1968 (2) TMI 33 - HC - Income Tax

Petitioners were charged to income-tax on 40% of the income and to agricultural income-tax in respect of the balance of income of 60% - proviso of Assam Act are in conformity with the IT Act and the Rules framed thereunder, and therefore cannot be struck down as unconstitutional - therefore, no exception can be taken to the assessment made against the petitioners under the Assam Act and they are liable to pay agricultural income-tax as assessed under the Act

Summary

Issues Involved:
1. Constitutionality of the apportionment of income between agricultural and business income.
2. Validity of the delegation of rule-making power to the Central Board of Revenue.
3. Interpretation and application of the Assam Agricultural Income-tax Act and Rules, and the Indian Income-tax Act and Rules.

Issue-wise Detailed Analysis:

1. Constitutionality of the Apportionment of Income:
The petitioners, Maud Tea & Seed Company Ltd., and its director, challenged the apportionment of income derived from tea cultivation and manufacturing, arguing that the division of income into 40% business income and 60% agricultural income was arbitrary and unconstitutional. They contended that the apportionment was done under rules framed by the Central Board of Revenue, which they deemed an excessive delegation of power. The court examined the definition of "agricultural income" under Section 2(a) of the Assam Act and the corresponding provisions in the Indian Income-tax Act, 1922. The court found that the apportionment of income, as prescribed by Rule 24 of the Indian Income-tax Rules, was valid and did not involve excessive delegation. The court upheld the apportionment, stating that the income derived from tea involves both agricultural operations and manufacturing processes, and thus, the division was rational and justified.

2. Validity of the Delegation of Rule-making Power:
The petitioners argued that the delegation of rule-making power to the Central Board of Revenue under Section 59 of the Indian Income-tax Act, 1922, was excessive and unconstitutional. They claimed that the power given to the Central Board of Revenue was unrestricted and uncanalised, allowing arbitrary decisions. The court referred to several precedents, including Banarsi Das v. State of Madhya Pradesh and Powell v. Appollo Candle Company, to establish that it is not unconstitutional for the legislature to delegate the determination of details related to taxation laws to the executive. The court concluded that Section 59 of the Indian Income-tax Act, 1922, laid down clear legislative policy and guidelines for the rule-making authority, and the delegation was within permissible limits. The court held that Rule 24, which apportioned the income from tea cultivation and manufacturing, was valid and did not involve excessive delegation.

3. Interpretation and Application of the Assam Agricultural Income-tax Act and Rules, and the Indian Income-tax Act and Rules:
The court examined the relevant provisions of the Assam Agricultural Income-tax Act, 1939, and the Indian Income-tax Act, 1922, along with the rules framed under these acts. The court noted that the definition of "agricultural income" in the Assam Act was consistent with the Indian Income-tax Act, except for an additional explanation. The court also referred to the Privy Council's decision in English and Scottish Joint Co-operative Wholesale Society Ltd. v. Commissioner of Agricultural Income-tax, which upheld the apportionment of income under Rule 24 of the Indian Income-tax Rules. The court further cited the Supreme Court's decision in Karimtharuvi Tea Estates Ltd. v. State of Kerala, which confirmed that the state legislature's power to tax agricultural income from tea plantations was limited to the agricultural income computed under the Indian Income-tax Act. The court concluded that the provisions of the Assam Act and the rules framed thereunder were in conformity with the Indian Income-tax Act and Rules, and thus, could not be struck down as unconstitutional.

Conclusion:
The court dismissed the petitions, holding that the apportionment of income between agricultural and business income was constitutional, the delegation of rule-making power to the Central Board of Revenue was valid, and the provisions of the Assam Agricultural Income-tax Act and Rules were in conformity with the Indian Income-tax Act and Rules. The petitioners were liable to pay agricultural income-tax as assessed under the Assam Act. The petitions were dismissed, and the rules were discharged without any order as to costs.