TMI Blog1986 (6) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome from agriculture. He, however, sent representation, exhibit A, on August 14, 1978, to respondent No. 1 requesting him not to take into consideration, for the purpose of assessment, his agricultural income. Respondent No. 1 did not agree with his request and completed the assessment by his order, exhibit B, taking into consideration the agricultural income also as provided under the Finance Act. Hence, this writ petition for the reliefs noticed earlier. Sri G. Sarangan, learned counsel for the petitioner, made the following submissions for our consideration : (i) The provisions of the Finance Act providing for aggregating the agricultural income for rate purposes under the Act are beyond the legislative competence of Parliament. Elaborating this submission, Sri Sarangan argued that the tax can only be levied under the Act on the total income other than " agricultural income " and Parliament by section 2 of the Finance Act is really levying tax on agricultural income of the assessee and as the agricultural income can only be taxed under entry 46 in List II of the Seventh Schedule, by a State, Parliament had no competence to enact a provision in the Finance Act and thus levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be, Sub-Paragraph II of the said Paragraph A, as if such aggregate income were the total income; (ii) the net agricultural income shall be increased by a sum of eight thousand rupees and the amount of income-tax shall be determined in respect of the net agricultural income as so increased at the rates specified in Sub-Paragraph I or, as the case may be, Sub-Paragraph II of the said Paragraph A, as if the net agricultural income as so increased were the total income; (iii) the amount by which income-tax determined in accordance with sub-clause (i) exceeds the amount of income-tax determined in accordance with sub-clause (ii) shall be the income-tax chargeable in respect of the total income. " Sub-section (2) of section 2 of the Finance Act provides for the case to which it is made applicable. Where the assessee has in the previous year any net " agricultural income " in addition to " total income " and the total income " exceeds eight thousand rupees, then the net agricultural income should also be taken into consideration only for the purpose of charging tax on the " total income The aggregation of the " total income " and the " net agricultural income is made for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be included in computing the total income of an assessee. It was, therefore, argued on behalf of the petitioner that under section 10(1) agricultural income has to be excluded in computing the total income of an assessee and agricultural income not being income forming part of the " total income " on which no tax is payable under Chapter VII, the provision in the Finance Act which provides for aggregating the agricultural income with the net income of the assessee for purposes of levying tax is without competence. That a State Legislature has the competence to enact a law with respect to entry 46 in List II of the Seventh Schedule providing for levy of tax on agricultural income and Parliament has the competence to enact a law with respect to entry 82 in List I providing for levy of tax on income other than agricultural income is not in dispute. What is in dispute is whether the impugned provisions in the Finance Act are with respect to tax on agricultural income under entry 46 in List II. As already noticed, the language employed in the impugned provisions provide for aggregating the net agricultural income with the " total income " of an assessee and the tax is levie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to classify assessees into two categories, namely, those who have the capacity to pay higher tax and those who have not that capacity and levying higher rate of tax only on those who have the capacity to pay higher tax. In CIT v. Khatau Makanji Spinning and Weaving Co. Ltd. [1960] 40 ITR 189 (SC), additional income-tax was levied in respect of dividends distributed in excess of the specified limit under clause (ii) of the proviso to Paragraph B of Part I of the First Schedule to the Finance Act, 1951, (as applied to the assessment year 1953-54 by the Finance Act, 1953). Under section 3 of the Income-tax Act, 1922, income-tax is a tax on the income of the previous year and it would not cover something which is not the income of the previous year or made so fictionally. The Finance Act, 1951, failed in its purpose. The additional tax was not properly laid upon the " total income " because what was actually taxed was never a part of the total income of the previous year. The Finance Act did not lay down that it should be taxed as part of the total income. The Supreme Court, therefore, held that the imposition of additional tax was not valid. The additional income-tax was sought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee on the valuation date and on the different components of those assets and, therefore, it was a tax different from the one which could be imposed under entry 49, List II. In Hoechst Pharmaceuticals Ltd. v. State of Bihar [1984] 55 STC I (SC), sub-section (1) of section 5 of the Bihar Finance Act, 1981, provided for the levy of surcharge on every dealer whose gross turnover during a year exceeded Rs. 5 lakhs at such rate not exceeding 10 per cent. of the total amount of tax as may be fixed by the State Government by notification, in addition to the tax payable by him and sub-section (3) prohibited such dealer from collecting the amount of surcharge from the purchasers. " Gross turnover " was defined by section 2(j) to include sales of goods made outside the State or in the course of inter-State trade or commerce or export. The contention before the court was that sub-section (1) of section 5 of the Act is ultra vires the State Legislature of Bihar in so far as for the purpose of the levy of surcharge on a certain class of dealers, it takes into account his gross turnover as defined in section 2(j) of the Act. It was argued that the State Legislature was not competent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king a law for the levy of surcharge under entry 54 of List II of the Seventh Schedule to take into account the total turnover of the dealer within the State and provide, as has been done by sub-section (1) of section 5 of the Act, that if the gross turnover of such dealer exceeds Rs. 5 lakhs in a year, he shall, in addition to the tax, also pay surcharge at such rate not exceeding 10 per centum of the tax as may be provided. The liability to pay surcharge is not on the gross turnover including the transactions covered by article 286 but is only on inside sales and the surcharge is sought to be levied on dealers who are in a position of economic superiority. The definition of " gross turnover " in section 2(j) of the Act is adopted not for the purpose of bringing to surcharge inter-State sales or outside sales or sales in the course of import into, or export of, goods out of the territory of India, but is only for the purpose of classifying dealers within the State and to identify the class of dealers liable to pay such surcharge. In CED v. Smt. Andal Thayaramma [1985] 151 ITR 197, a Full Bench of this court while considering whether the value of shares of the lineal descendants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural income for taxing only the net income at a higher rate. By the impugned provisions, though the rate of tax depends upon the aggregated amount, namely, the " net income " and the " agricultural income ", what is taxed is only the net income and not the agricultural income. As held in Hoechst's case [1984] 55 STC I (SC), this aggregation is provided or is taken into consideration only for the purpose of identifying a class of assessees of economic superiority who are liable to pay tax at a higher rate only on their " net income ". The impugned provisions are, therefore, within the competence of Parliament. Let us next consider the argument based on article 14 of the Constitution. It was argued that these provisions made an arbitrary and irrational classification of assessees into two groups, namely, those who have agricultural income and those without agricultural income and subject those with agricultural income to heavier taxation. The assessees with agricultural income are financially in a better position than the assessees without agricultural income. The impugned provisions select or pick assessees with agricultural income because of the belief of Parliament that capacit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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