VERY IMPORTANT POINT
Proviso to Rule 5 of Assam Agricultural Income Tax Rules is ultra vires the Rule making power under the Act as under Assam Agricultural Income Tax Act, 1939, agricultural income already computed under Income Tax Act, 1961 cannot be recomputed under State Act.

Headnote:Income Tax Act, 1961-Section 2(1A) r/w Rule 8 of Income Tax Rules, 1961-Computation of Agricultural Income-Constitution of India-Article 366(1) and Entry 46 in List II of 7th Schedule- Agricultural Income -Assam Agricultural Income Tax Act, 1939-Sections 2(a)(2) Explanation, 20D, 49 r/w Rule 5 of State Rules-Agricultural income computed under Income Tax Act-Whether can be re-computed under Agricultural Income Tax Act? (No)-Apprehension of wrong computation under Income Tax Act-Remedy is under Ch. XXE of Income Tax Act for Appeal or revision, and if they succeed, can recompute under Section 20D of State Act-Proviso to Rule 5 of State Rules giving power of re-computation is ultra vires the Rule making power under Section 50 of State Act-High Court was wrong-Appeals and Petitions allowed-Case Law referred.
       Held : Article 366(1) provides that the expression "agricultural income" in the Constitution means "agricultural income" as defined for the purpose of the enactments relating to the Indian Income Tax Act. Therefore, the agricultural income regarding which the State Legislature may enact law under Entry 46, List II would be on such income as defined in the Indian Income Tax Act and the laws relating to the said Act. Section 2(1A) of the Income Tax Act, 1961 defines "agricultural income". It is the common case of all parties concerned that so far as the income from cultivation, manufacture and sale of tea is concerned, the same comes within the said definition and Rule 8 of the Income Tax Rules, 1962 (the Central Rules) which provides for computation of income derived from sale of tea grown and manufactured by the sellers in India. It provides that 40% of such income shall be deemed to be the income liable to income-tax under the Central Act, therefore, the balance 60% of the said income would be agricultural income for the purpose of levying agricultural income-tax under the State laws. A reading of the above provisions shows that the computation of agricultural income even for the purpose of the State enactments will have to be that which is made under the provisions of the Income Tax Act and Rules made thereunder. (Para 6)
       From the provisions referred to herein above in the State Act and bearing in mind the definition of agricultural income under Article 366(1) of the Constitution, in our opinion, it is clear that the State Act intended the agricultural income for the purpose of its levy to be that which is computed as such by the officers acting under the Central Act. (Para 7)
       Though we notice that under the proviso to the said section State Officers have been empowered for the purpose of ascertaining agricultural income in regard to tea to call for any papers produced or liable to be produced before the taxing authorities administering the Central Act. Beyond the power of calling for records, this Section does not confer any right on the State Officers to recompute the agricultural income already computed by the Central Officers. We also do not think by a process of interpretation such power can be read into Section 49 of the State Act as has been done by the High Court. We accordingly hold that Section 49 of the Act does not per se contemplate a power being vested in the State Officers to recompute the agricultural income already made by the officers under the Central Act. (Para 8)
       We will now consider the effect of Rule 5 of the State Rules. The appellants contend that this provision is beyond the rule-making power under the Act, hence, is in excess of the power delegated under the State Act. (Para 9)
       Held : We see force in the above contention. A perusal of Section 50 of the Act shows that the State Government has been empowered to make such Rules as are necessary for the purpose of carrying out the purposes of the Act. Proviso to Rule 5 of the Rules in specific terms empowers the State officers to recompute the agricultural income from tea different from that which is computed by the Central officers under the Central Act. Thus, it is seen that this Rule is not only made beyond the rule-making power of the State under Section 50 of the Act but also runs counter to the object of the Act itself, and enlarges the scope of the Act. The same also suffers from the other vices pointed out by us hereinabove, hence such a Rule, in our opinion, is ultra vires of the Act. Therefore, proviso to Rule 5 of the State Rules to the extent it empowers the State Officers to recompute the agricultural income already computed by the Central Officers is ultra vires of the State Act. (Para 10)
       Held further : In our opinion, if while examining the papers produced or liable to be produced before the taxing authorities administering the Indian Income Tax Act, 1961 as contemplated under proviso to Section 49 if the State Authorities are of the opinion that the Central Assessing Authority has not made a proper assessment of the agricultural income of the assessee, as required under the Central Act, then it is always open to the State authorities to invoke the jurisdiction of the appellate or revisional authorities under Chapter XX(E) of the Central Act and if they succeed in any such attempt they can always recompute the agricultural income as contemplated under Section 20D of the State Act. (Para 11)
       Held finally : For the reasons stated above, these appeals and petitions succeed and the same are allowed. The proviso to Rule 5 of the Assam Agricultural Income Tax Rules, 1939 to the extent it permits recomputation of agricultural income by the State Officers is declared as ultra vires, the impugned orders of assessment are set aside with a direction to the Agricultural Income Tax Officers concerned in the State of Assam to re-assess the agricultural income of the appellants/petitioners on the basis of the computation of agricultural income from tea made by the Central Officers, subject to their right to seek relief in the manner aforestated under Chapter XX(E) of the Central Act. The appeals and petitions are allowed. No costs. (Paras 13 and 14)

JUDGMENT

Santosh Hegde, J.-The income from cultivation, manufacture and sale of tea being a composite income is exigible to both income-tax under the Indian Income Tax Act, 1961 and the Assam Agricultural Income Tax Act, 1939.

2. In this context, being aggrieved by the decision of the Agricultural Income Tax Officer of the State of Assam (State Officer) who refused to accept the computation of agricultural income made by the Income Tax Officer (Central Officer) under the Income Tax Act, 1961 (Central Act) for the purpose of the levy of Assam agricultural income tax for the relevant assessment years, assessees-appellants approached the High Court of Guwahati by way of writ petitions questioning the authority of the State Officer to recompute the agricultural income already assessed by the Central Officers under the Central Act and for consequential reliefs. Their contentions being rejected both by the learned Single Judge and the Division Bench of High Court of Guwahati, these appeals/petitions have been preferred.

3. It was argued on behalf of the appellants before the High Court that in view of the constitutional definition of agricultural income under Article 366(1) of the Constitution, the agricultural Income Tax Officers of the State are bound by the computation of agricultural income made by the Income Tax Officer under the Central Act. They also contended before the High Court that the Assam Agricultural Income Tax Act (the State Act) has not specifically authorised the State Officers acting under the said Act to recompute the agricultural income which was already determined by the Central Officers under the Central Act and the Rules. They also contended in the alternative that if it is to be held that the Assam Agricultural Income Tax Act did authorise such a recomputation of income then such provisions of the State Act would be ultra vires of the Constitution. Per contra, it was the contention of the State that the tax on agricultural income being a State subject under Entry 46 of List II of the 7th Schedule to the Constitution, State has the legislative competence to enact a law which can also empower its officers to recompute the agricultural income even if the same is computed by the Central Officers under the Central Act and such a power under the State Act is found in Section 49 read with Rule 5 of the State Rules.

4. The High Court in the impugned judgment after analysing the provisions of the Constitution, the Central Act and the State Act and the Rules came to the conclusion that under the provisions of the State Act, there was a specific authority vested in the State Officers to recompute the agricultural income. The High Court also came to the conclusion that such provision and the Act is not ultra vires of the Constitution nor was beyond the scope of Article 246(3) and 366(1) of the Constitution. However, it held that such power of recomputation can be exercised by the State Officers concerned only if he came to the conclusion that the computation of agricultural income made by the Central Officer is contrary to the provisions of the Central Act and the Rules. It also specifically came to the conclusion that in the decisions of this Court in the case of Karimtharuvi Tea Estates Ltd. & Anr. v. State of Kerala & Ors.1, Anglo-American Direct Tea Trading Co. Ltd. etc. v. Commissioner of Agricultural Income-tax, Kerala2 and Tata Tea Ltd. & Anr. v. State of West Bengal & Ors.3, this question of the State s power to enact a law permitting the recomputation of the agricultural income by the State Authorities has been left open, hence, this question was not res integra. In this view of the matter, the High Court upheld the authority of the State Officers to recompute the agricultural income under the provisions of Section 49 of the Act read with Rule 5 of the State Rules in the circumstances mentioned in the impugned judgment.

5. Before us similar arguments as addressed before the High Court were addressed by the p

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2001 Supreme(SC) 515

VERY IMPORTANT POINTProviso to Rule 5 of Assam Agricultural Income Tax Rules is ultra vires the Rule making power under the Act as under Assam Agricultural Income Tax Act, 1939, agricultural income already computed under Income Tax Act, 1961 cannot be recomputed under State Act.

Cases Referred (1)

VERY IMPORTANT POINT
Proviso to Rule 5 of Assam Agricultural Income Tax Rules is ultra vires the Rule making power under the Act as under Assam Agricultural Income Tax Act, 1939, agricultural income already computed under Income Tax Act, 1961 cannot be recomputed under State Act.