IMPORTANT POINT
Agricultural income cannot be taxed under Income Tax Act, 1961.

JUDGMENT

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,1 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 under the provisions of the Act by the Income Tax Officer on the basis of aforementioned formula.

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 submitte