1968 (1) TMI 1 - SC - Income Tax

Agricultural ITO acting under the Kerala Agricultural IT Act, 1950, is bound to follow the assessment of income by the Central ITO under r. 24 of the IT Rules, 1922, and r. 8 of the IT Rules, 1962, - judgments of the High Court are set aside - Assessee s appeal is allowed

Summary

Issues Involved:
1. Whether the Agricultural Income-tax Officer is bound to accept the computation of tea income made by the Central Income-tax Officer.
2. Whether surcharge on agricultural income-tax can be levied for the assessment year 1957-58 under the Kerala Surcharge on Taxes Act, 1957.

Issue 1: Computation of Tea Income by Agricultural Income-tax Officer

The appellants, engaged in the business of cultivation, manufacture, and sale of tea, were assessed under both non-agricultural and agricultural income tax. The Kerala Agricultural Income-tax Officer independently computed the tea income, disregarding the Central income-tax assessments, resulting in a higher agricultural income determination. The appellants contended that the Agricultural Income-tax Officer should adopt 60% of the tea income computed by the Central income-tax authorities as agricultural income.

The High Court, referencing its earlier decision in Commissioner of Agricultural Income-tax v. Perunad Plantations Ltd., held that the Agricultural Income-tax Officer was not obliged to accept the Central income-tax computation. However, the Supreme Court, considering relevant constitutional and statutory provisions, including entries in the Seventh Schedule and Article 366(1) of the Constitution, and sections of the Indian Income-tax Act, 1922, and the Kerala Agricultural Income-tax Act, 1950, concluded otherwise.

The Supreme Court emphasized that the income from tea, being partly agricultural and partly business, must be computed under the Central Income-tax Act and Rules. The Court held that the Agricultural Income-tax Officer must accept the Central income-tax computation, assessing only 60% of the income as agricultural income under the Kerala Act, less allowable deductions. The Kerala Act does not authorize the Agricultural Income-tax Officer to disregard the Central income-tax assessments. Therefore, the question was answered affirmatively, binding the Agricultural Income-tax Officer to the Central income-tax computation.

Issue 2: Levy of Surcharge on Agricultural Income-tax for 1957-58

In Civil Appeals Nos. 585 to 588 of 1966 and 589 to 591 of 1966, the Agricultural Income-tax Officer imposed a 5% surcharge for the assessment year 1957-58 under the Kerala Surcharge on Taxes Act, 1957. The Deputy Commissioner upheld this surcharge, but the Appellate Tribunal declared it illegal. The High Court, however, ruled in favor of the revenue.

The Supreme Court referenced its decision in Karimtharuvi Tea Estate Ltd. v. State of Kerala, which held that no surcharge on agricultural income could be levied under the Kerala Surcharge on Taxes Act, 1957, for the assessment year 1957-58. Consequently, the Supreme Court set aside the High Court's decision, ruling in favor of the assessee and against the revenue.

Conclusion:

The Supreme Court allowed the appeals with costs, setting aside the High Court's judgments. The questions referred to the High Court were answered in favor of the appellants and against the revenue, affirming the binding nature of Central income-tax computations on the Agricultural Income-tax Officer and invalidating the surcharge for the assessment year 1957-58. Appeals allowed.