of Section 2 of the Kerala Agricultural Incometax Act and in spite of the amendments carried out by the Amendment Act of 1979 and thereafter the Amendment Act of 1980 in the case of the Bengal Agricultural Income-tax Act, an Agricultural Income-tax Officer acting under the Kerala Agricultural Income-tax Act or the Bengal Agricultural Income-tax Act has no power to levy agricultural income-tax except in respect of 60 per cent of the income derived by an assessee from the sale of tea grown and manufactured by him and computed in the manner laid down under the relevant Central Incometax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tifiably held in law that the tea-leaves lost their character of being an agricultural produce and became something different. All the processes applied by the assessee were necessary for the purpose of saving the tea-leaves from perishing, making them fit for transporting and marketing them. It was submitted by learned Counsel that this decision laid down that the processes involved in producing marketable tea were only such as would be carried out by an agriculturist to make his produce marketable and hence the entire income derived from the sale of such tea leaves should be regarded as agricultural income. In our view, it is impossible to accept this contention. In the first place, the question before the Court in that case was not relating to agricultural incometax at all but relating to sales tax. Moreover, what the Court was called upon to consider, and what it did to consider, was only whether the tea-leaves after undergoing the processes set out earlier continued to be agricultural produce or whether they became a different commodity which could not be regarded as an agricultural produce. It is significant that the aforesaid decisions rendered by Benches comparising five le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing five learned Judges of the Supreme Court in the aforesaid two decisions. It was contended by Mr. Potti and Mr. Ray, learned Counsel for the Respondent States that Rule 8 of the Incometax Rules, 1962 was not a part of an enactment and could not be regarded as an enactment and hence it need not be taken into account in considering the definition of the term "agricultural income" under the Constitution. It was pointed out by them that, unlike sub-section (5) of Section 59 of the Act of 1922 which provided that the rules made under the said section would have effect, after publication in the Gazette, as if enacted in that Act, Section 296 of the Act of 1961 merely provided inter alia that a rule framed under Section 295 had to be laid, as soon as may be, before each House of Parliament while it is in Session for a total period of thirty days and unless it was directed to be deleted or amended by both Houses of Parliament it would be given effect to. It was pointed out by them that Rule 8, therefore, could not be said to be enactment and hence it could not affect the definition of the term "agricultural income" under Article 366(1) of the Constitution. We are u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce only for one year as we have stated before. It is not necessary to strike down the said amendments because they do not directly conflict with the definition of the term "agricultural income" under the Constitution as we have pointed out earlier, but we may make it clear that they do not confer any wider power on the State Legislature to impose taxes on agricultural income than what we have set out earlier. Before parting with the matter, it must be mentioned that the validity of the aforesaid amendments to the Bengal Agricultural Income-tax Act, 1944 made in 1980 and the deletion of the Explanation in Section 2(a)(2) of the Kerala Agricultural Income-tax Act were challenged as being ultra vires and invalid in law on several other grounds. We have not thought it necessary to go into these grounds in view of what we have held, as set out above. Dr. Pal on behalf of Tata Tea Co. and Tata Finlay Co. also challenged the amendment carried out in 1980 in the Bengal Agricultural Income-tax Act on the ground of being its retrospective in operation. It also appears to us unnecessary to go into this question in view of what we have already held. In the result, although none of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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