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TMI Blog1968 (2) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act, 1939 (Act IX of 1939) (hereinafter referred to as " the Assam Act "), in respect of the balance of income of sixty per cent. under rule 24 of the Rules framed under the Indian Income-tax Act, 1922, read with the provisions of the Assam Act and the Rules made thereunder. The petitioners object for the apportionment of the income derived by the petitioners at forty per cent. as business income assessable to income-tax and sixty per cent. as agricultural income assessable under the Assam Act as unconstitutional, ultra vires the powers of the legislature and, therefore, bad. The argument of the petitioners is that the said apportionment is arbitrary, that it is done under the Rules framed by the Central Board of Revenue under the control of the Central Government, that the power to make the Rules delegated to the Central Board of Revenue, as aforesaid, is a naked power, unrestricted and uncanalised and enables the executive to decide in an arbitrary manner for the aforesaid apportionment. The contention, therefore, is that the delegation of the rule making power is excessive delegation and cannot be treated as valid inasmuch as, according to the petitioners, the delegatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is important and may be extracted : " Provided further that in cases of agricultural income from cultivation and manufacture of tea, the agricultural income for the purposes of this Act shall be deemed to be that portion of the income from cultivation, manufacture and sale which is agricultural income within the meaning of the Indian Income-tax Act and shall be ascertained by computing the income from the cultivation, manufacture and sale of tea as computed for Indian income-tax from which shall be deducted any allowances by this Act authorised in so far as the same shall not have been allowed in the computation for the Indian Income-tax Act. " The petitioners attacked the vires and the validity of the Explanation to section 2(a) of the Assam Act and also the second proviso to section 8(2) of the Assam Act. The Assam Agricultural Income-tax Rules, 1939, were framed by the State Government in exercise of the powers under section 50, sub-sections (1) and (2) of the Assam Act, hereinafter referred to as " the Assam Rules ". Rule 5 of these Rules is attacked on the ground that the rule is ultra vires. This rule is as follows : " 5. In respect of agricultural income from tea grow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provincial legislature. The expression " agricultural income " is defined in section 2(1) of the Indian Income-tax Act, 1922 (Act No. XI of 1922), which is as follows : (1) '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 Government as such ; (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 sub-clause (ii) ; (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator, or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of this Act. (4) The power to make rules conferred by this section shall, except on the first occasion of the exercise thereof, be subject to the condition of previous publication. (5) Rules made under this section shall be published the the Official Gazette, and shall thereupon have effect as if enacted in this Act." In exercise of the powers conferred on the Central Board of Revenue by virtue of section 59 of the said Act, rules were framed by them and these rules are known as " The Indian Income-tax Rules, 1922 ". Rules 23 and 24 are relevant and require to be considered in connection with these cases and these rules are as follows : " 23. (1) In the case of income which is partially agricultural income as defined in section 2 and partially income chargeable to income-tax under the head 'Business', in determining that part which is chargeable to income-tax the market value of any agricultural produce which has been raised by the assessee or received by him as rent-in-kind and which has been utilised as a raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd now is that the definition given in the Assam Act is exactly, barring the Explanation, on all fours with the Indian Income-tax Act and these definitions are accepted and adopted as correct definitions by the Constitution. It may be seen that even the Government of India Act, 1935, adopted the same definition as is done under the Constitution, in section 311(2) thereof, which is as follows : " (2) In this Act, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say :- 'agricultural income' means agricultural income as defined for the purposes of the enactments relating to Indian income-tax ", and when this provision was included when the Government of India Act, 1935, was passed, the Indian Income-tax Act, 1922, as well as rule 24 framed thereunder were in force as law. Hence, it must be assumed that the Government of India Act, 1935, adopted these definitions under the Indian Income-tax Act, and subsequently, when the Constitution was passed, the same was in the same manner adopted by the Constitution. The main attack of the petitioners is against the validity of the rule making power conferred b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted as necessary to satisfactorily giving effect to the provisions of any enactment. The leading case on the subject of delegation of legislative power of the Supreme Court is Delhi Laws Act case. It is, however, not necessary to refer to that case in detail in connection with this matter. In Banarsi Das v. State of Madhya Pradesh the Supreme Court observed as follows : " While a power to execute a law, it was argued, could be delegated to the executive, the power to make it must be exercised by the legislature itself ....... It was also contended that the grant of a power to an outside authority to repeal or modify a provision in a statute passed by the legislature was unconstitutional, and that, in consequence, the impugned notification was bad in that, in reversal of the policy laid down by the legislature in Act No. XVI of 1949 that the sales to Government should be excluded from the operation of the Act, it withdrew the exemption which had been granted thereunder. And the observations in In re the Delhi Laws Act, 1912, etc. and the decision in Rajnarain Singh v. Patna Administration Committee, were strongly relied on as establishing this contention. Mr. N. C. Chatterjee part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the above decisions, their Lordships of the Supreme Court in the above case held that the power conferred on the State Government by section 6(2) to amend the schedule relating to exemption was in consonance with the accepted legislative practice relating to the topic, and was not unconstitutional. Reliance has been placed on the case of Hamdard Dawakhana v. Union of India, and the following passage, in particular, may be quoted : "Consequently when the rule making authority specifies conditions and diseases in the Schedule it exercises the same delegated authority as it does when it exercises powers under sub-section (1) and makes other rules and therefore it is delegated legislation. The question for decision then is, is the delegation constitutional in that the administrative authority has been supplied with proper guidance. In our view the words impugned are vague. Parliament has established no criteria, no standards and has not prescribed any principle on which a particular disease or condition is to be specified in the Schedule. It is not stated what facts or circumstances are to be taken into consideration to include a particular condition or disease. The power of spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction should not be carried by the courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities. It is the duty of the court to strike down without any hesitation any arbitrary power conferred on the executive by the legislature. " (see Vasanlal Maganbhai Sanjanwala v. State of Bombay). In that case, under section 5 of the Punjab General Sales Tax Act, 1948, as it originally stood, an uncontrolled power was conferred on the provincial Government to levy every year on the taxable turnover of a dealer a tax at such rates as the said Government might direct. Under that section the legislature practically effaced itself in the matter of fixation of rates and it did not give any guidance either under that section or under any other provisions of the Act. Accordingly, it was held that the delegation was excessive and that section 5 of the said Act under which power is given to the executive was held void. Speaking generally, therefore, we are clearly of opinion that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of tea grown and what portion should be business income for the purpose of the Indian Income-tax Act is a matter of detail which could only be effectively determined by the executive, and rule 24 lays down that the entire income derived from the growth and manufacture of tea is to be treated as if it were business income and 40 per cent. thereof should be liable to Income-tax assessment under the Indian Income-tax Act, 1922. In this connection, it must be noted that the income derived from the cultivation and manufacture of tea comprises partly of the value of the tea leaf grown which is utilised in producing the tea, which is accepted as fit for marketing and partly of the value that it acquires by being put through the process of manufacture. In other words, the marketable commodity of tea acquires its value partly by reason of the fact that it is grown in the tea gardens and plucked and brought to the factory where the tea is dried and put through certain processes until it acquires the condition that it could be sold in the market, and the expenditure involved in putting the tea leaves through this process of manufacture. Thus the income derived by the sale of tea in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de under the Assam Act has been upheld by their Lordships of the Privy Council on the basis of apportionment made in rule 24 of the Indian Income-tax Rules, 1922, and rule 5 of the Assam Act. The following observations of their Lordships of the Privy Council may be quoted with advantage : " The Assam Agricultural Income-tax Act applies to all agricultural income derived from land situated in the Province of Assam (section 5) and it provides by the charging section (section 3) that agricultural income-tax at the rate specified in the annual Assam Finance Acts shall be charged for each financial year on the total agricultural income of the previous year. The part of the definition section (section 2) which is relevant to the present case defines agricultural income as any income derived from land used for agricultural purposes by agriculture. The Indian Income-tax Act contains a definition of agricultural income in the same terms, but by a rule (rule 24) made under it, 'income derived from the sale of tea grown and manufactured by the seller in British India shall be computed as if it were income derived from business and 40 per cent. of such income shall be deemed to be income, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only will be deemed to be agricultural income' within the meaning of that expression in the Income-tax Act. It follows, therefore, that the power of the State legislature to make a law in respect of taxes on agricultural income arising from tea plantations will be limited to legislating with respect to the agricultural income so determined. The State legislature is free in the exercise of its plenary legislative power to allow further deductions from such computed agricultural income as it considers fit, but it cannot add to the amount of the agricultural income so computed by providing that certain items of expenditure deducted in the computation of the income from a business under the provisions of the Income-tax Act be not deducted and be considered to be a part of the taxable agricultural income." Lower down, dealing with the power of the State legislature to enact the law in respect of agricultural income, their Lordships observed : " It is not disputed for the respondent that the power of the State legislature to enact a law in respect of agricultural income relates only to such agricultural income as is defined in article 366 of the Constitution. It is, however, urged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of an ordinary process to render it fit to be taken to the market. But that makes no difference at all, particularly when it is obvious that tea has to be put through the process of manufacture before it is rendered fit for marketing. The decisions relied on by Mr. Ghosh, namely, In re Bhikanpur Sugar Concern and Sheolal Ramlal v. Income-tax Commissioner, have no application to the instant case as they do not deal with tea. Another case cited by Mr. Ghosh, Killing Valley Tea Company Ltd. v. Secretary of State, is a case long before the Indian Income-tax Act, 1922, and the Rules framed thereunder became law and, therefore, is not of much assistance. Taking all the facts and circumstances into consideration, we are satisfied that both the proviso to section 8 of the Assam Act and rule 5 and the Explanation thereto are in conformity with the Indian Income-tax Act and the Rules framed thereunder, and therefore cannot be struck down as unconstitutional. By way of reply Mr. Ghosh raised a new point, in a faint way, that although the Indian Income-tax Act, 1922, is pre-Constitution Act, it can certainly be struck down under article 13 of the Constitution as offending or being vio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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