The Savamalai Estates Ltd v. The Agricultural Income-Tax Officer, Pollachi

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 10.07.2009CORAM THE HONOURABLE MR. JUSTICE S.NAGAMUTHU The Savamalai Estates Ltd.,2, Simon Layout,Annamalai Chettiar Road,Coimbatore-641 011.... PetitionerVs. 1. The Agricultural Income-Tax Officer, Pollachi. 2. The Special Commissioner and Commissioner of Agricultural Income-Tax Chepauk, Chennai. 3. State of Tamil Nadu represented by the Secretary to Government, Finance, Fort St. George, Chennai... RespondentsWrit Petition is filed under Article 226 of the Constitution ofIndia to issue a writ of Declaration declaring the provisions of 16A(1) 16A (4) and 16A (5)of the Tamil Nadu Agricultural Income TaxAct, ultravires and invalid.For Petitioner : Ms. Anitha Sumanth Writ Petition is filed under Article 226 of the Constitution ofIndia to issue a writ of Declaration declaring the provisions of 16A(1) 16A (4) and 16A (5)of the Tamil Nadu Agricultural Income TaxAct, ultravires and invalid. For Respondents: Mr.J.Ganesan Spl. Govt. Pleader (Tax) For RR 1 to 3 O R D E RThe vires of Section 16 A (4) and Section 16 A (5) of the Tamil Nadu Agricultural Income Tax Act is under challenge in thiswrit petition. 2.The petitioner is a Company registered under the CompaniesAct and the same is an assesee under the Tamil Nadu AgriculturalIncome Tax Act (hereinafter referred to as 'the Act'). Thepetitioner-Company filed agricultural income tax returns for theassessment year 1994-95 to 1997-98 as per Section 17 (3) of the Act.The said assessment have become final. Subsequently, according tohttps://hcservices.ecourts.gov.in/hcservices/this petitioner, notices were issued by the respondents under Section16 A(4) and Section 16 A(5) of the Act stating that the petitionerhad not remitted the self assessment tax at 80% of the income before 28[th] February of the relevant previous year and accordingly, thepetitioner was liable to pay interest and penalty under the aforesaidprovisions of the Act. The petitioner was called upon to submit hisobjections. Accordingly, objections were submitted. The petitioneralso filed separate petitions for each assessment year for waiver ofpenalty and interest as subsequently the differential amount was alsopaid. Those applications were rejected. Challenging such rejectionorders, the petitioner has filed W.P. Nos.7760 to 7763/2000 which arealso disposed of today by a separate order. 3.In this writ petition, the petitioner challenges Section 16A(4) and Section 16 A(5) on the main ground that Section 16 A isincapable of performance in so far as it gives excess burden on anassessee making him liable to pay agricultural income tax which shallnot be less than 80% of the estimated total Agricultural incomederived by him during the said assessment year. It is further urgedthat under Section 3 of the Act, the Agricultural Income Tax ispayable at the rates specified in Part (1) of the Schedule. Therequirement of the payment of Advance Tax is only to ensure that theassessee does not delay the tax payable by him. The tax so payableas advance tax should have a reasonable nexus to the tax actuallypayable. According to the petitioner, this basic concept iscontravened in Section 16 A(1) by the prescription of anextraordinary rate of tax rendering the provision as bad in law. Hefurther contended that there is no reasonable nexus to the object ofthe ingredient and Section 16 A(1) imposes a burden far beyond whatis reasonably required to enforce the provisions of the Act and thusthe provisions are ultra vires. 4.No counter has been filed by the respondents. 5.I have heard the learned senior counsel appearing for thepetitioner and the learned Standing Counsel appearing for therespondents and perused the records carefully. 6.The Agricultural Income Tax under the Act means, the taxpayable as per Section 3 of the Act. Section 3 (1) of the Act readsas follows: 4.No counter has been filed by the respondents. 5.I have heard the learned senior counsel appearing for thepetitioner and the learned Standing Counsel appearing for therespondents and perused the records carefully. 6.The Agricultural Income Tax under the Act means, the taxpayable as per Section 3 of the Act. Section 3 (1) of the Act readsas follows: (1)Agricultural Income-tax at the rate of ratesspecified in Part I of the Schedule to this Act shall becharged for each financial yea commencing from the 1[st] April1955, in accordance with and subject to the provisions ofthis Act, on the total agricultural income of the previousyear of every person. (Provided further that the agricultural income or anypart of it derived from land in the added territory shallbe subject to assessment of agricultural income tax onlyhttps://hcservices.ecourts.gov.in/hcservices/from the financial year commencing from the 1[st] April 1961) ((1-A)Notwithstanding anything contained in thisAct, agricultural income tax at the rate or rates specifiedin Part I of the Schedule to this Act as amended by theTamil Nadu Agricultural Income Tax Act, 1971, shall becharged for each financial commencing from the 1[st] April1972, in accordance with and a subject to the provisions ofthis Act, on the total agricultural income of every personof the previous year immediately proceeding the said date.) ((1-B)Notwithstanding anything contained in thisAct, agricultural income tax at the rate or rates specifiedin Part I of the Schedule to this Act as amended by theTamil Nadu Agricultural Income Tax (Amendment) Act, 1991,shall be charged for each financial year commencing fromthe 1[st] day of April 1992 in accordance with and subject tothe provisions of this Act on the total agricultural incomeof every person of the previous year immediately proceedingthe said date.")" Rates of Agricultural Income Tax: exceeds Rs.28,000/- but does notexceed Rs.30,000/- which the total agricultural income exceeds Rs.28,000 Where the total agricultural Rs.400/- plus 30 per cent ofincome exceeds Rs.30,000/- the amount which the totalbut does not exceed Rs.50,000 agricultural income exceeds Rs.30,000/- Where the total agricultural income exceeds Rs.50,000/-but does not exceedRs.1,00,000/- of the amount by which the total agricultural income exceeds Rs.50,000/- Where the total agriculturalhttps://hcservices.ecourts.gov.in/hcservices/income exceeds 1,00,000 Rs.26,400 plus 50 per cent of the amount by which the total agricultural income exceeds Rs.1,00,000/- Provided that the agricultural income tax payable shall notexceed the aggregate of- Provided that the agricultural income-tax payable shall notexceed the aggregate of- a.the agricultural income tax which would have beenpayable by the company if its total agricultural income had beenRs.1,00,000; and Provided that the agricultural income-tax payable shall notexceed the aggregate of- a.the agricultural income tax which would have beenpayable by the company if its total agricultural income had beenRs.3,00,000; and https://hcservices.ecourts.gov.in/hcservices/b.80 percent of the amount by which the totalagricultural income exceeds Rs.3,00,000. E.Where the total agricultural65 per cent of the totalincome exceeds Rs.10,00,000agricultural income. Provided that the agricultural income tax payable shall notexceed the aggregate of- a.the agricultural Income Tax which would have beenpayable by the company if its total agricultural income had beenRs.10,00,000; and b.80 percent of the amount by which the totalagricultural income exceeds Rs.10,00,000/-" Provided that the agricultural income-tax payable shall notexceed the aggregate of- a.the agricultural income tax which would have beenpayable by the company if its total agricultural income had beenRs.3,00,000; and https://hcservices.ecourts.gov.in/hcservices/b.80 percent of the amount by which the totalagricultural income exceeds Rs.3,00,000. E.Where the total agricultural65 per cent of the totalincome exceeds Rs.10,00,000agricultural income. Provided that the agricultural income tax payable shall notexceed the aggregate of- a.the agricultural Income Tax which would have beenpayable by the company if its total agricultural income had beenRs.10,00,000; and b.80 percent of the amount by which the totalagricultural income exceeds Rs.10,00,000/-" 8.The learned Senior counsel would take me through theentire Part-I of the Schedule to say that the maximum tax anindividual would be liable to pay as Agricultural Income Taxshall not exceed 49.99%. Insofar as a company is concerned, asprovided in Clause (e) of Part-I of the Schedule, the maximumamount of Agricultural Income Tax payable shall be only 65%. Nowhere there is any provision in the Schedule making either anindividual or a Company to pay Agricultural Income Tax to thetune of 80% of the total Agricultural Income during theassessment year. The contention of the learned senior counselthat when the maximum liability in so far as an individual isconcerned does not exceed 49.99% and in respect of a Company,does not exceed 65%, it is highly unreasonable and withoutjurisdiction to demand 80% of the income as advance tax. Thelearned senior counsel would also point out that if there is anydelay in paying the said amount under Section 16 A(4), theindividual / Company is liable to pay interest and under Section16 A(5) the individual / Company is liable to pay penalty. Thelearned counsel further pointed out that at the same time, incase the department repays the excess amount collected to theindividual/Company, it does not carry any interest or penalty.Relying on the above position, the learned senior counselsubmitted that there is likelihood of the department keepingaround 30% of the income of an individual and 15% of the incomeof a Company collected towards Advance Tax for any number ofyears and repay the same without interest. This is highlyunreasonable and would cause unnecessary hardship to theassessee. The learned senior counsel submitted that Section 16Awas introduced by means of amendment as per Tamil Nadu Act 40 of1988, but, Part-I of the Schedule was not duly amended.Therefore, according to the learned senior counsel, the entireprovisions contained in Sections 16 A(1), Section 16 A(4) andSection 16 A(5) are liable to be struck down. 9.The learned standing counsel for the respondents wouldstoutly oppose the petition. According to him, the power of thisCourt to strike down a taxation provision is very limited. He wouldrely on the judgment of the Honourable Supreme Court of India in Rajahttps://hcservices.ecourts.gov.in/hcservices/Jagannath Baksh Singh Vs. State of Uttar Pradesh and another reportedin (1962) 46 ITR 169 wherein the Honourable Supreme Court haslaid 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 legislationimposing a tax can be challenged not only on the ground oflack or absence of legislative competence, but also on theground that the impugned legislation violates thefundamental rights guaranteed by Part III of theConstitution. questioning the validity of the tax law. "It is now settled law that the validity of legislationimposing a tax can be challenged not only on the ground oflack or absence of legislative competence, but also on theground that the impugned legislation violates thefundamental rights guaranteed by Part III of theConstitution. A taxing statue can be held to contravene article I4if it purports to impose on the same class of propertysimilarly situated an incidence of taxation, which leads toobvious inequality. It is for the legislature to decide onwhat objects to levy tax and at what rates and it is notfor the courts to consider whether some other objectsshould have been taxed or whether a different rate shouldhave been prescribed for the tax. Article 3I(2) would be inapplicable to a taxingstatute because the taxing statute does not purport toacquire or requisition any property. The imposition of thetax levied by the statute may be excessive and mayultimately lead to the loss of the assessee's property, buteven then, it cannot be said that by virtue of the Act, theproperty has been acquired or requisitioned. Though the validity of a taxing statute cannot bechallenged merely on the ground that it imposes anunreasonably high burden, it does not follow that a taxingstatute cannot be challenged on the ground that it is acolorable piece of legislation and as such, is a fraud onthe legislation power conferred on the legislature inquestion. But such a challenge cannot succeed by merelyshowing that the tax levied is unreasonably high orexcessive; other relevant circumstances which justify theconclusion that the statute is colorable, and as such,amounts to a fraud, must also be proved.” 10. Relying on the above, the learned counsel submits that sincethe case of the petitioner does not fall under any of thesepropositions, the writ petition is liable to be dismissed. Hefurther tried to explain that there is no unreasonableness in Section16 A(1) as, after all the assessee is required to pay Advance Tax onthe basis of his own estimation and later on, on the basis of thefinal assessment if any amount has been collected in excess, it isrefunded to the assessee and thus, there is no extra burden on theassessee. Therefore, according to the learned counsel for thepetitioner, the impugned provisions are not ultra vires theconstitutional provisions. Therefore, the writ petition is liable tobe dismissed. 10. Relying on the above, the learned counsel submits that sincethe case of the petitioner does not fall under any of thesepropositions, the writ petition is liable to be dismissed. Hefurther tried to explain that there is no unreasonableness in Section16 A(1) as, after all the assessee is required to pay Advance Tax onthe basis of his own estimation and later on, on the basis of thefinal assessment if any amount has been collected in excess, it isrefunded to the assessee and thus, there is no extra burden on theassessee. Therefore, according to the learned counsel for thepetitioner, the impugned provisions are not ultra vires theconstitutional provisions. Therefore, the writ petition is liable tobe dismissed. 12.A close reading of Part-I of the Schedule would make thingsmanifestly clear that the maximum amount of tax an individualassessee has to pay does not exceed 49.99% whereas in the case of aCompany, the same does not exceed 65% of the total Agriculturalincome (vide Clause 1 and Clause 2 (e) of the Part I of theSchedule). This is under the charging provision, namely, Section 3of the Act. The purpose of compelling an assessee to pay Advance Taxis to see that he does not escape from the payment of tax afterappropriating the entire income at a later point of time. In anyevent, in my considered opinion, the Advance Tax shall only be a partof the actual tax to be paid at a later point of time and the sameshall not exceed the same. In the case on hand, as rightly pointedout by the learned senior counsel, as per Section 16 A (1) of theAct, an individual assessee is required to pay 80% of his totalagricultural income towards Advance Tax which means more than 30% ofhis agricultural income is collected in excess as Advance Tax.Similarly, in a case of a Company, it is required to pay 15% or moreof the total agricultural income in excess towards Advance Tax. Ofcourse, such amount paid in excess is refundable by the departmentunder Section 44 of the Act. A close reading of Section 44 wouldgo to show that there is no provision for payment of interest to theassessee for the said amount. As pointed out by the learned seniorcounsel, if there is a failure on the part of the assessee to payAdvance Tax, he is liable to be charged with penalty as well asinterest for the said amount. Thus, the possibility of the departmentkeeping the excess amount paid by the assessee without refunding thesame for quite sometime also cannot be ruled out. Thus, in myconsidered opinion, making an assessee to pay advance tax more thanthe actual tax would certainly be an additional burden which isunreasonable and highly arbitrary. On these grounds, in my concernedopinion, Section 16 A (1) is liable to be struck down. Theproposition contained in Clause-7 as enumerated in the judgment ofthe Honourable Supreme Court squarely applies to the facts of thepresent case. As stated by the Honourable Supreme Court, Section 16A(1) imposes an unreasonable high burden on the assessee in as muchas it directs the assessee to pay advance tax which is more than theactual tax to be paid on the final assessment being made, and so,Section 16 A (1) needs to be read down. 13.Section 16 A (1) is to be read down to mean that theadvance tax payable is restricted to an amount which does not exceedthe tax payable under the charging provision, namely, under Section 3of the Act. In my considered opinion, instead of striking downSection 16 A as a whole going by the object sought to be achieved bythe Act, I have to say that Section 16 A is to be read down to saythat the Advance Tax payable shall be 80% of the "estimated totalagricultural income tax" and not "80% of the estimated totalagricultural income." 13.Section 16 A (1) is to be read down to mean that theadvance tax payable is restricted to an amount which does not exceedthe tax payable under the charging provision, namely, under Section 3of the Act. In my considered opinion, instead of striking downSection 16 A as a whole going by the object sought to be achieved bythe Act, I have to say that Section 16 A is to be read down to saythat the Advance Tax payable shall be 80% of the "estimated totalagricultural income tax" and not "80% of the estimated totalagricultural income." 14.Insofar as Section 16 A (4) and Section 16 A (5) areconcerned, they cannot be struck down, if they are read along withhttps://hcservices.ecourts.gov.in/hcservices/Section 16 A(1), the way in which they have been directed to be readdown. 15.In the result, the Writ Petition is partly alloweddeclaring that Section 16 A shall be read down to the effect that theAdvance Tax to be payable shall be 80% of the "estimated totalagricultural income tax" and not 80% of the "estimated totalagricultural income" borne by him during the said previous year. Nocosts. Sd/- Asst.Registrar/true copy/ Sub Asst.Registrarva/tsiTo1. The Agricultural Income-Tax Officer, Pollachi.2. The Special Commissioner and Commissioner of Agricultural Income-Tax Chepauk, Chennai.3. The Secretary to Government, State of Tamil Nadu, Finance, Fort St.George, Chennai.+1 cc to Dr.Anita Sumanth, Advocate, SR.No.303981 cc To The Government Pleader, (Taxes)SR.30282 W.P.No.7764 of 2000SV {CO}TP/9.9.2009.