State Of Tamil Nadu v. M/S.coonoor Tea Estates Co.ltd., Coonoor

IN THE HIGH COURT OF JUDICATURE AT MADARASDATED: 19.6.2006 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARANandTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(Revision) Nos.31 & 37 of 2002 State of Tamil Nadu represented by theCommissioner of Agricultural Income-tax,Chepauk, Chennai-5....Petitioner in both cases. vs. M/s.Coonoor Tea Estates Co.Ltd.,Coonoor. ...Respondent in TC31/2002 Tvl.Tea Estates India,Hindustan Lever Limited,Valparai. ... Respondent in TC37/2002 Under section 54(1) of the Tamil Nadu AgriculturalIncome-tax Act, 1955 Tax Case revision, TC.31/2002 filedagainst the order of the Tamil Nadu Agricultural Income TaxAppellate Tribunal, Madras in ATA No.7/2001 &8/2001 dated30.11.2001, so far as it relates to assessment year 1996-97against the order of the Tamil Nadu Agricultural Income TaxAppellate Tribunal, Chennai 104 in Agricultural TribunalAppeal NOs. 7/2001 and 8/2001 dated 30.11.2001 against theorder of the District Revenue Officer/Asst. Commissioner(Agricultural Income TAx) Coimbatore in A.P. NO. 86/2000/D.dated 27.12.2000 against the order of the AgriculturalIncome TAx Officer, Coonoor in PA NO. 603/96-97 dated30.09.2000. and TC37/2002 filed against the order of theTamil Nadu Agricultural Income Tax Appellate Tribunal,Madras in ATA.3/2000 dated 17.10.2001. against the order ofthe Tamil Nadu Agricultural Income Tax Tribunal, Chennai -104 in ATA 3/2000 dated 17.10.2001 against the order of theDistrict Revenue Officer/Assistant Commissioner ofAgricultural Income Tax, Coimbatore in AP NO. 14/2000/Ddated 22.03.2000 against the order of the District RevenueOfficer/Assistant Commissioner of Agricultural Income TAx, Coimbatore in A.P. NO. 14/2000-D dated 13.3.2000 againstthe order of the Agricultural Income Tax Officer, Coonoorin GIR - NO- 2T/92-93/cAR DATED 25.01.2000 RESPECTIVELY. For petitioner in both : Mr.Haja Nazirudeen, Spl.GP (T)For respondents in both:Mr.Chandran. JUDGMENT(Delivered by P.D.DINAKARAN,J.) These two revisions are filed against the order of theTamil Nadu Agricultural Income Tax Appellate Tribunal,Madras in ATA No.7/2001 &8/2001 dated 30.11.2001, so far asit relates to assessment year 1996-97 and ATA.3/2000 dated17.10.2001, for the assessment year 1992-93. 2.1. The assessees in both the cases are Tea EstateCompanies. The Agricultural Income-tax Officer revised theassessment by bringing to tax 60% of deduction which wasallowed by the Central Income-tax Officer under section80-HHC of the Income-tax Act. 2.2. The first appellate authority, namely, theAssistantCommissioner(AgriculturalIncome-tax),Coimbatore sustained the revision of assessment, whichwas challenged by the assessees before the AgriculturalIncome-tax Appellate Tribunal. 2.3. Before the Tribunal, it was contended by theassessees that as per Rule 7 of the Tamil Nadu AgriculturalIncome-tax Rules, 1955, the computation made by the Income-tax Officer under the Income-tax Act should be accepted bythe Agricultural Income-tax Officer and hence, the revisionof assessment made by the Agricultural Income-tax Officerwas not valid. 2.4. The Tribunal, accepting the contention of theassessees, allowed the appeals filed by them. Hence, theabove revisions have been filed. 2.5. While admitting the revision petitions, thisCourt framed the following questions of law forconsideration: T.C.No.31 of 2002: "Whether the order of the AgriculturalIncome Tax Officer, Coonoor is based on facts andas per the amendment to sub-section 4(b) to https://hcservices.ecourts.gov.in/hcservices/ section 80 HHC of the Income-tax Act, 1961 by theFinance Act, 1999?" T.C.No.37 of 2002: "Whether the Tribunal is right in settingaside the assessment made by the AgriculturalIncome-tax Officer which was sustained by theAssistant Commissioner of Agricultural Income-tax?" 2.4. The Tribunal, accepting the contention of theassessees, allowed the appeals filed by them. Hence, theabove revisions have been filed. 2.5. While admitting the revision petitions, thisCourt framed the following questions of law forconsideration: T.C.No.31 of 2002: "Whether the order of the AgriculturalIncome Tax Officer, Coonoor is based on facts andas per the amendment to sub-section 4(b) to https://hcservices.ecourts.gov.in/hcservices/ section 80 HHC of the Income-tax Act, 1961 by theFinance Act, 1999?" T.C.No.37 of 2002: "Whether the Tribunal is right in settingaside the assessment made by the AgriculturalIncome-tax Officer which was sustained by theAssistant Commissioner of Agricultural Income-tax?" 3.1. Mr.Haja Nazirudeen, learned Special GovernmentPleader (Taxes) contends that Sub-section 4-B of section80 HHC was inserted by the Finance Act 1999 withretrospective effect from 1[st] April, 1992 and hence, therevision of assessment made by the Agricultural Income-taxOfficer on 60% of deduction is valid even though the samewas allowed by the Central Income-tax Officer under section80 HHC of the Income-tax Act before the Finance Act, 1999came into force. 3.2. According to the learned Special GovernmentPleader, the Tribunal failed to take note of sub-section4-B of section 80 HHC of the Income-tax Act for the purposeof computation of total income as section 80 HHC of theIncome-tax Act provides that income not chargeable to taxunder the Income-tax Act shall be excluded and that 60% ofthe income which is liable to be taxed under theAgricultural Income-tax Act should be excluded for thepurpose of deduction under section 80-HHC of the Income-taxAct and therefore the revision of assessment of 60% ofdeduction under section 80-HHC is justified. 4.1. Sustaining the orders of the Tribunal underrevision, Mr.Chandran, learned counsel appearing for therespondents/assessees relies upon the proviso to Rule 7 ofTamil Nadu Agricultural Income-tax Rules, 1955 andcontended that the computation made by the Indian Income-tax Officer should be accepted by the Agricultural Income-tax Officer. 4.2. According to the learned counsel, theAgricultural Income-tax Officer should not make anyaddition to the amount of agricultural income so computedby the Central Income-tax Officer and hence, the revisionof assessment made by the Agricultural Income-tax Officerbringing 60% of deduction under 80 HHC of the Income-taxAct into tax is not valid in law and the Tribunal was rightin setting aside the revision of assessment made by theAgricultural Income-tax Officer as sustained by the Assistant Commissioner of Agricultural Income-tax. 5. The points to be decided in these revisions are, (i)whether the Agricultural Income-tax Officeris empowered to revise the assessment byrecomputing the income? (iii)In the light of amendment to section 80HHC of the Income-tax Act by the FinanceAct, 1999 inserting sub-section 4-B withretrospective effect from 1992, whether theAgriculturalIncome-taxOfficerwasjustified in revising the assessment? 6. In this regard, it is apt to refer to sub-section 4B of section 80 HHC of the Income-tax Act as wellas Rule 7 of the Agricultural Income-tax Rules, 1955 whichread as follows: Sub-section 4B of section 80 HHC of the Income-tax Act,1961:- 80HHC. Deduction in respect of profitsretained for export business -- (1) Where anassessee, being an Indian company or a person(other than a company) resident in India, isengaged in the business of export out of India ofany goods or merchandise to which this sectionapplies, there shall, in accordance with andsubject to the provisions of this section, beallowed, in computing the total income of theassessee, a deduction of the profits derived bythe assessee from the export of such goods ormerchandise: Sub-section 4B of section 80 HHC of the Income-tax Act,1961:- 80HHC. Deduction in respect of profitsretained for export business -- (1) Where anassessee, being an Indian company or a person(other than a company) resident in India, isengaged in the business of export out of India ofany goods or merchandise to which this sectionapplies, there shall, in accordance with andsubject to the provisions of this section, beallowed, in computing the total income of theassessee, a deduction of the profits derived bythe assessee from the export of such goods ormerchandise: Provided that if the assessee, being aholder of an Export House Certificate or aTrading House Certificate (hereafter in thissection referred to as an Export House or aTrading House, as the case may be), issues acertificate referred to in clause (b) of sub-section (4A), that in respect of the amount ofthe export turnover specified therein, thededuction under this sub-section is to be allowedto a supporting manufacturer, then the amount ofdeduction in the case of the assessee shall bereduced by such amount which bears to the totalprofits of the export business of the assesseethe same proportion as the amount of exportturnover specified in the said certificate bearsto the total export turnover of the assessee. (1A) to (4A) xxxxx (4B). For the purposes of computing the totalincome under sub-section (1) or sub-section(1A),any income not charged to tax under this Actshall be excluded." Rule 7 of the Agricultural Income-tax Rules, 1955 7. Computation of Income from tea – Inrespect of agricultural income from tea grown andmanufactured by the seller in the State ofMadras, the portion of the income worked outunder the Indian Income-tax Act and leftunassessed as being agricultural shall beassessed under the Act after allowing suchdeductions under the Act and the rules madethereunder: Provided that the computation made by theIndian Income-tax Officer shall be accepted bythe Agricultural Income-tax Officer" 7. In the given case, it is clear that the CentralIncome-tax Officer computed the total income and allocated60% of the same for being treated as agricultural income,treating 40% as business income of the assessees concernedand assessment was also made on the agricultural income,viz., 60% of the total income by the Agricultural Income-tax Officer. At the time of computation of income, theCentral Income-tax Officer allowed deduction under section80 HHC of the Income-tax Act as per the law as it stoodthen. 8. Sub-section 4-B of section 80-HHC of the Income-taxwas inserted by the Finance Act, 1999 with retrospectiveeffect from 1[st] April, 1992, as per which, any income notchargeable under the Income-tax Act shall be excluded. TheAgricultural Income-tax Officer, in the light of sub-section 4-B of section 80 HHC of the Income-tax Act,revised the assessment by disallowing 60% of deductionallowed under section 80 HHC of the Income-tax Act, whichwas sustained by the first appellate authority and setaside by the Tribunal. 9. In this connection, it is relevant to refer to thelaw on this point. 9.1. In UNION OF INDIA v. WARREN TEA LTD. (266 ITR226), while interpreting sub-section 4(b) of section 80 HHCof the Income-tax Act with reference to special deductiontowards export business of tea, held as follows: 9. In this connection, it is relevant to refer to thelaw on this point. 9.1. In UNION OF INDIA v. WARREN TEA LTD. (266 ITR226), while interpreting sub-section 4(b) of section 80 HHCof the Income-tax Act with reference to special deductiontowards export business of tea, held as follows: "The Income-tax Act has defined “income” insection 2(24) of the Income-tax Act, 1961, toinclude (i) profits and gains and such other sumschargeable to tax under clauses (ii) to (iv) ofsection 28 of the Act. Rule 8 of the Income-taxRules, 1962, prescribes computation of incomederived from the sale of tea grown andmanufactured as if it were income derived frombusiness. Rule 8 does not use the expression“total income”. It simply uses the expression“income”. Therefore, this income is to beconstrued as “income” defined in section 2(24) ofthe Act as income from profits and gains. Thisincome is to be computed in the manner laid downin the Act. The expression “total income” definedin section 2(45) means “the total amount ofincome referred to in section 5, computed in themanner laid down in the Act”. The expression“gross total income” has neither been defined norhas been used in section 29 or anywhere in theprovisions of sections 30 to 43D of the Act. Theexpression “gross total income” is used inChapter VI-A. The expression “gross total income”defined in section 80B(5), refers to the totalincome computed in accordance with the provisionsof the Act before making any deduction underChapter VI-A. This definition creates a fictionunder which the total income computed in themanner laid down in the Act becomes gross totalincome from which again total income is computedafter allowing deductions under the provisions ofChapter VI-A. The deductions specified in Chapter VI-A areadmissible on the income chargeable to tax. Itcannot be extended to agricultural income. Thetotal income exposed to Chapter VI-A cannotinclude the agricultural component included inthe composite income by reason of the fictioncreated by rule 8 in view of section 10(1). Rule8 is confined only to computation. It does notextend to chargeability. The difference between “total income” and “gross total income” is thatthis gross total income is chargeable to tax andthis chargeability is reduced on account of thedeductions available under Chapter VI-A. The deductions specified in Chapter VI-A areadmissible on the income chargeable to tax. Itcannot be extended to agricultural income. Thetotal income exposed to Chapter VI-A cannotinclude the agricultural component included inthe composite income by reason of the fictioncreated by rule 8 in view of section 10(1). Rule8 is confined only to computation. It does notextend to chargeability. The difference between “total income” and “gross total income” is thatthis gross total income is chargeable to tax andthis chargeability is reduced on account of thedeductions available under Chapter VI-A. The benefit of Chapter VI-A is available toincome chargeable to tax. This cannot be extendedto income not chargeable under the Act. Section80HHC allows an assessee engaged in the businessof export out of India of any goods ormerchandise, a deduction out of the profitsderived by the assessee from the export of suchgoods or merchandise. Therefore, it is not theincome, which is the base for assessment of thededuction. It is the profit derived from theexport of the goods or merchandise in the courseof business of export. Admittedly, growing of teais not a business but an agricultural process.Manufacturing of tea is business. Sub-section (3)of section 80HHC makes a distinction betweenprofits out of exports of goods or merchandisemanufactured or processed and export of tradinggoods. Different kinds of computation areprovided for in sub-section (3) in respect ofthese two kinds of goods. Thus, there is a sub-division in section 80HHC in relation to goods ormerchandise manufactured or processed by theassessee and of trading goods, which are to becomputed differently. The expression “goods ormerchandise manufactured or processed” cannotinclude goods or merchandise grown throughagriculturalprocessbytheassessee.Manufacturing and processing is business whilegrowing is agriculture. Therefore, only that partof the profit derived out of manufacture andprocess would be eligible to deduction. Theprofit derived from growing of tea cannot formthe component of the nature of the incomeeligible to deduction under section 80HHC. Evenif we accept that part of the income derived fromgrown tea to be treated as trading goods the costof purchase of the trading goods is to bereduced. It is only that part of the income whichforms a component of the business income thatwould be eligible to deduction. The cost ofgrowing tea would be a direct cost deductiblefrom the business of export. The nature of profit contemplated undersection 80HHC(1) is the profit out of thebusiness and the turnover from the business,which by no stretch of imagination could includethe profit derived from agriculture. Theapportionment postulated in rule 8 is to be madebefore deduction under section 80HHC is allowed.In other words, the benefit of deduction undersection 80HHC would be available only on theincome derived from the profit out of thebusiness of export of tea processed andmanufactured and not out of the profit of growingtea which is subject to the Agricultural Income-tax Act outside the scope and purview of theIncome-tax Act. Therefore, sub-section (4B)introduced through an amendment under the FinanceAct, 1999, is clarificatory in nature." (Emphasis supplied) 9.2. In ASSAM CO. LTD. v. STATE OF ASSAM (248 ITR 567)the Apex Court, with reference to computation ofagricultural income under the Income-tax Act for thepurpose of assessment under the provisions of AssamAgricultural Income-tax Act, 1939 and the Rules framedthereunder, held that the agricultural income computed bythe Income-tax Officer under the Income-tax Act is bindingon the State Officer and any rule permitting the StateOfficer to recompute is ultra vires. The relevant portionof the judgment reads as follows:- (Emphasis supplied) 9.2. In ASSAM CO. LTD. v. STATE OF ASSAM (248 ITR 567)the Apex Court, with reference to computation ofagricultural income under the Income-tax Act for thepurpose of assessment under the provisions of AssamAgricultural Income-tax Act, 1939 and the Rules framedthereunder, held that the agricultural income computed bythe Income-tax Officer under the Income-tax Act is bindingon the State Officer and any rule permitting the StateOfficer to recompute is ultra vires. The relevant portionof the judgment reads as follows:- "The object and scheme of the AssamAgricultural Income-tax Act, 1939, do notcontemplate the State tax authorities beingempowered to recompute the agricultural incomecontrary to the computation made by the CentralOfficers, nor do the subjects specified in sub-section (2)(a) to (m) of section 50 provide formaking rules empowering the State Officers tomake computation of agricultural income contraryto what is computed by the Central Officers underthe Central Act. There is no provision in section50 which authorises the State Government to makeany such rules in the nature of the proviso torule 5 of the State Rules. The proviso to rule 5of the Assam Agricultural Income-tax Rules, 1939,to the extent that it empowers the Stateagriculturalincome-taxauthorities,afterexamining the books already examined by theCentral Officers in given cases, to refuse to accept the computation of agricultural incomemade by the Central Officers and to recompute theagricultural income, is ultra vires the State Act. It is always open to the State authoritiesto invoke the jurisdiction of the appellate andrevisional authorities under the Central Income-tax Act and if they succeed in any such attemptthey can always recompute the agricultural incomeas contemplated by section 20D. The proviso tosection 49 is incorporated in the Assam Act onlyfor this limited purpose. The power to make rules under an Act isderived from the enabling provision found in suchAct. Therefore, it is fundamental that a delegateon whom such power is conferred has to act withinthe limits of the authority conferred by the Actand cannot enlarge the scope of the Act. Adelegate cannot override the Act either byexceeding the authority or by making provisionwhich is inconsistent with the Act. Any rule madein exercise of such delegated power has to be inconsonance with the provisions of the Act, and ifthe rule goes beyond what the Act contemplates,the rule becomes in excess of the powerdelegated. If the rule-making authority does anyof the above, the rule becomes ultra vires theAct. While interpreting a particular provision ofa statute, courts should bear in mind the objectand scheme of the entire Act. The particularprovision cannot be considered or interpreted inisolation so as to give room for conflict interse between the provisions of the same Act. Courtsshould also bear in mind that while interpretinga provision of the Act an interpretation leadingto the provision becoming ultra vires should beavoided." (Emphasis supplied) 9.3. Following the decision of the Apex Court in AssamCo. Ltd. Case (248 ITR 567), the Kerala High Court in arecent decision in TATA TEA LTD. v. IAC OF AGR. I.T. (283ITR 275), while dealing with the computation of incomeunder the Income-tax Act and Kerala Agricultural Income-taxAct, 1991, held that the computation of income under theCentral Act cannot be challenged. The relevant portion ofthe judgment reads thus: (Emphasis supplied) 9.3. Following the decision of the Apex Court in AssamCo. Ltd. Case (248 ITR 567), the Kerala High Court in arecent decision in TATA TEA LTD. v. IAC OF AGR. I.T. (283ITR 275), while dealing with the computation of incomeunder the Income-tax Act and Kerala Agricultural Income-taxAct, 1991, held that the computation of income under theCentral Act cannot be challenged. The relevant portion ofthe judgment reads thus: "The State Legislature can impose tax onlyin respect of 60 per cent of the income derivedby the assessee from tea but such income has tobe computed in the manner laid down under the1922 Act and thereafter under the Income-tax Act,1961, for the computation of business income.The State Officers have no jurisdiction to varythe computation made by the Central Officers. Ifthere is any necessity of varying the computationmade by the Central Officers due to any omissionin applying the various provisions of the Income-tax Act, 1961, or any new facts have to bebrought to the knowledge of the Central Officers,the State Officers could bring it to theknowledge of the Central Officers. The StateOfficers cannot tinker with the computationalready made by the Central Officers. Theycannot recompute agricultural income alreadycomputed by the Central Officers. If theauthorities functioning under the AgriculturalIncome-tax Act are of the opinion that theCentral Officers have not made proper assessmentof the agricultural income as required under theCentral Act then it is always open to the StateOfficers to invoke the jurisdiction of theappellate or revisional authorities under ChapterXX(E) of the Central Act and if they succeed intheir attempt they can recompute the agriculturalincome as contemplated in the State Act. Hence,the computation made by the officers functioningunder the Kerala Agricultural Income-tax Act,1991, in respect of the assessment years 1994-95and 1995-96 and other related assessment yearswas bad in law. It was liable to be quashed." (Emphasis supplied) 10. We are therefore of the considered opinion that asfar as computation of income is concerned, the Income-taxOfficer has reached its finality which is binding on theAgricultural Income-tax Officer under Rule 7 of theAgricultural Income-tax Rules, 1955 for the purpose ofagricultural income-tax. 11. On the facts of the case, the Tribunal found thatthe income derived from cultivation and sale of tea is acomposite income consisting of agricultural income andbusiness income and in view of Rule 7 of the AgriculturalIncome-tax Rules, 1955, the apportionment of businessincome and agricultural income at the ratio of 40:60 by the Central Income-tax Officer was final and theagricultural income, viz., 60% of total income, is onlyavailable to the State authorities for levy of agriculturalincome-tax and any deduction allowable under the CentralIncome-tax Act cannot be added back thereby increasing thequantum of income beyond 60%. In our considered opinion,the Tribunal was correct in setting aside the revision ofassessment, holding that deduction allowed in respect of40% of business income cannot be brought to assessment asagricultural income. 12. In this view of the matter, we hold that theAgricultural Income-tax Officer is not empowered to revisethe assessment by recomputing the income, in the light ofamendment to section 80 HHC of the Income-tax Act by theFinance Act, 1999 with retrospective effect from 1992. Accordingly, we dismiss both the revisions answering the questions of law referred to above against the State and infavour of the assessee. No costs.na. Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To 12. In this view of the matter, we hold that theAgricultural Income-tax Officer is not empowered to revisethe assessment by recomputing the income, in the light ofamendment to section 80 HHC of the Income-tax Act by theFinance Act, 1999 with retrospective effect from 1992. Accordingly, we dismiss both the revisions answering the questions of law referred to above against the State and infavour of the assessee. No costs.na. Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To 1. The Agricultural Income-tax Officer, Coonoor.2. The Assistant Commissioner of Agricultural Income-tax, Coimbatore3. The Commissioner of Agricultural Income-tax, Chennai-54. The Registrar, Agricultural Income-tax Appellate Tribunal, Chennai5. The Tamil Nadu Agricultural Income TAx Tribunal Chennai- 104.+ one cc to Mr. K.J. Chandran, Advocate sr no. 26203+ one cc to the Special Government Pleader (T) Sr no. 25614AMB(CO)NM(05.07.2006)