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2001 Supreme(Cal) 612
High Court Of Calcutta
Kalyan Jyoti Sengupta
JAYSHREE TEA AND INDUSTRIES LTD. - Appellant
Versus
UNION OF INDIA (UOI) - Respondent
W. P. 1707 Of 2000
Decided On : 09/20/2001
AGARWAL, Debi Prasad Pal
Dividend is not derived by a shareholder by direct relationship with the land, and is not agricultural income.
Headnote:
INCOME TAX - Section 115-O - Constitutional Validity - Levy of Additional Income-tax on Distributed Profits - Applicability to Tea Growers and Manufacturers - Whether Ultra Vires - Scope and Interpretation of Agricultural Income - Distinction Between Dividend and Income of Company - Competence of Parliament to Legislate on Agricultural Income.
Fact of the Case:
The petitioner, a tea company, challenged the constitutional validity of Sections 115-O(1) and 115-O(3) of the Income-tax Act, 1961, insofar as they related to the levy of additional income-tax on profits distributed as dividends to shareholders to the extent the same represented agricultural income of the petitioner. The petitioner also sought a refund of the tax already levied and realized, with interest.
Finding of the Court:
The court held that Section 115-O was constitutionally valid and not ultra vires the Constitution on the ground of legislative incompetence, as it did not impose tax on agricultural income. The court distinguished between dividend and income of the company, holding that dividend was payable to shareholders under the Companies Act and contractual relationship between the company and the shareholders, and was not derived by direct association with the land. The court also held that the profit of the petitioner could not be termed agricultural income since it partook of the character of different income and changed from agricultural income to profit income.
Issues: 1. Whether Sections 115-O(1) and 115-O(3) of the Income-tax Act, 1961, were ultra vires the Constitution insofar as they related to the levy of additional income-tax on profits distributed as dividends to shareholders to the extent the same represented agricultural income of the petitioner. 2. Whether the dividend payable or paid out of the profit of the tea growing and manufacturing company was agricultural income.
Ratio Decidendi: 1. The court held that Section 115-O was not ultra vires the Constitution on the ground of legislative incompetence, as it did not impose tax on agricultural income. The court distinguished between dividend and income of the company, holding that dividend was payable to shareholders under the Companies Act and contractual relationship between the company and the shareholders, and was not derived by direct association with the land. 2. The court held that the profit of the petitioner could not be termed agricultural income since it partook of the character of different income and changed from agricultural income to profit income.
Final Decision: The writ petition was dismissed, and the interim order passed was vacated.
( 1 ) THE writ petitioner No. 1 being the tea company has filed this writ petition challenging the vires of Sections 115-O (1) and 115-O (3) of the Income-tax Act, 1961, in so far as it relates to levy of additional income-tax on the profits which are distributed as dividend amongst the shareholders to the extent the same represents agricultural income of the petitioner and also refund of the tax already levied and realised as above with interest at the prevailing rate from the respective dates of payment up to the date of refund and further to withdraw and/or rescind and/or cancel all the levies of additional income-tax for the financial years 1996-97, 1997-98, 1998-99 and 1999-2000. So, it is clear that in the event first relief is granted to the writ petitioner then other reliefs prayed for therein are automatically to be granted by the court. Thus, the controversy in this case is as to whether the aforesaid Sections 115-O (1) and 115-O (3) of the Income-tax Act, 1961, are partially ultra vires the Constitution as questioned by the writ petitioner or not.
( 2 ) IT appears that the writ petitioner No. 1 has been carrying on business of growing tea leaves by its agricultural process and manufacturing black tea out of the same and selling the same, and also manufacturing and selling chemicals and fertilizers, plywood, etc. This apart petitioner No. 1 has also business of warehousing and real estate development. The petitioner-company is limited by shares. Therefore, the shareholders of the petitioner-company are paid dividend out of the profits earned by petitioner No. 1.
( 3 ) DR. Debi Prosad Pal, the learned senior advocate, appearing in support of the writ petition, submits that in the case of a tea company whose income is derived from sale of tea grown and manufactured it is not the entirety of the profits or income which is liable to income-tax, and by virtue of rule 8 of the Income-tax Rules, 1962, the income derived from sale of tea grown and manufactured by the seller is computed as if it is income derived from business and of the income so computed 40 per cent, is to be deemed as non-agricultural income (business) liable to income-tax and the balance 60 per cent, of the income so computed is to be treated as agricultural income in respect of which the State Legislature has power to enact suitable legislation for imposition and realisation of tax on agricultural income under entry No. 46 of List II read with article 246 (3) of the Constitution of India. In this context, he relies on a decision in Tata Tea Ltd. v. State of West Bengal.
( 4 ) HE contends that the term "agricultural income" in article 366 (1) of the Constitution has been defined to mean agricultural income as defined for the purposes of the enactments relating to Indian income-tax. Therefore, "agricultural income" has the same meaning as attributed to it for the purpose of enactments relating to Indian income-tax. The income derived from sale of tea grown and manufactured by the seller is not solely derived from agriculture. It is an income which is derived partially from agricultural operations and partially from manufacturing processes. It becomes necessary to determine the proportion of two incomes in the entire income. In support of his contention, he has relied on a decision of the Supreme Court in Karitntharuvi Tea Estates Ltd. v. State of Kerala.
( 5 ) HE contends that presently under rule 8 of the Income-tax Rules, 1962, the extent of the non-agricultural income is to be computed out of the combined income of the tea manufacturing company for the purpose of taxability of such income. The balance 60 per cent, of the combined income should be left for assessment to agricultural income-tax and this can be levied under the State Legislature. He contends that Parliament has no legislative competence to levy any tax on the agricultural income.
( 6 ) HE submits further that the dividend, which is paid by a tea company, is
