Gouranga Parbati Tea Co. Pvt. Ltd v. Agricultural Income Tax Officer & Ors

ss/jks IN THE HIGH COURT AT CALCUTTACONSTITUTIONAL WRIT JURISDICTION Present :The Hon’ble Justice Surya Prakash KesarwaniAndThe Hon’ble Justice Rajarshi Bharadwaj WPTT 14 of 2013 Gouranga Parbati Tea Co. Pvt. Ltd. Vs. Agricultural Income Tax Officer & Ors. A.F.R. Surya Prakash Kesarwani, J.: 1.Heard Mr. Baudhayan Bhattacharyya, learned counsel for thepetitioner and Mr. Md. T.M. Siddiqui, learned AdditionalGovernment Pleader for the State respondents.petitioner and Mr. Md. T.M. Siddiqui, learned AdditionalGovernment Pleader for the State respondents. 2.This writ petition has been filed praying to quash the impugnedorder dated 08.08.2012 in Case No. RN-63 of 2011 (Gourangaorder dated 08.08.2012 in Case No. RN-63 of 2011 (Gouranga Parbati Tea Co. Pvt. Ltd. Vs. Agri. I.T.O., Siliguri & 2 Others)passed by the West Bengal Taxation Tribunal, Kolkata. Thepetitioner has also sought relief for a direction to the respondentsto calculate depreciation in accordance with Section 7A of theBengal Agricultural Income Tax Act, 1944 (hereinafter referred toas the Act of 1944) and not under Section 7 thereof. Facts : 3.Briefly stated facts of the present case are that the petitioner isengaged in business of producing green tea leaves and paysagricultural income tax on the income derived from the sale ofsuch tea. Orders dated 26.12.2006 and 09.11.2010 were passedby the Agricultural Income Tax Officer, Siliguri and AssistantCommissioner, Agricultural Income Tax, Jalpaiguri Circle,respectively in respect of the assessment for the year 2002-03.Assessing Officer sought to levy tax on sale of saplings andcomputed depreciation in accordance with Section 7 of the Act of1944 read with Rule 3 of the Bengal Agricultural Income TaxRules, 1944 (hereinafter referred to as the Rules). According tothe petitioner assessee “tea saplings” is not “tea” and as such inview of charging Section 3 of the Act of 1944, no tax could belevied on the income derived from sale of saplings. With regard tothe depreciation, objection of the petitioner assessee is that specific provision Section 7A has been enacted for companies.Therefore Section 7A shall apply and Section 7 and Rule 3 of theRules shall not apply. Aggrieved with the order of the AssessingOfficer, as aforesaid, the petitioner filed the aforesaid Case No.RN-63 of 2011 which was dismissed by order dated 08.08.2012passed by the West Bengal Taxation Tribunal, Kolkata. Aggrievedwith the aforesaid order of the Tribunal the petitioner has filedthe present writ petition. Submissions : 4.Learned counsel for the petitioner submits as under :(i) as per charging Section 3 of the Bengal Agricultural IncomeTax Act, 1944, only income from “tea” is taxable and, therefore,the tribunal has committed a manifest error of law to uphold theimposition of tax on tea saplings. The word “tea” has not beendefined under the Act, although it is defined under the Tea Act,1953 (Central Act) which also does not include tea saplings.Therefore, the imposition of tax on income derived from teasaplings is wholly without authority of law and beyond thecharging Section itself;(i) as per charging Section 3 of the Bengal Agricultural IncomeTax Act, 1944, only income from “tea” is taxable and, therefore,the tribunal has committed a manifest error of law to uphold theimposition of tax on tea saplings. The word “tea” has not beendefined under the Act, although it is defined under the Tea Act,1953 (Central Act) which also does not include tea saplings.Therefore, the imposition of tax on income derived from teasaplings is wholly without authority of law and beyond thecharging Section itself; (ii) the depreciation Section 7A read with Section 2(6) of the Actspecifically provides for computation of agricultural income of a (ii) the depreciation Section 7A read with Section 2(6) of the Actspecifically provides for computation of agricultural income of a company in accordance with the method of accounting regularlyemployed it. Therefore, the tribunal has committed a manifesterror of law to invoke Rule 3 of the Rules instead of computingdepreciation as per accounting method regularly employed by theassessee company. Depreciation is computable as per ScheduleXIV read with Sections 349 and 350 of the Companies Act, 1956. 5.Learned counsel for the State submits that since income derivedfrom sale of saplings is an agricultural income under Section2(1A) of the Income Tax Act, 1961 (hereinafter referred to as theAct of 1961), therefore, income derived from saplings is also liableto tax under the Act of 1944. On the point of depreciation, hesubmits that Section 7A does not speak about the depreciation,therefore, Section 7 read with Rule 3 shall apply. Discussion and findings : 6.We have carefully considered the submissions of the learnedcounsel for the parties and perused the record of the petition.counsel for the parties and perused the record of the petition. 7.Entry 46 of List II-State List under Schedule VII to theConstitution of India provides field of Legislation on “Taxes onAgricultural Income”. Thus, in view of the provisions of Article246(3) read with aforesaid Entry 46 of List-II under Schedule VIIto the Constitution of India, the State Legislature has exclusiveConstitution of India provides field of Legislation on “Taxes onAgricultural Income”. Thus, in view of the provisions of Article246(3) read with aforesaid Entry 46 of List-II under Schedule VIIto the Constitution of India, the State Legislature has exclusive power to enact a law with respect to “Tax on Agricultural Income”in exercise of power so conferred, the Bengal State Legislature hasenacted the Bengal Agricultural Income Tax Act, 1944 (Bengal ActIV of 1944). Section 3 of the Act of 1944 is the charging Sectionand Sections 7 and 7A provides for computation of tax andallowances under the head “Agricultural Income fromAgriculture”. Section 3 and Sections 7 and 7A are reproducedbelow : “3. (1) Agricultural income-tax shall be charged for eachfinancial year in accordance with and subject to theprovisions of this Act, at the rate or rates specified in theSchedule in respect of the total agricultural income ofthe previous year of every individual, Hindu undividedFamily, company, firm or other (association of persons)and every Ruler of [a Part B State]: Provided that if the total world income of the previousyear of any individual or Hindu undivided family consists ofagricultural income as well, as other income, agriculturalincome-tax shall be chargeable under sub-section (1) onsuch part of the agricultural income as exceeds tenthousand rupees at the highest rate which would have beenchargeable if the total world income were the agriculturalincome: Provided further that in such cases increase in thequantum of tax in view of the application of the highest rateshall not exceed fifty per centum of the amount by whichthe total world income exceeds the agricultural income. (2) Notwithstanding anything contained in sub-section(1), agricultural income tax shall not be charged inrespect of - (a) the total agricultural income of the previous yearof any individual or Hindu undivided family wheresuch total agricultural income does not exceed tenthousand rupees: (b) the total agricultural income of the previous yearof Central Government or any State Government orany local authority: (c) the agricultural income of the previous year of anyindividual, Hindu undivided family, company, firm orother association of persons where such agriculturalincome is derived from- (i) land which is used for agricultural purposes otherthan those for producing tea, (ii) land by agriculture other than that for producingtea, (2) Notwithstanding anything contained in sub-section(1), agricultural income tax shall not be charged inrespect of - (a) the total agricultural income of the previous yearof any individual or Hindu undivided family wheresuch total agricultural income does not exceed tenthousand rupees: (b) the total agricultural income of the previous yearof Central Government or any State Government orany local authority: (c) the agricultural income of the previous year of anyindividual, Hindu undivided family, company, firm orother association of persons where such agriculturalincome is derived from- (i) land which is used for agricultural purposes otherthan those for producing tea, (ii) land by agriculture other than that for producingtea, (iii) land by the performance by a cultivator orreceiver of rent-in-kind of any process ordinarilyemployed by a cultivator or receiver of rent-in-kind torender the produce, other than tea, raised or receivedby him fit to be taken to market, or (iv) land by the sale by a cultivator or receiver of rent-in-kind of the produce, other than tea, raised orreceived by him, in respect of which no process hasbeen performed other than a process of the naturedescribed in sub-clause (iii).” Section 7. “Agricultural income-tax shall be payable by anassessee under the head "Agricultural income fromagriculture" in respect of all agricultural incomederived from land referred to in sub-clause (b) ofclause (1) of section 2 included in his totalagricultural income and received by him in theprevious year subject to the following allowances,namely:- (1) the cost incurred by the assessee in the previousyear:- (i) in cultivating such land or raising livestockthereon: (ii) in performing any process contemplated initem (ii) of sub-clause (b) of clause (1) of section2 for rendering the produce of such land fit tobe taken to market; (iii) in transporting such produce or livestock tomarket; and (iv) in maintaining agricultural implements andmachinery in good repair and in providing forthe upkeep of cattle for the purpose of suchcultivation, process, or transport: Provided that in the case of anagricultural income derived from landpossessed by an individual or a Hinduundivided family and cultivated by suchindividual or by the members of such familywith or without the aid of servants or hiredlabourers or of both, the allowance admissibleunder this clause shall, instead of such cost bea sum equal to fifty per centun of the marketvalue of the produce raised from such land: (2) any sum paid by him in the previous year onaccount of- (i) land revenue or rent, (ii) any local rate or cess including EducationCess, in respect of such land; (3) where his interest in such land is subject to a mortgageor other capital charge, the amount of any interest paid byhim in the previous year in respect of such mortgage orcharge and where such land has been acquired, reclaimedor improved by him by the use of borrowed capital, theamount of any interest paid by him in the previous year inrespect of such capital: Provided that the interest allowable under this clauseshall not exceed the interest which the assessee is liable topay in respect of such mortgage, charge or capital as aborrower under section 30 of the Bengal Money-lenders Act,1940; (4) any sum paid by him in the previous year as interest onany loans taken by him under the Agriculturists' Loans Act,1884, or the Land Improvement Loans Act, 1883, in respectof such land; (5) in respect of the maintenance of any irrigation orprotective work or other capital assets the amount paid inthe previous year on account thereof. Explanation.- : “Maintenance" includes current repairs andincludes also in the case of protective dykes andembankments all such work as may be necessary from yearto year for repairing any damage or destruction caused byflood or other natural causes; (4) any sum paid by him in the previous year as interest onany loans taken by him under the Agriculturists' Loans Act,1884, or the Land Improvement Loans Act, 1883, in respectof such land; (5) in respect of the maintenance of any irrigation orprotective work or other capital assets the amount paid inthe previous year on account thereof. Explanation.- : “Maintenance" includes current repairs andincludes also in the case of protective dykes andembankments all such work as may be necessary from yearto year for repairing any damage or destruction caused byflood or other natural causes; (6) depreciation at the prescribed rate in respect of anyirrigation or protective work or other capital assetconstructed or acquired after the commencement of this Actfor the benefit of the land from which such agriculturalincome is derived or for the purpose of deriving suchagricultural income from such land; (7) any sum paid by him in the previous year as premium inorder to effect any insurance against loss of or damage tosuch land or any crops to be raised or cattle to be rearedthereon; (8) in respect of any machinery or plant used exclusively foragricultural purposes which has been sold or discarded, theamount by which the written down value of the machineryor plant exceeds the amount for which the machinery orplant is actually sold or its scrap value; Provided that such amount is actually written off inthe books of the assessee: (9) any other expenditure of the assessee not being in thenature of capital expenditure or personal expenditure laidout wholly and exclusively for the purpose of deriving suchagricultural income from such land; (9a) any sum of allowance computed under sub-section (2); (10) any other sum which may be prescribed.” Section 7A. “Notwithstanding anything to the contrarycontained in this Act in the case of an assesseebeing a company or a firm or other association ofpersons, the agricultural income of such assesseeshall be computed in accordance with the methodof accounting regularly employed by such assesseefor such computation: Provided that if, in any case, the method ofaccounting as aforesaid is such that, in theopinion of the Agricultural Income-tax Officer, theagricultural income cannot be computed, thecomputation shall be made on such basis and insuch manner as the Agricultural Income-taxOfficer may determine.” 8.From bare reading of Section 3 of the Act of 1944 i.e. the chargingSection, it is clear that agricultural income tax shall be chargedfor each financial year in accordance with and subject to theprovisions of the Act, at the rate or rates specified in the schedulein respect of the total agricultural income of the previous year ofevery individual, Hindu undivided Family, company, firm or otherassociation of persons and every Ruler of Part B State. Sub-section 2 of Section 3 starts with a non-obstante Clause. It excludes chargeablity to tax to certain class of persons. By Clause(c) of Sub-Section 2 of Section 3 of the Act of 1944, theagricultural income of the previous year of any individual, Hinduundivided family, company, firm or other association of personsshall be excluded where such agricultural income is derived fromland used for agricultural purposes other than those forproducing tea, land by agriculture other than producing tea,land by the performance by cultivator or receiver of rent-in-kindof any process ordinarily employed by cultivator or receiver ofrent-in-kind to render the produce, “other than tea” raised orreceived by him fit to be taken to market, or land by the sale by acultivator or receiver of rent-in-kind of the produce, other thantea, raised or received by him in respect of which no process hasbeen performed other than a process of the nature described inSub-Clause (iii). Thus, mainly “tea” has been made liable to taxunder the charging Section 3 of the Act of 1944. 9.The word “tea” has not been defined under the Act of 1944.Therefore, to find out the meaning of the word “tea” as used inSection 3 of the Act of 1944, common parlance test may beapplied. It is a matter of common knowledge that saplings areneither treated as tea nor saplings are bought and sold as tea nor the saplings can be used as tea. If a buyer asks for “tea” he shallnot be given “saplings” and vice-versa. Even as per dictionarymeaning “tea” does not include saplings. The provisions of TeaAct, 1953 was enacted by Parliament for the control by the Unionof the Tea Industry, including control, in pursuance to theInternational Agreement in force, cultivation of tea in and of theexport of tea from India and for that purpose to establish a TeaBoard and levy a duty of exercise on tea produced in India. Thereis no provision under the Act of 1944 which either adopts orincorporates the provisions of the Tea Act, 1953. Therefore,definition of “tea” as given in Section 3(n) of the Tea Act of 1953 isnot liable to be adopted for the purpose of Act of 1944. Thatapart, even the definition of “tea” given under Section 3(n) of theTea Act, 1953 does not include saplings. Thus by any stretch ofimagination or logic “tea” shall not include saplings. 10.Saplings are altogether a different agriculture produce. Sapling isa young plant which is neither known nor is used as “tea”. Teasaplings is planted in untilled soil which develops into teabushes. After it is grown up it produces tea leaves. Therefore, wehold that saplings are not “tea” and thus are outside the scope ofthe charging Section 3 of the Act of 1944. Consequently,“saplings” are not liable to tax under the Act of 1944. Regarding depreciation : 11.Section 7 of the Act as aforequoted provides for computation totax and allowances under the head “Agricultural Income fromAgriculture” derived from land referred to in Section 2(n)(b) of theAct of 1944. It is a general provision. Section 7A inserted by theState Legislature in the year 1980, has been made specificallyapplicable to a company or firm or other association of personsfor computation of their agricultural income in accordance withthe method of accounting regularly employed by such assesseefor such computation. Therefore, the provision of Section 7A shallapply for computation of agricultural income of a company or firmor other association of persons. The petitioner is a company.Therefore, for computation of its agricultural income, theprovisions of Section 7A shall apply and its agricultural incomeshall be computed in accordance with the method of accountingregularly employed by it. 12.Rule 3 of the Bengal Agricultural Income Tax Rules, 1944provides that the allowances under Clause (5) of Section 6 orunder Clause (6) of Section 7 in respect of depreciation of any irrigation or protective work or other capital asset shall be madein accordance with the statement of rates given in Part-I of Rule3. Thus, from bare reading of the Rule 3 of the Rules, 1944 it isevident that it has not been made applicable for the purposes ofSection 7A of the Act of 1944. Therefore, the agricultural incomeof a company incorporated under the Companies Act shall becomputed under the Act of 1944 in accordance with the methodof accounting regularly employed by such assessee for suchcomputation. 12.Rule 3 of the Bengal Agricultural Income Tax Rules, 1944provides that the allowances under Clause (5) of Section 6 orunder Clause (6) of Section 7 in respect of depreciation of any irrigation or protective work or other capital asset shall be madein accordance with the statement of rates given in Part-I of Rule3. Thus, from bare reading of the Rule 3 of the Rules, 1944 it isevident that it has not been made applicable for the purposes ofSection 7A of the Act of 1944. Therefore, the agricultural incomeof a company incorporated under the Companies Act shall becomputed under the Act of 1944 in accordance with the methodof accounting regularly employed by such assessee for suchcomputation. 13.The findings of the tribunal in the impugned order holding thatsaplings are included in tea for the purposes of tax under the Actof 1944, is wholly erroneous and baseless. In paragraph 19 of theimpugned order the tribunal has held that non-obstante Section7A, being silent about the allowances to be made from suchincome for computation of tax; the deduction on account ofdepreciation is required to be made as per stipulation of Section 7of the Act of 1944. We find that this interpretation given by thetribunal is in disregard to the provisions of Section 7A whichstarts with a non-obstante Clause and thus has an overridingeffect over Section 7 of the Act of 1944. The tribunal hasincorrectly held that Section 7A does not provide for allowances or depreciation for computation of agricultural income of anassessee which is a company or a firm or other association ofpersons. Bare reading of Section 7A of the Act of 1944 makes itclear that agricultural income of such assessee (a company or afirm or other association of persons) shall be computed inaccordance with method of accounting regularly employed bysuch assessee for such computation. Therefore, agriculturalincome of the petitioner company is liable to be computed inaccordance with the method of accounting regularly employed byit provided that, if, in any case, the method of accounting asaforestated is such that in the opinion of the Agricultural IncomeTax Officer, the agricultural income cannot be computed, thecomputation shall be made on such basis and in such a manneras the Agricultural Income Tax Officer may determine. Therefore,the finding of the tribunal in the impugned order regarding theapplicability of Section 7A or regarding computation ofagricultural income is totally erroneous and in breach of thescheme of the Act itself and as such it deserves to be set aside. 14.For all the reasons aforestated the impugned order dated08.08.2012 passed by the West Bengal Taxation Tribunal,Kolkata in Case No. RN-63 of 2011 is hereby quashed. Matter is remitted back to the Agricultural Income Tax Officer/competentauthority to pass afresh an assessment order for the year 2002-03 in accordance with law, in the light of the findings/directionsrecorded above, within four months from the date of submissionof a certified copy of this judgment, after affording reasonableopportunity of hearing to the petitioner assessee. 15.Writ petition is allowed to the extent indicated above. 16.Urgent Photostat Certified copy of this order, if applied for, besupplied to the parties after complying with all necessary legalformalities. I agree. (Surya Prakash Kesarwani, J) (Rajarshi Bharadwaj, J.) A.F.R.