Anglo American Direct Tea Trading Co. Ltd. v. Commissioner of Agricultural Income-Tax, Kerala State, Trivandrum

Bacbawat, 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-agricul-tural a8 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 1958-59, 1959-60, 1960-61 and 1961-62. Civil Appeals Nos. 585 to 588 of 1966 arise out of the agricultural income-tax assessments of the Travancore Tea Estates Co. Ltd. for the years 1957-58, 1958-59, 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-S-8, 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 non-agricultural 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 m,uch higher than 60 per cent of the total tea income assessed by the central income-ta,~ authorities. On appeal, the Deputy Commissioner of Agri-

748 SUPRDIE COURT REPORTS (1968] 2 S C.R.

cultural Income-tax and Sales Tax, South Zone, Quilon held that the Agricultural Income-tax Officer could make an indepen-dent computation of the tea income and was not bound to adopt the assessment made by the central income-tax officer. On further appeal, the Kcrala 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 authoritie,. On the application of the respondents, the Appellate Tribunal referred the following ques-tion of law to the High Court under s. 60(1) of the Kerala Agricultural Income-tax, 1950 : "Whether the Agricultural Income-tax Officer is to follow the computation of income from tea made by the Central Income-tax Ofliccr 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, Kera/a v. Perunad P/antatiom Ltd. ('), the High Court held that the agricultural Income-tax Officer wo, 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 com-pute 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 IL Seventh Schedule to 1hc Constitu1ion, 1he State Legislature is competent to make laws with regard to "taxes on agricultural income". Under Enlry 82, List I, Parliament is competent to make laws with respect to "taxes on income other than agricultural income". In view of Art. 366(1 ), agricultural income means "agricultural income as defined for the purposes of the enact men ls relating to Indian income-tax." Article 274 (I) pr?vides that a bill which seeks to vary this meaning requires 1he pnor rccommenda1ion of the President. These provision of lhe Conslitution correspond to ss. 141 (I), 311 (2), Sch. Vil. List I Entry 54, List II, Entry 41 of the Government of India Acl, 1935. Section 2(1) of the Indian Income-tax Act, 1922 defined agricultural income. Section I 0 provided for computalion of income derived from business. Scc1ion 59 empowered the Cenlral 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 computalion of

ANGLO AMERICAN co. v. c.A.I.T. (Bachawat, 1.) 749 the business profits where the income was derived partly from agriculture and partly from business. Under r. 23, th_e n~arket value of the agricultural produce used as raw matenal m the business was deducted in c.omputing the business profits. Rule 24 provided that "income derived from the sale of tea grown and manufactured by the seller in the taxable territ<?ries shall be com-puted as if it were income derived from bu.smess, and 40 ~er cent of such income shall be deemed to be mcome, profits and gains liable to tax, provided that in computing such !ncome an allowance shall be made in respect of the cost of plantmg bushes in replacement of bushes that have died or become permanently useless i::. an area already planted, unless such area has pre-viously been abandoned." These provisions correspond Lo 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 tl!at "agricul-tural 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 w be agricultural in-come 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 compu.tation of agricultural income after making certain deductions. The proviso to s. 5. lays down that "no deduction shall . be made under this section if it has al-ready been made in the assessment under the Ihdian 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 re-turn of income. Section l 8 provides for assessment of income. Sections 21 to 29, provide for assessments in special cases. Section 3 5 provides for assessment of income escaping assessment. Section 36 provides for rectification of mis-takes. Section 67 empowers the Government to make rules. R~le 9 of the Ke~ala Agricultural Income-tax Rules, 1951, pres-cribes 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 pa,rtly within the State and part! v without. -

In Karimtharuvi Tea Estates Ltd., Kottayam v. State of Kera/a( 1 this Court held that Explanation 2 to s. 5 of the Kerala

), Agricultural Income-tax Act added in 1961 disallowing certain ded.uctions in the computation of agricultural income did not apply

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LJ Sup Cl/61"'"'4

SUPRD1E COURT REPORTS 1968] 2 SCR.

750 10 compulation of agricultural income derived from 1ea plan1a-1ions. The reasons for this conclusion may be summarised thus : The defini1ion of agricultural income in !he Constitution and the J ndian I ncome-1ax Ac1, 1922 is bound up with r. 24 of the Income 1ax Rules, 1922. Inrome derived from the sale of 1ca gr<>Wn and manufactured by the seller is to be computed under r. 24 as if it were income derived from business in accordance with ll the provisions of s. IO of the Indian Income-lax Act. The Explanation to s. 2(a)(2) of the Kerala Ac1 adoplS !his rule of computation. Of the income so compured, 40 per cent is to be 1reat:ed as income liable to income-tax and the other 60 per cenl only is deemed to be agricultural inco111e within the meaning of !hat expression in !he Income-tax Act. The power of the State Legislature to make a law in respect of taxes on agricultural in-come arising from tea plant~.ion is limited to legislating wi1h respect to the agricultural income so detennined. The legisla· ture cannot add. to the amount of the agricultural income so deter-mined by disallowing any item of deductions allowable under r. 24 read with s. 10(2) (xv) of the Indian Income-tax Ac1. Explanation 2 to s. 5 of the Kerala Act if applied to income from 1ea planta1ions would creale an agricultural income which is no! conlernplated by the Income-tax Act and the Constitution and would be void, and it should therefore be construed not to apply IO 1he computation cf incvmc from lea plan1a1ions.

The question arising in these appeals is whether the agricul-1ural Income-tax Officer making an assessment of agricultural income under 1he Kerala Agricultural Income-tax Act is bound lo accept the assessment of the income which has already been made by !he 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-lax Act, 1961. We think that this quesiion 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 ·)f the income so computed is deemed to be income derived from busi-ness and assessable to non-agricultural income-tax. Having regard to the decision in Karimtharuvi Tra Estates Ltd .. Kotta-yam v. State of Kera/a('), we are bound to hold that (a) the Ex-planation 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 aj!Ticultural income within the meaning of the Central Income-tax Act and the Constitution The agricultural income taxable under the Kerala Act is 60 per eent of the .income so computed lifter 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 Keraia Act authorising the of Agricultural lncom(}-ta .. Officer to disregard the computation the tea income made by the incom(}-tax authorities acting under the Central Incom(}-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 Jei;s 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 detennined under s. 6 of the Kerala Agricultural Income-tax Act read with r. 15 of the Kerala Agricultural Incom(}-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 Agri-cultural Incom(}-tax Act, 1957 and rule 6 of the Mysore Agrfoul-tural 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 Agri-cultural Income-tax Rules, 1939, (e) Explanation 1 to s. 2(a) (2) of the Madras Plantations Agricultural Income-tax Act, 1955 and r. 7 (I ) 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 assess-ment 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-. lax 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 SUPREME COURT RF.PORTS [1968) 2 SC.R.

of the assessment of the tea income made by the Central income-tax authorities. The previous year under s. 2(o)(i1 of the Kerala Act may be different from the previous year under the Indian Income-tax Act. This difficulty may be resolved by fix-ing the previous year for this class of income under s. 2(o)(ii) m conformity with the previous year under the Indian Jncome-tax Act. But the anificial previous year under s. 2-A is not subject to the provisions of s. 2(o) (ii). Moreover, s. 22 autho-rises the assessment of income for the period from the expiry of a previous year to the probable date of the depanure qf the a~sessee 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 the>e and other difficulties in the working of the Act, -we are unable to agree with the decision in Commissioner of Agricultural Income-tax Keralo v. Pertmad Plantations Ltd. (') or to ho!'' that the Agricul-tural 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. I 0 of the Indian Income-tax Act having regard particularly to proviso (a) to sub-s. (2)(vi), the proviso to sub-s. 2(\i-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. I 0 must be exercised by lhe 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 in-come must wait until the assessment by the Central Income-tax Officer under r. 24 read with s. I 0. Thls 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 i.D.come b.J the Central Income-tax Officer under r. 24 of the Income;taxllules, 1922 and r. 8 of the Income-tax Rules, 1962 where such assessment has been made before the Agricultural Income-tax Officer proceeds to make the assc.~sment 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

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or r. 7 of the Ir.come-tax Rules, 1962 is in any way binding on the 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 assesi;ment year 1957-58 under the Kerala Surcharge on Taxes Act, 1957. On appeal, the Deputy Com-missioner held that the surcharge was rightly made. On further appeal, the Appellate Tribunal held that the levy of the sur-charge 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 circumstan-ces 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 Ker ala ( 1 ), 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 refer-red to the High Court are answered in favour of the appellants and against the Revenue as indicated in the body of this judg-ment. There will be one hearing fee.