SUPREME COURT OF INDIA

Union of India

v

Belgachi Tea Co. Ltd.

ASHOK BHAN AND DALVEER BHANDARI, JJ.

Civil Appeal Nos. 8283 to 8285 of 2002

May 9, 2008

Section 28(i) of the Income-tax Act, 1961, read with rule 8 of the Income-tax Rules, 1962 and section 8(1A) of the Bengal Agricultural Income-tax Act, 1944 - Business Income- Chargeable as - Whether income from ‘tea grown and manufactured’ business shall be computed in accordance with provisions of 1961 Act by Assessing Officer under 1961 Act and 40 per cent of that income is taxable under 1961 Act and 60 per cent income is taxable under 1944 Act by State treating it as income from agriculture - Held, yes

FACTS

The assessee was a public limited company carrying on the composite business of growing and manufacturing tea. The assessee company sold the tea grown and manufactured in its tea gardens. The income from dale of business tea leaves and manufactured tea had been assessed all along under the provisions of the 1961 Act. The claim of the assessee was that the entire income should be assessed under the provisions of the 1961 Act and after the income was assessed, the tax should be charged on 40 per cent of such income under the 1961 Act and on the balance 60 per cent, the State would tax under the 1944 Act. The assessee submitted that in view of the scheme of the 1961 Act read with rule 8 of the Income-tax Rules, 1962, the income derived from the sale of the tea grown and manufactured by a seller in India should be computed under the provisions of the Act by the Assessing Officer on the basis of aforementioned formula. On writ, the Single Judge disposed of the same in terms of the judgment of the Supreme Court in Tata tea Ltd. v. State of West Bengal 1988 (Supp) SCC 316 wherein the Court directed that after assessment, the Assessing Officer can levy the tax on 40 per cent of the income in accordance with the provisions of the 1961 Act and balance amount may be assessed by Agricultural Income-tax Officer to tax under the 1944 Act and that if any assessment order had already been passed contrary to the aforesaid directions, such order must stand quashed and a fresh assessment order should be passed in accordance with law.

On appeal, the assessee submitted that the sale proceeds of green tea leaves be treated incidental to business and its income should be computed under the provisions of the 1961 Act. However, the revenue was of the view that the income from sale of green tea leaves was taxable as income from agriculture under the Bengal Agricultural Income-tax Act, 1944. The Division Bench, in the impugned judgment, after hearing the parties, while relying on the case Tata Tea Ltd. (supra) held that the income from ‘tea grown and manufactured’ would be assessed by the Assessing Officer under the 1961 Act. The Income assessed 40 per cent would be taxed under the 1961 Act and balance 60 per cent should be taxed under the 1944 Act by Agricultural Income-tax Officer on the basis of income assessed by the Assessing Officer under the 1961 Act and the income derived from sale of green tea leaves is agricultural income and assessable under the 1944 Act.

On appeal to the Supreme Court:

HELD

There was no dispute on the fact that from the income assessed, 60 per cent is taxable by the State under the 1944 Act and 40 per cent is taxable by the Centre under the 1961 Act. [Para 11]

The object behind taxing the 60 per cent and 40 per cent share of the income assessed appeared to be that there are common expenses on establishment and staff for two different activities that is tea grown and tea manufactured. There can be independent income from sale of green tea leaves and by sale of tea, that is, after processing of green tea leaves when green tea leaves become tea for use. Income from agriculture is taxable by the State and sale of tea after manufacturing is taxable by the Union of India as business income. To segregate income and expenses from two combined activities of assessee is not possible, but at the same time there cannot be two assessments of income by two different authorities. Therefore, there can be only one assessment of income from the tea business. [Para 12]

The sub-section (1A) which has been inserted to section 8 of 1944 Act with retrospective effect also provides that income from `tea grown and manufactured' shall be assessed under the provisions of 1961 Act and the income assessed also includes agricultural income which is taxable by the State. [Para 13]

Section 8(3) of the 1944 Act further provides that for the purpose of assessment of agricultural income tax a certified copy of an order of the assessment made under the 1961 Act shall be conclusive evidence of the contents of such order. [Para 14]

For the purpose of tax on agricultural income, the Agricultural Income-tax Officer will go by the assessment order made under the provisions of the 1961 Act and the contents of the assessment for the year made by the Assessing Officer under the 1961 Act shall be conclusive evidence of the contents of such order and he has to go by the assessment and tax only 60 per cent income made under the assessment for the purpose of the 1944 Act. If there is any apparent mistake in the order of the ITO, he can bring it to the notice of ITO and that can be rectified by the ITO but no separate assessment of the income from `tea grown and manufactured' business can be made by the Agricultural Income-tax Officer under the 1944 Act. He cannot once again assess for that business income under the 1944 Act. [Para 15]

The combined reading of rule 8 of the Income-tax Rules, 1962 and section 8 of the 1944 Act and its amendment by insertion of sub-section (1A) in section 8 of the 1944 Act left no doubt that the income from `tea grown and manufactured' business, shall be computed in accordance with provisions of the 1961 Act by the Assessing Officer under the 1961 Act and 40 per cent of the income is taxable under the 1961 Act and 60 per cent income is taxable under the 1944 Act by the State treating it as income from agriculture. [Para 16]

According to the assessee, agricultural income derived from the sale of green tea leaves is incidental income from the business of the assessee and cannot be taxed separately by the 1944 Act. [Para 17]

There was no dispute that agricultural income of the assessee was taxable under the 1944 Act. [Para 18]

It is true that both rule 8 of the Income-tax Rules, 1962 and section 8 of the 1944 Act provide how the mixed income from the growing tea leaves and tea manufacturing can be taxed. Mixed income means the income derived by an assessee from the combined activities, i.e., growing of tea leaves and manufacturing of tea. Therefore, for the purpose of computation of income under the 1961 Act, it should be the mixed income from `tea grown and manufactured' by the assessee. [Para 19]

If the income is by sale of green tea leaves by the assessee it cannot be called income assessable under the 1961 Act for the purpose of 40:60 share between the centre and the State. In both the provisions, i.e., rule 8 of the Income-tax Rules, 1962 and section 8 of the 1944 Act, the word used is income derived from the sale of `tea grown and manufactured'. [Para 20]

The income from sale of green tea leaves is purely income from the agricultural product. There is no question of taxing it as incidental income of the assessee when there is a specific provision and authority to tax that income, i.e., the State, under the 1944 Act. Thus, the agricultural income cannot be taxed under 1961 Act. [Para 21]

It was also pertinent to mention that the Assessing Officer had assessed the income of tea manufactured by the assessee from 1977-78 to 1980-81 of a very low amount as compared to the assessee from the sale of green tea leaves. In that view of the matter, the income of the assessee from the sale of tea leaves could never be incidental to business. [Para 22]

In the instant case the assessee could process only 10 per cent of green tea leaves and 90 per cent of green tea leaves could be sold directly in the market. That income from sale of green tea leaves could not be treated incidental to the business. [Para 23]

In case the assessee directly sold the green tea leaves resulting into an income from agricultural products, it could not be taken as incidental income to the business and whatever the income was derived from the sale of the green tea leaves could be assessed by the Agricultural Income-tax Officer under the 1944 Act. [Para 24]

The conclusion arrived at by the Division Bench of the High Court was in consonance with the judgement of the Supreme Court in Tata Tea Ltd. case (supra). [ Para 28]

The view which had been taken by the Division Bench of the High Court in the impugned judgment was to be upheld. [Para 29]

The Assessing Officer was to be directed to frame an assessment order in the case of the assessee on the principle of law laid down by the Supreme Court in the case of Tata Tea (supra) and followed by the Division Bench of the High Court in the impugned judgment. [Para 30]

CASE REVIEW:

Decision of Division Bench of the High Court of Calcutta affirmed.

Tata Tea Ltd. v. State of West Bengal 1988 (Supp) SCC 316 followed. [Para 30]