Full Judgment Text
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PETITIONER:
ANGLO AMERICAN DIRECT TEA TRADING CO.LTD.
Vs.
RESPONDENT:
COMMISSIONER OF AGRICULTURAL INCOME-TAX,KERALA STATE, TRIVAN
DATE OF JUDGMENT:
10/01/1968
BENCH:
BACHAWAT, R.S.
BENCH:
BACHAWAT, R.S.
WANCHOO, K.N. (CJ)
SHELAT, J.M.
MITTER, G.K.
VAIDYIALINGAM, C.A.
CITATION:
1968 AIR 1213 1968 SCR (2) 745
CITATOR INFO :
RF 1972 SC 375 (4)
R 1976 SC1790 (18)
R 1977 SC 489 (22)
F 1988 SC1435 (32)
ACT:
Kerala Agricultural Income-tax Act (20 of 1950), ss. 2 and
5-Income-tax Act (11 of 1922), s. 10 and Income-tax Rules,
1922, r. 24-Income derived by cultivation, manufacture and
sale of tea-Nonagricultural income determined under s. 10 of
the Income-tax Act and r. 24 of the Income-tax Rules-Whether
computation binding on Agricultural Income-tax Officer.
Kerala Surcharge on Taxes Act (11 of 1957), Surcharge on
agricultural income for assessment year 1957-58-If can be
levied.
HEADNOTE:
The appellants were carrying on the business of cultivation,
manufacture and sale of tea. Some of them owned tea
plantations both within and outside the State of Kerala.
Income derived from the sale of tea grown and manufactured
by the seller is derived partly from business and partly
from agriculture, and, has to be computed under r. 24 of the
Indian Income-tax Rules, 1922 (corresponding to r. 8 of the
1962 Rules) as if ’it were income derived from business in
accordance with the provisions of s. 10 of the Income-tax
Act, 1922. On the basis of r. 24, the central income-tax
authorities computed the total tea income of the appellants
and 40% thereof, representing the non-agricultural income,
was assessed to non-agricultural income-tax and the balance
60% was left unassessed as agricultural income. in
proceedings under the Kerala Agricultural Income-tax Act,
1950, the agricultural income of the appellants was
determined on an independent computation of their tea
income. The agricultural income so determined was higher
than that arrived at by the central income-tax authorities.
In some of the appeals, the Agricultural Income-tax Officer
levied a surcharge of 5% for the assessment year 1957-58
under the Kerala Surcharge on Taxes Act, 1957.
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On the questions : (1) whether the Agricultural Income-tax
Officer was bound to follow the computation of income from
tea made by the Central Income-tax Officer; and (2) whether
the surcharge could be levied, the High Court held against
the appellants.
In appeal to this Court,
HELD : There is no provision in the Kerala Act authorising
the Agricultural Income-tax Officer to disregard the
computation of the tea income made by the Central income-tax
authorities acting under the Central Act, and, the
Agricultural Income-tax Officer, in making an assessment of
agricultural income is bound to accept the computation of
tea income already made by the central income-tax
authorities and to assess only 60% of the income so
computed, less allowable deductions, as agricultural income
taxable under the Kerala Act. [751 B-C]
746
(a) In view of Arts. 274(1) and 366(1) of the Constitution,
the power of the State Legislature to make a law in respect
of taxes on agricultural income arising from tea plantations
is limited to legislating with respect to the agricultural
income determined under s. 10 of the Income-tax Act and r.
24 of the Income-tax Rules. In fact, the Explanation to s.
2(a) (2) of the Kerala Act adopts this rule of computation
and therefore, the agricultural income taxable under the
Kerala Act is 60% of the income so computed after deducting
therefrom the allowances authorised by s. 5 of the Kerala
Act, in so far as the same has -not already been allowed in
the assessment under the Central Income-tax Act. Where the
agricultural income is derived from lands partly within and
partly without the State the portion of the income
attributable to lands within the State is determined under
s. 6 of the Kerala Act read with r. 15 of the Kerala
Agricultural Income-tax Rules. [750 B-D; 751 A, C-D]
Karimtharuvi Tea Estates Ltd. Kottayam v. State of Kerala,
[1963] Supp. 1 S.C.R. 823, followed.
(b) It may be difficult to make an assessment under s. 22
of the Kerala Act or on the basis of the previous year
under s. 2A of the Kerala Act in the absence of any rule
fixing the income for a broken part of the year with
reference to an assessment made under the Indian Income-tax
Act. In spite of these and other difficulties in the
working of the Act, the Agricultural Income-tax Officer
cannot ignore the assessment of the tea income already made
by the central income-tax authorities. [752 B-D]
Commissioner of Agricultural Income-tax, Kerala v. Perunad
Plantations, (1965) 56 I.T.R. 193, overruled.
(2) No surcharge on agricultural income can be levied under
the Kerala Surcharge on Taxes Act in respect of the
assessment year 1957-58. (753 DI
Karimtharuvi Tea Estates Ltd. v. State of Kerala, (1966) 3
S.C.R. 93 (1965) 60 I.T.R. 262 (S.C.), followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 936-39 of
1966.
Appeals by special leave from the judgment and order dated
July 16, 1965 of the Kerala High Court in Income-tax
Referred Cases Nos. 53 to 56 of 1964.
AND
Civil Appeals Nos. 585 to 588 of 1966.
Appeals by special leave from the judgment and order dated
August 18, 1964 of the Kerala High Court in Income-tax
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Referred Cases Nos. 52 to 55 of 1953 (Agrl.).
AND
Civil Appeals Nos. 589 to 591 of 1966.
Appeals by special leave from the judgment and orders dated
August 14, 1964 and July 17, 1964 of the Kerala High Court
in Income-tax Referred Cases Nos. 50, 51 and 49 of 1963
(Agrl.) respectively.
747
M. C. Setalvad, S. K. Dholakia, Joy Joseph and O. C
Mathur, for the appellant (in C.As. Nos. 936-939, of 1966).
M. C. Setalvad, Joy Joseph, O. P., Malhotra and O. C.
Mathur,. for the appellant (in C.As. Nos. 595 to 588 of
1966).
S. T. Desai, Joy Joseph, P. C. Bhartari and O. C. Mathur
for the appellant (in C.As. Nos. 599 to 591 of 1966).
H. R. Gokhale and M. R. K. Pillai, for the respondent (in
C.As. Nos. 936 to 939 of 1966).
M. R. K. Pillai, for the respondent (in C.As. Nos. 595 to.
591 of 1966).
The Judgment of the Court was delivered by
Bachawat, J. The appellants carry on the business of culti-
vation, manufacture and sale of tea. They own tea
plantations, in the State of Kerala. Some of them own tea
plantations both within and outside the State. They are
assessed to non-agricultural as well as agricultural income-
tax. Civil Appeals Nos. 936 to 939 of 1966 arise out of the
agricultural income-tax, assessments of the Anglo American
Direct Tea Trading Co., Ltd. under the Kerala Agricultural
Income-tax Act, 1950 for the years 1959-59, 1959-60, 1960-61
and 1961-62. Civil Appeals Nos. 585 to 589 of 1966 arise
out of the agricultural income-tax assessments of the
Travancore Tea Estates Co. Ltd. for the years 1957-58, 1959-
59, 1959-60 and 1960-61. Civil Appeals Nos. 589 to 591 of
1966 arise out of the agricultural income-tax assessments of
the Southern India Tea Estates Co., Ltd. for the years 1957-
58, 1958-59 and 1959-60. For all the assessment years, the
central income-tax authorities computed the total tea income
of the appellants and 40 per cent thereof representing the
non-agricultural income was assessed to nonagricultural
income-tax and the balance 60 . per cent was left unassessed
as agricultural income. The appellants produced before the
Agricultural Income-tax Assistant Commissioner, Kerala, the
central income-tax assessment orders, and requested him to
take 60 per cent of the tea income computed by the central
income-tax authorities as the gross income derived from
agriculture. The Agricultural Income-tax Assistant
Commissioner disregarded the central income-tax assessments,
and on independent computation of the tea income determined
the agricultural income of the appellants. The agricultural
income so determined by the Agricultural Income-tax
Assistant Commissioner was much higher than 60 per cent of
the total tea income assessed by the central income-tax
authorities. On appeal, the Deputy Commissioner of Agri-
748
cultural Income-tax and Sales Tax, South Zone, Quilon held
that the Agricultural Income-tax Office r could make an
independent computation of the tea income and was not bound
to adopt the assessment made by the central income-tax
officer. On further appeal, the Kerala Agricultural Income-
tax Appellate Tribunal, Trivandrum held that the
Agricultural Income-tax Officer was bound to accept the
computation of tea income by the central income-tax
authorities. On the application of the respondents, the
Appellate Tribunal, referred the following question of law
to the High Court under s. 60(q) of the Kerala Agricultural
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Income-tax, 1950 : "Whether the Agricultural Income-tax
Officer is to follow the computation of income from tea made
by the Central Income-tax Officer or whether he can find out
the income from tea plantations applying the provisions of
the Income-tax Act and make the assessment exercising his
powers under the Agricultural Income-tax Act ?". Following
its earlier decision in Commissioner of Agricultural Income-
tax, Kerala v. Perunad Plantations Ltd.(1), the High Court
held that the agricultural Income-tax Officer was not
obliged to accept the computation of the tea income made by
the Income-tax Officer acting under the Income-tax Act, and
it was open to him to compute the income independently
applying the relevant provisions of the Income-tax Act and
the Agricultural Income-tax Act. From these orders, the
present appeals have been filed by special leave.
Before answering the aforesaid question, it is necessary to
refer to the relevant constitutional and statutory
provisions. Under Entry 46, List 11, Seventh Schedule to
the Constitution, the State Legislature is competent to make
laws with regard to "taxes on agricultural income". Under
Entry 82, List 1, Parliament is competent to make laws with
respect to "taxes on income other than agricultural income".
In view of Art. 366(q), agricultural income means
"agricultural income as defined for the purposes of the
enactments relating to Indian income-tax." Article 274(1)
provides that a bill which seeks to vary this meaning
requires the prior recommendation of the President. These
provision of the Constitution correspond to ss. 141(1),
311(2), Sch. VII, List 1 Entry 54, List 11, Entry 41 of the
Government of India Act, 1935. Section 2(1) of the Indian
Income-tax Act, 1922 defined agricultural income. Section
10 provided for computation of income derived from business.
Section 59 empowered the Central Board of Revenue to make
rules which took effect as if enacted in the Act. Rules 23
and 24 of the Indian Income-tax Rules, 1922, framed under s.
59 provided for computation of
(1) (1965) 56 I.T.R. 193.
749
the business profits where the income was derived partly
from agriculture and partly from business. Under r. 23, the
market value of the agricultural produce used as raw
material in the business was deducted in computing the
business profits. Rule 24 provided that "income derived
from the sale of tea grown and manufactured by the seller in
the taxable territories shall be computed as if it were
income derived from business, and 40 per cent of such income
shall be deemed to be income, profits and gains liable to
tax, provided that in computing such income an allowance
shall be made in respect of the cost of planting bushes in
replacement of bushes that have died or become permanently
useless in an area already planted, unless such area has
previously been abandoned." These provisions correspond to
ss. 2(1), 28 to 44 and 295 of the Income-tax Act, 1961 and
rules 7 and 8 of the Income-tax Rules, 1962. Section 2(a)
of the Kerala Agricultural Income-tax Act, 1950 defines
agricultural income. The Explanation to s. 2(a)(2) provides
that "agricultural income derived from such land,by the
cultivation of tea means that portion of the income derived
from the cultivation, manufacture and sale of tea as is
defined to be agricultural income for the purposes of the
enactments relating to Indian Income-tax." Section 3 is the
charging section. Section 2(s) read with ss. 4, 5, 9 and 10
defines total agricultural income. Section 5 provides for
computation of agricultural income after making certain
deductions. The proviso to s. 5 lays down that "no
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deduction shall be made under this section if it has already
been made in the assessment under the Indian Income-tax Act,
1922." Section 6 provides for assessment of income derived
from lands partly within the State and partly without.
Section 7 relates to the method of accounting. Section 17
deals with return of income. Section 18 provides for
assessment of income. Sections 21 to 29, provide for
assessments in special cases. Section 35 provides for
assessment of income escaping assessment. Section 36
provides for rectification of mistakes. Section 67 empowers
the Government to make rules. Rule 9 of the Kerala
Agricultural Income-tax Rules, 1951, prescribes the
deductions allowable under s. 5(1) for depreciation of
buildings, machinery, plant and furniture in respect of tea
factories. Rule 15 prescribes the method of apportionment
of income derived from lands partly within the State and
partly without.
In Karimtharuvi Tea Estates Ltd., Kottayam v. State of
Kerala(1), this Court held that Explanation 2 to s. 5 of the
Kerala Agricultural Income-tax Act added in 1961 disallowing
certain deductions in the computation of agricultural income
did not apply
(1) [1963] Supp. 1 S.C.R. 823.
L3 Sup CI/68-4
750
to computation of agricultural income derived from tea
plantations. The reasons for this conclusion may be
summarised thus : The definition of agricultural income in
the Constitution and the Indian Income-tax Act, 1922 is
bound up with r. 24 of the Income tax Rules, 1922. Income
derived from the sale of tea grown and manufactured by the
seller is to be computed under r. 24 as if it were income
derived from business in accordance with the provisions of
s. 10 of the Indian Income-tax Act. The Explanation to s. 2
(a) (2) of the Kerala Act adopts this rule of computation.
of the income so computed, 40 per cent is to be treated as
income liable to income-tax and the other 60 per cent only
is deemed to be agricultural income within the meaning of
that expression in the Income-tax Act. The power of the
State Legislature to make a law in respect of taxes on
agricultural income arising from tea plantation is limited
to legislating with respect to the agricultural income so
determined. The legislature cannot add to the, amount of
the agricultural income so determined by disallowing any
item of deductions allowable under r. 24 read with s. 10(2)
(xv) ’of the Indian Income-tax Act. Explanation 2 to s. 5
of the Kerala Act if applied to income from tea plantations
would create an agricultural income which is not
contemplated by the Income-tax Act and the Constitution and
would be void, and it should therefore be construed not to
apply to the computation of income from tea plantations.
The question arising in these appeals is whether the
agricultural Income-tax Officer making an assessment of
agricultural income under the Kerala Agricultural Income-tax
Act is bound to accept the assessment of the income which
has already been made by the central income-tax authorities
under r. 24 of the Income-tax Rules, 1922 read with S. 10 of
the Indian Income-tax Act, 1922 or under r. 8 of the Income-
tax Rules, 1962 read with ss. 28 to 44 of the Income-tax
Act, 1961. We think that this question should be answered
in the affirmative. Income from sale of tea grown and
manufactured by the seller is derived partly from business
and partly from agriculture. This income has to be computed
as if it were income from business under the Central Income-
tax Act and Rules. 40 per cent of the income so computed is
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deemed to be income derived from business and assessable to
non-agricultural income-tax. Having regard to the decision
in Karimtharuvi’ Tea Estates Ltd., Kottayam v. State of
Kerala(1), we are bound to hold that (a) the Explanation to
S. 2 (a) (2) of the Kerala Agricultural Income-tax Act
adopts this rule of computation and (b) the balance 60 per
cent of the income so computed is agricultural income within
the meaning of the Central Income-tax Act and the
Constitution.
(1) [1963] Sup. 1 S.C.R. 823.
751
The agricultural income taxable under the Kerala Act is 60
per cent of the income so computed after deducting therefrom
the allowances authorised by s. 5 of the Kerala Act in so
far as the same has not already been allowed in the
assessment under the Central Income-tax Act. There is no
provision in the Kerala Act authorising the Agricultural
Income-tax Officer to disregard the computation of the tea
income made by the income-tax authorities acting under the
Central Income-tax Acts. The Agricultural Income-tax
Officer in making an assessment of agricultural income is
bound to accept the computation of the tea income already
made by the central income-tax authorities and to assess
only 60 per cent of the income so computed less allowable
deductions as agricultural income taxable under the Kerala
Act. Where the agricultural -income is derived from lands
partly within the State of Kerala and partly outside the
State, the portion of the income attributable to lands
within the State is determined under s. 6 of the Kerala
Agricultural Income-tax Act read with r. 15 of the Kerala
Agricultural Income-tax Rules.
Our attention was drawn to the provisions of (a) ss. 8(2),
24(1) proviso, 24(2) proviso, 25(4) and 25(5) of the Bengal
Agricultural Income-tax Act, 1944 and rules 7 and 8 of the
Bengal Agricultural Income-tax Rules, 1944, (b) s. 8 of the
Mysore Agricultural Income-tax Act, 1957 and rule 6 of the
Mysore Agricultural Income-tax Rules, 1957, (c) s. 8 of the
Coorg Agricultural Income-tax Act, 1951, (d) the second
proviso to s. 8 of the Assam Agricultural Income-tax Act,
1939 and rule 5 of the Assam Agricultural Income-tax Rules,
1939, (e) Explanation 1 to s. 2 (a) (2) of the Madras
Plantations Agricultural Income-tax Act, 1955 and r. 7(1) of
the Madras Plantations Agricultural Income-tax Rules, 1955
and (f) r. 5 of the Bihar Agricultural Income-tax Rules,
1949. Under some Acts and Rules, the Agricultural Income-
tax Officer is bound to adopt the assessment of the tea
income made by the central income-tax authorities. But
under some other Acts and Rules, he is authorised in special
cases to disregard this assessment and to make a fresh
computation of the tea income.We express no opinion on the
construction of these Acts and Rules For the purpose of
these appeals, it is sufficient to say that the Kerala
Agricultural Income-tax Act and Rules do not confer upon the
Agricultural Income-tax Officer the power to disregard the
assessment of the tea income already made by the central
income-tax authorities. We are unable to introduce by way
of implication in a taxing statute a provision which
’requires explicit statement.
Difficulties may arise in making an assessment of
agricultural income under the Kerala Agricultural Income-tax
Act on the basis
752
of the assessment of the tea income made by the Central
income-tax authorities. The previous year under s. 2 (o)
(i) of the Kerala Act may be different from the previous
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year under the Indian Income-tax Act. This difficulty may
be resolved by fixing the previous year for this class of
income under s. 2 (o) (ii) in conformity with the previous
year under the Indian Income-tax Act. But the artificial
previous year under S. 2-A is not subject to the provisions
of S. 2(o) (ii). Moreover, S. 22 authorises the assessment
of income for the period from the expiry of a previous year
to the probable date of the departure of the assessee from
the State. It may be difficult to make an assessment under
s. 22 or on the basis of the previous year under S. 2-A in
the absence of any rule fixing the income for a broken part
of the year with reference to an assessment made under the
Indian Income-tax Act. In spite of these and other
difficulties in the working of the Act, we are unable to
agree with the decision in Commissioner of Agricultural
Income-tax Kerala v. Perunad Plantations Ltd. (1) or to hold
that the Agricultural Income-tax Officer can ignore the
assessment of the tea income already made by the central
income-tax authorities.
On behalf of the appellants, it was argued that the power to
compute business income under r. 24 read with s. 10 of the
Indian Income-tax Act having regard particularly to proviso
(a) to sub-s. (2)(vi), the proviso to sub-s. 2(vi-b) sub-
clause (g) of the second proviso to sub-s. 2(xiv), sub-s.
(4-A) and the first proviso to sub-s. 5(a) of S. 10 must be
exercised by the Central Income-tax Officer alone, that
there is no provision in the Kerala Act conferring this
power on the Agricultural Income-tax Officer and that
therefore the assessment of agricultural income must wait
until the assessment by the Central Income-tax Officer under
r. 24 read with S. 10. This wider question does not arise
for decision and is left open. In all the cases before us,
the assessments by the Central Income-tax Officer were com-
pleted before the Agricultural Income-tax Officer proceeded
to assess the agricultural income. For the purpose of these
appeals, it is sufficient to say that the Agricultural
Income-tax Officer acting under the Kerala Agricultural
Income-tax Act, 1950 is bound to follow the assessment of
income by the Central Income-tax Officer under r. 24 of the
Income-tax Rules, 1922 and r. 8 of the Income-tax Rules,
1962 where such assessment ha,-. been made before the
Agricultural Income-tax Officer proceeds to make the
assessment under the Kerala Act. The question referred to
the High Court is answered accordingly. We must not be
understood to say that the assessment made by the Central
Income-tax Officer under r. 23 of the Income-tax Rules, 1922
(1) (1965) 56 I.T.R. 193.
753
or r. 7 of the Income-tax Rules, 1962 is in any way binding
on "lie Agricultural Income-tax Officer.
In Civil Appeals Nos. 585 to 588 of 1966 and 589 to 591 of
1966, the Agricultural Income-tax Officer made a surcharge
of 5 per cent for the assessment year 1957-58 under the
Kerala Surcharge on Taxes Act, 1957. On appeal, the Deputy
Commissioner held that the surcharge was rightly made. On
further appeal, the Appellate Tribunal held that the levy of
the surcharge was illegal. On the application-of the
respondent, the Appellate Tribunal referred the following
additional question of law to the High Court : "Whether on
the facts and circumstances of the case the Tribunal is
justified in holding that surcharge on agricultural income-
tax cannot be levied for the assessment year 1957-58 ?".
The High Court answered this question in favour of the
Revenue and against the assessee. This decision must be set
aside. In Karimtharuvi Tea Estate Ltd. v. State of
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Kerala(’), this Court held that no surcharge on agricultural
income can be levied under the Kerala Surcharge on Taxes
Act, ’1957 in respect of the assessment year 1957-58. The
second question is answered accordingly in favour of the
assessee and against the Revenue.
In the result, the appeals are allowed with costs and the
judgments of the High Court are set aside. The questions
referred to the High Court are answered in favour of the
appellants and against the Revenue as indicated in the body
of this judgment. There will be one hearing fee.
V.P.S. Appeals
allowed.
(1) [1966] 3 S.C.R. 93 : [1965] 60 I.T.R. 262.
754