Case: State of Tamil Nadu Vs. Kannan Devan Mills Produce Co. Ltd

1. These appeals from a common order of the High Court of Madras are by certificate. The assessee, who is the respondent is a limited company carrying on business of tea planting. It owns several tea estates in the States of Tamil Nadu, Kerala and Assam. Its head office is in Munnar in the State of Kerala. One of the tea estates owned by the assessee is called Chittavurai Tea Estate and comprises 1043 acres of tea plantations. Out of this an area of 1006.60 acres is situate in Kerala and the remaining 36.40 acres, in Tamil Nadu. According to the assessee Chittavurai Estate is working as one unit. There is only one factory manufacturing tea grown in the Madras and Kerala portion of the estate. The expenses are incurred for the maintenance of the whole estate as one unit and common accounts are maintained for it, there being no separate account for the Madras portion.These appeals from a common order of the High Court of Madras are by certificate. The assessee, who is the respondent is a limited company carrying on business of tea planting. It owns several tea estates in the States of Tamil Nadu, Kerala and Assam. Its head office is in Munnar in the State of Kerala. One of the tea estates owned by the assessee is called Chittavurai Tea Estate and comprises 1043 acres of tea plantations. Out of this an area of 1006.60 acres is situate in Kerala and the remaining 36.40 acres, in Tamil Nadu. According to the assessee Chittavurai Estate is working as one unit. There is only one factory manufacturing tea grown in the Madras and Kerala portion of the estate. The expenses are incurred for the maintenance of the whole estate as one unit and common accounts are maintained for it, there being no separate account for the Madras portion.Section 2(1) of the IndianAct, 1922 hereinafter called theAct defines agricultural income. The same definition is to be found in Section 2 of the Madras AgriculturalAct, Madras AgriculturalAct, 1955, hereinafter referred to as "AgriculturalAct." Under Section 59 of theAct the Central Government can make rules to prescribe the manner and the procedure by which the income, profits and gains shall be arrived at in the case of such concerns as carry on business in part as also agriculture in part. Under Section 59 of theAct Rule 54 was framed by the Central Government. That rule provides that income derived from the sale of tea grown and manufactured by the seller in the taxable territories shall be computed as if it were income derived from business and 40% of such income shall be deemed to be income profits and gains liable to tax. It is thus clear that the remaining 60% of the income will be deemed to be agricultural income.3. For the three assessment years59 the AgriculturalOfficer computed the agricultural income in accordance with the assessment made by the CentralOfficer. He took 60% of the income computed by the latter for the purpose of computation of the agricultural income. For the assessment yeartax Officer felt that so far as Chittavurai Estate was concerned the computation had to be made differently because the area of 36.40 acres was situated in the State of Madras. He made a different computation for the purpose of calculating the income under theAct and then assessed 60% of that income as agricultural income accruing in Madras. The Assistant Commissioner of Agriculturalupheld his order. The Tribunal, however, set aside the assessment. It remanded the case to the Assistant Commissioner for certain matters. The department further sought to reassess the assessee for the earlier three years also and issued a notice under Section 35 of the AgriculturalAct. Thereupon the assessee filed writ petitions in the High Court challenging the order for reopening the assessment for the assessment years9. A tax Revision was also filed against the order of the AgriculturalAppellate Tribunal in respect of the assessment for the yearThe writ petition and the Revision were allowed by the High Court. The order reopening the assessments was quashed and as regards assessment for the yeartax Officer was directed to make a revised assessment on the basis of the CentralOfficers computation which in the circumstances of the case was considered to be the proper basis for assessment of the agricultural

Reasoning:
The High Court rightly pointed out that R. 7 is applicable only to agricultural income from tea grown and manufactured in the State of Madras. It can have no applicability in the present case where even though tea is grown inside that State but it is manufactured in Kerala which is outside that State. As regards R. 8 it is a moot point whether the same would be applicable to tea. So far as tea is concerned the tea leaves alone can be the produce but as such they have no value. They become valuable only after they are subjected to a special process from which emerge various brands of tea. Rule 7 has specifically been framed for computation of income from tea. therefore, Rule 8 can have no applicability particularly when the language employed in it cannot cover the case of tea. We are unable to see how these two rules can be of any avail or assistance to the Agricultural Income-tax Officer in the present case. It must be remembered that Chittavurai Estate being of tea falls in a special class. It is only a very small area of that estate which is in Madras even though that is more fertile and gives much more yield than the area in kerala. But the unit has to be assessed as a whole and the High Court, in our opinion, rightly thought that the rule that the Agricultural Income-tax Officer should accept the computation of the Central Income-tax Officer furnishes the only satisfactory basis for computation of agricultural income-tax in respect of Chittavurai Estate. It is noteworthy that even in the first proviso to Rule 7 the Agricultural Income-tax Officer has been enjoined to ordinarily accept the computation made but the Central Income-tax Officer.Moreover the High Court which went into the facts and figures of the various assessments came to the conclusion that the Agricultural Income-tax Officer had not given sufficient reasons for not accepting the Central Income-tax Officers computation. That Court, therefore, declined to give a finding on the question whether the Central Income-tax Officers computation should be held to be legally binding in all cases and in all circumstances on the Agricultural Income-tax Officer. Our attention has been invited on behalf of the assessee to a decision of this Court in Anglo American Direct Tea Trading Co. Ltd. v. Commr. of Agricultural Income-tax Kerala, 69 ITR 667  = (AIR 1968 SC 1213 ). In that case it was held that agricultural income taxable under the Kerala Agricultural Income-tax Act 1950 was 60% of the income computed under the Income-tax Act after deducting therefrom the allowances authorised by Section 5 of the Kerala Act insofar as the same had not been allowed in the assessment under the Income-tax Act. There was no provision in the Kerala Act or the Rules authorising the Agricultural Income-tax Officer to disregard the computation of the tea income made under the Income-tax Act. If, therefore, an assessment had been made by the Central Income-tax Officer before the assessment of income by the Agricultural Income-tax Officer the latter was bound to accept the computation of the Income made by the Central Income-tax authorities.The principle which has been applied in the present case by the High Court is on the same lines and it is unnecessary for us to express any opinion on the question whether in every case the Agricultural Income-tax Officer is bound to accept the computation made by the Central Income-tax authorities and only allow additional deductions which may be permissible under the Agricultural Income-taxax Officer had taken the view that the Kerala area of the Chittavurai Estate yielded only 656 lbs. of tea per acre while the yield of the Madras portion was 799 lbs. per acre. According to him apportionment of expenditure by treating the whole of Chittavurai Estate as one unit had resulted in a loss for the Madras portion and a profit for the Kerala portion. As pointed out by the High Court the computation by the CentralOfficer showed a loss for the entire Chittavurai Estate. It is not necessary to go into details of how the computation was made by the AgriculturalOfficer. The net result, however, was that whereas the CentralOfficer had worked out the loss for the purpose of theAct treating the Chittavurai Estate as one unit, the AgriculturalOfficer took the valuation of the produce from the Madras portion as the gross receipt. He deducted from it the expenditure allowed by the CentralOfficer and recalculated it from the Madras portion on the basis of acreage. That led to a profit from the Madras portion.