Article 14 scrutiny of agricultural income computation upheld while proviso was read down to allow election of cost method.

The proviso governing computation of agricultural income under the Bengal Agricultural Income-tax Act was examined against Article 14. The classification between individuals and Hindu undivided families on one side and other assessees on the other was accepted as a permissible legislative classification, but the differential method had to satisfy intelligible differentia and rational nexus with the object of taxing agricultural income. The proviso, which imposed a presumptive ceiling on cultivation and excluded proof of actual cost for the affected class, was upheld as constitutional, but it was read down so that individuals and Hindu undivided families may elect either the presumptive allowance or regular proof of actual cultivation cost.

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Issues: Whether the proviso to section 7(1)(1) of the Bengal Agricultural Income-tax Act, 1944, which restricts individuals and Hindu undivided families to an allowance equal to fifty per cent of the market value of the produce instead of permitting proof of actual cultivation cost, is violative of article 14 of the Constitution of India and whether it should be read down to permit such assessees to claim actual cost deduction by proof in the regular manner.

Analysis: The challenge was confined to the constitutional validity of the proviso governing computation of agricultural income. The classification between individuals and Hindu undivided families on one side and other assessees on the other was accepted as a possible legislative classification, but the decisive question was whether the differential method of computation had a rational nexus with the object of the Act, namely taxation of agricultural income. The proviso imposed a presumptive ceiling on deductible cultivation cost and excluded proof of actual cost by the affected class, while section 7A allowed other assessees to compute income on the basis of regular accounts. The reasoning applied the settled test that taxing statutes are subject to article 14, though with wide legislative latitude, and that classification must rest on intelligible differentia with a rational nexus to the statutory object. On the facts, no adequate basis was shown for denying individuals and Hindu undivided families the ordinary opportunity to prove actual cost. At the same time, the proviso could not simply be struck down, because it could operate validly as a presumptive method for assessees who prefer that course. The appropriate course was to read the proviso down so that the affected class may elect either the presumptive method or the regular method of proving actual cultivation cost, but not both.

Conclusion: The proviso was held valid and constitutional, but read down to confer an option on individuals and Hindu undivided families to choose between the presumptive allowance and proof of actual cost in the regular manner.

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