Commissioner of Agricultural Income Tax and Another vs Periakaramalai Tea and Produce Co. Ltd. and Others

Veeraswami, C.J.—This batch of tax cases is concerned with the question whether the Tribunal''s view that the deductions u/s 80-I of the

Income Tax Act should be applied to the profits and gains attributable to any priority industry before rule 8 of the Income Tax Rules is applied to

ascertain the agricultural income chargeable to tax. What the Income Tax Officer appears to have done in these cases is that he computed the

business income, after allowing the usual deductions, and arrived, for instance, in the assessment for the year 1966-67 relating to the Peria

Karamalai Tea and Produce Company Ltd., at Rs. 39,24,434. He then ascertained 40 per cent. of it and from that he deducted 8 per cent. to

arrive at the net income chargeable to tax under the provisions of the Income Tax Act. The Agricultural Income Tax Officer proceeded on the

basis that 60 per cent. of Rs. 39,24,434 represented agricultural income chargeable to tax under the provisions of the Agricultural Income Tax Act

after negativing the contention of the assessee that agricultural income should be taken to be 60 per cent. of Rs. 39,24,434 minus 8 per cent. of it.

His view was that no such deduction was allowable under the provisions of the Agricultural Income Tax Act. This view did not prevail eventually

with the Tribunal, in our opinion, quite rightly.

We agree that no deduction under the Agricultural Income Tax Act is contemplated as u/s 80-I of the Income Tax Act. Under the Constitution

agricultural income "" has been defined by Article 366 to mean agricultural income as defined in the Income Tax Act and any variation to that

definition by the State legislature will have to receive the consent of the President under Article 274. Agricultural income has been defined under

the Act. Income for the purpose of charge under the Income Tax Act would not include agricultural income. In that situation, rule 8 of the Income

Tax Rules, 1962, by Clause (1) provides that 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. The forty per cent.

contemplated by the rule is the chargeable income and that means, before applying the forty per cent. rule, the income should have been computed

in accordance with the provisions of the Act, that is to say, after allowing the deductions including those under Chapter VI-A of the Income Tax

Act. If that has not been done, and the Income Tax Officer, for the purpose of the Income Tax Act, has, before applying Section 80-I, determined

the forty per cent. of the income from which he deducted the 8 per cent. u/s 80-I, the balance of the income could not be taken to be 60 per cent.

of the income for the purposes of agricultural Income Tax. The Agricultural Income Tax Officer, in order to ascertain 60 per cent. of the income

for the purpose of levy under the Agricultural Income Tax Act, should have to deduct 8 per cent. u/s 80-I in order to ascertain the true income.

This income will be subject to computation under the provisions of the Agricultural Income Tax Act in order that the chargeable income may be

determined. The method of computation by the Income Tax Officer, for the purpose of the Income Tax Act, cannot make any difference to the

method by which the forty per cent. of the income should be ascertained for the purpose of that Act and 60 per cent. of the income for the

purpose of the Agricultural Income Tax Act. The proportion can be applied only if the business income as computed under the Act has also

suffered deductions u/s 80-I. On that view, the tax cases are dismissed with costs. Counsel''s fee Rs. 250 in each case.