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TMI Blog2006 (7) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... e J.-Facts and controversy: Altogether four writ petitions were filed calling in question the provision of section 115-O of the Income-tax Act, 1961 (hereinafter referred to as "the said Act of 1961"). The writ petitions were dismissed by the learned single judge by judgment and order dated September 20, 2001, reported in Jayshree Tea and Industries Ltd. v. Union of India [2002] 253 ITR 608 (Cal). Hence, these appeals. Since these appeals involve identical questions of facts and law these are disposed of by this common judgment. The appellants in the four appeals are four different tea companies who cultivate tea plants, pick green tea leaves and thereafter process them in their factory for marketing the same. Cultivation of tea is considered to be an agricultural process whereas processing of tea in the factory is an industrial process. Agricultural income is within the domain of the State and not the Union. Hence, the Union is not empowered to levy tax on agricultural income which is within the domain of the State. In the case of tea companies 60 per cent, of the income is considered to be agricultural income and exempt from payment of income-tax. As such the tea companies ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of this Act, the tax on distributed profits under sub-section (1) shall be payable by such company. (3) The principal officer of the domestic company and the company shall be liable to pay the tax on distributed profits to the credit of the Central Government within fourteen days from the date of- (a) declaration of any dividend ; or (b) distribution of any dividend ; or (c) payment of any dividend, whichever is earliest. (4) The tax on distributed profits so paid by the company shall be treated as the final payment of tax in respect of the amount declared, distributed or paid as dividends and no further credit therefor shall be claimed by the company or by any other person in respect of the amount of tax so paid. (5) No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub-section (1) or the tax thereon." The writ petitioners challenged the introduction of section 115-O on the ground that it was ultra vires the Constitution. Such submission of the writ petitioners were negated by the learned single judge by the judgment and order dated September 20, 2001. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company declared profit in a particular year taking into account the accumulated profits carried forward from the previous assessment years such distribution would come within the purview of additional tax and thereby the assessee would have to pay tax not only for that financial year but also for the preceding years which was not permissible. The amended section was arbitrary, irrational particularly where it directed the company to pay tax within 14 days from the date of distribution or declaration of dividend which was impossible. Cases cited: In support of his contentions Dr. Pal cited the following decisions: (i) Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 (SC); (ii) Khatau Makanji Spinning and Weaving Co. Ltd. v. CIT [1956] 30 ITR 841 (Bom); (iii) CIT v. Khatau Makanji Spinning and Weaving Co. Ltd. [1960] 40 ITR 189 (SC); (iv) Karimtharuvi Tea Estates Ltd. v. State of Kerala [1963] 48 ITR (SC) 83; (v) Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC); and (vi) Tata Tea Ltd. v. State of West Bengal [1988] 173 ITR 18 (SC). Contention of the Revenue: Mr. Tapas Hazra, learned counsel appearing for the respondents, contended that imposition of additional inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay any additional tax under section 115-O. Hence, we do not find any illegality in introduction of the section on this score. The appellants also could not show us as to how the provisions of the Constitution on this score were violated. Hence such plea of the appellants being not tenable is rejected. Now comes the question of tea company. The activities of the tea company are different from other commercial sectors. Although all these tea companies are corporate entities their activities have a distinctive feature. It has a lot of agricultural activities starting from plantation to picking green tea leaves. The Constitution makers provided that agricultural income would come within the domain of the State. Hence, the Income-tax Act, 1961, being the Central law was not competent to take the agricultural income within its fold as it was beyond the legislative competence of Parliament. Hence, if this additional tax is found to have been put on any agricultural income it is liable to be struck down. In this back drop, let us examine section 115-O. As we have observed earlier, additional tax per se was not violative of the provisions of the Constitution. It is for the Union to impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of section 115-O if the company declares Rs. 50 for distribution amongst the shareholders it would have a proportionate liability. It is true that in case the company decides to distribute a part of the income it would be impossible to find out whether that part of the income included the whole of the agricultural income or a part of it. This exercise now, in our view, is not at all relevant in view of the provision of rule 8 of the Income-tax Rules. In such event the company would be charged on Rs. 40 for income-tax and on Rs. 50 for additional income-tax on proportionate basis. We are, however, in agreement with Dr. Pal on a limited issue. We are of the view that Rs. 50 as a whole could not be taxed at the prescribed rate of additional tax. Such additional tax would be levied on Rs.20 being 40 per cent. of Rs. 50. Hence, at the end of the day the company would have to pay income-tax at the prescribed rate on Rs. 40 as well as additional income-tax at the prescribed rate on Rs.20. Result: The judgment and order of the learned single judge is set aside. We hold that the provision of section 115-O is constitutional and we have given the proper interpretation of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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