2001 (3) TMI 89 - SC - Income Tax

State tax officers' power to recompute tea-based agricultural income fixed by Central authorities struck down; assessments set aside.

The dominant issue was whether State tax officers could recompute tea-based agricultural income already computed by Central income-tax authorities for ... Levy of Assam agricultural income-tax - Questioning the Authority of the State Officer to recompute the agricultural income already assessed by the Central Officers under the Central Act and for consequential reliefs - legislative competence to enact a law - constitutional definition of 'agricultural income' under article 366(1) of the Constitution - HELD THAT:- The agricultural income regarding which the State Legislature may enact law under entry 46, List II would be such income as defined in the Indian Income-tax Act and the laws relating to the said Act. Section 2(1A) of the Income-tax Act, 1961, defines 'agricultural income'. It is the common case of all parties concerned that so far as the income from cultivation, manufacture and sale of tea is concerned, the same comes within the said definition and rule 8 of the Income-tax Rules, 1962 (the Central Rules), which, provides for computation of income derived from sale of tea grown and manufactured by the sellers in India. The fact that the Legislature under the State Act intended to make the agricultural income to be the same for the purpose of the Central as well as the State Act is also clear from the provisions of section 20D of the State Act which provides that if there is any variation in the assessment made by the Central Officers under the Central Act by virtue of any revision leading to enhancement or reduction, such enhanced or reduced income shall be taken as the agricultural income for the purpose of levy of State tax. From the provisions referred to hereinabove in the State Act and bearing in mind the definition of agricultural income under article 366(1) of the Constitution, in our opinion, it is clear that the State Act intended the agricultural income for the purpose of its levy to be that which is computed as such by the Officers acting under the Central Act. It is seen from a plain reading of section 49 of the State Act that it does not authorise the Officers under the State Act to sit in judgment over computation of income made by the Officers under the Central Act. Such a reading of section 49 of the State Act is not possible and we, accordingly, hold that section 49 of the Act does not per se contemplate a power being vested in the State Officers to recompute the agricultural income already made by the Officers under the Central Act. At this stage, we must notice that the proviso to section 49 of the State Act does use the words 'for the purpose of ascertaining agricultural income in regard to tea' but these words in the said section, in our opinion, do not take the State's case any further and at this stage it is sufficient to say that if the Legislature intended to permit the State Officers to recompute the agricultural income opposed to the computation made by the Central Officers under the Central Act, it could very well have stated so in so many words. We have already noticed that 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 same also suffers from the other vices pointed out by us hereinabove, hence such a rule, in our opinion, is ultra vires the Act. Therefore, the proviso to rule 5 of the State Rules to the extent it empowers the State Officers to recompute the agricultural income already computed by the Central Officers is ultra vires the State Act. We do not agree with this apprehension expressed on behalf of the State. In our opinion, if while examining the papers produced or liable to be produced before the taxing authorities administering the Income-tax Act, 1961, as contemplated under the proviso to section 49, the State authorities are of the opinion that the Central assessing authority has not made a proper assessment of the agricultural income of the assessee, as required under the Central Act, then it is always open to the State authorities to invoke the jurisdiction of the appellate or revisional authorities under Chapter XX(E) of the Central Act and if they succeed in any such attempt they can always recompute the agricultural income as contemplated Under section 20D of the State Act. Therefore, the above apprehension is baseless and we notice it is only for this limited purpose that the proviso to section 49 of the Act is incorporated by the State Legislature. Having come to the conclusion that the proviso to rule 5 of the Rules to' the extent stated hereinabove, is ultra vires the State Act, we are of the opinion that it is not necessary for us to go into the larger question of constitutional validity of the provisions of the State Act or the question of repugnancy which was argued on the basis of the presumption that the State Act has made provisions which run counter to the constitutional provisions and the provisions of the Central Act. Appeals and petitions succeed and the same are allowed. The proviso to rule 5 of the Assam Agricultural Income-tax Rules, 1939, to the extent it permits recomputation of agricultural income by the State Officers is declared ultra vires, the impugned orders of assessment are set aside with a direction to the Agricultural Income-tax Officers concerned in the State of Assam to reassess the agricultural income of the appellants/petitioners on the basis of the computation of agricultural income from tea made by the Central Officers, subject to their right to seek relief in the manner aforestated under Chapter XX(E) of the Central Act. Issues Involved:1. Authority of State Officers to recompute agricultural income already assessed by Central Officers.2. Legislative competence of the State to enact laws allowing recomputation of agricultural income.3. Validity of Section 49 of the Assam Agricultural Income-tax Act and Rule 5 of the Assam Agricultural Income-tax Rules.4. Interpretation of constitutional provisions regarding agricultural income and legislative powers.Detailed Analysis:1. Authority of State Officers to recompute agricultural income already assessed by Central Officers:The appellants argued that the Agricultural Income-tax Officers of the State are bound by the computation of agricultural income made by the Income-tax Officer under the Central Act. They contended that the Assam Agricultural Income-tax Act does not specifically authorize State Officers to recompute agricultural income already determined by Central Officers. The High Court upheld the authority of State Officers to recompute agricultural income under certain circumstances, but the Supreme Court disagreed, stating that Section 49 of the State Act does not empower State Officers to recompute agricultural income already assessed by Central Officers. The Court emphasized that the State Act intended the agricultural income for the purpose of its levy to be that which is computed under the Central Act.2. Legislative competence of the State to enact laws allowing recomputation of agricultural income:The State contended that as agricultural income is a State subject under entry 46 of List II of the Seventh Schedule to the Constitution, the State has the legislative competence to enact laws empowering its Officers to recompute agricultural income. The High Court agreed with this view, but the Supreme Court found that the State Act did not specifically authorize such recomputation and that such a power cannot be read into Section 49 of the State Act.3. Validity of Section 49 of the Assam Agricultural Income-tax Act and Rule 5 of the Assam Agricultural Income-tax Rules:The Supreme Court examined Section 49 of the State Act and Rule 5 of the State Rules. It found that Section 49 does not empower State Officers to recompute agricultural income already assessed by Central Officers. The Court also found that Rule 5 of the State Rules, which allowed State Officers to refuse the computation made by Central Officers, was beyond the rule-making power under the Act and ultra vires the State Act. The Court held that the rule-making power must be within the limits of the authority conferred by the Act and must not enlarge the scope of the Act.4. Interpretation of constitutional provisions regarding agricultural income and legislative powers:The Supreme Court noted that Article 366(1) of the Constitution defines 'agricultural income' for the purpose of enactments relating to the Indian Income-tax Act. The Court held that the State Act intended to adopt the computation of agricultural income made under the Central Act. The Court emphasized that the interpretation of a statute should not lead to provisions becoming ultra vires and should avoid conflicts between the provisions of the same Act. The Court also noted that if the State authorities believe that the Central assessing authority has not made a proper assessment, they can invoke the jurisdiction of appellate or revisional authorities under the Central Act.Conclusion:The Supreme Court allowed the appeals and petitions, declaring the proviso to Rule 5 of the Assam Agricultural Income-tax Rules, 1939, to the extent it permits recomputation of agricultural income by State Officers, as ultra vires. The Court set aside the impugned orders of assessment and directed the Agricultural Income-tax Officers in Assam to reassess the agricultural income based on the computation made by Central Officers, subject to the right to seek relief under Chapter XX(E) of the Central Act. The appeals and petitions were allowed with no costs.