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CASE NO.: Appeal (civil) 5047  of  1996

PETITIONER: M/S. ASSAM COMPANY LTD. & ANR.

       Vs.

RESPONDENT: STATE OF ASSAM & ORS.

DATE OF JUDGMENT:       21/03/2001

BENCH: S.P. Bharucha, N. Santosh Hegde & Y.K. Sabharwal

JUDGMENT:

(With W.P.©Nos.162/96, 20/97, 61/98 & C.A.  Nos.3652/98, 4788/98 &249/99)

J U D G M E N T L...I...T.......T.......T.......T.......T.......T.......T..J SANTOSH HEGDE, J.

   The income from cultivation, manufacture and sale of tea being  a  composite  income is exigible to  both  income-tax under  the  Indian  Income  Tax  Act,  1961  and  the  Assam Agricultural Income Tax Act, 1939.

   In  this context, being aggrieved by the decision of the Agricultural Income Tax Officer of the State of Assam (State Officer)   who   refused  to   accept  the  computation   of agricultural  income made by the Income Tax Officer (Central Officer)  under  the Income Tax Act, 1961 (Central Act)  for the purpose of the levy of Assam agricultural income tax for the   relevant   assessment    years,   assessees-appellants approached  the  High  Court  of Guwahati  by  way  of  writ petitions  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.   Their  contentions  being rejected  both  by  the learned Single Judge and the Division Bench of High Court of Guwahati, these appeals/petitions have been preferred.

   It  was  argued on behalf of the appellants  before  the High  Court that in view of the constitutional definition of agricultural   income   under   Article    366(1)   of   the Constitution,  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 also  contended  before  the  High   Court  that  the  Assam Agricultural  Income  Tax  Act  (the   State  Act)  has  not specifically  authorised the State Officers acting under the said  Act  to  recompute the agricultural income  which  was already determined by the Central Officers under the Central Act  and the Rules.  They also contended in the  alternative that  if it is to be held that the Assam Agricultural Income Tax  Act  did authorise such a recomputation of income  then such provisions of the State Act would be ultra vires of the Constitution.   Per  contra,  it was the contention  of  the

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State  that  the  tax on agricultural income being  a  State subject under Entry 46 of List II of the 7th Schedule to the Constitution,  State has the legislative competence to enact a  law which can also empower its officers to recompute  the agricultural  income  even  if the same is computed  by  the Central  Officers  under  the Central Act and such  a  power under  the State Act is found in Section 49 read with Rule 5 of the State Rules.

   The  High Court in the impugned judgment after analysing the  provisions of the Constitution, the Central Act and the State  Act  and the Rules came to the conclusion that  under the  provisions  of  the  State Act, there  was  a  specific

authority  vested  in  the State Officers to  recompute  the agricultural  income.   The  High  Court also  came  to  the conclusion  that  such  provision and the Act is  not  ultra vires  of  the  Constitution  nor was beyond  the  scope  of Article  246(3) and 366(1) of the Constitution.  However, it held  that  such power of recomputation can be exercised  by the  State  Officers  concerned  only  if  he  came  to  the conclusion  that the computation of agricultural income made by  the Central Officer is contrary to the provisions of the Central Act and the Rules.  It also specifically came to the conclusion  that in the decisions of this Court in the  case of  Karimtharuvi  Tea  Estates Ltd.  & Anr.   v.   State  of Kerala & Ors.  (1963 (48) ITR 83), Anglo-American Direct Tea Trading  Co.   Ltd.  etc.  v.  Commissioner of  Agricultural Income-tax,  Kerala (1968 (69) ITR 667) and Tata Tea Ltd.  & Anr.   v.  State of West Bengal & Ors.  (1988 (173) ITR 18), this question of the States power to enact a law permitting the  recomputation  of the agricultural income by the  State Authorities has been left open, hence, this question was not res  integra.   In this view of the matter, the  High  Court upheld  the authority of the State Officers to recompute the agricultural  income  under the provisions of Section 49  of the  Act  read  with  Rule  5 of  the  State  Rules  in  the circumstances mentioned in the impugned judgment.

   Before us similar arguments as addressed before the High Court were addressed by the parties concerned.

   For  the purpose of appreciating the arguments addressed on  behalf of the parties before us, it is necessary to note the  provisions  of the Constitution, the Indian Income  Tax Act,  1961, Rules made thereunder and the provisions of  the Assam  Agricultural Income Tax Act and Rules, to the extent, they  are relevant.  Entry 46 of List II of the 7th Schedule to  the Constitution relates to tax on agricultural  income, therefore,  in  view of Article 246(3) of  the  Constitution power  to legislate in regard to levy of agricultural income tax  is with the State Legislature.  However, Article 366(1) provides  that  the expression agricultural income in  the Constitution  means agricultural income as defined for the purpose  of the enactments relating to the Indian Income Tax Act.  Therefore, the agricultural income regarding which the State  Legislature  may  enact law under Entry 46,  List  II would  be on 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

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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.   It provides  that 40% of such income shall be deemed to be  the income   liable  to  income-tax   under  the  Central   Act, therefore,  the  balance  60% of the said  income  would  be agricultural  income for the purpose of levying agricultural income-tax  under  the State laws.  A reading of  the  above provisions shows that the computation of agricultural income even for the purpose of the State enactments will have to be that  which  is made under the provisions of the Income  Tax Act and Rules made thereunder.

   Explanation to Section 2(a)(2) of the State Act provides that  the agricultural income from cultivation of tea  means that  portion  of  the   income  derived  from  cultivation, manufacture and sale of tea as is defined to be agricultural income  for  the purpose of the enactments relating  to  the Indian  Income Tax Act.  Second proviso to Section 8 of  the State  Act  provides  for  the method  of  determination  of agricultural  income from cultivation and manufacture of tea which according to this section is deemed to be that portion of  income from such cultivation, manufacture and sale which is  agricultural  income  within the meaning of  the  Indian Income  Tax  Act.  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 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 herein above 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.

   However,  the argument of the State is based on  Section 49  of  the State Act read with Rule 5 of the  State  Rules; therefore,  we will first consider whether Section 49 of the Act in any way deviated from the abovesaid object and scheme of  the  State Act.  A perusal of Section 49 shows  that  in terms  it  does  not empower its officers to  recompute  the agricultural  income already made by the officers under  the Central Act.  Though we notice that under the proviso to the said  section  State  Officers have been empowered  for  the purpose of ascertaining agricultural income in regard to tea to  call  for any papers produced or liable to  be  produced before the taxing authorities administering the Central Act. Beyond  the power of calling for records, this Section  does not  confer any right on the State Officers to recompute the agricultural   income  already  computed   by  the   Central Officers.    We   also  do  not   think  by  a  process   of interpretation such power can be read into Section 49 of the State  Act as has been done by the High Court.  It is a well established rule of interpretation that while interpreting a particular  provision  of a Statute, courts should  bear  in mind  the object and scheme of the entire Act.  A particular provision  of the Act cannot be considered or interpreted in isolation  so as to give room for conflict inter se  between

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the  provisions of the same Act.  Courts should also bear in mind  that  while  interpreting a provision of  the  Act  an interpretation leading to the provision becoming ultra vires should  be avoided.  Thus examined, it is seen from a  plain reading  of  Section  49  of  the State  Act,  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 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, does not take the States 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.  In our opinion, the legislature advisedly  did  not  say so because it wanted  to  keep  its legislation   within   the  ambit  of  the   definition   of agricultural  income  in Article 366(1) of the  Constitution which  definition was obviously inserted in the Constitution to  see  that  there  is similarity in  the  computation  of agricultural  income throughout the Union of India and  also to  see that there is no conflict in the computation of such income  made by the Central and State Officers, more so with reference  to agricultural produces whose income is  treated as  a  composite income both for the purpose of  income  tax under  the Central Act as also the State Acts.  We will  now consider  the  effect  of  Rule 5 of the  State  Rules.   As noticed  hereinabove, Rule 5 of the Rules in its proviso has in  unequivocal  terms  empowered the State  authorities  in given  cases  to  refuse  to   accept  the  computation   of agricultural  income  made  by the  Central  Officers  after examining  the  books  already   examined  by  such  Central Officers.   The  appellants contend that this  provision  is beyond  the  rule-making power under the Act, hence,  is  in excess  of  the power delegated under the State  Act.   They also  contend that assuming that such rule-making power  has entrusted  the delegation under Section 50 of the State Act, same would be ultra vires of the Constitution.

   We  see  force  in the above contention.  A  perusal  of Section  50  of the Act shows that the State Government  has been  empowered to make such Rules as are necessary for  the purpose  of  carrying out the purposes of the Act.  We  have already noticed that the object and the scheme of the Act do not  contemplate  the State authorities being  empowered  to recompute   the   agricultural  income   contrary   to   the computation  made  by  the  Central  Officers,  nor  do  the subjects specified in sub-sections 2(a) to (m) of Section 50 provide  for making such rules empowering the State Officers to  make computation of agricultural income contrary to what is  computed by the Central Officers under the Central  Act. We have noticed that by virtue of the provisions made by the legislature  in  explanation to Section 2(a)(2), 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.   Having specifically said so in the above Sections  of the  Act,  if  the Legislature wanted to deviate  from  that

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scheme of the Act, it could have in clear terms provided for a  power being vested with its officers in any given case to recompute  the  income  keeping in mind the revenue  of  the State but the Legislature has not thought it necessary to do so.   Even  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.  It is an established principle that the power to  make  rules  under an Act is derived from  the  enabling provision  found in such Act.  Therefore, it is  fundamental that  a delegate on whom such power is conferred has to  act within  the limits of the authority conferred by the Act and it  cannot enlarge the scope of the Act.  A delegate  cannot override  the  Act either by exceeding the authority  or  by making  provision  which is inconsistent with the Act.   Any Rule  made in exercise of such delegated power has to be  in consonance  with the provisions of the Act, and if the  Rule goes  beyond what the Act contemplates, the Rule becomes  in excess  of the power delegated under the Act, and if it does any  of the above, the Rule becomes ultra vires of the  Act. 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 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 of the Act.  Therefore, 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 of the State Act.

   Before  we conclude, we must advert to one other  aspect which  requires our consideration.  Here we must notice  the arguments advanced on behalf of the State of Assam that Rule 5  of the Rules was enacted to see that no injustice is done to  the State Revenue by erroneous assessments made contrary to  the provisions of the Central Act by the Officers acting under  the Central Act and if this Rule is to be held  ultra vires,  States  will  be  left without any  remedy  in  such circumstances.   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  Indian Income  Tax  Act,  1961  as contemplated  under  proviso  to Section  49 if 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  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

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vires of 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.

   For   the  reasons  stated   above,  these  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 as  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 re- assess 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.

   The appeals and petitions are allowed.  No costs.