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Report No. 49

The Proposal for Inclusion of Agricultural Income in The Total Income for The Purpose of Determining The Rat of Tax under The Income-Tax Act, 1961.

1. Introductory.-

This Report is concerned with a question of importance to the national economy, involving a constitutional issue of some difficulty, and it has arisen out of a reference made by the Union Government1 at the instance of the Committee on the Taxation of Agricultural Wealth and Income. One of the proposals which the Committee referred to above had under contemplation, was to the effect that for the purpose of determining the rate of income-tax under the (Central) Income-tax Act, 1961, the agricultural income of the assessee should be taken into account.

This proposal had been made in the context of the need to remove various deficiencies of the existing system, namely,-(i) the inequity arising at present by the fact that the rates of agricultural income-tax vary from State to State, so that persons with the same income have to pay different amounts of tax, depending on the source of income, and (ii) the evasion of income-tax by assessees who show their non-agricultural income as agricultural income, thereby evading the tax legitimately payable on non-agricultural income.

Broadly stated, the proposal is that it should be permissible for Parliament to provide that for the purpose of calculating the rate of income-tax on non┬Čagricultural income, the agricultural income of an assessee should be included in his total income. Once the rate is so determined, the rate will be applied only to the non-agricultural income of the assessee. The question which we have been asked to consider is2, whether this can be done under the present constitutional provisions, or whether an amendment of the Constitution will be required, and if so what should be the lines on which the constitutional amendment should be made.

1. Letter of the Law Minister to the Chairman, Law Commission, dated 9th August, 1972.

2. As to the precise questions, see para. 2, infra.

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