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Judgment
S. Nagamuthu, J.—The vires of Section 16A(4) and Section 16A(5) of the Tamil Nadu Agricultural Income Tax Act is under challenge in
this writ petition.
The petitioner is a Company registered under the Companies Act and the same is an assesee under the Tamil Nadu Agricultural Income Tax
Act (hereinafter referred to as ''the Act''). The petitioner-Company filed agricultural income tax returns for the assessment year 1994-95 to 1997-
98 as per Section 17(3) of the Act. The said assessment have become final. Subsequently, according to this petitioner, notices were issued by the
respondents u/s 16A(4) and Section 16A(5) of the Act stating that the petitioner had not remitted the self assessment tax at 80% of the income
before 28th February of the relevant previous year and accordingly, the petitioner was liable to pay interest and penalty under the aforesaid
provisions of the Act. The petitioner was called upon to submit his objections. Accordingly, objections were submitted. The petitioner also filed
separate petitions for each assessment year for waiver of penalty and interest as subsequently the differential amount was also paid. Those
applications were rejected. Challenging such rejection orders, the petitioner has filed W.P. Nos. 7760 to 7763/2000 which are also disposed of
today by a separate order.
In this writ petition, the petitioner challenges Section 16A(4) and Section 16 A(5) on the main ground that Section 16A is incapable of
performance in so far as it gives excess burden on an assessee making him liable to pay agricultural income tax which shall not be less than 80% of
the estimated total Agricultural income derived by him during the said assessment year. It is further urged that u/s 3 of the Act, the Agricultural
Income Tax is payable at the rates specified in Part (1) of the Schedule. The requirement of the payment of Advance Tax is only to ensure that the
assessee does not delay the tax payable by him. The tax so payable as advance tax should have a reasonable nexus to the tax actually payable.
According to the petitioner, this basic concept is contravened in Section 16A(1) by the prescription of an extraordinary rate of tax rendering the
provision as bad in law. He further contended that there is no reasonable nexus to the object of the ingredient and Section 16A(1) imposes a
burden far beyond what is reasonably required to enforce the provisions of the Act and thus the provisions are ultra vires.
No counter has been filed by the respondents.
I have heard the learned senior counsel appearing for the petitioner and the learned Standing Counsel appearing for the respondents and
perused the records carefully.
The Agricultural Income Tax under the Act means, the tax payable as per Section 3 of the Act. Section 3(1) of the Act reads as follows:
CHARGE OF AGRICULTURAL INCOME TAX:
(1) Agricultural Income Tax at the rate of rates specified in Part I of the Schedule to this Act shall be charged for each financial yea commencing
from the 1st April 1955, in accordance with and subject to the provisions of this Act, on the total agricultural income of the previous year of every
person.
(Provided further that the agricultural income or any part of it derived from land in the added territory shall be subject to assessment of agricultural
income tax only from the financial year commencing from the 1st April 1961)
((1-A) Notwithstanding anything contained in this Act, agricultural income tax at the rate or rates specified in Part I of the Schedule to this Act as
amended by the Tamil Nadu Agricultural Income Tax Act, 1971, shall be charged for each financial commencing from the 1st April 1972, in
accordance with and a subject to the provisions of this Act, on the total agricultural income of every person of the previous year immediately
proceeding the said date.)
((1-B) Notwithstanding anything contained in this Act, agricultural income tax at the rate or rates specified in Part I of the Schedule to this Act as
amended by the Tamil Nadu Agricultural Income Tax (Amendment) Act, 1991, shall be charged for each financial year commencing from the 1st
day of April 1992 in accordance with and subject to the provisions of this Act on the total agricultural income of every person of the previous year
immediately proceeding the said date.)
Now, we have to look into Part-1 of the Schedule to the Act which is as follows:
THE SCHEDULE
PART-I
(See Section 3)
Rates of Agricultural Income Tax:
In the case of person other than
a company, where the total
agricultural income does not exceed
(Rs. 28,000/-) Nil
Where the total agricultural income 20 per cent of the amount by
exceeds Rs. 28,000/- but does not which the total agricultural
exceed Rs. 30,000/- income exceeds Rs. 28,000
Where the total agricultural Rs. 400/- plus 30 per cent of
income exceeds Rs. 30,000/- the amount which the total
but does not exceed Rs. 50,000 agricultural income exceeds
Rs. 30,000/-
Where the total agricultural Rs. 6,400/- plus 40 per cent
income exceeds Rs. 50,000/- of the amount by which the
but does not exceed total agricultural income
Rs. 1,00,000/- exceeds Rs. 50,000/-
Where the total agricultural Rs. 26,400 plus 50 per cent
income exceeds 1,00,000 of the amount by which the
total agricultural income
exceeds Rs. 1,00,000/-
In the case of Company- 45 per cent of the total
A. Where the total agricultural agricultural income.
income does not exceed
Rs. 25,000/-
B. Where the total agricultural 50 per cent of the total
income exceeds Rs. 25,000 agricultural income.
but does not exceed
Rs. 1,00,000/-
Provided that the agricultural income tax payable shall not exceed the aggregate of:
a. the agricultural income tax which would have been payable by the Company if its total agricultural income had been Rs. 25,000/- and
b. 80 per cent of the amount by which the total agricultural income exceeds Rs. 25,000/-
C. Where the total agricultural 55 per cent of the agricultural
income exceeds Rs. 1,00,000/- income; but does not exceed Rs. 3,00,000.
Provided that the agricultural Income Tax payable shall not exceed the aggregate of:
a. the agricultural income tax which would have been payable by the company if its total agricultural income had been Rs. 1,00,000; and
b. 80 per cent of the amount by which the total agricultural income exceeds Rs. 1,00,000; and
D. Where the total agricultural 60 per cent of the total
income exceeds Rs. 3,00,000 agricultural income.
but does not exceed
Rs. 10,00,000.
Provided that the agricultural Income Tax payable shall not exceed the aggregate of:
a. the agricultural income tax which would have been payable by the company if its total agricultural income had been Rs. 3,00,000; and
b. 80 percent of the amount by which the total agricultural income exceeds Rs. 3,00,000.
E. Where the total agricultural 65 per cent of the total
income exceeds Rs. 10,00,000 agricultural income.
Provided that the agricultural income tax payable shall not exceed the aggregate of:
a. the agricultural Income Tax which would have been payable by the company if its total agricultural income had been Rs. 10,00,000; and
b. 80 percent of the amount by which the total agricultural income exceeds Rs. 10,00,000/-
The learned Senior counsel would take me through the entire Part-I of the Schedule to say that the maximum tax an individual would be liable to
pay as Agricultural Income Tax shall not exceed 49.99%. Insofar as a company is concerned, as provided in Clause (e) of Part-I of the Schedule,
the maximum amount of Agricultural Income Tax payable shall be only 65%. No where there is any provision in the Schedule making either an
individual or a Company to pay Agricultural Income Tax to the tune of 80% of the total Agricultural Income during the assessment year. The
contention of the learned senior counsel that when the maximum liability in so far as an individual is concerned does not exceed 49.99% and in
respect of a Company, does not exceed 65%, it is highly unreasonable and without jurisdiction to demand 80% of the income as advance tax. The
learned senior counsel would also point out that if there is any delay in paying the said amount u/s 16A(4), the individual/Company is liable to pay
interest and u/s 16A(5) the individual/Company is liable to pay penalty. The learned Counsel further pointed out that at the same time, in case the
department repays the excess amount collected to the individual/Company, it does not carry any interest or penalty. Relying on the above position,
the learned senior counsel submitted that there is likelihood of the department keeping around 30% of the income of an individual and 15% of the
income of a Company collected towards Advance Tax for any number of years and repay the same without interest. This is highly unreasonable
and would cause unnecessary hardship to the assessee. The learned senior counsel submitted that Section 16A was introduced by means of
amendment as per Tamil Nadu Act 40 of 1988, but, Part-I of the Schedule was not duly amended. Therefore, according to the learned senior
counsel, the entire provisions contained in Sections 16A(1), Section 16A(4) and Section 16A(5) are liable to be struck down.
The learned standing counsel for the respondents would stoutly oppose the petition. According to him, the power of this Court to strike down a
taxation provision is very limited. He would rely on the judgment of the Honourable Supreme Court of India in Raja Jagannath Baksh Singh Vs.
The State of Uttar Pradesh and Another,
wherein the Honourable Supreme Court has laid down the following propositions on the jurisdiction of the Court questioning the validity of the tax
law.
It is now settled law that the validity of legislation imposing a tax can be challenged not only on the ground of lack or absence of legislative
competence, but also on the ground that the impugned legislation violates the fundamental rights guaranteed by Part III of the Constitution.
A taxing statue can be held to contravene Article 14 if it purports to impose on the same class of property similarly situated an incidence of
taxation, which leads to obvious inequality. It is for the legislature to decide on what objects to levy tax and at what rates and it is not for the courts
to consider whether some other objects should have been taxed or whether a different rate should have been prescribed for the tax.
Article 3I(2) would be inapplicable to a taxing statute because the taxing statute does not purport to acquire or requisition any property. The
imposition of the tax levied by the statute may be excessive and may ultimately lead to the loss of the assessee''s property, but even then, it cannot
be said that by virtue of the Act, the property has been acquired or requisitioned.
Though the validity of a taxing statute cannot be challenged merely on the ground that it imposes an unreasonably high burden, it does not follow
that a taxing statute cannot be challenged on the ground that it is a colorable piece of legislation and as such, is a fraud on the legislation power
conferred on the legislature in question. But such a challenge cannot succeed by merely showing that the tax levied is unreasonably high or
excessive; other relevant circumstances which justify the conclusion that the statute is colorable, and as such, amounts to a fraud, must also be
proved.
Relying on the above, the learned Counsel submits that since the case of the petitioner does not fall under any of these propositions, the writ
petition is liable to be dismissed. He further tried to explain that there is no unreasonableness in Section 16A(1) as, after all the assessee is required
to pay Advance Tax on the basis of his own estimation and later on, on the basis of the final assessment if any amount has been collected in excess,
it is refunded to the assessee and thus, there is no extra burden on the assessee. Therefore, according to the learned Counsel for the petitioner, the
impugned provisions are not ultra vires the constitutional provisions. Therefore, the writ petition is liable to be dismissed.
I have considered the rival submissions made on either side.
A close reading of Part-I of the Schedule would make things manifestly clear that the maximum amount of tax an individual assessee has to pay
does not exceed 49.99% whereas in the case of a Company, the same does not exceed 65% of the total Agricultural income (vide Clause 1 and
Clause 2 (e) of the Part I of the Schedule). This is under the charging provision, namely, Section 3 of the Act. The purpose of compelling an
assessee to pay Advance Tax is to see that he does not escape from the payment of tax after appropriating the entire income at a later point of
time. In any event, in my considered opinion, the Advance Tax shall only be a part of the actual tax to be paid at a later point of time and the same
shall not exceed the same. In the case on hand, as rightly pointed out by the learned senior counsel, as per Section 16A(1) of the Act, an individual
assessee is required to pay 80% of his total agricultural income towards Advance Tax which means more than 30% of his agricultural income is
collected in excess as Advance Tax. Similarly, in a case of a Company, it is required to pay 15% or more of the total agricultural income in excess
towards Advance Tax. Of course, such amount paid in excess is refundable by the department u/s 44 of the Act. A close reading of Section 44
would go to show that there is no provision for payment of interest to the assessee for the said amount. As pointed out by the learned senior
counsel, if there is a failure on the part of the assessee to pay Advance Tax, he is liable to be charged with penalty as well as interest for the said
amount. Thus, the possibility of the department keeping the excess amount paid by the assessee without refunding the same for quite sometime also
cannot be ruled out. Thus, in my considered opinion, making an assessee to pay advance tax more than the actual tax would certainly be an
additional burden which is unreasonable and highly arbitrary. On these grounds, in my concerned opinion, Section 16A(1) is liable to be struck
down. The proposition contained in Clause-7 as enumerated in the judgment of the Honourable Supreme Court squarely applies to the facts of the
present case. As stated by the Honourable Supreme Court, Section 16A(1) imposes an unreasonable high burden on the assessee in as much as it
directs the assessee to pay advance tax which is more than the actual tax to be paid on the final assessment being made, and so, Section 16A(1)
needs to be read down.
Section 16A(1) is to be read down to mean that the advance tax payable is restricted to an amount which does not exceed the tax payable
under the charging provision, namely, u/s 3 of the Act. In my considered opinion, instead of striking down Section 16A as a whole going by the
object sought to be achieved by the Act, I have to say that Section 16A is to be read down to say that the Advance Tax payable shall be 80% of
the ""estimated total agricultural income tax"" and not ""80% of the estimated total agricultural income.
Insofar as Section 16A(4) and Section 16A(5) are concerned, they cannot be struck down, if they are read along with Section 16A(1), the
way in which they have been directed to be read down.
In the result, the Writ Petition is partly allowed declaring that Section 16A shall be read down to the effect that the Advance Tax to be payable
shall be 80% of the ""estimated total agricultural income tax"" and not 80% of the ""estimated total agricultural income"" borne by him during the said
previous year. No costs.