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2014 DIGILAW 901 (GAU)

Mcleod Russel India LTD. v. State of Assam & Ors.

2014-09-23

A.K.GOSWAMI, K.SREEDHAR RAO

body2014
K. Sreedhar Rao; ACJ:- 1. In the above writ petitions by and large the facts and the issues are similar. The assessees in these writ petitions are the tea companies. The provisions of article 366 and rule 8 of the Income-tax Rule, 1962 provide that the income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business and 40% of such income shall be liable to be income-tax. The Income-tax Act, 1961 also provides for deductions from the gross income to arrive at the net income. In the said net income, so assessed, income-tax is to be leviable on the 40% and the rest of 60% of such income would be liable to Agricultural Income leviable by the State. 2. The provisions of section 80-HHC of the Income-tax Act permit the profit from the exports exempt from income-tax. In the assessment practice, the profit from export was being deducted from the gross income to arrive at the net income. An issue arose whether the deduction of profit from export should be deducted from the gross income or from the net income of 40% assessed under the Income-tax Act to be taxable. 3. The Supreme Court in Commissioner of Income-tax v. Williamson Financial Services and Others, (2008) 2 SCC 202 , in paragraphs 36, 37/38, 66 and 67 has made the following observations: "36. The computation of income from tea has to be in accordance with the relevant provisions of the enactments relating to the Indian income-tax and the deductions towards various expenses incurred for earning the income shall be liable under the said enactments relating to Indian income-tax. Thus, where computation of income from cultivation, manufacture and sale of tea is-made in accordance with the provisions of the Income-tax Act, the Agricultural Income-tax Officer would have no option but to accept the computation by AO under the 1961 Act and treat 40% of such income, as business income and the balance 60%, as agricultural income. 37. To the above extent there is no dispute. 37. To the above extent there is no dispute. The question before us is whether computation, 'of section 80-HHC deduction could be said to be part of computation provision under the 1961 Act, particularly/provisions dealing with computation of income under the head "business income" and particularly when the said deduction has to be made from "gross total" income" under Chapter VI-A. 38. The term "agricultural income" has been defined under section 2(1A) of the 1961 Act. It is exempted from tax under the 1961 Act because Parliament has no power under the Constitution to levy tax on agricultural income. The word "income" has been defined in section 2(24) of the said Act to include profits and gains. The term "total income" is defined in section 2(45) of the said Act. The definition of the term "total income" involves two ingredients - firstly, that the income must consist of the total amount of income referred to in section 5 and secondly, it must be computed in the manner laid down in the Income-tax Act. Therefore, the manner of computation laid down by the Income-tax Act forms an integral part of the definition "total income". The correct method of approach is to treat nothing as being charged to tax until by the process of computation laid down by the said Act, the status of income, profits and gains, emerges. This principle is very important for deciding the present case. We repeat that computation laid down by the said Act forms an integral part of the definition of "total income". Section 4 charges the total income of an assessee to income-tax. Section 5 of the Income-tax Act defines "total income". 66. In short, deductions under Chapter VI-A are deductions not from a particular head of income but from gross total income. Therefore, section 80-1II 1C is not part of the computation of income under the head "Business". 67. For the afore-stated reasons, we hold that section 80-HHC deduction of the 1961 Act is required to be allowed after apportionment of income under Rule 8(1) of the 1962 Rules.” 4. The ratio laid down in the said decision reiterates the earlier ratio laid down by the Supreme Court in Assam Co. 67. For the afore-stated reasons, we hold that section 80-HHC deduction of the 1961 Act is required to be allowed after apportionment of income under Rule 8(1) of the 1962 Rules.” 4. The ratio laid down in the said decision reiterates the earlier ratio laid down by the Supreme Court in Assam Co. Ltd. and Another v. State of Assam and Others, (2001) 4 SCC 202 and also that the deduction under section 80-HHG should be effected after apportionment of income under rule 8 of the 1962 Rules. In other words, the said deduction to be effected from the net income of 40% assessed under the Income-tax Act and not from the gross income. Pursuant to the decision of the Supreme Court in Williamson Financial Services case (supra), the assessing authority under the Slate Agricultural Income-tax Act has issued notices to petitioner-assessees the agricultural income as per rule 5 and section 49 of Assam Agricultural Income-tax Rules and Act. 5. In certain cases notices are issued, in other cases, the assessment is in progress and in some cases, reassessment is complete. In some cases, the revisional authority exercising the suo motu revisional powers held that the assessments made by the assessing authority under the Agricultural Income-tax prior to the decision in Williamson Financial Services case (supra) is erroneous and prejudicial to the interest of the Revenue, thus, set aside the assessments and directed the assessing authority to reassess. 6. All the petitioner-assessees aggrieved by the issuance of notice or the initiation of reassessment process or the completion of reassessment, have filed the writ petitions challenging the action of the assessing authority. 7. In these writ petitions, the following questions would arise for consideration: 1. Whether the assessing authority under the Assam Agricultural Income-tax Act has jurisdiction to assess the agriculture income afresh and contrary to the assessment of the agricultural income made by the assessing authority under the Income-tax Act. 2. In the cases where the assessment have been made pursuant to the law declared by this court in Bazaloni Group Ltd. v. Commissioner of Income-tax, (2005) 3 GLR 252, permitting deduction of the profit from exports from the gross income and such assessments having become final and concluded, whether the revisional authority or the assessing authority under the State Act can reopen the assessments based on the judgment of the Supreme Court in Williamson Financial Services case (supra). 8. 8. Rule 5 of the Assam Agricultural Income-tax Rules reads, thus: “In respect of agricultural income from tea grown and manufactured by the seller in the Province of Assam, the portion of the net income worked out under the Indian income-tax and left unassessed as being agricultural shall be assessed under this Act after allowing such deductions under the Act and the rules made there-under so far as they have not been allowed under the Indian Income-tax in computing the net income from the entire operation: Provided that the computation made by the Indian Income-tax Officer shall ordinarily be accepted by the Assam Agricultural Income-tax Officer who may, for his satisfaction under section 20 of the Assam Agricultural Income-tax Act, obtain further details from the assessee or from the Indian Income-tax Officer, but shall not without the previous sanction of the Additional Commissioner of Taxes or the Joint Commissioner of Taxes empowered by the Commissioner of Taxes in this behalf require under the proviso to section 49 the production of account books already examined by the Indian Income-tax Officer for determining the agricultural income from tea grown and manufactured in Assam or refuse to accept the computation of the Indian Income-tax Officer. Note: (1) The Act applies to income from sales of tea grown and manufactured in Assam irrespectively whether the sale is made within or outside the Province of Assam. (2) The deductions referred to above are specified in sub-section (2) of section 8 and sub- rule (2) of rule 2: Provided that all agricultural income mentioned in sub-clause (1) of clause (a) of section 2, or sub-clauses (2)(i), (ii) and (iii) of clause (a) of section 2 raised or received by the grower of tea from lands not used for tea but used for cultivation of produce other than tea shall be liable to agricultural income-tax under the Act: Provided also that the agricultural income derived from cultivation by labour force of land attached to a tea garden as ancillary to it from which the garden derives no direct benefit in the shape of rent either in cash or in kind shall not be liable to agricultural income-tax." 9. The proviso to the said Rule enable the assessing authority under the State Act to assess the agricultural income independent of the assessment made by the assessing authority under the Income-tax Act under certain exceptional situations. The proviso to the said Rule enable the assessing authority under the State Act to assess the agricultural income independent of the assessment made by the assessing authority under the Income-tax Act under certain exceptional situations. The question, so arose, whether the assessing authority under the State Act has any jurisdiction under any circumstance to do assessment independent of the assessment of income made, by the authorities under the Income-tax Act. 10. In this regard, Dr. A.K. Saraf, senior counsel has relied upon the judgment of Assam Co. Ltd. case (supra) and referred to the paragraphs 9 to 13, which read as follows: "(9) According to Dr. Gauri Shankar, the proviso to rule 5 to the extent it empowered the Agricultural Income-tax Officer to refuse to accept the computation made by the Central Income-tax Authority is ultra vires the constitution as well as the Agricultural Income-tax Act. His argument is that article 366(1) of the Constitution defines "agricultural income" to mean agricultural income as defined for the purposes of the enactments relating to Indian Income-tax and accordingly "agricultural income" in entry 46 in List II of the Seventh Schedule of the Constitution in respect of which the State Legislature has powers under article 246(3) of toe Constitution to enact laws imposing taxes would mean "agricultural income" as defined' for the purposes of the enactments relating to Indian income-tax. Dr. Gauri Shankar submitted that it has now been decided by a series of decisions of the Apex Court that enactments relating to Indian income-tax would not only mean the Income-tax Act but also the Income-tax Rules. Section 2(l)(a) of the Income-tax Act defines "agricultural income" and rule 8 of the Income-tax Rules deals with income from tea which is partly business and partly agricultural income. Rule 8 specifically stipulated that income derived from sale of tea grown and manufactured by a seller in India shall be computed as if it was income derived from business and 40% of such income shall be deemed to be income liable to tax. Dr. Rule 8 specifically stipulated that income derived from sale of tea grown and manufactured by a seller in India shall be computed as if it was income derived from business and 40% of such income shall be deemed to be income liable to tax. Dr. Gauri Shankar vehemently argued that only after computation of income derived from sale and manufacture of tea in India is made by the Central Income-tax Authority, 40% is treated as income from business and the balance 60% of such income has to be accepted as income from agriculture by the Agricultural Income-tax Officer for the purpose of levy of agricultural income-tax but if the Agricultural Income-tax Officer is permitted to refuse to accept the computation made by the Central Income-tax Authority, the constitutional provisions in articles 246(3) and 366(1) would be contravened. Dr. Gauri Shankar pointed out that the definition "of agricultural income" in section 2(a) of the Agricultural Income-tax Act enacted by the State Legislature of Assam is the same as in the Income-tax Act. He brought to our notice the Explanation to section 2(a) and the last proviso to section 8(2) of the Agricultural Income-tax Act and argued that the language in the Explanation to section 2(a) and the last proviso to section 8(2) of the Agricultural Income-tax Act made it abundantly clear that agricultural income derived from land by cultivating tea would mean portion of the income derived from cultivation, manufacture and sale of tea as computed by the Central Income-tax Authority under the Income-tax Act and the Income-tax Rules. Hence, the provisions of the agricultural income-tax Act enacted by the State Legislature, Assam, are also consistent with the Constitution as well as the Income-tax Act and the Income-tax Rules with regard to the meaning of agricultural income and the computation thereof where it is derived from sale of tea grown and manufactured by a seller in the State of Assam. He further argued that even rule 5 of the Agricultural Income-tax Rules framed there under the Agricultural Income-tax Act which has provided that the portion of the net income worked out under Income-tax Act and left unassessed as being agricultural-shall be assessed as agricultural income, but in the last limb of the proviso to said rule 5, a power has been reserved with the Agricultural Income-tax Officer to refuse to accept the computation of the Central Income-tax Authority. For appreciating the aforesaid contention of Dr. Gauri Shankar, the relevant portion of rule 5 of the Agricultural Income-tax Rules is extracted hereinbelow: 5. In inspect of agricultural income from tea grown and manufactured by the seller in the Province of Assam the portion of net income worked under the Indian Income-tax Act and left unassessed as being agricultural, shall be-assessed under this Act after allowing such deductions under the Act and the rules made there-under, so far as they have not been allowed under the Indian Income-tax Act in computing the net income from the entire operation: Provided that the computation made by the Income-tax Officer shall be ordinarily accepted by the Assam Agricultural Income-tax Officer who may, for his satisfaction under section 20 of the Assam Agricultural Income-tax Act, obtain further details from the assessees or from the Indian Income-tax Officer, but shall not without the previous sanction of the Deputy Commissioner of Taxes or when there is no Deputy Commissioner of Taxes, the Assistant Commissioner of Taxes empowered by the Commissioner of Taxes in this behalf require under the proviso to section 49 the production of account books already examined by the Indian Income-tax Officer for determining the agricultural income from tea grown and manufactured in Assam or refuse to accept the computation of the Indian Income-tax Officer. (10) According to Dr. Gauri Shankar, the last limb of the aforesaid proviso to rule 5 empowering the Agricultural Income-tax Officer to refuse to accept the computation made by the Central Income-tax Authority is contrary to article 246 read with article 366 (1) of the Constitution as well as the Explanation to section 2(a) and the last proviso to section 8(2) of the Agricultural Income-tax Act. Hence, the Court should either strike down the said last limb of the proviso to rule 5 as ultra vires or read down the same as non-existent according to well settled principles of statutory interpretation. In support of his aforesaid submissions Dr. Gauri Shankar relied on the decisions of the Supreme Court in the case of Karimtharuvi Tea Instates Ltd. and Another v. State of Kerala and Others, (1963) 48 ITR 83 and Anglo-American Tea Trading Company and Others v. Agricultural Income-tax Officer (Kerala), (1968) 69 ITR 667 (SC) and Tata Tea Ltd. and Others v. State of West Bengal and Others, (19S8) 173 ITR 18. (11) In reply to the aforesaid submissions of Dr. Gauri Shankar, Mr. S.N. Bhuyan, learned Advocate General, Assam, submitted that the proviso to rule 5 of the Agricultural Income-tax Rules has to be read as a whole and in the first limb of the proviso it has been provided that the computation made by the Income-tax Officer shall be "ordinarily" accepted by the Assam Agricultural Income-tax Officer. Hence, even without the last limb of the proviso to rule 5 empowering the Agricultural income-tax Officer to refuse to accept the computation made by the Central Income-tax officer, the Agricultural Income-tax Officer was still empowered under the first limb of the proviso not to accept the computation made by the Central Income-tax Authority in extraordinary cases. Most effective relief, therefore, can be granted to the appellants by striking down the last limb of the proviso to rule 5 empowering the Agricultural Income-tax Officer to refuse to accept the computation made by the Central Income-tax Authority. He also contended that the decision of the Apex Court in the case of Anglo-American Tea Trading: Co. Ltd. and Tata Tea, Ltd. (supra) would show that the Supreme Court has taken a-view that under the Kerala Agricultural Income-tax Act, 1950 and the Rules made thereunder. The Agricultural Income-tax Officer was bound to accept the Computation made by the Central Income Tax Authority but the proviso to section 49 of the Assam Agricultural Income-tax Act and the proviso to rule 5 of the Assam agricultural Income-tax Rules would show that although ordinarily the agricultural Income-tax Officer is required to accept the computation made by the Central Income-tax Authority for the purpose of computing the agricultural income from tea grown and manufactured by a seller in the State of Assam, such computation as made by the Central Income-tax Authority was not binding on the Agricultural Income-tax Officer. (12) Before dealing with the aforesaid rival contentions of the learned counsel for the parties, it is necessary to discuss the decisions of the Apex Court on which reliance has been placed by Dr. Gauri Shankar learned counsel for the appellants. (12) Before dealing with the aforesaid rival contentions of the learned counsel for the parties, it is necessary to discuss the decisions of the Apex Court on which reliance has been placed by Dr. Gauri Shankar learned counsel for the appellants. In the case of Karimtharuvi Tea Estates Ltd. (supra), the grievance of the petitioner in that case was that in computing the taxable income in the relevant accounting years for the purpose of assessment of tax under the Kerala Agricultural Income-tax Act, the assessing authority did not allow deduction of expenses incurred by it in upkeepment and maintenance of immature tea plants from which no agricultural income had been derived during the relevant accounting years, though such expenses were deducted by the Income-tax Department in connection with the assessment of the income-tax with respect to the non-agricultural portion of the income from the petitioner's tea estate in those years. Against the assessment orders, the petitioner in that case filed appeals before the Deputy Commissioner of Agricultural Income-tax, Quilon. While the appeals were pending, an amendment was made in the year 1961 to the Kerala Agricultural Income-tax Act, adding Explanation 2 to section 5 of the said Act, which stated that a person deriving agricultural income was not entitled to deduction of any expenditure laid down or expended for the cultivation, upkeeping or maintenance of immature plants from which no agricultural income has been derived during the previous year. The said Explanation 2 to section 5 was challenged on the ground that the State Legislature of Kerala could not enact such a provision which would make agricultural income under the Kerala Agricultural Income-tax Act different from "agricultural income" as defined in the enactments relating to Income-tax Act and that the impugned Explanation 2 to section 5, if applicable to income from tea plantation would make the income from such plantation for the purpose of Agricultural Income-tax Act higher than what would be if computed in accordance with the definition in the Income-tax Act enactment. The Supreme Court did not strike down the impugned Explanation 2 to section 5 of the Kerala Income-tax Act, but held that the said Explanation would not extend to computation of agricultural income derived from plantations and that in computation of such agricultural income for the purpose of tax under the Kerala Agricultural Income-tax Act the income must be taken to be as denned for the purpose of enactment relating to Indian Income-tax Act as provided in the Explanation to section 2 of the said Act. In this decision, therefore, the question as to whether the computation of income derived from tea plantation made by the Central Income-tax Authority under the Income-tax Act was binding on the Agricultural Income-tax Officer for the purpose of assessment of agricultural income under the Kerala Agricultural Income-tax Act did not arise for decision. With regard to the power of the State Legislature to make law relating to taxes on agricultural income, the Supreme Court observed: "[I]t is true, as urged for respondents, that the State Legislature has full freedom to enact such provisions as it considers fit in respect of tax on agricultural income and that such power includes the power to enact for matters subsidiary and incidental to the taxation of agricultural income. We also agree that the State Legislature is free to provide the method of computation of the taxable agricultural income and is free to allow any particular deductions from the gross income as it considers fit. It is not disputed for the respondent that the power of the State Legislature to an act a law in respect of agricultural income relates only to such agricultural income as is defined in article 366 of the Constitution.” (13) In the case of Anglo-American Tea Trading Co. Ltd. (supra) cited by Dr. Gauri Shankar the grievance of the appellants in that case was that the Agricultural Income-tax Assistant Commissioner disregarded the computation made by the Central Income-tax Assessment Authority and on independent computation of tea income determined the agricultural income of the appellants which was much higher than 60% of the total tea income assessed by the Central Income-tax Authority. On appeal, the Deputy Commissioner of Agricultural Income-tax and Sales Tax, South Zone, Quilon, held that the Agricultural Income-tax Officer could make independent computation of tea income and was not bound to adopt the assessment, made by the Central IncOme-tax Officer. On appeal, the Deputy Commissioner of Agricultural Income-tax and Sales Tax, South Zone, Quilon, held that the Agricultural Income-tax Officer could make independent computation of tea income and was not bound to adopt the assessment, made by the Central IncOme-tax Officer. On further appeal, the Kerala Agricultural Income-tax Appellate Tribunal, Trivandrum, held that the Agricultural Income-tax Officer was bound to accept the computation of tea income made by the Central Income-tax Authority. On a reference being made section 60(1) of the Kerala Agricultural Income-tax Act, 1950, the High Court, following its earlier decision in Commissioner of Agricultural Income-tax v. Perunad Plantation Ltd., held that the Agricultural Income-tax Officer was not obliged to accept the computation of tea income made by the Income-tax Officer acting under the Income-tax Act, and it was open to him to compute income independently applying the relevant provisions of the Income-tax Act and the Agricultural Income-tax Act. On the matter being carried by special leave to appeal, the Supreme Court after discussing its earlier decision in the case of Karimtharuvi Tea Estates Ltd. and over-ruling the decision of the Madras High Court in the case of Perunad Plantation Ltd. held:- “There is no provision in the Kerala Act authorising the Agricultural Income-tax Officer to disregard the computation of the tea income made by the Income-tax authorities acting under the Central Income-tax Act. The Agricultural Income-tax Officer in making an assessment of agricultural income is bound to accept the computation of the tea income already made by the Central Income-tax Authorities and to assess only 60 per cent, of the income so computed less allowable deductions as agricultural income taxable under the Kerala Act." 11. The learned counsel also referred to the observations of the Supreme Court in Williamson Financial Services case (supra) made in-paragraphs 36 and 37 to bring home the point that the assessing authority, under the -State Act, has no jurisdiction to make independent assessment apart from the one made under the Income-tax Act. 12. Mr. G.K. Joshi, senior counsel arguing for some of the petitioners submitted that the assessments have been made earlier to the decision of the Supreme Court in Williamson Financial Services case (supra). The income-tax authorities allowed the deductions of profit from export from the gross to arrive at the net income and from the said net income, an apportionment of 40% and 60% was made. The income-tax authorities allowed the deductions of profit from export from the gross to arrive at the net income and from the said net income, an apportionment of 40% and 60% was made. The income-tax authority earlier deducted tax from the net income of 40% and not from the gross income. ' 13. The State Act was challenged before this court. This court in Bazaloni Group Ltd. case (supra) held that the deduction from the net income is illegal and that the deduction of the profit from the exports to be made from the gross income accordingly both the income-tax authorities and the State authorities complied with the ratio of the decision and made assessments accordingly. The decision of this court was not challenged and had become finally binding and conclusive on the parties, on the basis of the later decision of the Supreme Court in Williamson Financial Services- case (supra); it is impermissible for the authorities under the Stale Act to reopen of the assessment because of the change in law. More so, in cases where the matter has been finally settled and has become binding on the parties. 14. The Advocate General for the State made reference to the ratio laid down by the Supreme Court in Williamson Financial Services case (supra) and argued that the ratio laid down is to the advantage of the State. It may be that the ratio of 40% and 60% may remain same, but the deduction permissible under section 80HHC, if it is to be affected from the net income of 40%, it makes much difference in the quantum of the income representing 60% available for the State to tax; therefore, the assessing authority under the State Act will have the jurisdiction to assess the agricultural income-tax proportionate to 60% and levy the tax accordingly. 15. On stern consideration of the submissions made at the Bar and upon going through the decisions of the Supreme Court cited above, it becomes explicit that the assessing authority under the State Act has no jurisdiction to assess the agricultural income independently and contrary to the assessment made by the assessing authority under the Income-tax Act. 15. On stern consideration of the submissions made at the Bar and upon going through the decisions of the Supreme Court cited above, it becomes explicit that the assessing authority under the State Act has no jurisdiction to assess the agricultural income independently and contrary to the assessment made by the assessing authority under the Income-tax Act. It is also, now, settled, in view of the decision of the Supreme Court in Williamson Financial Services case (supra) that the deduction under section 80HHC relating to profit from exports to be affected from the net income of 40% taxable under the Income-tax Act and not from the gross income. 16. In Assam Co. Ltd. case (supra), the Supreme Court also held that if there is any error in assessing the net income on the part of the Income-tax Authorities, the remedy for the State is to file appeal or invoke re visional jurisdiction under the Income-tax Act to get such erroneous assessments corrected. However, the assessing authority under the State cannot independently sit in appeal over the assessment made by the authorities under Income-tax Act. The remedy of appeal or revision is only solution available to the State in such a circumstance. 17. With regard to the assessment made pursuant to the decision of this court in Bazaloni Group Ltd. case (supra), it is needless to say that when the assessments are made pursuant to the decision of this court permitting deduction of profit from exports from the gross and when that issue has been finally and conclusively decided by this court and when no appeal has been filed against such decision, it would be binding on the State and income-tax authorities. On the ground of the change in law, they cannot reopen the assessments made earlier to the decision of the Supreme Court in Williamson Financial Services case (supra). The powers of revision under the Assam Agricultural Income-tax Act can be exercised only when in some of the cases where the assessments are being made pursuant to the decision of this court permitting deduction from the gross. It cannot be held that the said decision is erroneous. The powers of revision under the Assam Agricultural Income-tax Act can be exercised only when in some of the cases where the assessments are being made pursuant to the decision of this court permitting deduction from the gross. It cannot be held that the said decision is erroneous. It may be prejudicial to the interest of Revenue; however, if it is prejudicial to the interest of the Revenue, it may not debar the State to pursue remedy as suggested by the Supreme Court in Williamson Financial Services case (supra) by filing appeal or revision and in such appeal or revision under the Income-tax Act, the assessees, who have derived benefit of the decision of this court where the deduction pf profit from exports is effected from the gross, they would be at liberty to take up the contention that the matter has been finally decided and concluded and binds the parties. It may be a matter of defence for such of the assessees, who are affected. 18. In the light of the above reasons and discussions, the writ petitions are allowed. The impugned orders and the notices of the assessing authorities are quashed. 19. The connected miscellaneous cases are also disposed of.