Adoption of Income tax computation permits state allowance of deductions against the 60% agricultural portion if relatable to tea operations.

Assam agricultural tax treatment of tea income requires adoption of the Central Income tax computation (40% non agricultural, 60% agricultural) and application of the second proviso and rule 5 of the State Rules; the State officer must ordinarily accept the Income tax Officer's computation subject to verification. Deductions disallowed under the Central Act may be allowed under the Assam Act to the extent they are shown and apportioned as relatable to plantation, manufacture and sale of tea. The 60% composite portion is to be treated as agricultural income for State assessment and assessed accordingly.

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Issues: (i) Whether the Board of Revenue was correct in relying solely on section 8(2)(f)(vii) of the Assam Agricultural Income-tax Act, 1939 without considering the second proviso to section 8(2) and rule 5 of the Assam Agricultural Income-tax Rules, 1939; (ii) Whether sixty per cent of expenses disallowed under the Income-tax Act can be deducted against sixty per cent of composite income deemed agricultural under the Income-tax Act; (iii) Whether sixty per cent of income derived from cultivation, manufacture and sale of tea is to be distinguished from agricultural income for the purposes of the Assam Act.

Issue (i): Whether the Board erred in considering only section 8(2)(f)(vii) and ignoring the second proviso to section 8(2) and rule 5 of the Rules, 1939.

Analysis: The statutory scheme requires that agricultural income from tea be determined by adopting the computation under the Indian Income-tax Act and allowing those deductions under the Assam Act which have not been allowed under the Indian Income-tax Act; rule 5 mandates that the Assam Agricultural Income-tax Officer ordinarily accept the Income-tax Officer's computation subject to verification. The Court noted prior authority (George Williamson) and the legislative text showing that deductions relatable to plantation, manufacture and sale of tea are to be allowed by the State authority even if initially disallowed by the Central authority, subject to proof and satisfaction of the assessing authority.

Conclusion: The Board was incorrect to rely solely on section 8(2)(f)(vii) to the exclusion of the second proviso to section 8(2) and rule 5; the Assam Agricultural Income-tax Officer must apply the proviso and rule 5 in determining allowable deductions.

Issue (ii): Whether sixty per cent of expenses disallowed in computing 100% of composite income under the Income-tax Act is allowable against sixty per cent of composite income deemed agricultural.

Analysis: The legislative scheme treats 40% of the income as non-agricultural and 60% as agricultural by rule 8; the Assam Act and its rules adopt the Income-tax computation and permit deductions under the State Act to the extent not allowed under the Indian Income-tax Act. The Court followed precedent that amounts disallowed by the Income-tax Officer but relatable to plantation, manufacture and sale of tea can be allowed by the Agricultural Income-tax Officer when assessing the 60% agricultural portion, subject to evidentiary satisfaction and apportionment where necessary.

Conclusion: Sixty per cent of expenses disallowed under the Income-tax Act can be considered for deduction against the sixty per cent portion deemed agricultural, if such expenses are shown to be relatable to earning agricultural income.

Issue (iii): Whether sixty per cent of income from cultivation, manufacture and sale of tea is distinct from agricultural income for assessment under the Assam Act.

Analysis: The Explanation to section 2(a)(2) and rule 8(1)-(2) of the Income-tax Rules, 1962 define the method of computation and adoption by the Assam Act; the 60% figure is legislatively prescribed as the agricultural portion and the Assam Agricultural Income-tax Officer must assess agricultural income accordingly, allowing deductions under the Assam Act not already allowed under the Indian Income-tax Act.

Conclusion: The sixty per cent portion as determined under the Income-tax Act is to be treated as agricultural income for the purposes of the Assam Act and is not to be distinguished away from agricultural income for assessment; the Board's contrary distinction was incorrect.

Final Conclusion: All three referred questions are answered against the Board and in favour of the assessee; the Agricultural Income-tax Officer must accept and apply the Income-tax computation and allow deductions relatable to plantation, manufacture and sale of tea to the extent they have not been allowed under the Indian Income-tax Act, subject to proof and apportionment.

Ratio Decidendi: For agricultural income from tea the Assam Agricultural Income-tax Officer must adopt the Income-tax Act computation (40% non-agricultural, 60% agricultural) and allow deductions under section 8(2) and rule 5 of the Assam Rules that have not been allowed under the Indian Income-tax Act when such deductions are shown to be relatable to earning the agricultural income.

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