Union of India & ANR. Vs. Belgachi Tea Company Ltd. &
Ors.  INSC 879 (9
IN THE SUPREME COURT OF INDIA
CIVIL APPEALLTE JURISDICTION CIVIL APPEAL NO.8284-8285 of 2002 Union of India
& Another .. Appellants Versus Belgachi Tea Co. Ltd. & Others ..
CIVIL APPEAL No.8283 of 2002.
Dalveer Bhandari, J.
1. These appeals are directed
against the judgment of the Division Bench of the High Court of Judicature at
Calcutta delivered on 22nd September, 2000 in FMA No.232 of 1999.
2. Brief facts which are necessary
to dispose of these appeals are recapitulated as under:
3. The assessee Belgachi Tea
Company filed a writ petition in the High Court of Judicature at Calcutta under
Article 226 of the Constitution. The main prayer of the writ petition is
reproduced as under:
"A writ in the nature of
mandamus be issued commanding the respondents to act according to law and to
cancel and/or rescind and/or withdraw notices of demand dated 29.03.1984,
04.04.1984, 29.03.1985 and any proceeding taken or purported to have been taken
under the Bengal Act, as amended by the Bengal Agricultural Income Tax
(Amendment) Act, 1980 for the purpose of levy, imposition and collection of
agricultural income tax in respect of income derived from the said tea grown
and manufactured by your petitioner and further forbearing the respondents from
giving any effect or further effect of proceeding in any way to enforce the
impugned notices of demand dated 26.3.1984, 04.04.1984 and 29.03.1985."
4. The assessee also prayed that
sections 3 and 5 of the Bengal Agricultural Income Tax (Amendment) Act, 1980 be
declared as ultra vires of the Constitution and beyond the competence of the
State Legislature in enacting the same.
5. The writ petition was disposed
of by the learned Single Judge of the Calcutta High Court in terms of the
judgment of this court in Tata Tea Ltd. & Another v. State of West Bengal
& Others 1988 (Supp) SCC 316. In this case, the court directed that after
assessment, the Income Tax Officer (for short "ITO") can levy the tax
on 40% of the income in accordance with the provisions of the Income Tax Act,
1961 (hereinafter referred to as "the 1961 Act") and balance amount
may be assessed by the Agricultural Income Tax Officer to tax under the Bengal
Agricultural Income Tax Act, 1944 (hereinafter referred to as "the 1944
Act"). The court further directed that if any assessment order has already
been passed contrary to the aforesaid directions, such order must stand quashed
and a fresh assessment order should be passed in accordance with law.
6. Being aggrieved by the said
judgment of the learned Single Judge, the assessee company preferred FMA No.232
of 1999 before the Division Bench of the High Court of Calcutta.
7. The assessee is a public
limited company carrying on the composite business of growing and manufacturing
tea in the district of Darjeeling. The assessee company has tea gardens known
as Belgachi Tea Estate, which consists of the gardens and a factory for
manufacture of tea. The assessee company sells the tea grown and manufactured
in the said tea gardens.
The factory in the said tea
gardens is licensed under the Factories Act. The assessee company is also
selling tea leaves produced in its tea gardens which is agricultural produce.
The assessee is also involved in
manufacturing of tea. The income from such business has been assessed all along
under the provisions of the 1961 Act. The claim of the assessee company is that
the entire income should be assessed under the provisions of the 1961 Act and
after the income is assessed, the tax should be charged on 40% of such income
under the 1961 Act and on the balance 60%, the State can tax under the 1944
Act. The assessee submitted that in view of the scheme of the 1961 Act read
with rule 8 of the Income Tax Rules, 1962, the income derived from the sale of
the tea grown and manufactured by a seller in India shall be computed 5 under
the provisions of the Act by the Income Tax Officer on the basis of
8. Learned counsel for the
assessee submitted that the sale proceeds of green tea leaves be treated
incidental to business and its income should be computed under the provisions
of the 1961 Act.
9. Learned counsel appearing for
the State submitted that the income from sale of green tea leaves is taxable as
income from agriculture under the 1944 Act.
10. The Division Bench in the
impugned judgment placed reliance and followed the judgment of this court in
Tata Tea (supra), in which the court considered how the income from `tea grown
and manufactured' activities shall be taxed by the Centre and the State. After
considering the provisions of both the 1944 Act and the 1961 Act, the court
observed as under:- "41. ........ the result would still be the same,
namely, that the Kerala State Legislature can impose tax only in respect of 60
per cent of the income derived by an assessee who sells tea grown and
manufactured by him in India and such income has to be computed in the manner
laid down in the Act of 1922 and thereafter in the Act of 1961 for 6
computation of business income. The same is the position in respect of the
powers of the legislature of the State of West Bengal in spite of the
amendments made by the said legislature by the Amendment Act of 1980 and
earlier under the Amending Act of 1979 which was in force 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."
11. This court considered the
amendments made by the State Governments i.e. West Bengal and Kerala regarding
tax on the entire income. There is no dispute on the fact that from the income
assessed, 60% is taxable by the State under the 1944 Act and 40% is taxable by
the Centre under the 1961 Act.
12. The object behind taxing the
60% and 40% share of the income assessed appears that there are common expenses
on establishment and staff for two different activities that is tea grown and
tea manufactured. There can be independent income from sale of green tea leaves
and by sale of tea, that is, after processing of green tea leaves when green
tea leaves 7 become tea for use. Income from agriculture is taxable by the
State and sale of tea after manufacturing is taxable by the Union of India as
business income. To segregate income and expenses from two combined activities
of assessee is not possible, but at the same time there cannot be two
assessments of income by two different authorities. Therefore, there can be
only one assessment of income from the tea business. In order to properly
comprehend the legislative intention, a combined reading of relevant provisions
of both the Acts i.e. the 1961 Act and the 1944 Act and the Rules framed
thereunder is necessary. The relevant provision is rule 8 of the Income Tax
Rules, 1962 which reads as under:
"8. (1) Income derived from
the sale of tea grown and manufactured by the seller in India shall be computed
as if it were income derived from business, and forty per cent of such income
shall be deemed to be income liable to tax.
(2) 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, if such area has not previously been abandoned and for the
purpose of determining such cost, no deduction shall be made in respect of
amount of any subsidy which under the provisions of clause (30) of section 10
is not includible."
8 The similar provision in the
1944 Act is sub-section (1A) of section 8, which reads as under:- "(1A)
Notwithstanding anything contained in this Act, in the case of tea grown in
West Bengal and sold by the grower himself or his agent after manufacture, the
agricultural income derived therefrom shall, as long as the purpose of
assessment of income tax under the enactment relating to Indian Income Tax, the
income derived therefrom is computed under those enactment 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 those enactments, and
agricultural income tax at the rates specified in the Schedule shall be payable
on the whole of such agricultural income as so computed."
13. The aforesaid sub-section (1A)
which has been inserted with retrospective effect also provides that income
from `tea grown and manufactured' shall be assessed under the provisions of
Income Tax Act and the income assessed also includes agricultural income which
is taxable by the State.
14. Sub-section (3) of section 8
of the 1944 Act further provides that for the purpose of assessment of
agricultural income tax a certified copy of an order of the assessment made
under the Income Tax Act shall be conclusive evidence 9 of the contents of such
order. The relevant sub-section (3) of section 8 of the 1944 Act reads as
under:- "(3) For the purpose of the assessment of agricultural income-tax
under this section or any rule made thereunder a certified copy of an order of
an assessment under the Indian Income-Tax Act, 1922, or a certified copy of an
order of any appellate or revising authority or of the High Court or of the
Supreme Court altering or amending such order of assessment under the
provisions of that Act shall be conclusive evidence of the contents of such
15. For the purpose of tax on
agricultural income, the Agricultural Income Tax Officer will go by the
assessment order made under the provisions of the 1961 Act and the contents of
the assessment for the year made by the Assessing Officer under the 1961 Act
shall be conclusive evidence of the contents of such order and he has to go by
the assessment and tax only 60% income made under the assessment for the
purpose of the 1944 Act. If there is any apparent mistake in the order of the
ITO, he can bring it to the notice of ITO and that can be rectified by the ITO
but no separate assessment of the income from `tea grown and manufactured'
business can be made by the Agricultural Income Tax Officer under the 10 1944
Act. He cannot once again assess for that business income under the 1944 Act.
16. The combined reading of rule 8
of the Income Tax Rules, 1962 and section 8 of the 1944 Act and its amendment
by insertion of sub-section (1A) in section 8 of the 1944 Act left no doubt
that the income from `tea grown and manufactured' business, the income shall be
computed in accordance with provisions of the 1961 Act by the Assessing Officer
under the 1961 Act and 40% of the income is taxable under the 1961 Act and 60%
income is taxable under the 1944 Act by the State treating it as income from
17. According to the assessee,
agricultural income derived from the sale of green tea leaves is incidental
income from the business of the assessee and cannot be taxed separately by the
18. There is no dispute that
agricultural income of the assessee is taxable under the 1944 Act. The
agricultural income has been defined in clause (1) of section 2 of the 1944
Act. The said definition reads as under:
11 "2(1) "agricultural
income" means (a) any rent or revenue derived from land which is used for
agricultural purpose, and is either assessed to land revenue in a State or
subject to a local rate assessed and collected by officers of the Government as
(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 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 item (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
operation mentioned in items (ii) and (iii) of sub-clause (b) is carried on;
Provided that the building is on
or in the immediate vicinity of the land, and is a building which the receiver
of the rent or revenue or the cultivator or the receiver of the rent-in-kind by
reason of his connection with the land, requires as a dwelling house, or as a
store house or other out building."
12 The definition of the 1944 Act
makes it clear that the income from sale of green tea leaves is an agricultural
19. Now the question which arises
for adjudication is whether the agricultural income be taxed under the 1961 Act?
It is true that both rule 8 of the Income Tax Rules, 1962 and section 8 of the
1944 Act provide how the mixed income from the growing tea leaves and tea
manufacturing can be taxed.
Mixed income means the income
derived by an assessee from the combined activities i.e. growing of tea leaves
and manufacturing of tea. Therefore, for the purpose of computation of income
under the 1961 Act, it should be the mixed income from `tea grown and
manufactured' by the assessee.
20. If the income is by sale of
green tea leaves by the assessee it cannot be called income assessable under
the 1961 Act for the purpose of 40:60 share between the Centre and the State.
In both the provisions i.e. rule 8 of the Income Tax Rules, 1962 and section 8
of the 1944 Act, the word used 13 is income derived from the sale of `tea grown
21. The income from sale of green
tea leaves is purely income from the agricultural product. There is no question
of taxing it as incidental income of the assessee when there is a specific
provision and authority to tax that income i.e. the State, under the 1944 Act.
In this view of the matter, the agricultural income cannot be taxed under 1961
22. It is also pertinent to
mention that the Income Tax Officer has assessed the income of tea manufactured
by the assessee from 1977-78 to 1980-81 to the tune of Rs.1,44,250/-,
Rs.4,28,040/-, Rs.54,450/- and Rs.92,351/- respectively and income of the
assessee from the sale of green tea leaves was more than Rs.10 lakhs in each
accounting year (1977-78 and 1978-79). In this view of the matter, the income
of the assessee from the sale of tea leaves can never be incidental to
23. On careful analysis of this
argument of the assessee, we find the same to be devoid of any merit. In a given
case the 14 assessee can process only 10% of green tea leaves and 90% of green
tea leaves can be sold directly in the market. Can that income from sale of
green tea leaves be treated incidental to the business? This can never be the
intention of legislature.
24. In case the assessee directly
sells the green tea leaves resulting into an income from agricultural products,
it cannot be taken as incidental income to the business and whatever the income
is derived from the sale of the green tea leaves can be assessed by the
Agricultural Income Tax Officer under the 1944 Act.
25. The Division Bench of the High
Court while following the ratio of Tata Tea (supra) directed the Assessing
Officer to compute the tax on the income of the respondent assessee on the
basis of the aforementioned formula.
26. The High Court further
directed that in case the agricultural income had wrongly been included by the
Income Tax Officer in computing the income under the provisions of 1961 Act
that could be excluded and assessment could be rectified. In the impugned
judgment, it is also incorporated 15 that by following these principles the
Income Tax Officer would avoid the double taxation of the assessee.
27. It is also directed that while
taxing the income from the sale of green tea leaves, the Agricultural Income
Tax Officer should see, if expenses on the tea grown are already allowed to be
deducted by the Income Tax Officer, there shall be no double deduction of the
expenses, otherwise it would result in double deduction. The Division Bench, in
the impugned judgment, after hearing the parties, while relying on Tata Tea
(supra), summed up the case in the following manner:
"(I) The income from `tea
grown and manufactured' shall be assessed by the Assessing Officer under the 1961
(II) The income assessed 40% shall
be taxed under the 1961 Act and balance 60% shall be taxed under the 1944 Act
by Agricultural Income Tax Officer on the basis of income assessed by the
Assessing Officer under the 1961 Act.
(III) The income derived from sale
of green tea leaves is agricultural income and assessable under the 1944
28. In our view, the conclusion
arrived at by the Division Bench of the High Court is in consonance with the
judgment 16 of this Court in Tata Tea (supra). This Court in Tata Tea (supra)
held as follows:
"35. A reading of Article 245
of the Constitution with Entry 82 of List I and Entry 46 of List II in the
Seventh Schedule makes it clear that the State Legislature has exclusive
jurisdiction to legislate in respect of taxes on agricultural income; and in
respect of taxes on other income, it is Parliament alone which can legislate.
The term "agricultural income" used in that entry has to be construed
in accordance with the definition of the said term in Art. 366(1) of the
Constitution of India and that sub-article states that agricultural income
means "agricultural income as defined for the purposes of the enactments
relating to Indian Income-tax".
29. We have heard the learned
counsel for the parties at length. We have also perused the provisions of the
1944 Act and the 1961 Act. We uphold the view which has been taken by the
Division Bench of the High Court in the impugned judgment.
30. Before parting with this case,
we deem it appropriate to direct the Assessing Officer to frame an assessment
order in the case of the respondent assessee on the principle of law laid down
by this Court in the case of Tata Tea (supra) and followed by the Division
Bench of the High Court in the impugned judgment, if not already made.
31. We further direct the
Assessing Officer that in case the assessment order has already been passed
contrary to the ratio of Tata Tea (supra), such assessment order must stand
quashed and fresh assessment order be passed in accordance with law, as expeditiously
32. These appeals are disposed of
in terms of the aforementioned directions. In the facts and circumstances of
the case, the parties are directed to bear their own costs.
(Ashok Bhan) .....................................J.
(Dalveer Bhandari) New Delhi;
May 9, 2008.
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