Tea income taxation is confined to the agricultural component computed under Central income-tax rules, limiting State taxing power.

The constitutional definition of agricultural income for tea incorporates the Central income-tax computation rules, so tea income must first be computed under those rules and only 60% is treated as agricultural income. State Legislatures could not, by amending their agricultural income-tax laws, expand the tax base to the entire income from tea grown and manufactured by the assessee. The State amendments in West Bengal and Kerala were therefore ineffective to enlarge State taxing power beyond the agricultural component of tea income, and State agricultural income-tax remained confined to the portion recognised under the Central scheme.

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Issues: (i) Whether the State Legislatures could, by amending their agricultural income-tax laws, levy tax on the entire income from the sale of tea grown and manufactured by the assessee; (ii) Whether the Central income-tax rules governing computation of tea income formed part of the constitutional meaning of "agricultural income" so as to limit State taxation to 60% of such income.

Issue (i): Whether the State Legislatures could, by amending their agricultural income-tax laws, levy tax on the entire income from the sale of tea grown and manufactured by the assessee.

Analysis: The Constitution allocates power to the States only in respect of agricultural income, while taxes on income other than agricultural income fall within Parliament's domain. The Court held that income from tea grown and manufactured by the assessee is an integrated income containing both agricultural and non-agricultural components, and that the State cannot enlarge its tax base beyond the agricultural component recognised by the Central income-tax regime. The amendments in West Bengal and Kerala, though aimed at removing restrictive language in the State enactments, could not validly widen the State charge to the whole tea income.

Conclusion: The State Legislatures had no competence to levy agricultural income-tax on the entire tea income; the challenge succeeded to that extent in favour of the assessee.

Issue (ii): Whether the Central income-tax rules governing computation of tea income formed part of the constitutional meaning of "agricultural income" so as to limit State taxation to 60% of such income.

Analysis: The constitutional definition of agricultural income was held to be tied to the enactments relating to Indian income-tax, and those enactments included the computation rules governing tea income. Rule 24 of the 1922 Rules and rule 8 of the 1962 Rules were treated as bound up with the statutory definition itself, so that tea income had first to be computed under the Central law and only 60% of the resulting income could be treated as agricultural income. The Court rejected the contention that the later State amendments, or the decision dealing with sales tax on tea leaves, displaced the settled position.

Conclusion: The constitutional and statutory scheme limited State agricultural income-tax to 60% of the tea income computed under the Central income-tax rules, in favour of the assessee.

Final Conclusion: The petitions substantially succeeded and the impugned State amendments did not enlarge the States' taxing power beyond the agricultural portion of tea income as computed under the Central income-tax law.

Ratio Decidendi: The constitutional definition of agricultural income incorporates the Central income-tax computation rules for tea income, and a State Legislature cannot tax more than the agricultural component so determined.

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