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PETITIONER: STATE OF TAMIL NADU

       Vs.

RESPONDENT: KANNAN DEVAN MILLS PRODUCE CO.  LTD.

DATE OF JUDGMENT07/10/1971

BENCH: GROVER, A.N. BENCH: GROVER, A.N. HEGDE, K.S.

CITATION:  1972 AIR  375            1972 SCR  (1)1016  CITATOR INFO :  F          1988 SC1435  (32)

ACT: Madras Agricultural Income-tax Act, 1955-Rules 7 and 8  made under  S. 6-Whether tea grown in Madras but manufactured  in Kerala corns within the scope of the said Rules.

HEADNOTE: The respondent-assessee is a limited company carrying on the business  of  tea planting.  A part of its tea  estates  was situated  in  Kerala and the other part was in  Tamil  Nadu. According  to  the  assessee, the  estate  in  question  was working  as  one unit with one,factory and  common  accounts were maintained for the whole estate. For  the assessment years 1956-57, 1957-58 and 1958-59,  the Agricultural  Income-tax Officer, Tamil Nadu,  computed  the Agricultural  Income in accordance with the assessment  made by the Central Income-tax Officer and took 60% of the income computed  by the Central Income-tax Officer for the  purpose of  computation of Agricultural Income.  For the  assessment year  1960-61, however, the Agricultural Income-tax  Officer felt  that since the Kerala area of the estate yielded  only 656 lbs. of tea per acre whereas the yield of Madras portion was 799 lbs. per acre, he took the valuation of the  produce from  the Madras portion as the gross receipt  wherefrom  he deducted  the expenditure allowed by the Central  Income-tax Officer  and recalculated it from the Madras portion on  the basis  of acreage thereby showing a profit from  the  Madras portion   and   made  his   assessment   accordingly.    The computation  of  the Central  Income-tax  Officer,  however, showed a loss for the entire estate. The Assistant Commissioner of Agricultural Income-tax upheld the  order  of  Agricultural  Income-tax  Officer  but   the Tribunal set- aside the assessment, and remanded the case to Assistant Commissioner for certain matters.  The departments further  sought to reassess the assessee for the  earlier  3 years  also  and issued notices.  The  assessee,  thereupon, filed writ petitions challenging the order of reopening  the assessment.  A tax revision was also filed against the order of Agricultural Income-tax Appellate Tribunal in respect  of the assessment for the year 1960-61.  The writ petitions and the revision were allowed by the High Court and the order of reopening  the  assessment  was  quashed.   As  regards  the

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assessment for the year 1960-61, the Agricultural Income-tax Officer  was  directed to make a revised assessment  on  the basis  of the Central incometax Officer’s computation  which was considered by the High Court to be the proper basis  for assessment of Agricultural Income-tax for the year  1960-61. On appeal, the Revenue strongly relied on s. 6 of the Madras Agricultural  Income-tax Act and rules 7 and 8 framed  under that Act.  Dismissing the appeals, HELD  :  (1)  Rules 7 and 8 made under s. 6  of  the  Madras Agricultural  Income-tax  Act  have no  application  in  the present  case  because r. 7 deals with  Agricultural  Income from tea grown and manufactured in the State of Madras.   In the  present  case,  though tea is grown in  Madras,  it  is manufactured   in  Kerala  which  is  outside  that   State. Therefore,  r.  7 does not apply.  Similarly r. 8  does  not cover the case of tea which is manufactured in another State and not in the State of Madras Tea leaves                             1017 alone  can be the produce of a particular State but as  such they  have no value.  They become valuable only  after  they are  subjected  to a special process, which takes  place  in Kerala.  Therefore r. 8 has no applicability to manufactured tea. [1020 F] (ii)A  very  small area of the estate is in  the  State  of Madras  and even though that area is more fertile and  gives much  more yield than the area in Kerala, the entire  estate has to be assessed as a whole and the High Court has rightly thought  that Agricultural Income-tax Officer should  accept the  computation of the Central Income-tax Officer which  is the only satisfactory basis for computation of  agricultural Income-tax  in respect of the estate, especially  when,  the Agricultural  Income-tax Officer has not given  satisfactory reasons  for not accepting the Central Income-tax  Officer’s computation. [1020 H] Anglo  American Direct Tea Trading Co. Ltd. v.  Commissioner of Agricultural Income-tax, Kerala, 64 I.T.R. 667,  referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  11751178 of 1970. Appeals from the judgment and order dated December 9,  1964, of  the  Madras High Court in Tax Case No. 146 of  1963  and Writ Petitions Nos. 698 to 700 of 1963. S.T.  Desai and A. V. Rangam, for the appellant (in  both the appeals). M.C. Chagla, B. D. Datta, J. B. Dadachanji, 0. C. Mathur, Ravinder  Narain and Jay Jesepp, for the respondent (in  all the appeals). The Judgment of the Court was delivered by Grover,  J.-These  appeals from a common order of  the  High Court  of Madras are by certificate.  The assessee,  who  is the respondent is a limited company carrying on business  of tea planting.  It owns several tea estates in the States  of Tamil Nadu, Kerala and Assam.  Its head office is in  Munnar in the State of Kerala.  One of the tea estates owned by the assessee is called Chittavurai Tea Estate and comprises 1043 -acres  of tea plantations.  Out of this an area of  1006.60 acres is situate in Kerala and the remaining 36.40 acres, in Tamil Nadu.  According to the assessee Chittavurai Estate is working   as   one  unit.   There  is   only   one   factory manufacturing tea grown in the Madras and Kerala portion  of the  estate.  The expenses are incurred for the  maintenance

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of  the  whole estate as one unit and  common  accounts  are maintained  for it, there being no separate account for  the Madras portion. Section  2(1) of the Indian Income tax Act 1922  hereinafter called  the ’Income tax Act’ defines ’agricultural  income’. The 119Sup.  Cl/72                             1019 per acre.  According to him apportionment of expenditure  by treating  the  whole of Chittavurai Estate as one  unit  had resulted  in a loss for the Madras portion and a profit  for the  Kerala portion.  As pointed out by the High  Court  the computation by the Central, Income tax Officer showed a loss for  the entire Chittavurai Estate.  It is not necessary  to go  into  details  of how the computation was  made  by  the Agricultural  Income tax Officer.  The net result,  however, was  that whereas the Central Income tax Officer had  worked out the loss for the purpose of the Income. tax Act treating the Chittavurai Estate as one unit, the Agricultural  Income tax  Officer  took  the valuation of the  produce  from  the Madras  portion as the gross receipt.  He deducted  from  it the.expenditure  allowed by the Central Income  tax  Officer and recalculated it from the Madras portion on the basis  of acreage.  That led to a profit from the Madras portion. Learned  counsel for the Revenue has drawn our attention  to s.  6 of the Agricultural Income tax Act and Rules 7  and  8 framed  under  that  Act.  Section  6  provides  that  where agricultural  income  is derived from land  situated  partly within  the State and partly without the State  agricultural income tax shall be levied:-               (i)Where   the  portion  of   such   income               attributable, to the land situated within  the               State  can  be determined  from  the  accounts               maintained by the assessee, on the portion  so                             determined;                (ii)Where  the  portion  of  the  income  so               attributable  cannot  be  determined  by   the               method  specified  in  clause  (i),  on   such               portion as may be determined in the prescribed manne r."               Rules 7and 8 are as follows:-                R.7  "Computation  of  income  from   tea.-In               respect of agricultural income from tea  grown               and manufactured by the seller in the State of               Madras,  the portion of the income worked  out               under  the  Indian  Income tax  Act  and  left               unassessed  as  being  agricultural  shall  be               assessed  under  the Act after  allowing  such               deductions  under the Act and-the  rules  made               thereunder :               Provided  that  the computation  made  by  the               Indian Income tax Officer shall ordinarily  be               accepted   by  the  Agricultural  Income   tax               Officer  who may, for his  satisfaction  under               sections 16 and 16 of the Act, obtain  further               details  from the assessee or from the  Indian               Income  tax Officer but shall not without  the               previous    sanction    of    the    Assistant               Commissioner of Agricultural.               1020               Income-tax  require  under section  3  9,  the               production  of account books already  examined               by   the   Indian  Income  tax   Officer   for               determining  the agricultural income from  tea               grown and manufactured in the State of  Madras               or  refuse  to accept the computation  of  the

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             Indian Income tax Officer :               Provided further..................               R.8  "Computation of income  derived  from               lands  situated  partly within the  State  and               partly without."-Where an agricultural. income               is  derived from lands situated partly  within               the  State  and partly without the  State  and               the-income attributable to the lands  situated               within  the State cannot be determined by  the               assessee  but where the value of  the  produce               grown  within  or  without the  State  can  be               separately   determined  from   the   accounts               maintained  by the assessee such income  shall               be computed in proportion to the value of  the               respective  quantity of produce raised  within               or  without  the State.  In other  cases  such               income shall be computed in proportion to the               respective  cultivated  acreage  of  the  crop                             lying within and without the State if the  crop               grown  is the same, subject to such  modifica-               tions  as may be necessary with  reference  to               the yield per acre, the quality of the produce               and  the price fetched within and without  the               State." The  High Court rightly pointed out that R. 7 is  applicable only to agricultural income from tea grown and  manufactured in the State of Madras.  It can have no applicability in the present  case  where even though tea is  grown  inside  that State but it is manufactured in Kerala which is outside that State., As regards R. 8 it is a moot point whether the  same would be applicable to tea.  ’So far as tea is concerned the tea leaves alone can be the produce but as such they have no value.   They become valuable only after they are  subjected to  a  special process from which emerge various  brands  of tea.   Rule 7 has specifically been framed for  ,computation of   income  from  tea.   Therefore,  R.  8  can   have   no applicability particularly when the language employed in  it cannot  cover  the case of tea.  We are unable  to  see  how these  two  rules can be of any avail or assistance  to  the Agricultural  Income  tax Officer in the present  case.   It must  be  remembered that Chittavurai Estate  being  of  tea falls  in a special class.  It is only a very small area  of that  estate  which is in Madras even though  that  is  more fertile  and gives much more yield. than the area in  Kerala but the unit has to be assessed as a whole and the High 1021 Court,  in our opinion, rightly thought that the  rule  that the  Agricultural  Income  tax  Officer  should  accept  the computation of the Central Income tax Officer furnishes  the only  satisfactory  basis for  computation  of  agricultural income  tax  in  respect  of  Chittavurai  Estate.   It   is noteworthy  that  even  in the first proviso  to  R.  7  the Agricultural  Income  tax  Officer  has  been  enjoined   to ordinarily  accept  the  computation made,  by  the  Central Income tax Officer.  Moreover the High Court which went into the facts and figures of the various assessments came to the conclusion  that the.  Agricultural Income tax  Officer  had not  given sufficient reasons for not accepting the  Central Income  tax Officer’s computation.  That  court,  therefore, declined  to  give  a finding  on  thequestion  whether  the Central  Income tax Officer’s computation should be held  to be legally binding in all cases and in all circumstances  on the Agricultural Income tax Officer.  Our attention has been invited  on  behalf of the assessee to a  decision  of  this

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Court  in  Anglo-American Direct Tea Trading Co.  Ltd.  etc. etc.  v. Commissioner of Agricultural Income tax  Kerala(1). In  that case it was held that agricultural  income  taxable under the Kerala Agricultural Income tax Act 1950 was 60% of the income computed under the Income tax Act after deducting therefrom  the allowances authorised by s. 5 of  the  Kerala Act  insofar  as  the  same had  not  been  allowed  in  the assessment under the Income tax Act.  There was no provision in the Kerala Act or the Rules authorising the  Agricultural Income  tax Officer to disregard the computation of the  tea income  made  under the Income tax Act.  If,  therefore,  an assessment  had been made by the Central Income tax  Officer before  the assessment of income by the Agricultural  Income tax  Officer the latter was bound to accept the  computation of  the income made by the Central income  tax  authorities. The principle which has been applied in the present case  by the  High Court is on the same lines and it  is  unnecessary for  us  to express any opinion on the question  whether  in every  case the Agricultural Income tax Officer is bound  to accept  the  computation  made by  the  Central  Income  tax authorities and only allow additional deduction which may be permissible under the Agricultural Income tax Act. The appeals fail and are dismissed with costs.  Hearing fee, one set. S.N.C. (1)69 I.T.R. 667. Appeal dismissed. 1022