# STATE OF TAMIL NADU v. KANNAN DEV AN IDLLS PRODUCE CO. LTD

- **Citation:** [1972] 1 S.C.R. 1016
- **Court:** Supreme Court of India
- **Decided:** 1971-10-07
- **Case number:** Civil Appeals Nos. 11751178 of 1970
- **Bench:** K. s. HEGDE, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-tamil-nadu-v-kannan-dev-an-idlls-produce-co-ltd-5318
- **Pages:** 6

## Headnote

Madras Agricultural Income-tax Act, 1955-Rules 7 and 8 made under
s. 6--Whether tea grown in Madras but manufactured in Kera/a corns
within the scope of the said Rules.
The respondent-assessee is a limited company carrying on the business
A
B
of tea planting,
A part of its tea estates was situated in Kerala and the
other part was in Tamil Nadu. According to the assessee, the estate in
question was working as one unit with one factory and common accounts
C
were maintained for. the whole estate.
For the assessment years 1956-57, 1957-58 and 1958-59, the Agricultural Income-tax Officer, Tamil Naclu, computed the Agricultural Income
in accordance with the assessment made by the Central Income-tax Officer
and took 60% of the income computed by the Central Income-tax Officer
for the purpose of computation of Agricultural Income. For the assessment year 19'60-61, however, the ~gricultural Income-tax Officer felt that
D
since the i(erala area of the estate yielcled only 656 lbs, of tea per acre
whereas the yield of Madras portion was 799 lbs. per-acre, he took the
valuation of the produce from the Madras portion as the gross receipt
wherefrom he deducted the expenditure allowed by the Central Income-tax
Officer and recalculated it from the Madras portion on the basis of acreage
thereby showing a profit from the Madras portion and made his assessment
accordingly.
The computation of the Central Income-tax Officer, howE
ever, showed a loss for the entire estate.
The Assistapt Commissioner of Agricultural Income-tax upheld the
order of Agricultural Income-tax Officer but the Tribunal set aside
the
assessment, and remanded the case to Assistant Commissioner ior certain
matters. The . departments further sought to reassess the assessee for the
earlier 3 years also and issued notices.
The assessee,
thereupon,
filed
writ petitions challenging the on!er of reopening the assessment.
A tax
F
revision was also filed , against the
order
of Agricultural Income-tax
Appellate Tribunal in respect of the assessment for the year 1960-61.
The writ petitions and the revision were allowed by the High Court and
the order of re9oening the assessment was quashed.
As
regards the
aisessment for the year 1960-61, the Agricultural Income-tax Officer was
directed to make a revised assessment on the basis of the Central Incometu Officer's computation which was considered by the High Court to be
the proper basi§, for assessment of Agricultural Income-tax for the year
G
1960-61.
On appeal, the Revenue strongly relied on s. 6 of the Madras ,
Agricultural Income-tax Act and rules 7 and 8 framed under that Act.
Disll'!-issing the appeals,
HELD : (I) Rules 7 and 8 made under s, 6 of the Madras,Agricultural Income-tax Act have no application in the present case because r. 7
deals with Agricultural Income from tea grown and manufactured in the
State of Madras. In the present case, though tea is grown in Madras it
H
is manufactured in Kerala which is outside that State. Therefore, r'. 7
does not apply. Similarly r. 8 does not. cover the case of tea which is
manufactured in another State and not in the State of Madras Tea leaves
,,
'
•
A
B
c
TAMIL NADU v. KANNAN DEVAN HILLS (Grover, J.)
1017
alone can be the produce of a particular State but as such they have no
value. They become valuable only after they are subjected to a special
proce8s, which takes place in Kerala. Therefore r. 8 has no applicability
to manufactured tea. [I 020 F]
(ii) A very small area of the estate is in the State of Madras and even
though that area is more fertile and gives much more yield than the area
in Kerala, the entire estate has to be assessed as a whole and the High
Court has rightly thought that Agricultural Income-tax Officer should
accept the computation of the Central Income-tax Officer which is the only
satisfactory basis for computation of agricultural Income-tax in respect of
the estate, especially when, the Agricultural Income-tax Officer has
not
given satisfactory reasons for not acc

## Text

1016
STATE OF TAMIL NADU
v.
KANNAN DEV AN IDLLS PRODUCE CO. LTD.
October 7, 1971
[K. s. HEGDE AND A. N. GROVER, JJ.]
Madras Agricultural Income-tax Act, 1955-Rules 7 and 8 made under
s. 6--Whether tea grown in Madras but manufactured in Kera/a corns
within the scope of the said Rules.
The respondent-assessee is a limited company carrying on the business
A
B
of tea planting,
A part of its tea estates was situated in Kerala and the
other part was in Tamil Nadu. According to the assessee, the estate in
question was working as one unit with one factory and common accounts
C
were maintained for. the whole estate.
For the assessment years 1956-57, 1957-58 and 1958-59, the Agricultural Income-tax Officer, Tamil Naclu, computed the Agricultural Income
in accordance with the assessment made by the Central Income-tax Officer
and took 60% of the income computed by the Central Income-tax Officer
for the purpose of computation of Agricultural Income. For the assessment year 19'60-61, however, the ~gricultural Income-tax Officer felt that
D
since the i(erala area of the estate yielcled only 656 lbs, of tea per acre
whereas the yield of Madras portion was 799 lbs. per-acre, he took the
valuation of the produce from the Madras portion as the gross receipt
wherefrom he deducted the expenditure allowed by the Central Income-tax
Officer and recalculated it from the Madras portion on the basis of acreage
thereby showing a profit from the Madras portion and made his assessment
accordingly.
The computation of the Central Income-tax Officer, howE
ever, showed a loss for the entire estate.
The Assistapt Commissioner of Agricultural Income-tax upheld the
order of Agricultural Income-tax Officer but the Tribunal set aside
the
assessment, and remanded the case to Assistant Commissioner ior certain
matters. The . departments further sought to reassess the assessee for the
earlier 3 years also and issued notices.
The assessee,
thereupon,
filed
writ petitions challenging the on!er of reopening the assessment.
A tax
F
revision was also filed , against the
order
of Agricultural Income-tax
Appellate Tribunal in respect of the assessment for the year 1960-61.
The writ petitions and the revision were allowed by the High Court and
the order of re9oening the assessment was quashed.
As
regards the
aisessment for the year 1960-61, the Agricultural Income-tax Officer was
directed to make a revised assessment on the basis of the Central Incometu Officer's computation which was considered by the High Court to be
the proper basi§, for assessment of Agricultural Income-tax for the year
G
1960-61.
On appeal, the Revenue strongly relied on s. 6 of the Madras ,
Agricultural Income-tax Act and rules 7 and 8 framed under that Act.
Disll'!-issing the appeals,
HELD : (I) Rules 7 and 8 made under s, 6 of the Madras,Agricultural Income-tax Act have no application in the present case because r. 7
deals with Agricultural Income from tea grown and manufactured in the
State of Madras. In the present case, though tea is grown in Madras it
H
is manufactured in Kerala which is outside that State. Therefore, r'. 7
does not apply. Similarly r. 8 does not. cover the case of tea which is
manufactured in another State and not in the State of Madras Tea leaves
,,
'
•
A
B
c
TAMIL NADU v. KANNAN DEVAN HILLS (Grover, J.)
1017
alone can be the produce of a particular State but as such they have no
value. They become valuable only after they are subjected to a special
proce8s, which takes place in Kerala. Therefore r. 8 has no applicability
to manufactured tea. [I 020 F]
(ii) A very small area of the estate is in the State of Madras and even
though that area is more fertile and gives much more yield than the area
in Kerala, the entire estate has to be assessed as a whole and the High
Court has rightly thought that Agricultural Income-tax Officer should
accept the computation of the Central Income-tax Officer which is the only
satisfactory basis for computation of agricultural Income-tax in respect of
the estate, especially when, the Agricultural Income-tax Officer has
not
given satisfactory reasons for not accepting the Central Income~tax Officer's
computation. [1020 HJ
Anglo American Direct Tea Trading Co. Ltd. v. Commissioner of Agricultural Income-tax, Kera/a, 64 l.T.R. 667, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 11751178 of 1970.
Appeals from the judgment and order d:rted
D~cember 9,
D
1964, of the Madras High Court in Tax Cas-~ No. 146 of 1963
and Writ Petitions Nos. 69& to 700 of 1963.
S. T. Desai and A. V. Rangam, for the appellant (in both the
appeals).
M. C. Chagla, B. D. Datta, l. B. Dadachanji, 0. C. Mathur,
I!:
Ravinder Narain a;nd Jay Jesepp, for the respondent (in all the
appeals).
'
H
The Judgment of the Court was delivered by
Grover, J.-These appeals from a common order of the
High Court of Madras are by certificate. The assessee, who is
the respondent is a limited company carrying on business of tea
planting. It owns several tea estates in the States of Tamil Nadu,
Kerala and Assam. Its head office is in Munnar in the S•ate of
Kerala.
One of the tea estates owned by the assessee is called
Chittavurai Tea Estate and com"rises 1043 acres of tea nhntations. Out of this an area of 1006.60 acres is situate in Kerala
and the remaining 36.40 acres, in Tamil Nadu. Acco·ding to the
assessee Chittavurai Estate is working as one unit. There is only
one factory manufacturing tea grown in the Madras and Ke,rala
portion of the estate. The expenses are incurred for the maintenance of the whole estate as one unit and common accounts are
maintained for it, there being no separate account for the Madras
portion.
1018
SUPREME COURT REPORTS
(1972] 1 S.C.R.
same definition is to be found in s. 2 of the Madras Agricultural
lncome tax Act 1955,_ hereinafter referred to as "Agricultural
Income tax Act". Under s. 59 of the Income tax Act the Central
Government can make rules to prescribe the manner and the procedure by which the income, profits and gains shall be arrived at
in the case of such concerns as carry on business in part as also
agricultural in Part. Under s. 59 of the Income tax Act ru;e 54
was framed by the Central Government. That rule provides that
income derived from the sale of tea grown and manufactured by
the seller in the taxable territories shall be computed as if it were
income derived from business and 40% of such income shall be
deemed to be income profits and gains liable to tax.
It is thus
clear that the remaining 60% of the'income will be deemed to be
agricultural income.
For the three assessment years 1956-57, 1957-58 and 19581959 the Agricultural Income tax Officer computed the agricultural income in accordance with the assessment made by the Central Income tax Officer. He took 60% of the income computed
by the letter for the purpose of computation of the agricultural
income.
For the assessment year 1960-61 the Agricultural Income tax Officer felt that so far as Chittavurai Estate was concerned the computation had to be made differently because the
area of 36.40 acres was situate in the State of Madras. He made
a different computation for the purpose of calculating the income
under the Income tax Act and then assessed 60% of that income
as agricultural income accruing in Madras. The Assistant Commissioner of Agricultural Income tax upheld his order. The Tribunal, however, set aside the assessment. It remanded the case
A
B
c
D
to the Assistant Commissioner for certain matters.
The department further sought to reassess the assessee for the earlier three
years also and issued a notice under s. 35 cf the Agricultural InF
come tax Act. Thereupon the assessee filed writ petitions in the
High Court challenging the order for reopening the assessment
for the assessment years 1956-57 to 1958-59. A tax Revision was
also filed against the order of the Agricultural Income tax Aopellate Tribunal in respect of the asses>me.nt for the vear I 960-61.
The writ petitions and the Revision were allowed bv the High c~urt.
The order reopening the assessments was quashed and as regards
assessment for the year 1960-61 the Agricultural Inc.-,me tax Officer
was directed to make a revised assessment en the basis of the Central Income tax Officer's comoutation which in the circumstances
of the case was considered to be the proper basis for assessment of
the agricultural income tax.
Now Agricultural Income tax Officer had taken the view that
the Kerala area of the Chittavurai Estate yielded only 656 lbs. of
tea per acre while the yield of the Madras ·portion was 799 lbs.
G
H
-~
,Y"
'·
~.
J
!-
A
TAMIL NADU v. KANNAN DEVAN HILLS "(Grover, I.)
1019
per acre.
A.ccording to him apportionment of expenditure by
treating the whole of Chittavurai Estate as one unit had resulted
in a loss for the Madras portion and a profit for the Kerala por·
tion. As pointed out by the High Court the computation by the
Central Income tax Officer showed. a loss for the entire Chitta·
vurai Estate.
It is not necessary to go into details of how the
B
computation was made by the Agricultural Income tax Officer.
The net result, however, was that whereas the Central Income
tax Officer had worked out the loss for the purpose of the Income
tax Act treafo1g the Chittavurai Estate as one unit, the Agricultural Income tax Officer took the valuation of the produce from
the Madras portion as the gross receipt. He deducted from it the
c expenditure allowed by the Central Income tax Officer and recalculated it from the Madras portion on the basis of acreage.
That led to a profit from the Madras portion.
Learned counsel for the Revenue has drawn our attention to
s. 6 of the Agricultural Income tax Act and Rules 7 and 8 framed
D
under that Acit. Sec.ion 6 provides that where agricultural income
is derived from land situated partly within the State and partly
without the State agricultural income tax shall be levied:-
E
F
G
H
(i) Where the portion of such income attributable
to the land situated within the State can be determined
from the "accounts maintained by the assessee, on the
portion so determined;
(ii) Where the portion of the income so attributable
cannot be determined by the me'.hod specified in clause
( i), on such portion as may be determined in the prescribed manner."
Rules 7 and 8 are as follows:-
R. 7 "Computation of income from tea.-In respect
of agricultural income from tea grown and manufactured by the seller in the State of Madras, 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 ordinarily be accepted by the
Agricultural Income tax Officer who may, for his satisfaction under sections 16 and 16 of the Act, obtain
further details from the assessee or from the Indian Income tax Officer but shall not without the
previous
sanction of the Assistant Commissioner of Agricultural.
1020
SUPREME COURT REPORTS
(1972] 1 S.C.R.
Income-taJC require under section 39, the production
of account books already examined by the Indian Income tax Officer for determining the agricultural income
from tea grown and manufactured in the State of
Madras or refuse to accept the
computation of the
Indian Income tax Officer :
Provided further. ............... "
R. 8 "Computation of income derived from lands
situated partly within the State and partly without."-
Where an agricultural income is derived from lands
situated partly within the State and partly without the
State and the income attributable to the lands situated
within the State cannot be determined by the assessee
but where the value of the produce grown within or
without the State can be separately determined from
the accounts
maintained by
the assessee,
such
income shall be computed in proportion to the value of
the respective quantity of produce raised within or without the State.
In other cases such
income shall be
computed in proportion to the
respective
cultivated
acreage of the crop lying within and without the State
if the crop grown is the same, subject to such modifications as may be necessary with reference to the yield
per acre, the quality of the produce and the price
fetched within and without the State."
A
B
c
D
E
The High Court rightly pointed out that R. 7 is applicable only
to agricultural income from tea grown and manufactured in the
State of Madras. It can have no applicability in the present case
where even though tea is grown inside that State but it is manuF
facti:red in Kerala which is outside that State. As regards R. 8
it is a moot poilllt whether the same would be applicable to tea.
So far as tea is concerned the tea leaves alone can be the produce
but as such they have no value.
They become valuable only
after they are subjected to a special process from which emerge
various brands of tea. Rule 7 has specifically been framed for
G
,computation of income from tea. Therefore, R. 8 can have no
applicability particularly when the language employed in it cannot cover the case of tea. We are unable to see how these two
rules can be of any avail or assistance to the Agricultural Income
taJC Officer in the present case.
It must be remembered that
Chittavurai Estate being of tea falls in a special class. It is only
H
a very small area of that estate which is in Ma.lras even though
that is more fertile and gives much more yield than the area in
Kerala but the unit bas to be assessed as a whole and the High
I
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B
c
J)
E
F
G
TAMIL NADU v. KANNAN DEVAN lilLLS (Grover, J.)
1()21
Court, in our opinion, rightly thought that the rule that the Agricultural Income tax Officer should accept the computation of the
Central Income -tax Officer fur~ishes the only satisfactory basis
for computa!Jon of agncultural mcome tax in respect of Chittavurai Estate. . It is noteworthy that even in the first proviso to
R. 7 the Agncultural Income tax Officer has been enjoined to
ordinarily accept the computation made by the Central Income
tax Officer. -Moreover the High Court which went into the facts
and figures of the various assessments came to the conclusion that
the Agricultural Income tax
Officer had not given
sufficient
reasons for not accepting the Central Income tax Officer's computation. That court, therefore, declined to give a finding on the
question whether the Central Income tax Officer's computa:ion
should be held to be legally binding in all cases and in all circumstances on the Agricultural Income tax Officer.
Our attention has been invited on behalf of the assessee to a decision of
this Court in Anglo-American Direct Tea Trading Co. Ltd. etc.
etc. v. Commissioner of Agricultural Income tax Kerala(').
In
that case it was held that agricultural income taxable under the
Kerala Agricultural Income tax Act 1950 was 60% of the income
computed under the Income tax Act · after deducting therefrom
tb~ allowances all'thorised by s. 5 of the Kerala Act insofar as the
same had not been allowed in the assessment under the Income
tax Act. There was no _provision in the Kerala Act or the Rules
authorising the Agricultural Income tax Officer to disregard the
computation of the tea income made under the Income tax Act.
If, therefore, an assessment had been made by the Central Income
tax Officer before the assessment of income by the Agricultural
Income tax Officer the latter was bound to, accept the computation of the income made by the Central income tax authorities.
The principle which has been applied in the present case by the
High Court is on the same lines and it is unnecessary for us to
express any opinion on the question whether in every case the
Agricultural Income tax Officer is bound to accept the computation made by the Central Income tax authorities and only all~
additional deduction which may be permissible under the Agncultural Income tax Act.
The appeals fail and are dismissed with costs. Hearing fee,
one set.
S.N.C.
Appeal dismissed.
(1) 691.T.R. 667.