# ' • TATA TEA LTD. & ANR. ETC v. STATE OF WEST BENGAL & ORS. ETC

- **Citation:** [1988] 3 S.C.R. 961
- **Court:** Supreme Court of India
- **Decided:** 1988-05-05
- **Bench:** R.S. Pathak, M.H. Kania
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tata-tea-ltd-anr-etc-v-state-of-west-bengal-ors-etc-10091
- **Pages:** 28

## Headnote

Bengal Agricultural Income-tax (Amendment) Act, 1980-Challenging constitutional validity of sections 3 and 5 of.
Agricultural Income-tax (Amendment) Act, 1980 (Kera/a Act No.
A
B
17 of 1980 )-Challenging amendment made by-Resulting in deletion
C
of Explanation after clause (2) of section 2(a) of Agricultural Income-tax
Act, 1950.
Whether entire income of assessee from sale of tea grown and
manufactured by him is subject to levy of agricultural income-tax.
These Writ Petitions, filed in this Court by Public Limited Companies growing, manufacturing and selling tea in the States of West
Bengal and Kerala raised common questions of law.
The Writ Petitions relating to the State of West Bengal challenged
D
the constitutional validity of sections 3 and 5 of the Bengal Agricultural
E
Income-tax (Amendment) Act, 1980, whereby sub-section (2) and (2A)
of section 8 of the Bengal Agricultural Income-tax Act, 1944 were omit•
ted and always deemed to be omitted. The petitioners alleged that as a
result of the omission of the said Sub-sections (2) and (2A) of section 8, the
State Legislature had sought to assume the power, competence and
jurisdiction to impose agricultural income-tax on the entire income .F
from the sale of tea grown and manufactured by a seller and had
thereby transgressed the constitutional limitations contained in Article
246(3) of the Constitution of India. The petitioners contended that the
income derived from the sale of tea grown and manufactnred by them
was derived partly from agriculture and partly from mannfacture by
elaborate processes through valuable machinery. Prior to the said G ·
amendment Act, the position was that the income of an assessee who
grew, manufactured and sold tea in West Bengal, was computed under
the Indian Income-tax Act, 1922 (the Act of 1922) read with the Incometax Rules, 1922, and agricultural income-tax was levied only in respect
of 60 per cent of that income. After the coming into force of the Incometax Act, 1961 and the Income-tax Rules, 1962 also a State Legislature
H
961
962
SUPREME COURT REPORTS
[19881 3 S.C.R.
"'
A
could only legislate in respect of 60 per cent of the income, treated as
agricultural income. The object of the impugned amendment Act, was
to subject to the levy of agricultural income-tax, the entire income
derived by an assessee from the sale of tea grown and manufactured by
him.
B
The writ petition relating to Kerala State challenged the amendment made by the Agricultural Income-tax (Amendment) Act, 1980
(Kerala Act No. 17 of 1980) deleting the Explanation after clause (2) of
section 2(a) of the Agricultural Income-tax Act, 1950, with a view to
making the entire income from sale of tea earned by an assessee who l
grew and manufactured tea in that State subject to the levy of agriculc tural income-tax.
The petitioners urged that these amendments, in so far as they
purported to confer power on the respective legislatures of the States of
West Bengal and Kerala to legislate regarding taxes on the income from
the sale of tea grown and manufactured by the assessees in excess of 60
D per cent of such income computed in the manner prescribed under the
law relating to income-tax were void and beyond the legislative competence of the legislatures of the States of West Bengal and Kerala in view
of the provisions of Article 246 of the Constitution of India read with the
entry 82 in List I and Entry 46 in the List II of the Seventh Schedule to
~
the Constitution and the relevant provisions ·or the law relating to
E
income-tax.
The respondents contended that Article 366(1) of the Constitution
merely stated that the term "agricultural income" had the same mean·
ing as given to it in the enactments relating to income-tax and the
definition of the said term in Act of 1922 and the Act of 1961 did not y
F
prescribe that only a particular part of the income derived by an asses·
see from the sale of tea grown and manufactured by him could be
regarded as agricultural income, and it was o

## Text

_Characters 0–39,823 of 68,217. This is a partial read: ask again with offset=39823 for what follows._

'
•
TATA TEA LTD. & ANR. ETC.
v.
STATE OF WEST BENGAL & ORS. ETC.
MAY 5, 1988
[R.S. PATHAK, CJI AND M.H. KANIA, J.]
Bengal Agricultural Income-tax (Amendment) Act, 1980-Challenging constitutional validity of sections 3 and 5 of.
Agricultural Income-tax (Amendment) Act, 1980 (Kera/a Act No.
A
B
17 of 1980 )-Challenging amendment made by-Resulting in deletion
C
of Explanation after clause (2) of section 2(a) of Agricultural Income-tax
Act, 1950.
Whether entire income of assessee from sale of tea grown and
manufactured by him is subject to levy of agricultural income-tax.
These Writ Petitions, filed in this Court by Public Limited Companies growing, manufacturing and selling tea in the States of West
Bengal and Kerala raised common questions of law.
The Writ Petitions relating to the State of West Bengal challenged
D
the constitutional validity of sections 3 and 5 of the Bengal Agricultural
E
Income-tax (Amendment) Act, 1980, whereby sub-section (2) and (2A)
of section 8 of the Bengal Agricultural Income-tax Act, 1944 were omit•
ted and always deemed to be omitted. The petitioners alleged that as a
result of the omission of the said Sub-sections (2) and (2A) of section 8, the
State Legislature had sought to assume the power, competence and
jurisdiction to impose agricultural income-tax on the entire income .F
from the sale of tea grown and manufactured by a seller and had
thereby transgressed the constitutional limitations contained in Article
246(3) of the Constitution of India. The petitioners contended that the
income derived from the sale of tea grown and manufactnred by them
was derived partly from agriculture and partly from mannfacture by
elaborate processes through valuable machinery. Prior to the said G ·
amendment Act, the position was that the income of an assessee who
grew, manufactured and sold tea in West Bengal, was computed under
the Indian Income-tax Act, 1922 (the Act of 1922) read with the Incometax Rules, 1922, and agricultural income-tax was levied only in respect
of 60 per cent of that income. After the coming into force of the Incometax Act, 1961 and the Income-tax Rules, 1962 also a State Legislature
H
961
962
SUPREME COURT REPORTS
[19881 3 S.C.R.
"'
A
could only legislate in respect of 60 per cent of the income, treated as
agricultural income. The object of the impugned amendment Act, was
to subject to the levy of agricultural income-tax, the entire income
derived by an assessee from the sale of tea grown and manufactured by
him.
B
The writ petition relating to Kerala State challenged the amendment made by the Agricultural Income-tax (Amendment) Act, 1980
(Kerala Act No. 17 of 1980) deleting the Explanation after clause (2) of
section 2(a) of the Agricultural Income-tax Act, 1950, with a view to
making the entire income from sale of tea earned by an assessee who l
grew and manufactured tea in that State subject to the levy of agriculc tural income-tax.
The petitioners urged that these amendments, in so far as they
purported to confer power on the respective legislatures of the States of
West Bengal and Kerala to legislate regarding taxes on the income from
the sale of tea grown and manufactured by the assessees in excess of 60
D per cent of such income computed in the manner prescribed under the
law relating to income-tax were void and beyond the legislative competence of the legislatures of the States of West Bengal and Kerala in view
of the provisions of Article 246 of the Constitution of India read with the
entry 82 in List I and Entry 46 in the List II of the Seventh Schedule to
~
the Constitution and the relevant provisions ·or the law relating to
E
income-tax.
The respondents contended that Article 366(1) of the Constitution
merely stated that the term "agricultural income" had the same mean·
ing as given to it in the enactments relating to income-tax and the
definition of the said term in Act of 1922 and the Act of 1961 did not y
F
prescribe that only a particular part of the income derived by an asses·
see from the sale of tea grown and manufactured by him could be
regarded as agricultural income, and it was open to the State Legisla·
tores concerned to levy agricultural income-tax on such entire income.
Disposing of the petitions, the Court,
G
HELD: The main question to be considered was whether the im-
>-
pugned provisions in the Bengal Amendment Act of 1980 were in excess
of the legislative competence of West Bengal State Legislature, and
whether by deletion of the Explanation effected by the Kerala Amendment Act of 1980, the definition of the term "agricultural income" in
H sub-section (a) of Section 2 of the Kerala Agricultural Income-tax Act
TATA TEA LTD. v. STATE OF WEST BENGAL
963
became void as in excess of the legislative competence of the State
A
Legislature. [978D-EJ
A perusal of Entry 82 of the List I in the Seventh Schedule and
Entry 46 in the List II makes it clear that the Legislatures of the States
of West Bengal and Ker ala can pass laws imposing taxes only in respect
B
of agricultural income, and in respect of income other than the agricultural income, it is only the Parliament which has the power to
legislate in respect of taxes on such income. Sub-article (I) of Article
366 of the Constitution states that "agricultural income" means such
income as is defined as "agricultural income" for the purposes of the
enactments relating to Indian income-tax. It is significant that the
words used are not "as defined by the enactments relating Indian
C
Income-tax" but are "as defined for the purposes of the enactments
relating to Indian lncome-tax"(emphasis supplied). [978F-G I
Although the Explanation has been deleted from clause (2) of
Sub-section (a) of Section 2 of the Kerala Agricultural Income-tax Act,
D
and in spite of the amendments carried out by the Amendment Act of
1979 and the Amendment Act 1980 in the case of the West Bengal
Agricultural Income-tax Act, an Agricultural Income Tax Officer acting under the Kerala Agricultural Income-tax Act or the Bengal
Agricultural Income tax Act has no power to levy agricultural incometax except in respect of 60 per cent of the income derived by an assessee
from the sale of tea grown and manufactured by him and computed in
the manner leid down under the relevant Income-tax Act and the rules
framed the'rennder. [984B-CI
E
The decision of this Court in Commissioner of Sale~ Tax, Lucknow v. D.S. Bist, [19791 44 S.T.C. 392, relied upon by the State of
Kerala and the State of West Bengal was of no assistance to them as the
F
ratio of that decision had no application to present cases. [986AI
Article 366(1) of the Constitution provides that the term "agricultural income" has the same meaning as attributed to it for the purposes
of enactments relating to Indian inocme-tax, and Rule 8 of the Incometax Roles, 1962 as well as Rule 24 of the Income-tax Rules 1922, pertain
to and are bound up with the definition of the term "agricultural
income" for the purposes of laws or enactments pertaining to Indian
Income-tax and the provisions of those rules have to be taken into
account in considering the meaning of the term ''agricultural income''
under sub-article (I) of Article 366 of the Constitution. [987B-D I
G
H
964
SUPREME COURT REPORTS
[1988] 3 S.C.R.
A
Clause (b) of sub-section (2) of Section 295 of the Income-tax Act,
1961 specifically confers power on the rule-making authority to make
rules relating to the manner in which and the procedure by which
income for the purposes of the Act of 1961 would be arrived at in the
case of income derived in part from agriculture and in part from business and Rule 8 clearly provides for the manner in which computation
B of income for the purposes of the Act of 1961 is to be made in the case of
income derived from the sale of tea grown and manufactured by a seller
and it cannot be said that the said rule goes beyond the scope of the
rule-making power conferred under section 295, d
contended by
counsel for the two States. [987E-F]
C
Although the Explanation to Section 2(a) (2) of the Kerala
Agricultural Income-tax Act has been deleted by the Amendment Act
of 1980, the result would still be the same that the Kerala State Legislature can impose tax only in respect of 60 per cent of the income derived
by an assessee who sells tea grown and manufactured by him in India
and such income has to be computed in the manner laid down in the Act
D of 1922 and thereafter in the Act of 1961 for computation of the business
income. The same is the position in respect of the powers of the legislature of the State of West Bengal in spite of the amendments made by the
legislature by the Amendment Act of 1980 and earlier under the amending Act of 1979 which was in force for one year. It is not necessary to
strike down the said amendments because they do not directly conflict
E with the definition of the term "agricultural income" under the Constitution, but they do not confer any wider power on the State Legislature to impose taxes on the agricultural income then what is stated
earlier. [987G-H; 988A-B]
The validity of the amendments to the Bengal Agricultural
F Income-tax Act made in 1980 and the deletion of the Explanation in
Section 2(a)(2) of the Kerala Agricultural Income-tax Act were challenged as being ultra vires and invalid in law on several other grounds
but the Court did not go into those grounds in view of what it held as set
out above. [988C-D]
G
Although none of the prayers in the petitions was granted in
terms, the petitioners substantially succeeded in the petitions. 1988E]
~
Karimtharuvi Tea Estates Ltd. & Anr. v. State of Kera/a & Ors.,
[1965] 48 I.T.R. 85; Anglo American Direct Tea Trading Co. Ltd. etc.
v, Commissioner of Agricultural Income-tax, Kera/a, [1968] 69 ITR
H 667; State of Tamil Nadu v, Kannan Devan Hills Produce Co. Ltd.,
•
TATA TEA LTD. v. STATE OF WEST BENGAL [KANIA, J.]
965
[1972] 84 I.T.R. 475; Tea Estate India P. Ltd. v. Commissioner of A
Income-tax, West Bengal II, [1976] 103 I.T.R. 785; Commissioner of
Income-lax, Madras v. R.M. Chidambaram Pillai etc., [1977] 106
I. T.R. 292; Commissioner of Sales Tax, Lucknow v, D.S. Bist & Ors.,
[19791 44 S.T.C. 392; and High Land Produces Co. Ltd. & Anr. etc. v.
Inspecting Asstt. Commr. of Agricultural Income-tax & Sales Tax (Spej
cial), Kottayam and Ors. etc., [1984] 148 I.T.R. 746, referred to.
B
ORIGINAL JURISDICTION: Writ Petitions Nos. 5409-10,
5411-12/80, 358 & 12807-12808/84.
(Under Article 32 of the Constitution)
Dr. Devi Paul, Ms. M. Seal, H.K. Dutt for the petitioners in
WP. Nos. 5409-12/80, 12807-12808/84.
Dr. V. Gauri Shankar, P.N. Tiwari, Manoj Arora, S. Rajappa
and S.R. Srivastava for the petitioners in WP. No. 358/84
P.S. Poti, V.J. Francis and N.M. Popli, for Respondents in WP.
Nos. 5411-12/80
S.C. Manchanda, B.B. Ahuja and Ms. A. Subhashini for the
U.0.1.
Tapas Ray, H.K. Puri, G.S. Chatterjee and Dalip Sinha for Respondents in 12807-08, 5409-10/80
D .P. Mukherjee, for the Intervenor.
~
The Judgment of the Court was delivered by
KANIA, J. These writ petitions are filed by Public Limited Companies growing and manufacturing tea in the States of West Bengal
and Kerala respectively. Although, there are some differences in the
facts, the material facts are largely common and the questions raised in
the petitions can be fairly regarded as common questions of law. They
"4,
are, therefore, being disposed of together by this common judgment.
The Petitioners in Civil Writ Petitions Nos. 5409-10 of 1980 are
the Tata Tea Limited and a shareholder of the said Company. These
petitions are directed againstthe State of West Bengal, Commissioner
c
D
E
F
G
of Agricultural Income-tax of West Bengal, West Bengal Agricultural
H
966
SUPREME COURT REPORTS
[1988] 3 S.C.R.
A Income-tax Officer, Calcutta Range-I, Union of India and Income-tax
Officer, 0-Ward, Companies District-II, Calcutta. The Petitioners in
Civil Writ Petitions Nos. 5411-12of1980 are also the Tata Tea Limited
and a shareholder thereof. The Respondents are State of Kerala,
Commissioner and Assistant Commissioner of Agricultural Incometax at Kerala, Union of India and the concerned Income-tax Officer.
B The Petitioners in other writ petitions are Tea Companies and shareholders thereof and the Respondents are ranged on similar lines as
above.
The Petitioners are Public Limited Companies growing as well as
manufacturing tea and selling the same. As far as the petitions directed
C against the State of West Bengal are concerned, the challenge therein
is to the constitutional validity of Sections 3 & 5 of the Bengal Agricultural Income-tax (Amendment) Act, 1980. The Bengal Agricultural Income-tax Act, 1944 provides for the levy and collection of
agricultural income-tax in the then Province of Bengal, the predecessor Province to the present State of West Bengal and, after the coming
D into force of the Constitution, the State of West Bengal. By the said
amending Act, for the first time, sub-sections (2) & (2A) of Section 8
of the Bengal Agricultural Income-tax Act were omitted and always
deemed to have been omitted. It is alleged by the Petitioners that as a
result of the omission of sub-sections (2) & (2A) of Section 8 of the
Bengal Agricultural Income-tax Act, 1944, the State Legislature has
E
sought to assume the power, competence and jurisdiction to impose
agricultural income-tax on the entire income derived from the sale of
tea grown and manufactured by a seller and has thereby transgressed
the constitutional limitations contained in Article 246(3) of the Constitution of India read with Entry 46 of List II of the Seventh Schedule
to the Constitution of India.
F
In the aforesaid Writ Petitions Nos. 5409-10 of 1980 the process
of manufacturing tea has been described in some detail. To put it very
briefly, the green tea grown by the tea growers is withered by exposure
to air under natural or controlled conditions. Certain machinery and
equipment is required for the aforesaid process. The object of witherG ing is partial dehydration of shoots to make them leathery and flaccid
for rolling and chemical changes. The change brounght about is the
increase in caffeline, soluble sugars and amino acids. The second process involves rupture and distortion of tea shoots into smaller ·sizes to
allow mixing of enzymes and substrates. This is known as rolling. The
process of rolling is carried out by mechanical bruising, tearing, cutH ting, crushing breaking and twisting tea leaves for which crank roller/
•
~
TATA TEA LTD. v. STATE OF WEST BENGAL [KANIA, J.]
967
rotorvane/C.T.C. machines are employed. The third process is of A
fermentation which involves exposure to,air under controlled tempra'
ture. For this the equipment required is fermentation chamber/trags/
floor/troughs. As a result of this process, the colour of tea changes
from green to coppery. The next process is of drying or roasting for
stoppage of fermentation: dehydration to ensure keeping the quality
of the product. Drying or roasting has to be done at a temperature of B
30 degree celsius and humidity exposure to blast ·of hot air in a counter
current dryer. The equipment required for !his is a conventional tea
dryer. As a result of this process, the moisture in the tea is reduced to 4
,
per cent and it becomes black in colour. This manufacturing process is
applied to tea leaves in a factory which is situated within the garden
area owned by the Petitioner and licensed under the Factories Act. It c,
is averred that the carrying out of the aforesaid processes is a
specialised operation involving the application of modern methods-of
bio-chemical engineering. The cleaning of the tea is then done with
machines according to various sizes like broken pekoe, broken orange
pekoe, pekoe dust, dust, churmani dust and so on. There are other
also other brands of tea produced by the aforesaid process. It is needD
less to consider these processes in detail except to state that they are
quite elaborate and, in the cases before us, valuable machinery is
being used for carrying out these processes· which are carried out in
~
factories.
The case of the Petitioners is that the income derived from the
E
sale of tea grown and manufactured as aforesaid is derived partly from
•
agriculture and partly from manufacture. Under the Indian Incometax Act, 1922 (referred to hereinafter as "the Act of 1922") and the
Rules framed thereunder the income derived from the sale of tea
y
grown and manufactured by a seller, has to be computed in the manner
laid down in Rule 24 of the Income-tax Rules, 1922 and 40 per cent of
F
the income so computed is treated as income other than agricultural
income and the remaining 60per cent is treated as agricultural income.
In respect of the income other than agricultural income, it is the Union
Parliament which has and before the coming into force of the Constitution the Centre Legislature which had the power to legislate in respect
of taxes; and in respect of the agricultural income, the legislative
G
i
power in respect of taxation was left to the Provinces under the Govemment of India Act, 1935 and to the States under the Constitution.
The Bengal Agricultural Income'tax Act, 1944 enacted by the Provincial Legislature of Bengal defined agricultural income in identical
terms as contained in Section 2(1) of the Act of 1922. The Bengal
Agricult.ural Income-tax Act further provided by sub-section (2) of
H
968
SUPREME COURT REPORTS
I 1988) 3 S.C.R.
A Section 8 that notwithstanding anything contained that Act, in the case
of tea grown in West Bengal and sold by the grower himself or his
agents after manufacture, the agricultural income derived therefrom
shall be deemed to be that portion of the income computed as
aforesaid under the Act of 1922 on which income-tax was not payable
B
c
under the Act of 1922 and agricultural income-tax was levied on the
whole of such agricultural income. As a result of this, the position was
that the income of an assessee who grew, manufactured and sold tea in
West Bengal was computed in the manner laid down in the Act of 1922
read with Income-tax Rules, 1922 and agricultural income-tax was
levied only in respect of 60 per cent of that income. On coming into
force of the Income-tax Act, 1961 which replaced the Act of 1922, the
position remained the same. The Income-tax Act, 1961 (referred to
hereinafter as "the Act of 1961") came into effect from 1st April,
1962. The definition of agricultural income in the Act of 1961 is contained in sub-section (1) of Section 2 of that Act and is in pari materia
with the definition of the said term in the Act of 1922. Rule 8 of the
Income-tax Rules, 1962 is in pari materia with Rule 24 of the IncomeD
tax Rules, 1922. As a result of this even after the Act of 1961 and the
Income-tax Rules, 1962 came into force, a State Legislature could only
legislate in respect of taxes regarding that part of the income computed
by the Income-tax Officer concerned as aforesaid which is treated as
agricultural income, namely, 60 per cent of it.
E
In 1979, the Legislature of the State of West Bengal enacted the
Bengal Agricultural Income-tax (Amendment) Act, 1979. By the said
Amendment Act, sub-section (2A) was added after sub-section (2) in
Section 8 of the Bengal Agricultural Income-tax Act, 1944. Very
briefly put, the said sub-section (2A) gave powers to the Agricultural
Income-tax Officer to make the computation of income derived from
F
tea in cases where it had not been computed for the purposes of assessment of income-tax under the Act of 1961 or, although computed, the
assessment under the Act of 1961 had been annulled or set aside under
that Act and no order of assessment under Section 25 had been made
within six years from the end of the year in which the agricultural
income was first assessable in the manner and subject to the limitations
G
and conditions set out in the ;aid sub-section. It is not really necessary
for us to consider this provision further in the view which we have
taken. Moreover, this Amendment Act remained in force only for the
period 1979-80 after which it was replaced by the Amendment Act of
1980. The West Bengal Legislature in 1980 amended the Bengal
Agricultural Income-tax Act by the Bengal Agricultural Income-tax
H '(Amendment) Act, 1980. By the said Amendment Act, sub-sections
•
•
TATA TEA LTD. v. STATE OF WEST BENGAL [KANIA, Li
969
(2) and (2A) of Section 8 of the Bengal Agricultural Income-tax were
deleted and always deemed to have been deleted as already pointed
out and Section 25(4) of that Act was omitted. Section 7 of the
Amendment Act provided for cases where the asessment under the
Act of 1961 of any agricultural income derived from tea was made
before coming into force of the Amendment Act but we are not concerned with that section. Under the petition, the challenge is to the
validity of Sections 3 and 5 of the Amendment Act whereby the
aforesaid sub-sections (2) and (2A) of Section 8 were omitted with
retrospective effect and Section 25( 4) was omitted. It is submitted in the
petition that, from the speech of the Finance Minister at the time of
introducing the Bill for carrying out the amendments, as well as from
A
B
the affidavit in reply filed by the State of West Bengal, it is clear that
C
the entire object of the amendments was to subject to the levy of
agricultural income-tax, the entire income derived by an assessee from
the sale of tea grown and manufactured by him.
We come next to the petitions against the State of Kerala. Under
the Agricultural Income-tax Act, 1950 passed by the Legislature of the
State of Kerala, "agricultural income" is defined in the same maner as
under the Act of 1922 and there was an Explanation after clause (2) in
Section 2 (a) stating that agricultural income derived from land used
l
for agricultural purposes by the cultivation of tea leaves means that
(
portion of the income derived from the cultivation, manufacture and
sale of tea as is defined to be agricultural income for the purposes of
enactments relating to the Indian Income-tax Act. By an Act called
"The Agricultural income-tax (Amendment) Act, 1980" (Kerala Act
No. 17 of 1980), the Kerala Agricultural Income-tax Act was amended
and the said Explanation was deleted. It was submitted that this dele-
·-'y tion was made with a view to make the entire income earned by an
: . assessee who grew and manufactured tea from the sale of tea subject to
the levy of agricultural income-tax. Here again, it was pointed out
that, from the speech of the Finance Minister at the time of introducing the Bill concerned and the stand taken in Court by the .State of
Kerala, it was clear that the entire object of the amendment was to
make the entire income derived. by an assessee as aforestated liable
to the levy of agricultural income-tax. These submissions were adopted
.i_
by the learned Counsel who appeared for the other Petitioners and by
Mr. Manchanda who appeare for the Union of India. It is submitted by
Dr. Paul, learned Counsel for the Tata Tea Company that the aforesaid amendments, in so far as they purport to confer power on the
respective legislatures of the State of West Bengal and the State of
Kerala to legislate regarding taxes on the income from the sale of tea
D
E
F
G
H
970
SUPREME COURT REPORTS
[1988) 3 S.C.R.
A grown and manufactured by an assessee in excess of 60 per cent of such
income computed in the manner prescribed under the law relating to
income-tax are void and of no legal effect as they are beyond the
legislative competence of the respective legislatures of the States of
West Bengal and Kerala respectively in view of the provisions of Article 246 of the Constitution read with Entry 82 in List I and Entry 46 in
B List II in the Seventh Schedule to the Constitution and the relevant
provisions of the law relating to income-tax.
Dr. Paul, learned Counsel for Tata Tea Company and Tata
Finlay Company further submitted that, if the entire income derived
from the sale of tea grown and manufactured by an assessee were to be
C regarded as agricultural income, the result would be that the Parliament would not have any competence to legislate in respect of taxes on
the same with the result that the provisions of the Act of 1922 and the
Act of 1961 imposing the levy of income-tax on any part of such
income would become ultra vires. This particular submission was not
supported by Dr. Gauri Shankar who appeared for Petitioner in W .P.
D No. 358 of 1984 and was opposed by Mr. Manchanda who appeared for
the Union oflndia.
As far as the State of West Bengal and the State of Kerala are
concerned, they are represented by learned Counsel, Mr. Potti and
Mr. Tapas Ray respectively. It was urged by Mr. Patti and Mr. Ray
E that Article 366(1) of the Constitution merely states that the term
'agricultural income" has the same meaning as given to it in the enactments relating to income-tax, that the definition of the said term in the
Act of 1922 and the Act of 1961 did not prescribe that only a particular
portion of the income derived by an assessee from the sale of tea
grown and manufactured by him can be regarded as agricultural
F income and herice it was open to the State Legislatures concerned to
levy agricultural income-tax on such entire income. Alternatively, it
was submitted by them that, in any event, in law, the entire income
derived from the sale of tea by an assessee growing and manufacturing
tea must be held to be agricultural income in view of the decision of the
Supreme Court in the case of Bist & Co. (which we propose to refer to
G more particularly hereinafter) and hence the State Legislature was
entitled to levy agricultural income-tax on the same. The Parliament
had no power to legislate in respect of such income.
In order to examine the correctness of these contentions, certain
relevant provisions of law may be noted at this stage. Under Article
H 246( 1) of the Constitution, Parliament has exclusive power .to legislate
-{
TATA TEA LTD. v. STATE OF WEST BENGAL [KANIA, J.J
971
>-
with respect to any of the matters enumerated in List I in the Seventh
A
Schedule to the Constitution which is referred to in the Constitution as the "Union List". Clause (3) of that Article prescribes that
a Legislature of a State has exclusive power to make laws with respect
to any of the matters enumerated in List II in the Seventh Schedule
(referred to in ihe Constitution as the "State List"). Clause (2) of the
)-
said Article provides that both Parliament and State Legislatures have
B
power to make laws with respect to any of the matters enumerated in
List III in the Seventh Schedule called the "Concurrent List". Entry 82
in List I or the Union List reads "taxes on income other than
,
agricultural income." Entry 46 of List II (State List) reads "taxes on
agricultural income". Article 366 of the Constitution contains definilions and sub-Article (!}thereof reads as follows:
c
"Agricultural income means agricultural income as
defined for the purposes of the enactments relating to
Indian Income-tax Act."
The material portion of sub-section (1) of Section 2 of the Act of
D
1922 (Indian Income-tax Act, 1922) defines agricultural income as
follows:
"Agricultural income means:
(a) any rent or revenue derived from land which is
E
used for agricultural purposes, and is either assessed to
•
land-revenue in the taxable territories or subject to a local
rate assessed and collected by officers of the Government
as such;
~
(b) any income derived from such land by
F
(i) agriculture, or
(ii) the performance by a cultivator or receiver of
rent-in-kind of any process ordinarily employed
by a cultivator or receiver of rent-in-kind to renG
J.
der the produce raised or received by him fit to
be taken to market, or
(iii) the sale by a cultivator .or receiver of rent-inkind of the produce raised or received by him, in
respect of which no process. has been performed H
A
B
c
D
E
F
G
H
972
x
SUPREME COURT REPORTS
[1988] 3 S.C.R.
other than a process of the nature described in
sub-clause (ii);
x
x
x
x"
Clause ( c) of the said sub-section and the Proviso thereto are not
material for our purposes.
Section 59 of the Act of 1922 deals with the powers to make
rules. Sub-section (1) confers power on the Central Board of Revenue,
subject to the control of the Central Government, to make rules for
carrying out the purposes of the Act of 1922 and for the ascertainment
and determination of any class of income. The material portion of
sub-section (2) of that section runs as follows:
"Without prejudice to the generality of the foregoing
power, such rules may
(a) prescribe the manner in which, and the procedure by which, the income, profits and gains shall be
arrived at in the case of
(i) incomes derived in part from agriculture and in
part from business;
x
x
x
x
x"
Sub-section (5) of Section 59 reads as follows:
"Rules made under this section shall be published in the
Official Gazette, and shall thereupon have effect as if enacted in this Act."
Rule 24 of the Income-tax Rules, 1922 deals with the computation of income derived from the sale of tea grown and manufactured by
the seller and that rule runs as follows:
"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 per cent of such income shall be deemed to be income,
profits and gains liable to tax:
• ,
•
TATA TEA LID. v. STATE OF WEST BENGAL [KANIA, J.[
973
Provided that in computing such income an allowance A
shall be made in respect of the cost of planting bushes in
replacement of bushes that have died or become permanently useless in an area already planted, unless such area
has previously been abandoned."
Sub-section (1) of Section 2 of the Act of 1961 (Income-tax Act, B
1961) defines the term "agricultural income". The material portion of
that definition is similar to the definition contained in the Act of 1922
and .runs as follows:
"(1) "agricultural income" means
c
(a) any rent or revenue derived from land which is situated
in India and is used for agricultural purposes;
(b) any income derived from such land by
(i) agriculture; or
D
(ii) the performance by a cultivator or receiver of
rent-in-kind of any process ordinarily employed by a
cultivator or receiver of rent-in-kind to render the
produce raised or received by him fit to be taken to
market; or
E
(iii) the sale by a cultivator or receiver of rent-inkind of the produce raised or received by him, in
respect of which no process has been performed other
than a. process of the nature described in paragraph
(ii) of this sub-clause".
F
Clause (c) of the said sub-section is not material for our purpose.
Section 295 of the Act of 1961 deals with the power to make rules. The
relevant portion of that section runs as follows:
"(1) The Board may, subject to the control of the
G
Central Government, by notification in the Gazette of
India, make rules for the whole or any part of India for
carrying out the purposes of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all
H
A
B
c
D
E
F
G
974
SUPREME COURT REPORTS
11988] 3 S.C.R.
or any of the following matters
(a) the ascertainment and determination of any class
of income;
(b) the manner in which and the procedure by which
the income shall be arrived at in the case of-
(i) income derived in part from agriculture and in
part from business;
x
x
x
x
x
x"
The Board referred to in Section 295(1) is the Central Board of Direct
taxes.
Section 296 provides inter alia that a rule framed under Section
295 shall be laid, as soon as may be after the rule is made, before each
House of Parliament and shall have effect subject to any modification
or deletion made by both Houses of Parliament. Rule 7 of the Incometax Rules, 1962 made under Section 295 of the Act of 1961 deals with
income which is partially agricultural and partially from business. Rule
8 deals with income from the manufacture of tea and the said rule runs
as follows:
"(1) 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 forty per cent of
such income shall be deemed to be income liable to tax.
(2) In computing such income an allowance shall be made
in respect of the cost of planting bushes in replacement of
bushes that have died orbecome'permanently useless in an
area already planted, if such area has not previously been
abandoned, and for the purpose of determining such cost,
no deduction shall be made in respect of the amount of any
subsidy which, under the provisions of clause (30) of Section 10, is not includible in the total income."
Section 7 of the Bengal Agricultural Income-tax Act, 1944 deals
with the computation of tax and allowances under the head "AGRICULTURAL INCOME FROM AGRICULTURE". Section 8 of that
H
Act deals with the computation of tax on mixed income. Sub-section
•
TATA TEA LID. v. STATE OF WEST BENGAL [KANIA, J.]
975
(1) of Section 8, very briefly stated, prescribes that in case of such
A
mixed income which is partly agricultural and is assessable under the
said Bengal Act and partly chargeable under the Indian Income-tax
Act of 1922 under the head "Business", agricultural income-tax would
be payable by an assessee in respect of the market value of agricultural
produce which has been raised by the assessee or received by him as
rent-in-kind and which has been utilised by him as raw material in such
B
business or the sale receipts of which are included in the accounts of•
the business subject to allowances permissible under that Act. Clause
(a) of the Proviso to that sub-section makes it clear that if, for the
purposes of assessment of income-tax under the Act of 1922, the
market value of the produce had .been determined that would be
accepted as market value also for the said Bengal Act. Clause (b) of
the Proviso deals with common charges on agricultural income and C
income chargeable under the Act of 1922. The material portion of
sub-sections (2) and (3) of the said section ran as follows:
"(2) Notwithstanding anything contained in this Act,
in the case of tea the plant Camellia Thea (Linn.) grown in
D
West Bengal and sold by the grower himself or his agent
after manufacture, the agricultural income derived therefrom shall, as long as for the purposes of assessment of
income-tax under the Indian Income-tax Act, 1922, the
income derived therefrom is computed under that Act in
such manner as to include agricultural income, be deemed
E
to be that portion of such income as so computed on which
income-tax is not payable under that Act, and agricultural
income-tax at the rates specified in the Schedule shall be
payable on the whole of such agricultural income as so
computed.
x
x
x
x
x
x
(3) For the purpose of the assessment of agricultural
income-tax under this section or any rule made thereunder
F
a certified copy of an order of an assessment under the
Indian Income-tax Act, 1922, or a certified copy of an G
order of any appellate or revising authority or of the High
Court or of the Supreme Court altering or amending such
order of .assessment under the provisions of that Act shall
be conclusive evidence of the contents of such order."
The Bengal Agricultural Income-tax (Amendment) Act, 1980 H
976
SUPREME COURT REPORTS
[1988] 3 S.C.R.
"
A
(referred to hereinafter as "the Bengal Amendment Act of 1980") was
passed by the Legislature of the State of West Bengal and published in
the Gazette on 31st March, 1980. By Section 2 of that Act, Section 7 A
was inserted into the Bengal Agricultural Income-tax Act, 1944 and
that section runs as follows:
B
•
c
D
E
F
"7 A: Notwithstanding anything to the contrary contained
in this Act, in the case of an assessee being a company or a
firm or other association of persons, the agricultural
income of such assessee shall be computed in accordance
with the method of accounting regularly employed by such
assessee for such computation:
Provided that if, in any case, the method of account·
ing as aforesaid is such that, in the opinion of the Agri·
cultural Income· tax Officer, the agricultural income cannot
be computed, the computation shall be made on such basis
and in such manner as the Agricultural Income-tax Officer
may determine."
Section 3 of the Amendment Act of 1980 provides that sub·
sections (2) and (2A) of Section 8 of the Bengal Act of 1944 shall be
omitted and shall be always deemed to have been omitted. Section 7 of
1
the Bengal Amendment Act of 1980 runs as follows:
"(7) Notwiihstanding any judgment, decree or order
of any court, tribunal, or authority to the contrary, where
•
any assessment under the Income-tax Act, 1961 of any
agricultural income derived from tea has been made before
the coming into force of this Act, the proceeding relating to y
such assessment may be taken and continued under the
principal Act as if this Act had not been passed."
It may be mentioned here that by the Bengal Agricultural
Income-tax (Amendment) Act, 1979, sub-section (2A) was inserted
after sub-section (2) in Section 8 of the Bengal Act of 1944. That Act
G
remained in force only for a period of one year. The material portion
H
of sub-section (2A) ran as follows:
,A_,
"(2A) Where the computation of the income derived
from tea has not been completed for the purposes of assessment of income-tax under the Income-tax Act, 1961, or
where such computation has been completed but the
TATA TEA LTD. v. STATE OF WEST BENGAL !KANIA, J.)
977
assessment under the Income-tax Act, 1961, has been
annulled or set aside under that Act and no order of assess·
A
ment under Section 25 has been made within six years from
the end of the year in which the agricultural income was
first assessable, the Agricultural Income-tax Officer shall,
notwithstanding anything to the contrary contained in this
Act, assess the agricultural income derived from tea in such
B
manner and within such period as may be prescribed and
shall determine the sum payable by the assessee on the
basis of such assessment:
x
x
x
x
x"
In the State of Kerala, agricultural income-tax was sought to be C
imposed by the Agricultural Income-tax Act, 1950 passed by the Legis·
lature of the State of Kerala. The definition of the term "agricultural
income" is contained in sub-section (a) of Section 2 of the Kerala
Agricultural Income-tax Act. The said definition is in line with the
definition of the said term under the Act of 1922. There was an Expla·
nation after clause (2) of sub-section (a) of Section 2. The material D
part of sub-section (a) runs as follows:
"2(a) "agricultural income" means-
(1) any rent or revenue derived from land which is used for
agricultural purposes;
E
(2) any income derived from such land 1by
(i) agriculture; or
(ii) the performance by a cultivator or receiver of F
rent-in-kind of any process ordinarily employed by a
cultivator or receiver of rent-in-kind to render the
produee raised or received by him fit to be taken to
market; or
(iii) the sale by a cultivator or receiver of rent-inG
kind of the produce raised or received by him, in
respect of which no process has been performed othet
than a process of the nature described in sub-clause.
(ii);
x
x
x
x
x" H
978
SUPREME COURT REPORTS
[1988) 3 S.C.R.
A
The Explanation referred to above, which followed clause 2 ran
as follows:
B
c
D
"Agricultural income derived from such land by the cultivation of tea means that portion of the income derived
from the cultivation, manufacture and sale of tea as is
defined to be ~gricultural income for the purposes of tbe
enactments relating to Indian Income-tax"
By Section 2 of the Agricultural Income-tax Amendment Act,
1980 (Kerala Act 17 of 1980), the said Explanation was omitted with
effect from 1.4.1980.