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2017 Supreme(SC) 1040
SUPREME COURT OF INDIA
A.K. Sikri, Ashok Bhushan, JJ.
Union of India & Ors. – Appellants
Versus
M/s. Tata Tea Co. Ltd. & Anr. – Respondents
Civil Appeal No. 9178 of 2012
With
M/s George Williamson (Assam)Ltd. – Appellants
Versus
Union of India & Ors. – Respondents
Civil Appeal No. 9179 of 2012
With
Union of India & Ors - Appellants
Versus
M/s. Apeejay Surrendra Corporate Service Ltd. – Respondents
Civil Appeal No. 9180 of 2012
Decided On : 20-09-2017
For the Parties :- Ms. Manik Karanjawala, Arijit Prasad, Ms. Gargi Khanna, Ms. Anil Katiyar, B.V. Balaram Das, S. Sukumaran, Anand Sukumar, Bhupesh Kumar Pathak, Ms. Meera Mathur, Advocates.
The main legal point established in the judgment is that Section 115-O of the Income Tax Act, 1961, is within the legislative competence of the Parliament and upheld its constitutional validity.
Headnote:
Income Tax Act - Constitutional Validity of Section 115-O - Summary of Acts and Sections: Section 115-O of the Income Tax Act, 1961 - The court discussed the constitutional validity of Section 115-O of the Income Tax Act, 1961, which pertains to tax on distributed profits of domestic companies. The court analyzed the legislative competence of the Parliament to enact Section 115-O and its implications on agricultural income. The court also considered the interpretation of the term 'income' and 'dividend' as defined in the Income Tax Act, 1961. The judgment provides a comprehensive analysis of the legislative entries in the Seventh Schedule of the Constitution, the principles of statutory interpretation, and the doctrine of pith and substance in determining the legislative competence of the Parliament. The court concluded that Section 115-O is within the legislative competence of the Parliament and upheld its constitutional validity.
Fact of the Case:
The case involved the constitutional validity of Section 115-O of the Income Tax Act, 1961, which imposes tax on the dividend distributed by domestic companies. The petitioners, including a Tea Company, challenged the vires of Section 115-O, arguing that the Parliament lacked legislative competence to tax agricultural income. The Calcutta High Court upheld the constitutionality of Section 115-O but imposed a limitation that additional tax could only be levied on 40% of the dividend income.
Finding of the Court:
The court found that Section 115-O is within the legislative competence of the Parliament and upheld its constitutional validity. The court rejected the limitation imposed by the Calcutta High Court, stating that it would alter the provision of Section 115-O for which there is no warrant. The court allowed Civil Appeal Nos. 9178 and 9180 of 2012 and dismissed Civil Appeal No. 9179 of 2012.
Issues: The main issue was the constitutional validity of Section 115-O of the Income Tax Act, 1961, and the legislative competence of the Parliament to enact provisions imposing tax on distributed profits of domestic companies. The court also addressed the interpretation of the term 'income' and 'dividend' as defined in the Income Tax Act, 1961, and its implications on agricultural income.
Ratio Decidendi: The court's decision was based on the analysis of legislative entries in the Seventh Schedule of the Constitution, the principles of statutory interpretation, and the doctrine of pith and substance. The court concluded that Section 115-O is within the legislative competence of the Parliament and upheld its constitutional validity.
Final Decision: The court allowed Civil Appeal Nos. 9178 and 9180 of 2012 and dismissed Civil Appeal No. 9179 of 2012.
JUDGMENT
Ashok Bhushan, J.
The constitutional validity of Section 115-O of the Income Tax Act, 1961 (hereinafter referred to as 1961, Act') as inserted by Finance Act, 1997 is in issue in these appeals. The Civil Appeal No. 9178 of 2012 and Civil Appeal No. 9180 of 2012 have been filed by the Union of India against the common judgment dated 28.07.2006 of Calcutta High Court by which judgment although, Calcutta High Court has upheld the constitutionality of Section 115-O, but a rider has been put that additional income tax to be charged under Section 115-O can only be on 40 per cent of income which is taxable under Income Tax Act. The Civil Appeal No. 9179 of 2012 has been filed by the writ petitioner who had also challenged the constitutional validity of Section 115-O before the Gauhati High Court which writ petition has been dismissed vide judgment and order dated 22.06.2007. The Gauhati High court had also noted the judgment of Calcutta High Court dated 28.07.2006 as referred to above. All the appeals have been heard together and are being decided by this common judgment.
2. The facts giving rise to Civil Appeal No. 9178 of 2012 and 9180 of 2012 needs to be briefly noted. Several writ petitions were filed before the Calcutta High Court questioning the vires of Section 115-O of the 1961 Act. The petitioner's case in the writ petition is that the petitioner is a Tea Company which cultivate tea in gardens and processes it in its own factory/plants for marketing the same. The cultivation of tea is an agricultural process although, the processing of tea in the factory is an industrial process. The agricultural income is within the legislative competence of the State and not in the legislative competence of the Parliament. Section 115-O imposes tax on the dividend distributed by the company which is nothing but imposing the tax on agricultural income of the writ petitioner. The petitioner M/s Tata Tea Company Ltd. and others filed a Writ Petition No. 1699 of 2000 where the vires of Section 115-0 was challenged. The writ petition was dismissed by learned Single Judge vide its judgment dated 20.9.2001 against which judgment, appeals were filed before the Division Bench of the Calcutta High Court. Division Bench vide its judgment dated 28.7.2006 disposed of the appeals, setting aside the judgment of the learned Single Judge. Operative portion of the judgment of the Division Bench is as follows:
"We are, however, in agreement with Dr. Pal on a limited issue. We are of the view that Rs. 50/- as a whole could not be taxes at the prescribed rate of additional tax. Such additional tax would be levied on Rs. 20/- being 40% of Rs. 50/-. Hence, at the end of the day the company would have to pay income tax at the prescribed rate on Rs. 40/- as well as additional income tax at the prescribed rate on Rs. 20/-.
Result
The judgment and order of the learned Single Judge is set aside. We hold that the provision of section 115-O is constitutional and we have given the proper interpretation of the subject section as observed hereinafter.
The appeals are disposed of accordingly without any order as to costs."
3. Union of India questioning the said judgment has come up in Civil Appeal No. 9178 of 2012 and Civil Appeal No. 9180 of 2012.
4. In Writ Petition(C)No.3827 of 2000, the writ petitioner has been carrying on the business of growing green tea leaves in its tea gardens and manufacturing black tea out of the same and thereafter selling the black tea in India and also outside India. The writ petitioner challenged the constitutional validity of Section 115-O sub clause (1) and sub clause (3) in so far as it purports to levy the income tax on the profit which is decided to be distributed as dividend thereby imposing an additional income-tax even on the portion of the composite income which represents agricultural income and which is also to be made available for the distribution of dividend and, therefore, transgresses the limits of legislative power. The Parl
