Case: Karimtharuvi Tea Estates Limited, Kottayam &amp; Another Vs. State of Kerala &amp; Others

2. The Karimtharuvi Tea Estates Ltd., Kottayam, Petitioner No. 1, hereinafter called the petitioner, are the owners and managers of the Karimtharuvi and the Penshurst Tea Estates situate at Peermade in Kerala State. The AgriculturalAct, 1950 (originally theax Act XXII of 1950 amended as the AgriculturalAct 1950 by Act VII of 1957 of the Kerala Legislature), hereinafter called the AgriculturalAct, has been in force in the State of Kerala during the assessment years61 for which the accounting years of the petitioner were 1957, 1958, 1959 ending on December 31 of each year. The petitioner was assessed to agriculturalunder the provisions of the AgriculturalAct during those years. The grievance of the petitioner is that in commuting the taxable income in the accounting years for the purpose of assessment of tax under the AgriculturalAct, the assessing authority did not allow deduction of the expenses incurred by it in the upkeep and maintenance of immature tea plants from which no agricultural income had been derived during those years, though such expenses were deducted by theDepartment in connection with the assessment ofwith respect to theportion of the income from the petitioners tea estate in those years. The petitioner filed appeals against the three assessment orders dated August 12, 1960 for assessment years60 and dated October 11, 1960 for assessment yearbefore the Deputy Commissioner of AgriculturalQuilon. Those appeals are still pending.3. On March 30, 1961, the Agricultural(Amendment) Act, 1961, received the assent of the Governor of the State of Kerala.(2) of S. 1 provides that this Act would be deemed to have come into force with effect on and from April 1,1951. Section 2 provides for the addition of Explanation 2 to S. 5 of the AgriculturalAct, 1950. This Explanation readscontained in this section shall be deemed to entitle a person deriving agricultural income to deduction of any expenditure laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income has been derived during the previous year."

Court's reasoning:
This definition practically conforms to the definition of agricultural income in(a) and (b) of cl. (1) of S. 2 of theAct. The Explanation added in the definition of agricultural income in the AgriculturalAct in substance adopts what has been provided in rule 24 of theRules about the proportion of agricultural income from tea plantations. It follows therefore that agricultural income from tea plantations is to be computed in the same manner as it is computed under the provisions of theAct.10. Sec. 5 of the AgriculturalAct provides for certain deductions to be made in the computation of the agricultural income of person and its cl. (j) provides for the deduction of any expenditure not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively for the purpose of deriving the agricultural income. This clause corresponds to cl. (xv) of(2) of S. 10 of theAct. The proviso at the end of the various clauses of S. 5 states that no deduction shall be made under that section if it has already been made in the assessment under theAct. This avoids a double deduction.11. Now Explanation 2 added to S. 5 by the Amendment Act takes away the advantage of the provisions of cl. (j) of S. 5with respect to theexpenses incurred in the upkeep and maintenance of immature plants from which no agricultural income has been derived during the accounting year. We are not concerned in this case with the validity of this provision so far as agricultural income from land in which crops other than tea are raised. Here we are concerned with its validity with respect to its application to the income from tea plantations. Explanation 2 in tit 5 of the AgriculturalAct is obviously not consistent with the Explanation to(2) of cl. (a) of S. 2 of the Agricultural Income tax Act and also the rule for computing agricultural income made under theAct and result in making the agricultural income from tea plantations for the purpose of the AgriculturalAct to be different and higher than such agricultural income when calculated in accordance with the provisions of theAct and rule 24.The different provisions of an Act are to be construed in such manner as to make them harmonious. Explanation 2 to S. 5 should be so construed as makes it harmonious with Explanation to(2) of cl. (a) of S. 2 of the AgriculturalAct which provides a special definition for agricultural income for tea plantations; such income being that portion of the income derived from land by the cultivation manufacture and sale of tea as is defined to toe agricultural income for the purposes of the enactments relating to IndianExplanation 2, if applied to income from tea, would create an agricultural income which is not contemplated by theAct and the Constitution and would then be void. Though wide in terms Explanation 2 to S. 5 should therefore be construed not to apply to the computation of agricultural income derived from land by the cultivation of tea. Such a construction would made it harmonious with the Explanation to(2) of cl. (a) of S. 2 of the AgriculturalAct.12. It is true, as urged for respondents that the State Legislature has full freedom to enact such provisions as it considers fit in respect of tax on agricultural income and that such power includes the power to enact for matters subsidiary and incidental to the taxation of agricultural income. We also agree that the State Legislature is free to provide the method of computation of the taxable agricultural income and is free to allow any particular deductions from the gross income as it considers fit. It is not disputed for the respondent that the power of the State Legislature to enact a law in respect of agricultural income relates only to such agricultural income as is defined in Art. 366 of the Constitution.13. It is however urged that for the purpose of this definition, one has to look to the definition of Agricultural income in theAct and not to the rules made thereunder. We do not agree. Agricultural income as defined in the Constitution means agricultural income for the purpose of the enactments relating toOne such enactment is theAct. Rule 24 of theRules has been made under the powers conferred by S. 59 of theAct and has effect as if enacted in that Act. When S. 59 of theAct provides for the rules made under that Act to prescribe the proportions of income from business, and income from agriculture in the entire income derived in part from agriculture and in part from business, the proportion so prescribed must be taken to be prescribed by the Act. These rule were in existence in 1950 when the Constitution incorporated the definition of agricultural income from theAct by reference. The definition of the term was bound up with the rules.14. It has been further submitted for the respondents that cl. (xv) of(2) of S. 10 of theAct is a general provision and should give way to the special provision of the agriculturalwith respect to thedeductions from the gross income for the purpose of computing the agricultural income. This cannot be, as we have to take the definition of agricultural income from what it is in theAct. The provisions of theAct and the rules made thereunder will control the provisions of the AgriculturalAct enacted by a Statewe do not agree. The proviso allows the deductions of the cost of planting bushes in replacement of bushes which died or became permanently useless in an area already planted. It deals with the cost of planting bushes and not with the expenses incurred in the upkeep and maintenance of bushes already planted. These petitions are notwith respect to theexpenses incurred in the planting of immature tea bushes but are with respect to expenses incurred in the upkeep and maintenance of immature plants.17. We therefore construe Explanation 2 to S. 5 of the AgriculturalAct not to extend to the computation of agricultural income derived from tea plantations and hold that in computing such agricultural income for the purpose of taxation under the AgriculturalAct, the explanation to S. 2 of that Act must be kept in mind and the income must be taken to be as defined for the purposes of the enactments relating to IndianIn view of our opinion it is not necessary to consider the other contention for the petitioner that Explanation 2 to S. 5 is discriminatory and contravenes the provisions of Art. 14 of the Constitution.19. We therefore allow these petitions to this extent that we declare that Explanation 2 to S. 5 of the AgriculturalAct added by the Amendment Act does not cover the expenses incurred in the upkeep or maintenance of immature tea plants from which no income has been derived during an accounting year and that the agricultural income derived from tea plantation will be computed in accordance with the provisions of theAct and theRules. We order that a writ be issued to the respondents restraining them, their agents and servants from enforcing or acting upon the provisions of Explanation 2 to S. 5 of the AgriculturalAct against the Karimtharuvi Tea Estates Ltd., Kottayam, viz., petitioner No. 1. We direct the respondents to pay the costs of petitioner No.1, one set.