Research › Browse › Judgment

Madras High Court · body

1991 DIGILAW 714 (MAD)

D. C. Bhansali v. State of Tamil Nadu

1991-09-25

A.S.ANAND, KANAKARAJ

body1991
Judgment :- KANAKARAJ J. A common question of law is involved in all these tax cases. While T. C. No. 1073 of 1982 relates to the assessment year 1974-75, all the other cases relate to the assessment year 1979-80. In all these cases, the interest received by the partners from the registered firm was sought to be brought to tax by initiating action under section 35 of the Tamil Nadu Agricultural Income-tax Act, 1955 (hereinafter called "the Act"). After considering the objections of the assessee, the Agricultural Income-tax Officer proceeded to assess 60 per cent. of the total salary and interest received by the assessee from the firm. The assessees questioned in appeal only the inclusion of the interest received from the firm on the ground that the entire interest had been assessed to tax by the Central income-tax authorities. The appellate authority confirmed the assessment made by the Agricultural Income-tax Officer. On further appeal, the Tribunal rejected the plea of the petitioner that there is any subtle distinction between salary and interest due from the firm. Accordingly, the assessment on 60 per cent. of the interest was confirmed by the Tribunal In the revision before us, Mr. Janardhana Raja, learned counsel for the petitioners, argued the following points. (1) The amount of interest received by the partners is on the capital provided by the partners to the firm. Therefore, the interest earned on such investment is liable to be taxed only under the Central Income-tax Act. The contention is that the income by way of interest cannot constitute agricultural income in the hands of the partners. 12) Rule 7 of the Agricultural Income-tax Rules prescribes the manner in which the income from tea is to be computed. "7. Computation of income from tea. - In respect of agricultural income from tea grown and manufactured by the seller in the State of Tamil Nadu, the portion of the income worked out under the Indian Income-tax Act and left unassessed as being agricultural shall be assessed under the Act after allowing such deductions under the Act and the rules made thereunder(Provided that the computation made by the Indian Income-tax Officer shall be accepted by the Agricultural Income-tax Officer). Provided further that if the income for the purpose of the Indian Income-tax Act has not been determined before the filing of returns under section 16, the assessee shall submit along with the returns a statement of profit and loss in respect of his entire income derived partly from agriculture and partly from business and thereupon he shall be assessed treating his agricultural income to be 60 per cent. of the income derived from the tea grown and manufactured in the State of Tamil Nadu after allowing the deductions allowed by this Act, this assessment being subject to revision after the income for the year has been determined for the purpose of the Indian Income-tax Act, 1922 (Central Act XI of 1922). Therefore, it is contended that what is left as unassessed under the Income-tax Act alone can be brought to tax under the Act. In this case, it is contended that the entire income by way of interest had been assessed to tax under the Central Income-tax Act. (3) The receipt of interest from the firm does not have the characteristic of agricultural income within the meaning of section 2(a) of the Act. In CIT. v R. M. Chidambaram Pillai 1977 AIR(SC) 489, 1977 (106) ITR 292, 1977 (1) SCC 431 , 1977 (2) SCR 111 , 1977 (1) MLJ 50, 1977 CTR(SC) 71, 1977 SCC(Tax) 188, 106 ITR(SC) 292, 1977 TaxLR 214 , the Supreme Court has dealt with the question of salary paid to a partner by a firm engaged in the manufacture of tea from their own tea estates and whether the same is exigible to income-tax under the Indian Income-tax Act, 1922, and the extent to which such interest was exigible to tax. After referring to the various provisions of law, the Supreme Court held that such salary paid to a partner was exigible to income-tax and having regard to rule 24 of the Indian Income-tax Rules, 1922, only 40 per cent. of such salary was liable to be taxed under the Income-tax Act and the balance of 60 per cent. would represent agricultural, income taxable by a State law on agricultural income. However, the Supreme Court did not have occasion to deal with interest paid to a partner by a registered firm owning a tea estate. of such salary was liable to be taxed under the Income-tax Act and the balance of 60 per cent. would represent agricultural, income taxable by a State law on agricultural income. However, the Supreme Court did not have occasion to deal with interest paid to a partner by a registered firm owning a tea estate. In Karimtharuvi Tea Estates Ltd. v. State of Kerala [1963] 48 ITR(SC) 83, while dealing with the Kerala Agricultural Income-tax Act, in regard to disallowance of certain deductions in the computation of agricultural income, it was held that such deduction would not apply to computation of agricultural income derived from tea plantations. The following observations of the Supreme Court are useful for the determination of the present case (at page 300 )" * The definition of agricultural income in the Constitution and the Indian Income-tax Act, 1922, is bound up with rule 24 of the Incometax Rules, 1922. Income derived from the sale of tea grown and manufactured by the seller is to be computed under rule 24 as if it were income derived from business in accordance with the provisions of section 10 of the Indian Income-tax Act. The Explanation to section 2(a)(2) of the Kerala Act adopts this rule of computation. Of the income so computed, 40 per cent. is to be treated as income liable to income-tax and the other 60 per cent. only is deemed to be agricultural income within the meaning of that expression in the Income-tax Act. The power of the State Legislature to make a law in respect of taxes on agricultural income arising from tea plantations is limited to legislating with respect to the agricultural income so determined. The Legislature cannot add to the amount of the agricultural income so determined by disallowing any item of deductions allowable under rule 24 read with section 10(2)(xv) of the Indian Income-tax Act. Explanation 2 to section 5 of the Kerala Act if applied to income from tea plantations would create an agricultural income which is not contemplated by the Income-tax Act and the Constitution and would be void, and it should, therefore, be construed not to apply to the computation of income from tea plantations. Explanation 2 to section 5 of the Kerala Act if applied to income from tea plantations would create an agricultural income which is not contemplated by the Income-tax Act and the Constitution and would be void, and it should, therefore, be construed not to apply to the computation of income from tea plantations. "In Bhagavandas Narayan Das v. Agricultural ITO 1968 (70) ITR 128 , a single judge of this court was concerned with the question of salary and interest received by a partner from the firm and whether they were exigible to tax under the Act to the extent of 60 per cent. thereof. Learned judge held that the salary received by a partner from the partnership firm for the services rendered can properly be treated as income assessable only under the Central Income-tax Act and no part of it can be viewed as agricultural income. Learned judge also felt that the receipt of interest will not in any way be different from the position of tile salary and that the partner who received the interest did not receive it as part of the profits from the agricultural property but as a return for the loan advanced to the partnership firm and, hence, payment of interest on such loan could not be construed as income out of which 60 per cent. can be assessed as agricultural income. The question is whether the ratio of the Supreme Court decision will apply to the receipt of interest from the firm. We do not think that it is necessary to decide the question whether the interest paid to the partner by the partnership firm bears the same character as salary paid to a partner. While, according to the Revenue, both interest and salary bear the same characteristic, according to the assessee, they are totally different from each other. We feel that it is sufficient to decide the case only on the second point raised by counsel for the petitioners, based on rule 7 of the Tamil Nadu Agricultural Income-tax Rules, 1955, quoted above. The fact that the entire interest had been brought to tax under the Central Income-tax Act cannot be disputed by the Revenue. In fact, to make this factual position clear, we called for the records and we have perused the assessment order dated July 19, 1980, made by the Income-tax Officer in respect of the assessment year 1979-80. The fact that the entire interest had been brought to tax under the Central Income-tax Act cannot be disputed by the Revenue. In fact, to make this factual position clear, we called for the records and we have perused the assessment order dated July 19, 1980, made by the Income-tax Officer in respect of the assessment year 1979-80. We find from the order of the Income-tax Officer dated July 19, 1980, that the entire interest of Rs. 71, 598 had been apportioned between the partners in accordance with their respective shares and brought to tax under the Central Income-tax Act. Even in Tax Case No. 1073 of 1982 relating to the assessment year 1974-75, it is seen from the order of the Assistant Commissioner dated October 30, 1981, that the entire interest had been assessed to the Central income-tax. The following sentence makes it clear" * As regards the question of double taxation of the interest or bonus in question, it may be true that this has already suffered taxation in the hands of the Central income-tax authorities. "Therefore, nothing is left unassessed under the head" Interest " from the registered firm. Consequently, no part of the interest is available for assessment under the Agricultural Income-tax Act. In this view of the matter, we are satisfied that the orders of the statutory authorities in all these cases seeking to levy agricultural income-tax on 60 per cent. of the interest received by the respective partners are totally without jurisdiction. The appellate authority has observed in passing that it is up to the assessee to question the assessment under the Central Income-tax Act where the entire interest has been treated as assessable under the Income tax Act. We are of the opinion that this approach of the appellate authority is not correct. The question of jurisdiction of the agricultural income-tax authority is involved when they purport to assess an income, already assessed by the Central income-tax authorities. We have already referred to the judgment of the Supreme Court in Karimtharuvi Tea Estates Ltd. v. State of Kerala 1963 AIR(SC) 760, 1963 (48) ITR 83, 1963 (S1) SCR 823, 1963 (1) KerLR 283, 1963 KerLJ 344, 1963 (48) ITR(SC) 83, 1963 (48) ITR 83 , which lends support to the arguments of the assessees. We have already referred to the judgment of the Supreme Court in Karimtharuvi Tea Estates Ltd. v. State of Kerala 1963 AIR(SC) 760, 1963 (48) ITR 83, 1963 (S1) SCR 823, 1963 (1) KerLR 283, 1963 KerLJ 344, 1963 (48) ITR(SC) 83, 1963 (48) ITR 83 , which lends support to the arguments of the assessees. Consequently, we hold that the assessment of the interest received by the assessees from the partnership firm is not exigible to agricultural income-tax having regard to rule, 7 of the Agricultural Income-tax Rules since it stands taxed under the Central Income-tax Act already. We make it clear that we are not deciding the other questions of law raised by the petitioners. All the tax revision cases, are, therefore, allowed in the above manner. There will, however, be no order as to costs.