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PETITIONER: TATA TEA LTD. & ANR. ETC.

       Vs.

RESPONDENT: STATE OF WEST BENGAL & ORS. ETC.

DATE OF JUDGMENT05/05/1988

BENCH: KANIA, M.H. BENCH: KANIA, M.H. PATHAK, R.S. (CJ)

CITATION:  1988 AIR 1435            1988 SCR  (3) 961  1988 SCC  Supl.  316     JT 1988 (2)   299  1988 SCALE  (1)867  CITATOR INFO :  R          1988 SC1450  (1)

ACT:      Bengal Agricultural  Income-tax (Amendment)  Act, 1980- Challenging constitutional validity of sections 3 and 5 of.      Agricultural Income-tax  (Amendment) Act,  1980 (Kerala Act No.  17 of 1980)-Challenging amendment made by-Resulting in deletion  of Explanation after clause (2) of section 2(a) of Agricultural Income-tax Act, 1950.      Whether entire  income of  assessee from  sale  of  tea grown  and  manufactured  by  him  is  subject  to  levy  of agricultural income-tax.

HEADNOTE:      These Writ  Petitions, filed  in this  Court by  Public Limited Companies  growing, manufacturing and selling tea in the States of West Bengal and Kerala raised common questions of law.      The Writ Petitions relating to the State of West Bengal challenged the  constitutional validity  of sections 3 and 5 of the Bengal Agricultural Income-tax (Amendment) Act, 1980, whereby sub-section  (2) and (2A) of section 8 of the Bengal Agricultural Income-tax  Act, 1944  were omitted  and always deemed to  be omitted.  The petitioners  alleged that  as  a result of the omission of the said Sub-sections (2) and (2A) of section 8, the State Legislature had sought to assume the power, competence  and jurisdiction  to impose  agricultural income-tax on  the entire  income from the sale of tea grown and manufactured  by a  seller and  had thereby transgressed the constitutional  limitations contained  in Article 246(3) of the Constitution of India. The petitioners contended that the  income   derived  from   the  sale  of  tea  grown  and manufactured by them was derived partly from agriculture and partly  from  manufacture  by  elaborate  processes  through valuable machinery.  Prior to  the said  amendment Act,  the position was  that the  income  of  an  assessee  who  grew, manufactured and sold tea in West Bengal, was computed under the Indian  Income-tax Act, 1922 (the Act of 1922) read with the Income-tax  Rules, 1922, and agricultural income-tax was levied only  in respect of 60 per cent of that income. After the coming  into force  of the  Income-tax Act, 1961 and the

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Income-tax Rules, 1962 also a State Legislature 962 could only  legislate in  respect of  60  per  cent  of  the income, treated  as agricultural  income. The  object of the impugned amendment  Act, was  to  subject  to  the  levy  of agricultural income-tax,  the entire  income derived  by  an assessee from the sale of tea grown and manufactured by him.      The writ  petition relating  to Kerala State challenged the  amendment   made   by   the   Agricultural   Income-tax (Amendment) Act,  1980 (Kerala  Act No. 17 of 1980) deleting the Explanation  after clause  (2) of  section 2(a)  of  the Agricultural Income-tax Act, 1950, with a view to making the entire income  from sale  of tea  earned by  an assessee who grew and  manufactured tea in that State subject to the levy of agricultural income-tax.      The petitioners  urged that these amendments, in so far as  they   purported  to  confer  power  on  the  respective legislatures of  the States  of West  Bengal and  Kerala  to legislate regarding taxes on the income from the sale of tea grown and  manufactured by the assessees in excess of 60 per cent of  such income computed in the manner prescribed under the law  relating to  income-tax were  void and  beyond  the legislative competence  of the legislatures of the States of West Bengal  and Kerala in view of the provisions of Article 246 of  the Constitution  of India read with the entry 82 in List I  and Entry  46 in the List II of the Seventh Schedule to the  Constitution and  the relevant provisions of the law relating to income-tax.      The respondents  contended that  Article 366(1)  of the Constitution  merely  stated  that  the  term  "agricultural income"  had  the  same  meaning  as  given  to  it  in  the enactments relating  to income-tax and the definition of the said term  in Act  of 1922  and the  Act  of  1961  did  not prescribe that  only a particular part of the income derived by an  assessee from  the sale of tea grown and manufactured by him  could be regarded as agricultural income, and it was open  to   the  State   Legislatures   concerned   to   levy agricultural income-tax on such entire income.      Disposing of the petitions, the Court, ^      HELD: The  main question  to be  considered was whether the impugned  provisions in the Bengal Amendment Act of 1980 were in  excess of the legislative competence of West Bengal State  Legislature,   and  whether   by  deletion   of   the Explanation effected  by the  Kerala Amendment  Act of 1980, the definition  of the  term "agricultural  income" in  sub- section (a)  of Section 2 of the Kerala Agricultural Income- tax Act 963 became void  as in  excess of  the legislative competence of the State Legislature. [978D-E]      A perusal  of Entry  82 of  the List  I in  the Seventh Schedule and Entry 46 in the List II makes it clear that the Legislatures of  the States  of West  Bengal and  Kerala can pass laws  imposing taxes  only in  respect of  agricultural income, and in respect of income other than the agricultural income, it  is only  the Parliament  which has  the power to legislate in  respect of  taxes on  such income. Sub-article (1)  of   Article  366   of  the  Constitution  states  that "agricultural income"  means such  income as  is defined  as "agricultural income"  for the  purposes of  the  enactments relating to  Indian income-tax.  It is  significant that the words used  are not  "as defined  by the enactments relating Indian Income-tax"  but are  "as defined for the purposes of the  enactments   relating  to  Indian  Income-tax"(emphasis

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supplied).[978F-G]      Although the  Explanation has  been deleted from clause (2)  of   Sub-section  (a)   of  Section  2  of  the  Kerala Agricultural Income-tax  Act, and in spite of the amendments carried out  by the  Amendment Act of 1979 and the Amendment Act 1980 in the case of the West Bengal Agricultural Income- tax Act, an Agricultural Income Tax Officer acting under the Kerala   Agricultural   Income-tax   Act   or   the   Bengal Agricultural  Income   tax  Act   has  no   power  to   levy agricultural income  tax except in respect of 60 per cent of the income derived by an assessee from the sale of tea grown and manufactured by him and computed in the manner leid down under the  relevant Income-tax  Act  and  the  rules  framed thereunder. [984B-C]      The decision  of this  Court in  Commissioner of  Sales Tax, Lucknow v. D.S. Bist, [1979] 44 S.T.C. 392, relied upon by the  State of  Kerala and the State of West Bengal was of no assistance  to them  as the ratio of that decision had no application to present cases. [986A]      Article 366(1)  of the  Constitution provides  that the term  "agricultural   income"  has   the  same   meaning  as attributed to  it for the purposes of enactments relating to Indian income-tax,  and Rule 8 of the Income-tax Rules, 1962 as well  as Rule 24 of the Income-tax Rules 1922, pertain to and  are   bound  up   with  the   definition  of  the  term "agricultural income" for the purposes of laws or enactments pertaining to  Indian Income-tax and the provisions of those rules have  to be  taken into  account  in  considering  the meaning of  the term "agricultural income" under sub-article (1) of Article 366 of the Constitution. [987B-D] 964      Clause (b)  of sub-section  (2) of  Section 295  of the Income-tax Act, 1961 specifically confers power on the rule- making authority  to make  rules relating  to the  manner in which and  the procedure by which income for the purposes of the Act  of 1961  would be  arrived at in the case of income derived in  part from  agriculture and in part from business and  Rule  8  clearly  provides  for  the  manner  in  which computation of income for the purposes of the Act of 1961 is to be  made in  the case  of income derived from the sale of tea grown and manufactured by a seller and it cannot be said that the  said rule goes beyond the scope of the rule-making power conferred  under section  295, as contended by counsel for the two States. [987E-F]      Although the  Explanation to  Section 2(a)  (2) of  the Kerala Agricultural  Income-tax Act  has been deleted by the Amendment Act  of 1980,  the result  would still be the same that the  Kerala State  Legislature can  impose tax  only in respect of  60 per cent of the income derived by an assessee who sells  tea grown  and manufactured  by him  in India and such income  has to  be computed  in the manner laid down in the Act  of 1922  and thereafter  in the  Act  of  1961  for computation of the business income. The same is the position in respect  of the powers of the legislature of the State of West  Bengal   in  spite  of  the  amendments  made  by  the legislature by  the Amendment  Act of 1980 and earlier under the amending Act of 1979 which was in force for one year. It is not  necessary to strike down the said amendments because they do  not directly  conflict with  the definition  of the term "agricultural  income" under the Constitution, but they do not  confer any  wider power  on the State Legislature to impose taxes  on the agricultural income then what is stated earlier. [987G-H;988A-B]      The  validity   of  the   amendments  to   the   Bengal Agricultural Income-tax Act made in 1980 and the deletion of

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the  Explanation   in  Section   2(a)(2)   of   the   Kerala Agricultural Income-tax  Act were  challenged as being ultra vires and  invalid in  law on  several other grounds but the Court did  not go into those grounds in view of what it held as set out above. [988C-D]      Although none  of the  prayers  in  the  petitions  was granted in terms, the petitioners substantially succeeded in the petitions.[988E]      Karimtharuvi Tea Estates Ltd. & Anr. v. State of Kerala JUDGMENT: Trading  Co.  Ltd.  etc.  v.  Commissioner  of  Agricultural Income-tax, Kerala,  [1968] 69  ITR 667; State of Tamil Nadu v. Kannan Devan Hills Produce Co. Ltd., 965 [1972]  84   I.T.R.  475;   Tea  Estate  India  P.  Ltd.  v. Commissioner of  Income-tax,  West  Bengal  II,  [1976]  103 I.T.R. 785;  Commissioner  of  Income-tax,  Madras  v.  R.M. Chidambaram Pillai etc., [1977] 106 I.T.R. 292; Commissioner of Sales  Tax, Lucknow v. D.S. Bist & Ors., [1979] 44 S.T.C. 392; and  High  Land  Produces  Co.  Ltd.  &  Anr.  etc.  v. Inspecting Asstt.  Commr. of Agricultural Income-tax & Sales Tax (Special),  Kottayam and  Ors. etc.,  [1984] 148  I.T.R. 746, referred to.

&      ORIGINAL JURISDICTION:  Writ  Petitions  Nos.  5409-10, 5411-12/80, 358 & 12807-12808/84.      (Under Article 32 of the Constitution)      Dr.  Devi   Paul,  Ms.  M.  Seal,  H.K.  Dutt  for  the petitioners in WP. Nos. 5409-12/80, 12807-12808/84.      Dr. V.  Gauri Shankar,  P.N. Tiwari,  Manoj  Arora,  S. Rajappa and  S.R. Srivastava  for the petitioners in WP. No. 358/84      P.S. Poti, V.J. Francis and N.M. Popli, for Respondents in WP. Nos. 5411-12/80      S.C. Manchanda,  B.B. Ahuja  and Ms.  A. Subhashini for the U.O.I.      Tapas Ray,  H.K. Puri,  G.S. Chatterjee and Dalip Sinha for Respondents in 12807-08, 5409-10/80      D.P. Mukherjee, for the Intervenor.      The Judgment of the Court was delivered by      KANIA, J.  These writ  petitions are  filed  by  Public Limited Companies  growing  and  manufacturing  tea  in  the States of  West Bengal  and Kerala  respectively.  Although, there are  some differences in the facts, the material facts are largely common and the questions raised in the petitions can be fairly regarded as common questions of law. They are, therefore,  being   disposed  of  together  by  this  common judgment.      The Petitioners in Civil Writ Petitions Nos. 5409-10 of 1980 are  the Tata Tea Limited and a shareholder of the said Company. These  petitions are  directed against the State of West Bengal, Commissioner of Agricultural Income-tax of West Bengal, West Bengal Agricultural 966 Income-tax Officer,  Calcutta Range-I,  Union of  India  and Income-tax Officer, O-Ward, Companies District-II, Calcutta. The Petitioners in Civil Writ Petitions Nos. 5411-12 of 1980 are also the Tata Tea Limited and a shareholder thereof. The Respondents are  State of Kerala, Commissioner and Assistant Commissioner of  Agricultural Income-tax at Kerala, Union of India and  the concerned Income-tax Officer. The Petitioners in other  writ petitions  are Tea Companies and shareholders

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thereof and  the Respondents  are ranged on similar lines as above.      The Petitioners are Public Limited Companies growing as well as  manufacturing tea  and selling  the same. As far as the petitions  directed against the State of West Bengal are concerned, the  challenge therein  is to  the constitutional validity of  Sections 3  &  5  of  the  Bengal  Agricultural Income-tax (Amendment)  Act, 1980.  The Bengal  Agricultural Income-tax Act, 1944 provides for the levy and collection of agricultural income-tax  in the then Province of Bengal, the predecessor Province  to the  present State  of West  Bengal and, after  the coming  into force  of the Constitution, the State of  West Bengal.  By the  said amending  Act, for  the first time,  sub-sections (2)  & (2A)  of Section  8 of  the Bengal Agricultural  Income-tax Act  were omitted and always deemed  to   have  been   omitted.  It  is  alleged  by  the Petitioners that as a result of the omission of sub-sections (2) &  (2A) of  Section 8 of the Bengal Agricultural Income- tax Act,  1944, the  State Legislature  has sought to assume the   power,   competence   and   jurisdiction   to   impose agricultural income-tax  on the  entire income  derived from the sale  of tea  grown and manufactured by a seller and has thereby   transgressed    the   constitutional   limitations contained in  Article 246(3)  of the  Constitution of  India read with Entry 46 of List II of the Seventh Schedule to the Constitution of India.      In the  aforesaid Writ  Petitions Nos.  5409-10 of 1980 the process  of manufacturing tea has been described in some detail. To  put it  very briefly, the green tea grown by the tea growers  is withered by exposure to air under natural or controlled conditions.  Certain machinery  and equipment  is required for  the aforesaid process. The object of withering is partial  dehydration of  shoots to make them leathery and flaccid  for   rolling  and  chemical  changes.  The  change brounght about  is the increase in caffeline, soluble sugars and amino  acids. The  second process  involves rupture  and distortion of  tea shoots into smaller sizes to allow mixing of enzymes  and substrates.  This is  known as  rolling. The process of  rolling is  carried out  by mechanical bruising, tearing, cutting,  crushing breaking and twisting tea leaves for which crank roller/ 967 rotorvane/C.T.C. machines are employed. The third process is of  fermentation   which  involves  exposure  to  air  under controlled temprature.  For this  the equipment  required is fermentation chamber/trags/floor/troughs.  As  a  result  of this process,  the colour  of  tea  changes  from  green  to coppery. The  next process  is of  drying  or  roasting  for stoppage of  fermentation: dehydration to ensure keeping the quality of the product. Drying or roasting has to be done at a temperature  of 30 degree celsius and humidity exposure to blast of  hot air  in a counter current dryer. The equipment required for  this is  a conventional tea dryer. As a result of this process, the moisture in the tea is reduced to 4 per cent and  it becomes  black in  colour.  This  manufacturing process is  applied to  tea leaves  in a  factory  which  is situated within  the garden area owned by the Petitioner and licensed under  the Factories  Act. It  is averred  that the carrying out  of the  aforesaid processes  is a  specialised operation involving  the application  of modern  methods  of bio-chemical engineering.  The cleaning  of the  tea is then done with  machines according  to various  sizes like broken pekoe, broken  orange pekoe, pekoe dust, dust, churmani dust and so on. There are other also other brands of tea produced by the  aforesaid process.  It is needless to consider these

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processes in  detail except  to state  that they  are  quite elaborate and, in the cases before us, valuable machinery is being used  for  carrying  out  these  processes  which  are carried out in factories.      The case  of the Petitioners is that the income derived from the  sale of tea grown and manufactured as aforesaid is derived partly from agriculture and partly from manufacture. Under  the   Indian  Income-tax   Act,  1922   (referred  to hereinafter as  "the Act  of 1922")  and  the  Rules  framed thereunder the income derived from the sale of tea grown and manufactured by  a seller,  has to be computed in the manner laid down  in Rule  24 of  the Income-tax Rules, 1922 and 40 per cent  of the  income so  computed is  treated as  income other than agricultural income and the remaining 60 per cent is treated  as agricultural income. In respect of the income other than  agricultural income,  it is the Union Parliament which  has   and  before   the  coming  into  force  of  the Constitution the  Centre Legislature  which had the power to legislate in  respect  of  taxes;  and  in  respect  of  the agricultural income,  the legislative  power in  respect  of taxation was  left to  the Provinces under the Government of India Act,  1935 and  to the  States under the Constitution. The Bengal  Agricultural Income-tax Act, 1944 enacted by the Provincial Legislature of Bengal defined agricultural income in identical  terms as  contained in Section 2(1) of the Act of 1922.  The Bengal  Agricultural  Income-tax  Act  further provided by sub-section (2) of 968 Section 8  that notwithstanding anything contained that Act, in the  case of  tea grown  in West  Bengal and  sold by the grower  himself   or  his   agents  after  manufacture,  the agricultural income  derived therefrom shall be deemed to be that portion  of the  income computed as aforesaid under the Act of  1922 on  which income-tax  was not payable under the Act of  1922 and  agricultural income-tax  was levied on the whole of  such agricultural income. As a result of this, the position was  that the  income  of  an  assessee  who  grew, manufactured and sold tea in West Bengal was computed in the manner laid  down in  the Act  of 1922  read with Income-tax Rules, 1922  and agricultural  income-tax was levied only in respect of  60 per cent of that income. On coming into force of the  Income-tax Act, 1961 which replaced the Act of 1922, the position  remained the  same. The  Income-tax Act,  1961 (referred to  hereinafter as  "the Act  of 1961")  came into effect from  1st April, 1962. The definition of agricultural income in the Act of 1961 is contained in sub-section (1) of Section 2  of that  Act and  is in  pari  materia  with  the definition of  the said  term in  the Act of 1922. Rule 8 of the Income-tax  Rules, 1962  is in pari materia with Rule 24 of the  Income-tax Rules,  1922. As  a result  of this  even after the  Act of  1961 and  the Income-tax Rules, 1962 came into force,  a State  Legislature could  only  legislate  in respect of  taxes regarding that part of the income computed by the  Income-tax Officer  concerned as  aforesaid which is treated as agricultural income,namely, 60 per cent of it.      In 1979,  the Legislature  of the  State of West Bengal enacted the  Bengal Agricultural Income-tax (Amendment) Act, 1979. By  the said Amendment Act, sub-section (2A) was added after  sub-section   (2)  in   Section  8   of  the   Bengal Agricultural Income-tax  Act, 1944.  Very briefly  put,  the said  sub-section  (2A)  gave  powers  to  the  Agricultural Income-tax Officer to make the computation of income derived from tea  in cases  where it  had not  been computed for the purposes of  assessment of  income-tax under the Act of 1961 or, although  computed, the assessment under the Act of 1961

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had been  annulled or  set aside under that Act and no order of assessment  under Section  25 had  been made  within  six years from  the end  of the  year in  which the agricultural income was first assessable in the manner and subject to the limitations and  conditions set out in the said sub-section. It is not really necessary for us to consider this provision further in  the view  which we  have taken.  Moreover,  this Amendment Act  remained in force only for the period 1979-80 after which  it was  replaced by  the Amendment Act of 1980. The West  Bengal Legislature  in  1980  amended  the  Bengal Agricultural  Income-tax  Act  by  the  Bengal  Agricultural Income-tax (Amendment) Act, 1980. By the said Amendment Act, sub-sections 969 (2) and (2A) of Section 8 of the Bengal Agricultural Income- tax were  deleted and  always deemed to have been deleted as already pointed  out and  Section  25(4)  of  that  Act  was omitted. Section  7 of  the Amendment Act provided for cases where  the   asessment  under   the  Act   of  1961  of  any agricultural income  derived from tea was made before coming into force  of the  Amendment Act  but we  are not concerned with that  section. Under  the petition, the challenge is to the validity  of Sections  3 and  5  of  the  Amendment  Act whereby the aforesaid sub-sections (2) and (2A) of Section 8 were omitted with retrospective effect and Section 25(4) was omitted. It  is submitted  in the  petition that,  from  the speech of  the Finance  Minister at  the time of introducing the Bill  for carrying  out the  amendments, as well as from the affidavit in reply filed by the State of West Bengal, it is clear  that the  entire object  of the  amendments was to subject to  the levy  of agricultural income-tax, the entire income derived by an assessee from the sale of tea grown and manufactured by him.      We come  next to  the petitions  against the  State  of Kerala. Under  the Agricultural  Income-tax Act, 1950 passed by the  Legislature of  the State  of Kerala,  "agricultural income" is  defined in  the same  maner as  under the Act of 1922 and  there was  an  Explanation  after  clause  (2)  in Section 2  (a) stating that agricultural income derived from land used  for agricultural  purposes by  the cultivation of tea leaves means that portion of the income derived from the cultivation, manufacture and sale of tea as is defined to be agricultural income  for the purposes of enactments relating to  the  Indian  Income-tax  Act.  By  an  Act  called  "The Agricultural income-tax  (Amendment) Act,  1980" (Kerala Act No. 17  of 1980), the Kerala Agricultural Income-tax Act was amended  and  the  said  Explanation  was  deleted.  It  was submitted that  this deletion  was made  with a view to make the entire  income  earned  by  an  assessee  who  grew  and manufactured tea from the sale of tea subject to the levy of agricultural income-tax.  Here again,  it  was  pointed  out that, from the speech of the Finance Minister at the time of introducing the  Bill concerned and the stand taken in Court by the  State of Kerala, it was clear that the entire object of the amendment was to make the entire income derived by an assessee as  aforestated liable  to the levy of agricultural income-tax. These  submissions were  adopted by  the learned Counsel who  appeared for  the other  Petitioners and by Mr. Manchanda  who  appeare  for  the  Union  of  India.  It  is submitted by  Dr. Paul,  learned Counsel  for the  Tata  Tea Company that  the aforesaid  amendments, in  so far  as they purport to  confer power  on the  respective legislatures of the State  of  West  Bengal  and  the  State  of  Kerala  to legislate regarding taxes on the income from the sale of tea 970

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grown and  manufactured by  an assessee  in excess of 60 per cent of  such income computed in the manner prescribed under the law  relating to  income-tax are  void and  of no  legal effect as  they are beyond the legislative competence of the respective legislatures  of the  States of  West Bengal  and Kerala respectively in view of the provisions of Article 246 of the  Constitution read  with Entry 82 in List I and Entry 46 in  List II  in the  Seventh Schedule to the Constitution and the  relevant provisions  of the law relating to income- tax.      Dr. Paul, learned Counsel for Tata Tea Company and Tata Finlay Company  further submitted that, if the entire income derived from  the sale  of tea  grown and manufactured by an assessee were  to be  regarded as  agricultural income,  the result would  be that  the Parliament  would  not  have  any competence to legislate in respect of taxes on the same with the result  that the  provisions of  the Act of 1922 and the Act of  1961 imposing  the levy of income-tax on any part of such  income  would  become  ultra  vires.  This  particular submission was  not  supported  by  Dr.  Gauri  Shankar  who appeared for  Petitioner in  W.P. No.  358 of  1984 and  was opposed by  Mr. Manchanda  who appeared  for  the  Union  of India.      As far  as the  State of  West Bengal  and the State of Kerala  are  concerned,  they  are  represented  by  learned Counsel, Mr.  Potti and  Mr. Tapas  Ray respectively. It was urged by  Mr. Potti  and Mr.  Ray that Article 366(1) of the Constitution  merely  states  that  the  term  ’agricultural income"  has  the  same  meaning  as  given  to  it  in  the enactments relating  to income-tax,  that the  definition of the said term in the Act of 1922 and the Act of 1961 did not prescribe that  only a  particular  portion  of  the  income derived by  an assessee  from the  sale  of  tea  grown  and manufactured by  him can  be regarded as agricultural income and hence it was open to the State Legislatures concerned to levy  agricultural   income-tax  on   such  entire   income. Alternatively, it  was submitted by them that, in any event, in law, the entire income derived from the sale of tea by an assessee growing  and manufacturing  tea must  be held to be agricultural income  in view  of the decision of the Supreme Court in  the case  of Bist & Co. (which we propose to refer to  more  particularly  hereinafter)  and  hence  the  State Legislature was  entitled to levy agricultural income-tax on the same.  The Parliament  had  no  power  to  legislate  in respect of such income.      In  order   to  examine   the  correctness   of   these contentions, certain relevant provisions of law may be noted at this  stage. Under  Article 246(1)  of the  Constitution, Parliament has exclusive power to legislate 971 with respect  to any  of the matters enumerated in List I in the Seventh  Schedule to  the Constitution which is referred to in  the Constitution  as the  "Union List". Clause (3) of that Article  prescribes that  a Legislature  of a State has exclusive power  to make  laws with  respect to  any of  the matters enumerated  in  List  II  in  the  Seventh  Schedule (referred to  in the  Constitution  as  the  "State  List"). Clause (2) of the said Article provides that both Parliament and State  Legislatures have power to make laws with respect to any  of the matters enumerated in List III in the Seventh Schedule called the "Concurrent List". Entry 82 in List I or the  Union   List  reads   "taxes  on   income  other   than agricultural income." Entry 46 of List II (State List) reads "taxes  on   agricultural  income".   Article  366   of  the Constitution  contains   definitions  and   sub-Article  (1)

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thereof reads as follows:                "Agricultural   income   means   agricultural           income  as   defined  for   the  purposes  of  the           enactments relating to Indian Income-tax Act."      The material portion of sub-section (1) of Section 2 of the Act  of  1922  (Indian  Income-tax  Act,  1922)  defines agricultural income as follows:           "Agricultural income means:                (a) any  rent or  revenue derived  from  land           which is  used for  agricultural purposes,  and is           either assessed  to land-revenue  in  the  taxable           territories or  subject to  a local  rate assessed           and collected  by officers  of the  Government  as           such;                (b) any income derived from such land by                (i) agriculture, or                (ii)  the  performance  by  a  cultivator  or                     receiver of  rent-in-kind of any process                     ordinarily employed  by a  cultivator or                     receiver of  rent-in-kind to  render the                     produce raised or received by him fit to                     be taken to market, or                (iii)the sale  by a cultivator or receiver of                     rent-in-kind of  the produce  raised  or                     received by  him, in respect of which no                     process has been performed 972                     other  than  a  process  of  the  nature                     described in sub-clause (ii);                x             x             x             x"      Clause (c)  of the  said sub-section  and  the  Proviso thereto are not material for our purposes.      Section 59  of the Act of 1922 deals with the powers to make rules.  Sub-section (1)  confers power  on the  Central Board of  Revenue, subject  to the  control of  the  Central Government, to  make rules  for carrying out the purposes of the Act  of 1922 and for the ascertainment and determination of any  class of income. The material portion of sub-section (2) of that section runs as follows:                "Without prejudice  to the  generality of the           foregoing power, such rules may                (a) prescribe  the manner  in which,  and the           procedure by  which, the income, profits and gains           shall be arrived at in the case of                (i) incomes  derived in part from agriculture                and in part from business;                x             x             x             x"      Sub-section (5) of Section 59 reads as follows:           "Rules made  under this section shall be published           in the  Official Gazette, and shall thereupon have           effect as if enacted in this Act."      Rule 24  of the  Income-tax Rules,  1922 deals with the computation of income derived from the sale of tea grown and manufactured by the seller and that rule runs as follows:                "Income derived  from the  sale of  tea grown           and manufactured  by the  seller  in  the  taxable           territories shall be computed as if it were income           derived from  business, and  40 per  cent of  such           income shall  be deemed  to be income, profits and           gains liable to tax: 973                Provided that  in computing  such  income  an           allowance shall  be made in respect of the cost of           planting bushes in replacement of bushes that have           died or  become permanently  useless  in  an  area

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         already planted,  unless such  area has previously           been abandoned."      Sub-section (1)  of  Section  2  of  the  Act  of  1961 (Income-tax  Act,   1961)  defines  the  term  "agricultural income". The  material portion of that definition is similar to the  definition contained  in the Act of 1922 and runs as follows:           "(1) "agricultural income" means           (a) any rent or revenue derived from land which is           situated in  India and  is used  for  agricultural           purposes;           (b) any income derived from such land by                (i) agriculture; or                (ii)  the  performance  by  a  cultivator  or                receiver  of   rent-in-kind  of  any  process                ordinarily  employed   by  a   cultivator  or                receiver  of   rent-in-kind  to   render  the                produce raised  or received  by him fit to be                taken to market; or                (iii) the sale by a cultivator or receiver of                rent-in-kind  of   the  produce   raised   or                received by  him,  in  respect  of  which  no                process  has  been  performed  other  than  a                process of  the nature described in paragraph                (ii) of this sub-clause".      Clause (c)  of the said sub-section is not material for our purpose.  Section 295  of the Act of 1961 deals with the power to  make rules.  The relevant  portion of that section runs as follows:                "(1) The Board may, subject to the control of           the Central  Government, by  notification  in  the           Gazette of  India, make rules for the whole or any           part of  India for  carrying out  the purposes  of           this Act.                (2) In  particular, and  without prejudice to           the generality  of the foregoing power, such rules           may provide for all 974           or any of the following matters                (a) the  ascertainment and  determination  of           any class of income;                (b) the  manner in which and the procedure by           which the  income shall  be arrived at in the case           of-                (i) income  derived in  part from agriculture           and in part from business;           x          x          x          x          x" The Board referred to in Section 295(1) is the Central Board of Direct taxes.      Section 296  provides inter  alia that  a  rule  framed under Section 295 shall be laid, as soon as may be after the rule is made, before each House of Parliament and shall have effect subject  to any modification or deletion made by both Houses of  Parliament. Rule  7 of  the Incometax Rules, 1962 made under  Section 295 of the Act of 1961 deals with income which is partially agricultural and partially from business. Rule 8 deals with income from the manufacture of tea and the said rule runs as follows:           "(1) Income derived from the sale of tea grown and           manufactured by  the  seller  in  India  shall  be           computed  as   if  it  were  income  derived  from           business, and  forty per cent of such income shall           be deemed to be income liable to tax.           (2) In computing such income an allowance shall be           made in  respect of the cost of planting bushes in

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         replacement of  bushes that  have died  or  become           permanently useless in an area already planted, if           such area  has not  previously been abandoned, and           for the  purpose  of  determining  such  cost,  no           deduction shall  be made  in respect of the amount           of any  subsidy which,  under  the  provisions  of           clause (30)  of Section  10, is  not includible in           the total income."      Section 7  of the  Bengal Agricultural  Income-tax Act, 1944 deals  with the computation of tax and allowances under the head  "AGRICULTURAL INCOME  FROM AGRICULTURE". Section 8 of that  Act deals  with the  computation of  tax  on  mixed income. Sub-section 975 (1) of  Section 8,  very briefly  stated, prescribes that in case of  such mixed  income which is partly agricultural and is  assessable   under  the   said  Bengal  Act  and  partly chargeable under the Indian Income-tax Act of 1922 under the head "Business", agricultural income-tax would be payable by an assessee  in respect  of the market value of agricultural produce which has been raised by the assessee or received by him as  rent-in-kind and  which has  been utilised by him as raw material  in such business or the sale receipts of which are included  in the  accounts of  the business  subject  to allowances permissible  under that  Act. Clause  (a) of  the Proviso to  that sub-section makes it clear that if, for the purposes of  assessment of income-tax under the Act of 1922, the market  value of  the produce  had been  determined that would be  accepted as  market value also for the said Bengal Act. Clause  (b) of the Proviso deals with common charges on agricultural income  and income  chargeable under the Act of 1922. The  material portion  of sub-sections  (2) and (3) of the said section ran as follows:                "(2) Notwithstanding  anything  contained  in           this Act,  in the  case of  tea the plant Camellia           Thea (Linn.)  grown in West Bengal and sold by the           grower himself or his agent after manufacture, the           agricultural income  derived therefrom  shall,  as           long as  for the purposes of assessment of income-           tax under  the Indian  Income-tax Act,  1922,  the           income derived  therefrom is  computed under  that           Act in  such manner  as  to  include  agricultural           income, be  deemed to  be  that  portion  of  such           income as  so computed  on which income-tax is not           payable under  that Act,  and agricultural income-           tax at  the rates  specified in the Schedule shall           be payable  on  the  whole  of  such  agricultural           income as so computed.           X          X          X          X          X                (3) For  the purpose  of  the  assessment  of           agricultural income-tax  under this section or any           rule made  thereunder a certified copy of an order           of an  assessment under the Indian Income-tax Act,           1922, or  a certified  copy of  an  order  of  any           appellate or  revising authority  or of  the  High           Court or of the Supreme Court altering or amending           such order  of assessment  under the provisions of           that Act  shall  be  conclusive  evidence  of  the           contents of such order."      The Bengal Agricultural Income-tax (Amendment) Act,1980 976 (referred to  hereinafter as  "the Bengal  Amendment Act  of 1980") was  passed by  the Legislature  of the State of West Bengal and  published in the Gazette on 31st March, 1980. By Section 2  of that  Act, Section  7A was  inserted into  the

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Bengal Agricultural  Income-tax Act,  1944 and  that section runs as follows:           "7A:  Notwithstanding  anything  to  the  contrary           contained in  this Act, in the case of an assessee           being a  company or a firm or other association of           persons, the  agricultural income of such assessee           shall be computed in accordance with the method of           accounting regularly employed by such assessee for           such computation:                Provided that  if, in any case, the method of           accounting as  aforesaid  is  such  that,  in  the           opinion of  the Agricultural  Income-tax  Officer,           the agricultural  income cannot  be computed,  the           computation shall  be made  on such  basis and  in           such manner as the Agricultural Income-tax Officer           may determine."      Section 3  of the  Amendment Act  of 1980 provides that subsections (2)  and (2A)  of Section 8 of the Bengal Act of 1944 shall  be omitted  and shall  be always  deemed to have been omitted.  Section 7 of the Bengal Amendment Act of 1980 runs as follows:                "(7) Notwithstanding  any judgment, decree or           order of  any court, tribunal, or authority to the           contrary, where  any assessment  under the Income-           tax Act,  1961 of  any agricultural income derived           from tea  has been  made before  the  coming  into           force of this Act, the proceeding relating to such           assessment may  be taken  and continued  under the           principal Act as if this Act had not been passed."      It  may   be  mentioned   here  that   by  the   Bengal Agricultural Income-tax  (Amendment) Act,  1979, sub-section (2A) was  inserted after sub-section (2) in Section 8 of the Bengal Act  of 1944.  That Act  remained in force only for a period of one year. The material portion of sub-section (2A) ran as follows:                "(2A) Where  the computation  of  the  income           derived from  tea has  not been  completed for the           purposes of  assessment of  income-tax  under  the           Income-tax Act,  1961, or  where such  computation           has been completed but the 977           assessment under  the Income-tax  Act,  1961,  has           been annulled  or set  aside under that Act and no           order of assessment under Section 25 has been made           within six years from the end of the year in which           the agricultural  income was first assessable, the           Agricultural     Income-tax     Officer     shall,           notwithstanding anything to the contrary contained           in  this   Act,  assess  the  agricultural  income           derived from  tea in  such manner  and within such           period as  may be  prescribed and  shall determine           the sum  payable by  the assessee  on the basis of           such assessment:           X           X           X           X           X"      In the  State of  Kerala, agricultural  income-tax  was sought to  be imposed  by the  Agricultural Income-tax  Act, 1950 passed  by the  Legislature of the State of Kerala. The definition of the term "agricultural income" is contained in sub-section (a)  of Section  2 of  the  Kerala  Agricultural Income-tax Act.  The said  definition is  in line  with  the definition of the said term under the Act of 1922. There was an Explanation  after  clause  (2)  of  sub-section  (a)  of Section 2.  The material  part of  sub-section (a)  runs  as follows:           "2(a) "agricultural income" means-

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         (1) any rent or revenue derived from land which is           used for agricultural purposes;           (2) any income derived from such land by                (i) agriculture; or                (ii)  the  performance  by  a  cultivator  or                receiver  of   rent-in-kind  of  any  process                ordinarily  employed   by  a   cultivator  or                receiver  of   rent-in-kind  to   render  the                produce raised  or received  by him fit to be                taken to market; or                (iii) the sale by a cultivator or receiver of                rent-in-kind  of   the  produce   raised   or                received by  him,  in  respect  of  which  no                process  has  been  performed  other  than  a                process of the nature described in sub-clause                (ii);           x           x           x           x           x" 978      The  Explanation  referred  to  above,  which  followed clause 2 ran as follows:           "Agricultural income derived from such land by the           cultivation of  tea  means  that  portion  of  the           income derived  from the  cultivation, manufacture           and sale  of tea  as is defined to be agricultural           income for the purposes of the enactments relating           to Indian Income-tax"      By Section  2 of  the Agricultural Income-tax Amendment Act, 1980  (Kerala Act 17 of 1980), the said Explanation was omitted with  effect from  1.4.1980. The  affidavit in reply filed on behalf of the State of Kerala as well as the speech of the  Finance Minister  of the  said State  at the time of introducing of  the Bill  which was  passed  as  the  Kerala Amendment Act  of 1980,  make it  clear that  the  intention behind deleting of Explanation was to make the entire income earned  by   a  person  from  the  sale  of  tea  grown  and manufactured by  him in  the State  liable to  the  levy  of agricultural income-tax.      The main  question which we have to consider is whether the aforesaid  provisios in the Bengal Amendment Act of 1980 are in  excess of  the legislative  competence of  the  West Bengal State Legislature. It will also have to be considered whether  by   reason  of   the  deletion  of  the  aforesaid Explanation effected by the Kerala Amendment Act of 1980 the definition of  the term "agricultural income" in sub-section (a) of  Section 2  of  the  Kerala  Agricultural  Income-tax became void  as in  excess of  the legislative competence of the State Legislature.      A perusal of Entry 82 of List I in the Seventh Schedule and Entry  46 in  List II  makes  it  clear  the  respective Legislatures of  the State  of West  Bengal and the State of Kerala could  pass laws  imposing taxes  only in  respect of agricultural income;  and in  respect of  income other  than agricultural income,  it is  only Parliament  which has  the power to  legislate in respect of taxes on such income. sub- article (1)  of Article  366 of the Constitution states that "agricultural income"  means such  income as  is defined  as "agricultural  income"   for  the   purposes  of  enactments relating to  Indian income-tax.  It is  significant that the words used are not "as defined by the enactments relating to Indian income-tax"  but "as  defined for the purposes of the enactments  relating   to  Indian   income-tax."   (emphasis supplied). We  have already  set out  the definition  of the term "agricultural  income" under the Act of 1922 as well as that in  the Act  of 1961 which replaced the Act of 1922. If these definitions  are  read  by  themselves,  it  would  be

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difficult to say 979 that there  is any  conflict between them and the definition of the  term   "agricultural income" contained in the Bengal Agricultural Incometax Act, 1944 after its amendment in 1980 or  the   definition  of   the  said   term  in  the  Kerala Agricultural Income-tax Act of 1950, even after the deletion of the  aforesaid Explanation.  However, it must be realised that Section  59 of  the Act  of 1922 and Section 295 of the Act of 1961 both deal with rule making powers. Under the Act of 1922  that power is given to the Central Board of Revenue and under the Act of 1961 that power is given to the Central Board of  Direct Taxes.  Clause (a)  of sub-section  (2)  of Section 59 of the Act of 1922 specifically confers powers on the Central  Board of  Revenue to make rules prescribing the manner in  which and  the procedure by which income, profits and gains  shall be arrived at in the case of income derived in part  from agriculture  and  in  part  from  business.  A similar power  is conferred  under Section 295 of the Act of 1961 on  the Central  Board of Direct Taxes to make rules in respect of  income derived  in part  from agriculture and in part from  business. The  only difference between Section 59 of the  Act of  1922 and  Section 295  of the Act of 1961 in this connection,  to which  our attention  was drawn  by Mr. Potti, is  that sub-section  (5) of Section 59 provides that the rules  made under the said Section shall be published in the Official  Gazette and  shall thereupon have effect as if enacted in the Act of 1922 whereas Section 296 of the Act of 1961 provides that the rules made under the Act of 1961 have to be  laid before  each House  of Parliament  in the manner prescribed in  Section 296 and both Houses of Parliament are entitled to make such changes therein as they may resolve or they might  direct that  the rule should not be given effect to. This, however, does not make much difference. Rule 24 of the Income-tax  Rules, 1922  and Rule  8 of  the  Income-tax Rules; 1962  framed under Section 295 of the Act of 1961 are in pari materia.      It may  be mentioned here that Rule 7 of the Income-tax Rules, 1962  deals with  the computation  of income which is partially agricultural  and partially from business and Rule 8 is  the specific rule dealing with income derived from the sale of  tea grown  and manufactured by the seller in India. Under sub-rule  (1) of  Rule 8,  it is  provided  that  such income shall  be computed  as if it were income derived from business and  40 per  cent of  such income  is deemed  to be income liable to tax.      A perusal  of the  aforesaid Rule  8(1) makes  it clear that under  the said rule, income from the sale of tea grown and manufactured  by a seller in India has to be computed as if it were income derived from 980 business which  would imply  that the  deductions  allowable under the  Act of  1961 in  respect of  income derived  from business would  be allowable  in the  case of income derived from the  sale of tea grown and manufactured by a seller and further allowance  would be  granted as set out in Rule 8(2) and 40 per cent of the income so computed would be deemed to be income  liable to  the levy of income-tax and the balance of the  income would be liable to tax as agricultural income subject to  such further deductions as the law pertaining to the  levy   of  agricultural  income-tax  might  allow.  The question is  whether Rule  24 of  the Income-tax Rules, 1922 and Rule 8 of the Income-tax Rules, 1962 can be said to form part of  the definition  of the  term "agricultural  income" under the Act of 1922 and the Act of 1961 respectively.

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    In Karimtharuvi  Tea Estates  Ltd. &  Anr. v.  State of Kerala &  Ors., [1965]  48 I.T.R.  85 a  Bench comprising of five learned  Judges  of  this  Court  was  called  upon  to consider the question of the power of a State Legislature to make a  law in  respect  of  taxes  on  agricultural  income arising from  tea plantations  and the  Bench took  the view that the  power of the State Legislatures in this connection is limited  to  legislating  with  respect  to  agricultural income determined  in accordance  with Rule 24 of the Indian Income-tax Rules,  1922, under which income derived from the sale of tea grown and manufactured by the seller is first to be computed  under Section  10 of  the Act of 1922, as if it were income  derived from  business. Any  expenditure by the assessee, not being an allowance described in clauses (i) to (xiv) of  Section 10(2)  of the Act of 1922 and not being in the nature  of capital  expenditure or  personal expenses of the assessee,  laid out  or expended  wholly and exclusively for the  purposes of  such business  would be deductible. Of the income  so computed, 40 per cent, being under Rule 24 of the Indian  Income-tax Rules,  1922 treated as income liable to  income-tax,   the  other  60  per  cent  alone  will  be "agricultural income".  The State Legislature is free in the exercise of  its plenary  legislative power to allow further deductions from  such computed  agricultural income  in  the case of  tea plantations  as it  considers fit but it cannot add to  the amount  of agricultural  income so  computed  by providing that  certain items of expenditure deducted in the computation of the income from business under the provisions of the  Indian Income-tax  Act, 1922  be not deducted and be considered to  be a part of the taxable agricultural income. The State  Legislature cannot  enact such  a provision which would make  agricultural income  from tea plantations higher than what it would be if computed in accordance with Rule 24 read with  Section 10  of the Indian Income-tax Act. In that case, the  provision of  the Kerala  Agricultural Income-tax Act which had to be considered was 981 Explanation 2  to Section 5 added by an amending Act in 1961 which deals with the computation of agricultural income. The provisions of  Section 2  of the Kerala Agricultural Income- tax Act which defines "agricultural income" for the purposes of that Act and the Explanation to clause (2) of sub-section (a) of  that Section, which Explanation has now been deleted by the  impugned Amendment Act, were also considered. It was pointed out (p. 91 of the Report) that:           "‘Agricultural   income’   as   defined   in   the           Constitution means  ’agricultural income  for  the           purpose of the enactments relating to income-tax’.           One such  enactment is the Income-tax Act. Rule 24           of the  Income-tax Rules  1922 has been made under           the power  conferred by  Section 59 of the Income-           tax Act  and has effect as if enacted in that Act.           When Section 59 of the Income-tax Act provides for           the Rules  made under  that Act  to prescribe  the           proportions of  income from  business  and  income           from agriculture  in the  entire income derived in           part from  agriculture and  in part from business,           the proportion  so prescribed  must be taken to be           prescribed  by   the  Act.  These  rules  were  in           existence   in    1950   when   the   Constitution           incorporated  the   definition  of   "agricultural           income" from  the Income-tax Act by reference. The           definition of  the term  was  bound  up  with  the           Rules." (emphasis supplied).      It was  pointed out  by  Mr.  Potti  that  there  is  a

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reference in  the aforesaid judgment to the said Explanation contained in  Section 2(a)(2)  of  the  Kerala  Agricultural Income-tax  Act,   which   is   now   deleted,   and   which substantially incorporated  the provisions of Rule 24 of the Income-tax Rules,  1922  about  the  computation  of  income derived by  an assessee  from the  sale  of  tea  grown  and manufactured by  him and  the respective  proportions of the same which  could be  regarded as  agricultural  income  and other income  respectively. It  is, however, not possible to say that  the aforesaid decision is essentially based on the said Explanation as contended by Mr. Potti.      The question  whether  computation  of  income  by  the Central Income-tax  authorities could  be disregarded  by an Agricultural Income-tax  Officer  acting  under  the  Kerala Agricultural Income-tax Act came up for consideration before another Bench of five learned Judges of this Court in Anglo- American Direct Tea Trading Co. Ltd. etc. v. Commissioner of Agricultural Income-tax,  Kerala, [1968]  69 I.T.R.  667. In that case the year in question were 1958-59 to 1961-62, 982 with the  result that  the provisions  of the Act of 1922 as well as the Act of 1961 and of the Income-tax Rules, 1922 as well as  the Income-tax  Rules, 1962  had to  be taken  into account. This  Court followed  its decision  in the  case of Karimtharuvi Tea  Estates Ltd.  & Anr.  v. State of Kerala & Ors., [1965] 48 I.T.R. 85 and held that income from the sale of tea  grown and  manufactured by  an assessee  is  derived partly from  business  and  partly  from  agriculture.  This income is  computed as if it were income from business under the Central Income-tax Act and the Rules made thereunder. Of the income  so computed  as aforesaid, 40 per cent is deemed to be  income derived  from business  and assessable to non- agricultural income-tax.  The balance  of 60 per cent of the income so computed is agricultural income within the meaning of the  Central Income-tax Act and the Constitution of India and the  power of  the State  Legislature to  make a  law in respect of  taxes on  agricultural income  arising from  tea plantations is  limited to  legislating with  respect to the agricultural income  so determined.  It was also pointed out that the  Explanation  to  Section  2(a)(2)  of  the  Kerala Agricultural Income-tax  Act,  1950  adopted  this  rule  of computation. It  was held in that case that the Agricultural Income-tax Officer  acting under the Kerala Act was bound to accept the computation of the tea income already made by the Central Income-tax  authorities and  to assess  only 60  per cent of  the income  so computed,  less deductions allowable under Section  5 of the Kerala Act in so far as the same had not been allowed in the assessment under the Central Income- tax Act.  The Court  also held  that if, before Agricultural Income-tax Officer proceeds to make the assessment under the Kerala Act,  an  assessment  of  income  by  the  Income-tax Officer under  Rule 24 of the Income-tax Rules, 1922 or Rule 8 of  the Income-tax  Rules, 1962  had been  made, then  the Agricultural Income-tax  Officer acting under the Kerala Act is bound to accept the computation of the tea income already made by  the Central Income-tax Authorities as aforesaid. In the case  of State  of Tamil  Nadu  v.  Kannan  Devan  Hills Produce Co.  Ltd., [1972]  84 I.T.R.  475 a  Division  Bench comprising of  two learned Judges of this Court followed the aforesaid decisions.      In the case of Tea Estate India P. Ltd. v. Commissioner of Income-tax, West Bengal II, [1976] 103 I.T.R. 785 a Bench comprising of  two learned Judges of this Court observed (at P. 795) as follows:           "Income which  is realised by sale of tea by a tea

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         company which grows tea on its land and thereafter           subjects  it   to  manufacturing  process  in  its           factory  is  an  integrated  income.  Such  income           consists of two elements or com- 983           ponents. One  element or component consists of the           agricultural income  which is  yielded in the form           of green  leaves purely by the land over which tea           plants are  grown. The second element or component           consists of  non-agricultural income  which is the           result  of   subjecting  green  leaves  which  are           plucked from the tea plants grown on the land to a           particular manufacturing process in the factory of           the tea company."      The decisions  in the cases of Karimtharuvi Tea Estates Ltd. & Anglo-American Direct Tea Trading Co. Ltd., [1968] 69 I.T.R. 667,  [1965] 48  I.T.R. 85  referred to  earlier have been cited  with approval  by a Division Bench of this Court in Commissioner  of Income-tax,  Madras v.  R.M. Chidambaram Pillai, etc., [1977] 106 I.T.R. 292.      A reading of Article 245 of the Constitution with Entry 82 of List I and Entry 46 of List II in the Seventh Schedule makes it  clear that  the State  Legislature  has  exclusive jurisdiction  to   legislate  in   respect   of   taxes   on agricultural income;  and  in  respect  of  taxes  on  other income, it is Parliament alone which can legislate. The term "agricultural income" used in that Entry has to be construed in accordance  with the  definition  of  the  said  term  in Article 366(1)  of the  Constitution of  India and that sub- article states  that agricultural income means "agricultural income  as  defined  for  the  purposes  of  the  enactments relating to  Indian Income-tax". A scrutiny of the aforesaid decisions of  this Court  in Karimatharuvi  Tea Estates Ltd. (supra) and  Anglo-American Direct  Tea  Trading  Co.  Ltd., [1968] 69  I.T.R. 667 shows that this Court has consistently taken the view that the definition of the term "agricultural income" for  the purposes  of the Act of 1922 and tha Act of 1961, being  Acts pertaining  to the levy of income-tax, has to be  considered in  the light of Rule 24 of the Income-tax Rules, 1922 in the case of the Act of 1922 and Rules 7 and 8 of the  Income-tax Rules,  1962 as far as the Act of 1961 is concerned. An analysis of the said decisions shows that this Court has  taken the  view that,  in case of income from the sale of  tea grown  and manufactured by an assessee, Rule 24 of the  Income-tax Rules,  1922 and Rule 8 of the Income-tax Rules, 1962 although at first glance they appear to be rules of  apportionment   and  computation,  must  be  treated  as incorporated in  the definition  of the  term  "agricultural income" in the Act of 1922 and the Act of 1961 respectively. It is  true that in both the cases, Karimtharuvi Tea Estates Ltd. (supra)  & Anglo-American  Direct Tea Trading Co. Ltd., [1968] 48  I.T.R. 83  it has been noticed by this Court that the said  Explanation  to  Section  2(a)(2)  to  the  Kerala Agricultural Income-tax Act 984 was in line with the provisions of Rule 24 of the Income-tax Rules, 1922  and Rule  8 of  the Income-tax  Rules, 1962 but that by  itself does not make any difference and the reading of the  aforesaid decisions  makes it  perfectly clear  that even without  that Explanation  the position would have been the same.  The conclusion which must follow is that although the Explanation  has been  deleted from  clause (2)  of sub- section (a)  of Section 2 of the Kerala Agricultural Income- tax Act  and in  spite of  the amendments carried out by the Amendment Act  of 1979  and thereafter  the Amendment Act of

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1980 in  the case of the Bengal Agricultural Income-tax Act, an Agricultural  Income-tax Officer  acting under the Kerala Agricultural  Income-tax  Act  or  the  Bengal  Agricultural Income-tax Act  has no power to levy agricultural income-tax except in respect of 60 per cent of the income derived by an assessee from  the sale of tea grown and manufactured by him and computed  in the  manner laid  down under  the  relevant Central Incometax Act and the Rules framed thereunder.      It was,  however, contended  by Mr.  Potti on behalf of the State of Kerala and Mr. Tapas Ray on behalf of the State of West  Bengal that  the  position  as  emerging  from  the aforesaid decisions  of this  Court has  been altered by the decision of  this Court in the case of Commissioner of Sales Tax, Lucknow  v. D.S.  Bist & Ors., [1979] 44 S.T.C. 392. In that case  the assessee  owned some tea gardens in the State of U.P.  and sold the tea-leaves grown by him in his gardens after processing  and packing  the same.  A  question  arose whether  the   tea  leaves   sold  by   the  assessee   were agricultural produce  grown by  himself and  the sales were, therefore, not  exigible to  sales tax  under the Proviso to Section 2(i) of the U.P. Sales Tax Act, 1948. The contention of the  revenue was  that the goods in question, namely, tea leaves grown  and processed  as aforestated had ceased to be an  agricultural   produce  after   processing   and   were, therefore, exigible  to sales  tax. The  processes to  which tea-leaves were  subjected by  the assessee was described by the Revising Authority as follows (p. 394):           "(1) The tea-leaves were first of all subjected to                withering in  shadow in  rooms  on  a  wooden                floor for about 14 hours.           (2)   Then they  were crushed  by hand or foot and                were then roasted for about 15 minutes.           (3)   Later they were roasted on mats for about 15                minutes. 985           (4)  And then they were covered by wet sheets for                generating fermentation.  During this process                     the colour  of leaves  was changed  from                green     to yellowish.           (5)  he leaves were then subjected to grading with                sieves of various sizes. Fanning machines are                     also  used  in  completing  the  grading                process.           (6)   The produce  was then  finally roasted  with                charcoal for  obtaining suitable  flavour and                colours.           (7)  It is this final product which was eventually                sold by the assessee."      It was  observed by  the Supreme Court that if the tea- leaves sold  by  the  assessee  substantially  retained  the character of  being an  agricultural produce, the assessee’s sales would  not be  exigible to sales tax. If, on the other hand,  the  leaves  had  undergone  such  vital  changes  by processing that  they  lost  their  character  of  being  an agricultural produce  and became a different commodity, then the sales  made by  the assessee were exigible to sales tax. The Court  held  that,  on  the  findings  recorded  by  the revising authority,  it could not be justifiably held in law that  the  tea-leaves  lost  their  character  of  being  an agricultural produce and became something different. All the processes applied  by the  assessee were  necessary for  the purpose of saving the tea-leaves from perishing, making them fit for transporting and marketing them. It was submitted by learned Counsel  that  this  decision  laid  down  that  the processes involved  in producing  marketable tea  were  only

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such as would be carried out by an agriculturist to make his produce marketable  and hence the entire income derived from the  sale   of  such   tea  leaves  should  be  regarded  as agricultural income. In our view, it is impossible to accept this contention. In the first place, the question before the Court in  that case was not relating to agricultural income- tax at  all but  relating to  sales tax.  Moreover, what the Court was  called upon  to consider,  and  what  it  did  to consider, was  only whether  the tea-leaves after undergoing the processes  set out  earlier continued to be agricultural produce or  whether they  became a different commodity which could not  be regarded  as an  agricultural produce.  It  is significant that the aforesaid decisions rendered by Benches comparising  five   learned  Judges   of   this   Court   in Karimatharuvi and Anglo-American’s, Cases, as well the other decisions referred  to earlier, have not been referred to in that decision  at all,  and rightly so, because the Division Bench in Bist’s Case was called upon to consider 986 a question  which was  essentially a different question. The ratio of  the decision  in Bist’s Case has no application to the cases  before us.  That decision  is, therefore,  of  no assistance to  learned Counsel  for the  State of Kerala and the State of West Bengal.      We find  that the  judgment in  Bist’s Case referred to above has  been distinguished  by a  learned Single Judge of the Kerala  High Court in High Land Produces Co. Ltd. & Anr. etc. v.  Inspecting Asstt. Commr. of Agricultural Income-tax & Sales  Tax (Special),  Kottayam, and Ors. etc., [1984] 148 I.T.R. 746  in considering  the scope  of the  power of  the State Legislature  to tax  agricultural  income.  That  case arose after  the aforesaid  amendment of Section 2(a) of the Kerala  Agricultural   Income-tax  Act,   1950  whereby  the Explanation at  the  end  of  Section  2(a)(2)  thereof  was deleted. It  has been  pointed out by the learned Judge that the Explanation  to Section  2(a) of the Kerala Agricultural Income-tax Act,  1950 was, in substance, in harmony with the concept of mixed income contemplated by Section 295(2)(b) of the Act  of 1961  and Rule  8 of Income-tax Rules, 1962. The Explanation specifically  referred to  that portion  of  the income from tea as was defined by the Central Act and Rule 8 to be  agricultural income  by exclusion  from total  income computed under  the Central  Act. This  Explanation has been omitted by  the Amendment Act of 1980. The State Legislature is perfectly  competent to  omit any  provision which it has enacted. However,  it cannot  thereby widen the ambit of the State Act  so as  to bring  to tax the entire income derived from the  sale of tea grown and manufactured by an assessee. It has been pointed out by the learned Judge in his judgment that none  of the  observations in Bist’s Case could be read to mean  that the  entirety of  the income  derived from the sale of  tea grown and manufactured by the assessee would be chargeable  to   agricultural   income-tax,   for   such   a construction would  not only be unwarranted by the facts and reasoning of  that case,  but  would  also  be  directly  in conflict with  the Central  statute and  the principle  laid down by  a larger  Benches comprising five learned Judges of the Supreme Court in the aforesaid two decisions.      It was  contended by  Mr. Potti  and Mr.  Ray,  learned Counsel for the Respondent States that Rule 8 of the Income- tax Rules, 1962 was not a part of an enactment and could not be regarded  as an  enactment and hence it need not be taken into account  in considering  the  definition  of  the  term "agricultural income" under the Constitution. It was pointed out by  them that,  unlike sub-section  (5) of Section 59 of

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the Act of 1922 which provided that the rules made under the said section  would have  effect, after  publication in  the Gazette, as if enacted in 987 that Act,  Section 296  of the  Act of  1961 merely provided inter alia  that a  rule framed  under Section 295 had to be laid, as  soon as  may be,  before each  House of Parliament while it is in Session for a total period of thirty days and unless it  was directed  to be  deleted or  amended by  both Houses of  Parliament it  would be  given effect  to. It was pointed out  by them  that Rule  8, therefore,  could not be said to  be enactment  and hence  it could  not  affect  the definition of  the term  "agricultural income" under Article 366(1) of  the Constitution.  We are  unable to  accept this submission. What  Article 366(1)  provides is  that the term "agricultural income"  has the same meaning as attributed to it  for  the  purposes  of  enactments  relating  to  Indian incometax and  in our view, it is quite clear that Rule 8 of the Income-tax Rules, 1962 as well as Rule 24 of the Income- tax Rules,  1922, pertain  to and  are  bound  up  with  the definition  of   the  term  "agricultural  income"  for  the purposes of  laws or enactments pertaining to Indian income- tax and hence the provisions of those rules have to be taken into  account   in  considering  the  meaning  of  the  term "agricultural income"  under sub-article  (1) of Article 366 of the Constitution.      It was  next contended by Mr. Potti & Mr. Ray that Rule 8 went  beyond the  scope of the rule making power conferred by Section 295 of the Act of 1961 and hence was ultra vires. This submission  has to  be rejected.  Clause  (b)  of  sub- section (2) of Section 295 specifically confers power on the rule making  authority to  make rules relating to the manner in which  and the procedure by which income for the purposes of the Act of 1961 would be arrived at in the case of income derived in  part from  agriculture and in part from business and  Rule  8  clearly  provides  for  the  manner  in  which computation of income for the purposes of the Act of 1961 is to be  made in  the case  of income derived from the sale of tea grown and manufactured by a seller in India and hence we totally fail  to see  how it  can be said that the said rule goes beyond  the scope  of the  rule-making power  conferred under Section 295.      In view  of what we have discussed above, it appears to us that  although the  Explanation to Section 2(a)(2) of the Kerala Agricultural Income-tax Act, 1950 has been deleted by the Amendment  Act of  1980, the  result would  still be the same, namely,  that the  Kerala State Legislature can impose tax only  in respect of 60 per cent of the income derived by an assessee  who sells  tea grown and manufactured by him in India and  such income has to be computed in the manner laid down in  the Act  of 1922  and thereafter in the Act of 1961 for computation of business income. The same is the position in respect of the powers of 988 the legislature  of the State of West Bengal in spite of the amendments made by the said legislature by the Amendment Act of 1980 and earlier under the amending Act of 1979 which was in force  only for  one year as we have stated before. It is not necessary  to strike  down the  said amendments  because they do  not directly  conflict with  the definition  of the term "agricultural income" under the Constitution as we have pointed out  earlier, but  we may make it clear that they do not confer  any wider  power on  the  State  Legislature  to impose taxes  on agricultural  income than  what we have set out earlier.

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    Before parting  with the  matter, it  must be mentioned that the  validity of the aforesaid amendments to the Bengal Agricultural Income-tax  Act, 1944  made  in  1980  and  the deletion of the Explanation in Section 2(a)(2) of the Kerala Agricultural Income-tax  Act were  challenged as being ultra vires and  invalid in  law on several other grounds. We have not thought it necessary to go into these grounds in view of what we  have held,  as set  out above. Dr. Pal on behalf of Tata Tea  Co.  and  Tata  Finlay  Co.  also  challenged  the amendment carried  out in  1980 in  the Bengal  Agricultural Income-tax Act  on the  ground of being its retrospective in operation. It also appears to us unnecessary to go into this question in view of what we have already held.      In the  result, although  none of  the prayers  in  the petitions is granted in terms, the Petitioners substantially succeed in  the Petitions.  There will  be a  declaration in terms of  the last  but  one  paragraph  in  favour  of  the Petitioners. Considering  the facts and circumstances of the case, however,  we feel that the parties should bear and pay their own costs and we direct accordingly. S.L.                             Petitions disposed of. 989