2005 (12) TMI 66 - HC - Income Tax

Kerala Agricultural Income Tax Act 1991 - whether sub-section (2) of section 4 if incorporated as deeming provision would make inroads into the powers of the Commissioner of Income-tax functioning under the Income-tax Act 1961. - if the State Officers feel any mistake has been committed by the Central Officers in computing the agricultural income it is always open to them to bring it to the knowledge of the Central Officers but they cannot vary the computation made by the Central Officers. That being the legal position we are inclined to hold that the computation made by the officers functioning under the Agricultural Income-tax Act 1991 in respect of the assessment years 1994-95 and 1995-96 and other related assessment years is bad in law. Consequently orders passed by the assessing authorities the appellate authorities and the Tribunal contrary to the computation made by the Central Officers are rendered invalid and are accordingly set aside. The assessing authority if so advised may take up the matter before the Central Officers if they seek any variation of the computation already made by the Central Officers under the Income-tax Act 1961 in accordance with law.

Summary

Issues Involved:
1. Constitutionality of Section 4(2) of the Agricultural Income-tax Act, 1991.
2. Legislative competence of the State Legislature to tax deemed agricultural income.
3. Applicability of Section 4(2) of the Act to the computation of tea income.
4. Jurisdiction of State Officers to vary the computation made by Central Officers.
5. Validity of recomputation of agricultural income by State Officers.

Detailed Analysis:

1. Constitutionality of Section 4(2) of the Agricultural Income-tax Act, 1991:
The petitioners sought a declaration that Section 4(2) of the Agricultural Income-tax Act, 1991, which assesses tax on deemed agricultural income, is arbitrary, illegal, and unreasonable, and violative of Article 265 of the Constitution of India. They argued that sub-clauses (ii) and (iii) of Section 4(2) enlarge the meaning of "agricultural income" by deeming certain receipts as agricultural income, which is beyond the legislative competence of the rule-making authority.

2. Legislative Competence of the State Legislature:
The petitioners contended that the State Legislature lacks the competence to tax receipts as agricultural income that do not fall within the definition of agricultural income under Section 2(1A) of the Income-tax Act. The court noted that the new Agricultural Income-tax Act, 1991, was presumably enacted based on the apex court's observation in Commr. of Agrl. I.T. v. Kerala Estate Mooriad Chalapuram [1986] 161 ITR 155, which highlighted the absence of a deeming provision similar to Section 41(1) of the Income-tax Act, 1961, in the Kerala Agricultural Income-tax Act.

3. Applicability of Section 4(2) to Tea Income:
The petitioners argued that Section 4(2) should not apply to the computation of income from tea grown and manufactured, as the authorities are only empowered to tax 60% of such income as computed by the Central Income-tax Officer under the Income-tax Act. The court referred to the apex court's decision in Karimtharuvi Tea Estates Ltd. v. State of Kerala [1963] 48 ITR (SC) 83, which held that the State Legislature's power to tax agricultural income from tea plantations is limited to the agricultural income determined under the Income-tax Act.

4. Jurisdiction of State Officers:
The court emphasized that State Officers have no jurisdiction to vary the computation made by Central Officers. If the State Officers believe that the Central Officers have not made a proper assessment, they should bring it to the attention of the Central Officers or invoke the jurisdiction of the appellate or revisional authorities under Chapter XX(E) of the Central Act.

5. Validity of Recomputation by State Officers:
The court held that the recomputation of agricultural income by State Officers, which added more than what was computed by the Central Officers, is beyond their jurisdiction. The court declared that the orders passed by the assessing authorities, appellate authorities, and the Tribunal, which varied the computation made by the Central Officers, are invalid. The court directed that if the State Officers seek any variation, they should take up the matter with the Central Officers in accordance with the law.

Conclusion:
The court concluded that the computation made by officers under the Agricultural Income-tax Act, 1991, for the assessment years 1994-95 and 1995-96, and other related assessment years, is bad in law. Consequently, the orders passed by the assessing authorities, appellate authorities, and the Tribunal, which were contrary to the computation made by the Central Officers, were set aside. The original petitions and the O.T.Cs were disposed of accordingly.