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TMI Blog2004 (8) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be apportioned on the basis of 40 per cent, being non-agricultural income and 60 per cent, being the agricultural income. The facts necessary, in brief are-M/s. George Williamson (Assam) Ltd., and the Williamson Financial Services Ltd., are assessees under the Income-tax Act, and are limited companies engaged in the business of cultivation, manufacture and sale of tea. The appeals covers the assessment years 1989-90, 1990-91,1992-93,1993-94 and 1994-95 in respect of M/s. George Williamson (Assam) Ltd. and the assessment years 1989-90, 1990-91, 1991-92, 1992-93,1993-94 and 1994-95 in respect of M/s. George Williamson Financial Services Ltd. It will be sufficient to refer to the facts for the assessment year 1990-91 of the assessee, namely, George Williamson (Assam) Ltd. For the assessment year 1990-91, the appellant filed its return of income before the Deputy Commissioner of Income-tax (Assessment). In the said return the appellant claimed deduction under section 80HHC of the Act of 1961 before complying with rule 8 of the Rules of 1962. The assessment was completed by the Income-tax Officer vide order dated March 31, 2002, allowing deduction under section 80HHC of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59 having been overruled by the apex court in Assam Co. Ltd. v. State of Assam [2001] 248 ITR 567, the Tribunal has committed an error in computing the business income of the assessee mainly based on the Division Bench judgment of the Gauhati High Court reported in Assam Co. Ltd. v. State of Assam [1996] 219 ITR 59. The submission of learned counsel is that the decision rendered by the High Court having been merged into the decision of the apex court, the decision of the High Court loses its force. It is the submission of counsel for the Revenue, Mr. U. Bhuyaji, that the decision rendered by the Division Bench of the Gauhati High Court in Assam Co. Ltd. [1996] 219 ITR 59 on the issue of deduction under section 80HHC after application of rule 8 of the Rules of 1962 having not been challenged before the apex court and the apex court having not given any finding on the merits on this issue, the law down by the Gauhati High Court on this issue remains intact and does not merge in the judgment delivered by the apex court nor lose the binding force on the Appellate Tribunal. It is further urged that unless this court does not agree with the decision on the issue and refers it to the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, and forty per cent, of such income shall be deemed to be income liable to tax. (2) 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 an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (30) of section 10, is not includible in the total income." We shall first take up the question, whether the decision of the Gauhati High Court in Assam Co. Ltd. v. State of Assam [1996] 219 ITR 59 has merged into the decision of the apex court in toto or whether the decision rendered by the Gauhati High Court on the question, as to the stage at which section 80HHC would apply has binding force and applicable. The brief relevant facts are the Assam Company Ltd. was the assessee for the assessment year 1985-86 pertaining to the accounting period ending June 30, 1984, and was carrying on the business of growing, manufacture and sale of tea in India and abroad. The assessee was assessed under the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Income-tax Officer. Feeling aggrieved, the assessee has challenged the issuance of notices and the constitutional validity of the proviso to rule 5 of the Assam Agricultural Income-tax Rules, 1939, in the High Court. Two issues came up for consideration before the Division Bench of the High Court, viz., (1) Whether the proviso to rule 5 of the Assam Agricultural Income-tax Rules, 1939, empowering the Agricultural Income-tax Officer to refuse to accept the computation made by the Central income-tax authority is contrary to article 246 read with article 366(1) of the Constitution as well as the Explanation to section 2 (a) and the last proviso to section 8(2) of the Assam Agricultural Income-tax Act; and (2) Whether while computing the business income of the assessee it is permissible to allow deduction under section 80HHC before the business income is found, applying rule 8 of the Income-tax Rules. In regard to the first issue, the Division Bench upheld the constitutional validity of the proviso to rule 5 of the Agricultural Income-tax Rules, 1939, and on the second issue, it is said by the court that a bare reading of section 80HHC shows that it is not an item of expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to what is computed by the Central officers under the Central Act. By virtue of the provisions made by the Legislature in the Explanation to section 2(a)(2), the second proviso to section 8 and section 20D, it is clear that the State Legislature intended to adopt the computation of agricultural income made under the provisions of the Central Act. Under section 50, we do not see any provision which specifically authorises the State Government to make any such Rules in the nature of the proviso to rule 5 of the State Rules. None of the provisions of the Act has contemplated any power to be vested in the State officers to recompute the agricultural income from tea while the proviso to rule 5 of the rules in specific terms empowers the State officers to recompute the agricultural income from tea different from that which is computed by the Central officers under the Central Act. Thus, it is seen that this rule is not only made beyond the rule-making power of the State under section 50 of the Act, but also runs counter to the object of the Act itself and enlarges the scope of the Act. The rule also suffers from the other vices, hence, such a rule, in view of the apex court, is ultra v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order dated July 18, 1983, stating that-"Special leave petition is dismissed on merits." By Act 36 of 1986, the Kerala Private Forests (Vesting and Assignment) Act, 1971, was amended. Section 8C amongst others was enacted into the body of the Act giving it a retrospective effect. In pursuance of the amendment, the State of Kerala filed an application for review of the order passed by the Kerala High Court. A preliminary objection was raised as to the maintainability of the review petition. The High Court overruled the preliminary objection and directed the review petition to be posted for hearing on the merits. Being aggrieved, the petitioners approached the apex court and the matter was listed before a Bench of three judges having regard to the importance of the question involved. It has been contended before the apex court that the order dated December 17, 1982 of the High Court have merged into the order of the Supreme Court dated July 18, 1983 and, therefore, the order of the High Court ceased to exist in the eye of law, thus, the application seeking review of the order dated December 17, 1982, passed by the High Court is entirely a misconceived action. Secondly, the order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage is up to the disposal of the prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and the special leave petition is converted into an appeal. (iii) The doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under article 136 of the Constitution, the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of a petition for special leave to appeal. The doctrine of merger can, therefore, be applied to the former and not to the latter. (iv) An order refusing special leave to appeal may be a non-speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the apex court after entertaining the petitions and appeals, after issuing notice to the other side, has decided the issues on the merits and the appeals and petitions are allowed. Thus we can safely draw the inference that the judgment of the High Court has been set aside on the merits. Now the question is whether the point which has not been decided by the court can also be said to have been set aside, because of the doctrine of merger, inasmuch as the judgment of the High Court merged in the judgment of the apex court. In the matter of Kunhayammed [2000] 245 ITR 360, the apex court has specifically said that once the appeal or the petition is admitted and the superior jurisdiction of the court is capable of reversing or modifying or affirming an order under challenge. The decision so rendered in exercise of the power would be covered under the doctrine of merger. Once the appellate jurisdiction of the Supreme Court has been invoked, the order passed in the appeal would attract the doctrine of merger, the order may be of reversal or modification or an order of confirmation. When the doctrine of merger applies, the decision rendered by the superior court is a final judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to adjudicate on that question which becomes non-considerable, the moment the Supreme Court decides the validity of the proviso to rule 5 of the Rules. The decision of the Gauhati High Court on the merits of the question, was mainly dependent upon its conclusion that the proviso to rule 5 of the Assam Agricultural Income-tax Rules was intra vires and within the power of the State Income-tax Officer to redetermine the composite income. On that basis, the proceedings were reopened for assessment under section 30 of the Assam Agricultural Income-tax Act. If the basis on which the proceedings were reopened is without jurisdiction then any decision on the merits of the claim, necessarily, does not stand, as a valid and operative decision. When the matter came up before the Supreme Court, the Supreme Court considered the principal question, viz., whether such power of redetermination of the composite income as envisaged in the proviso to rule 5 is valid or not and declared that the said proviso to rule 5 is ultra vires the Act. When the said proviso to rule 5 of the Assam Agricultural Income-tax Rules is declared as ultra vires the decision on the merits which proceeded on the footing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cent, of such income is deemed to be income liable to tax. Rule 8 of the Rules of 1962 is incorporated in the definition of term "agricultural income" in the Act of 1961. Under section 80HHC, where an assessee, being an Indian company or a person other than a company resident in India, is engaged in the business of export out of India of any goods or merchandise, he shall be allowed in accordance with and subject to the provisions of section 80HHC and deduct the profit referred to in sub-section (1B) from the export of such goods or merchandise, while computing the total income of the assessee. Section 80HHC permits the allowable profit to be deducted from the export income of the goods or merchandise, while computing the total income of the assessee. Section 28 of the Act of 1961 enumerates the income, which shall be chargeable to income-tax under the head "Profits and gains of any business or profession". By virtue of section 29 of the Act, deduction as per the provisions contained in sections 30 to 43D is permissible while computing the profits and gains of business or profession. The list of allowances enumerated in sections 32 to 37 is not exhaustive. While computing the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other 60 per cent, alone will be "agricultural income". The aforesaid decision clearly lays down that while computing "agricultural income" and "business income" in accordance with rule 24 of the Indian Income-tax Rules, 1922, deduction is permissible for arriving at the business income, so as to compute 40 per cent, for business and 60 per cent, for agricultural income. Another Constitution Bench of the apex court in Tata Tea Ltd. v. State of West Bengal [1988] 173 ITR 18, while considering the applicability of rule 8 of the Rules of 1962 has said: "A perusal of the aforesaid rule 8(1) makes it clear that under the said Rule, income from the sale of tea grown and manufactured by a seller in India has to be computed as if it were income derived from business which would imply that the deductions allowable under the Act of 1961 in respect of income derived from business would be allowable in the case of income derived from the sale of tea grown and manufactured by a seller and further allowance would be granted as set out in rule 8(2) and 40 per cent, of the income so computed would be deemed to be income liable to the levy of income-tax and the balance of the income would be lia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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