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TMI Blog1968 (2) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the manufactured tea, therefore, comprises partly of the income derived from the agricultural produce and partly by the manufacturing process through which the tea leaves are put to until they reach the final shape and sold as tea in the market. The petitioners were charged to income-tax on the forty per cent. of the income and to agricultural income-tax under the Assam Agricultural Income-tax Act, 1939 (Act IX of 1939) (hereinafter referred to as " the Assam Act "), in respect of the balance of income of sixty per cent. under rule 24 of the Rules framed under the Indian Income-tax Act, 1922, read with the provisions of the Assam Act and the Rules made thereunder. The petitioners object for the apportionment of the income derived by the petitioners at forty per cent. as business income assessable to income-tax and sixty per cent. as agricultural income assessable under the Assam Act as unconstitutional, ultra vires the powers of the legislature and, therefore, bad. The argument of the petitioners is that the said apportionment is arbitrary, that it is done under the Rules framed by the Central Board of Revenue under the control of the Central Government, that the power to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the agricultural income-tax shall be payable by persons whose total agricultural income of the previous agricultural year exceeds Rs. 3000, at such rates as may be laid down from year to year in the annual Assam Finance Acts. Section 8 of the Act deals with the determination of agricultural income mentioned in clause (a) of sub-section (2) of section 2 of the Act. The second proviso to the section is important and may be extracted : " Provided further that in cases of agricultural income from cultivation and manufacture of tea, the agricultural income for the purposes of this Act shall be deemed to be that portion of the income from cultivation, manufacture and sale which is agricultural income within the meaning of the Indian Income-tax Act and shall be ascertained by computing the income from the cultivation, manufacture and sale of tea as computed for Indian income-tax from which shall be deducted any allowances by this Act authorised in so far as the same shall not have been allowed in the computation for the Indian Income-tax Act. " The petitioners attacked the vires and the validity of the Explanation to section 2(a) of the Assam Act and also the second proviso to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of cattle trespass " are included in item 20 of the Provincial List. Section 100 of the Government of India Act, 1935, laid down the powers of the provincial legislatures to make laws for the province or any part thereof in respect of any of the matters enumerated in List II in the Seventh Schedule to the Act, which is the provincial List. Hence, the power to make laws in regard to agriculture rests with the provincial legislature. The expression " agricultural income " is defined in section 2(1) of the Indian Income-tax Act, 1922 (Act No. XI of 1922), which is as follows : (1) 'Agricultural income' means- (a) any rent or revenue derived from land which is 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- (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 render the produce raised or received by him fit to be taken to market, or (iii) the sale by a cultivator or receiver of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, the rules made under that sub-section may- (a) prescribe methods by which an estimate of such income, profits and gains may be made, and (b) in cases coming under sub-clause (i) of clause (a) of sub-section (2), prescribe the proportion of the income which shall be deemed to be income, profits and gains liable to tax and an assessment based on such estimate or proportion shall be deemed to be duly made in accordance with the provisions of this Act. (4) The power to make rules conferred by this section shall, except on the first occasion of the exercise thereof, be subject to the condition of previous publication. (5) Rules made under this section shall be published the the Official Gazette, and shall thereupon have effect as if enacted in this Act." In exercise of the powers conferred on the Central Board of Revenue by virtue of section 59 of the said Act, rules were framed by them and these rules are known as " The Indian Income-tax Rules, 1922 ". Rules 23 and 24 are relevant and require to be considered in connection with these cases and these rules are as follows : " 23. (1) In the case of income which is partially agricultural income as defined in section 2 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between agricultural and income-tax. In this connection, it is necessary to point out that article 366(1) of the Constitution defines " agricultural income " and this definition is as follows ; " 'Agricultural income' means agricultural income as defined for the purposes of the enactments relating to Indian income-tax. " It may be seen that this definition adopts the definition found in the Indian Income-tax Act, 1922. Thus, what we find now is that the definition given in the Assam Act is exactly, barring the Explanation, on all fours with the Indian Income-tax Act and these definitions are accepted and adopted as correct definitions by the Constitution. It may be seen that even the Government of India Act, 1935, adopted the same definition as is done under the Constitution, in section 311(2) thereof, which is as follows : " (2) In this Act, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say :- 'agricultural income' means agricultural income as defined for the purposes of the enactments relating to Indian income-tax ", and when this provision was included when the Government of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irtue of section 311(2) of the Government of India Act, 1935. The contention that section 39 of the Indian Income-tax Act, 1922, suffers from the vice of excessive delegation has to be examined in the light of the conditions as laid down both by the Privy Council as well as by the Supreme Court in regard to the conditions governing the delegation of legislative power. That delegation to a limited extent must necessarily be made is obvious and accepted as necessary to satisfactorily giving effect to the provisions of any enactment. The leading case on the subject of delegation of legislative power of the Supreme Court is Delhi Laws Act case. It is, however, not necessary to refer to that case in detail in connection with this matter. In Banarsi Das v. State of Madhya Pradesh the Supreme Court observed as follows : " While a power to execute a law, it was argued, could be delegated to the executive, the power to make it must be exercised by the legislature itself ....... It was also contended that the grant of a power to an outside authority to repeal or modify a provision in a statute passed by the legislature was unconstitutional, and that, in consequence, the impugned notifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n declaring section 133 of the Customs Regulation Act of 1879 to be beyond the power of the legislature." Similarly, in Hampton Jr. Co. v. United States ...... the question arose whether section 315(b) of the Tariff Act, 1922, under which the President had been empowered to make such increases and decreases in the rates of duty as were found necessary for carrying out the policies declared in the statute was not an unconstitutional delegation. Relying on the above decisions, their Lordships of the Supreme Court in the above case held that the power conferred on the State Government by section 6(2) to amend the schedule relating to exemption was in consonance with the accepted legislative practice relating to the topic, and was not unconstitutional. Reliance has been placed on the case of Hamdard Dawakhana v. Union of India, and the following passage, in particular, may be quoted : "Consequently when the rule making authority specifies conditions and diseases in the Schedule it exercises the same delegated authority as it does when it exercises powers under sub-section (1) and makes other rules and therefore it is delegated legislation. The question for decision then is, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self-effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. It is for a court to hold on a fair, generous and liberal construction of an impugned statute whether the legislature exceeded such limits. But the said liberal construction should not be carried by the courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities. It is the duty of the court to strike down without any hesitation any arbitrary power conferred on the executive by the legislature. " (see Vasanlal Maganbhai Sanjanwala v. State of Bombay). In that case, under section 5 of the Punjab General Sales Tax Act, 1948, as it originally stood, an uncontrolled power was conferred on the provincial Government to levy every year on the taxable turnover of a dealer a tax at such rates as the said Government might direct. Under that section the legislature practically effaced itself in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executive to determine, and it is in accordance with the policy indicated, that rule 24 of the Indian Income-tax Rules had been framed providing for the income derived from the sale of tea, grown and manufactured by the seller in the taxable territories to 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. What portion of the income is derived from agriculture in the matter of tea grown and what portion should be business income for the purpose of the Indian Income-tax Act is a matter of detail which could only be effectively determined by the executive, and rule 24 lays down that the entire income derived from the growth and manufacture of tea is to be treated as if it were business income and 40 per cent. thereof should be liable to Income-tax assessment under the Indian Income-tax Act, 1922. In this connection, it must be noted that the income derived from the cultivation and manufacture of tea comprises partly of the value of the tea leaf grown which is utilised in producing the tea, which is accepted as fit for marketing and partly of the value that it acquires by being put th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut lays down that only 40 per cent. thereof should be assessed as business income. We see no justification for holding that the framing of this rule involved any exercise of excessive delegation of power of legislation, nor are we satisfied that section 59 of the Indian Income-tax Act, 1922, involved any excess delegation of legislative power. In English and Scottish joint Co-operative Wholesale Society Ltd. v. Commissioner of Agricultural Income-tax the assessment made under the Assam Act has been upheld by their Lordships of the Privy Council on the basis of apportionment made in rule 24 of the Indian Income-tax Rules, 1922, and rule 5 of the Assam Act. The following observations of their Lordships of the Privy Council may be quoted with advantage : " The Assam Agricultural Income-tax Act applies to all agricultural income derived from land situated in the Province of Assam (section 5) and it provides by the charging section (section 3) that agricultural income-tax at the rate specified in the annual Assam Finance Acts shall be charged for each financial year on the total agricultural income of the previous year. The part of the definition section (section 2) which is rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing the income any expenditure by an assessee not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business, would be deducted. Of the income so computed, 40 per cent. is, under rule 24, to be treated as income liable to income-tax and it would follow that the other 60 per cent. only will be deemed to be agricultural income' within the meaning of that expression in the Income-tax Act. It follows, therefore, that the power of the State legislature to make a law in respect of taxes on agricultural income arising from tea plantations will be limited to legislating with respect to the agricultural income so determined. The State legislature is free in the exercise of its plenary legislative power to allow further deductions from such computed agricultural income as it considers fit, but it cannot add to the amount of the agricultural income so computed by providing that certain items of expenditure deducted in the computation of the income from a business under the provisions of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to agricultural income-tax under the Assam Act. Any doubt on the subject has been cleared by the decision of the Supreme Court in Karimtharuvi Tea Estates Ltd. v. State of Kerala. It is contended by Mr. Ghosh that having regard to the use of the word " ordinarily " in rule 23(2)(a), quoted earlier in this judgment, it excludes tea from its operation. The argument is not understood. There may be agricultural produce which may be sold in the market in its raw state or after application of an ordinary process to render it fit to be taken to the market. But that makes no difference at all, particularly when it is obvious that tea has to be put through the process of manufacture before it is rendered fit for marketing. The decisions relied on by Mr. Ghosh, namely, In re Bhikanpur Sugar Concern and Sheolal Ramlal v. Income-tax Commissioner, have no application to the instant case as they do not deal with tea. Another case cited by Mr. Ghosh, Killing Valley Tea Company Ltd. v. Secretary of State, is a case long before the Indian Income-tax Act, 1922, and the Rules framed thereunder became law and, therefore, is not of much assistance. Taking all the facts and circumstances into cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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