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TMI Blog1962 (11) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act (hereinafter referred to as the Income-tax Act) as if it were income derived from business and for the issue of appropriate orders to the respondents, viz., the State of Kerala, the Assistant Commissioner of Agricultural Income-tax, Kottayam, and the Deputy Commissioner of Agricultural Income-tax, Quilon, restraining them, their agents and servants from enforcing or acting upon the provisions of the aforesaid Amendment Act against the petitioner company. The Karimtharuvi Tea Estate Ltd., Kottayam, petitioner No. 1, hereinafter called the petitioner, are the owners and managers of the Karimtharuvi and the Penshurst Tea Estates situate at Peermade in Kerala State. The Agricultural Income-tax Act, 1950 [originally the Travancore-Cochin Agricultural Income-tax Act (XXII of 1950), amended as the Agriculture Income-tax Act, 1950, by Act VIII of 1957 of the Kerala Legislature], hereinafter called the Agricultural Income tax Act, has been in force in the State of Kerala during the assessment years 1958-59, 1959-60 and 1960-61 for which the accounting years of the petitioner were 1957, 1958 and 1959 ending on December 31 of each year. The petitioner was assessed to agricultur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income from such plantations, for the purpose of the Agricultural Income-tax Act, higher than what it would be if computed in accordance with the definition in the income-tax enactments. The contention is well-founded. Entry 46, List II, of the Seventh Schedule to the Constitution, relates to taxes on agricultural income. In view of clause (3) of article 246 the State Legislature can enact laws about these taxes. Article 366 provides that, unless the context otherwise requires, the expression "agricultural income" in the Constitution means agricultural incomes as defined for the purpose of the enactments relating to Indian Income-tax. Therefore, the agricultural income about which a State Legislature may enact under entry 46 of List II would be such income as defined in the Indian Income-tax Act. The relevant portion of the definition of "agricultural income" in the Income-tax Act, 1922, reads : "(1) 'agricultural income' means (a) any rent or revenue derived from land which is used for agricultural purpose, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of income-tax when the entire income is partially agricultural income and partially income chargeable to incometax under the head "business". Rule 23 deals with such cases in general. Rule 24 deals with the case of tea grown and manufactured by the seller and reads: "24. 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: Provided that in computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in area already planted, unless such area has previously been abandoned." The result of rule 24 is that the income derived from the sale of tea grown and manufactured by the seller is to be computed on the first instance as if it was income derived from business. Consequently, the income would be computed in accordance with the provisions of section 10 of the Income-tax Act. Clause (xv) of sub-section (2) of section 10 provides that in computing the income any expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of "agricultural income" in sub-clause (a) and (b) of clause (1) of section 2 of the Income-tax Act. The Explanation added in the definition of "agricultural income" in the Agricultural Income-tax Act in substance adopts what has been provided in rule 24 of the Income-tax Rule about the proportion of agricultural income from tea plantations. It follows therefore that agricultural income from tea plantation is to be computed in the manner as it is computed under the provisions of the Income-tax Act. Section 5 of the Agricultural Income-tax Act provides for certain deductions to made in the computation of the "agricultural income" of a person and its clause (j) provides for the deduction of any expenditure not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively for the purpose of deriving the agricultural income. This clause corresponds to clause (xv) of sub-section (2) of sub-section 10 of the Income-tax Act. The proviso at the end of the various clauses of section 5 states that no deduction shall made under that section if it has already been made in the assessment under the Income-tax Act. This avoids a doubl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allow any particular deductions from the gross income as it considers fit. It is not disputed for the respondent that the power of the State Legislature to enact a law in respect of agricultural income relates only to such agricultural income as is defined in article 366 of the constitution. It is, however, urged that for the purpose of this definition, one has to look to the definition of "Agricultural income" in the Income tax Act and not to the Rules made thereunder. We do not agree. "Agricultural income" as defined in the Constitution means "agricultural income for the purpose of the enactments relating to income tax". One such enactment is the Income-tax Act. Rule 24 of the Income-tax Rules has been made under the powers conferred by section 59 of the Income-tax Act and has effect as if enacted in that Act. When section 59 of the Income-tax Act provides for the Rules made under that Act to prescribe the proportions of income from business, and income from agriculture in the entire income derived in part from agriculture and in part from business, the proportion so prescribed must be taken to be prescribed by the Act. These rules were in existence in 1950 when the Constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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