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Devon Tea and Produce Co. Ltd. Vs. Agricultural Income-tax Officer, Bangalore - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberWrit Petition No. 205 of 1967
Judge
Reported in[1971]79ITR730(KAR); [1971]79ITR730(Karn)
ActsMysore Agricultral Income Tax Act, 1957 - Sections 2(1), 3, 4 and 69; Mysore Agricultral Income Tax (Amendment) Act, 1962 - Sections 2
AppellantDevon Tea and Produce Co. Ltd.
RespondentAgricultural Income-tax Officer, Bangalore
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateS.R. Rajashekhara Murthy, Govt. Pleader
Excerpt:
.....schedule of the act, i.e., on structured formula, having regard to the age of the victim and his income. the award made under the said provision shall be in full and final settlement of the claim. the note appended to column 1 from the total amount of compensation, 1/3rd thereof, has to be reduced in consideration of the expenses, which the victim would have incurred, towards maintaining himself had he been alive. further, section 163-a read with schedule ii of the act, itself having provided the percentage of deduction to be effected, the deduction can be in terms thereof only and not otherwise. award is justified. - with respect to the matters on which the state is competent to legislate under article 246 of the constitution read with schedule vii, its legislate prospectively as..........the new state of mysore formed on november 1, 1956, under the state reorganisation act, 1956. the mysore agricultural income-tax act, 1955, was in force in the territories of the former state of mysore and the petitioner was an assessee under the said act. 2. the legislature of the new state of mysore enacted the mysore agricultural income-tax act, 1957 (mysore act no. xxii of 1957) (herein after called 'the act'), and it came into force on the first day of october, 1957. as the preamble of the act shows, it was enacted to consolidate and amend the laws providing for the levy of a tax on the agricultural income from lands used for growing commercial crops in the state of mysore. the agricultural income-tax acts in force in the different areas integrated in the new state of mysore were.....
Judgment:

Govinda Bhat, J.

1. The petitioner is a public limited company which owns plantations in the area of the farmer State of Mysore. The territories comprised in the former State of Mysore were integrated in the new State of Mysore formed on November 1, 1956, under the State Reorganisation Act, 1956. The Mysore Agricultural Income-tax Act, 1955, was in force in the territories of the former State of Mysore and the petitioner was an assessee under the said Act.

2. The legislature of the new State of Mysore enacted the Mysore Agricultural Income-tax Act, 1957 (Mysore Act No. XXII of 1957) (herein after called 'the Act'), and it came into force on the first day of October, 1957. As the preamble of the Act shows, it was enacted to consolidate and amend the laws providing for the levy of a tax on the agricultural income from lands used for growing commercial crops in the State of Mysore. The Agricultural Income-tax Acts in force in the different areas integrated in the new State of Mysore were repealed by section 69 of the Act; the repeal however saved the previous operation of the repealed enactments. Section 3 of the Act, which is the charging section, charged agricultural income-tax at the rates specified in Part I of the Schedule to the Act on the total agricultural income of the previous year of every person and that charge was levied for each financial year commencing from the 1st day of April, 1957. Section 4 of the Act provided that the Act shall apply to all agricultural income derived from lands situated in the State of Mysore by any person whether resident in the State or not. Section 2(1) (v) defined 'State' to mean 'State of Mysore'.

3. For the financial year 1957-58, the petitioner was assessed to agricultural income-tax on its income derived from land situated in the area of the former State of Mysore during the accounting year ended March 31, 1957, by assessment order dated December 30, 1961, made by the Agricultural Income-tax Officer, Bangalore Circle, Bangalore. Under the said assessment order, tax was assessed at the rates provided under the Mysore Agricultural Income-tax Act, 1955. The petitioner appealed against the said order contending that for the assessment year 1957-58 it was not liable to be assessed under the Mysore Agricultural Income-tax Act, 1955, since the same has been repealed by section 69 of the Act and that the assessment ought to have been made under the 1957 Act. The authorities under the Act having rejected that contention, the Commissioner of Agricultural Income-tax at the instance of the petitioner made a reference to this court in Devon Tea and Produce Co. Ltd. v. State of Mysore (A. I. T. R. C. No. 5 of 1966). This court by its order dated October 7, 1966, answered the said reference stating that the agricultural income of the petitioner for the period ended March 31, 1957, is taxable under the provisions of the Mysore Agricultural Income-tax Act, 1957, and not under the provisions of the Mysore Agricultural Income-tax Act, 1955.

4. After the said decision, the respondent took steps to make an assessment on the petitioner for the assessment year 1957-58 under the Act and for that purpose issued a notice dated January 18, 1967. On January 21, 1967, the petitioner filed the above write petition praying for a writ of prohibition or a direction in the nature of a writ of prohibition prohibiting the respondent from completing the assessment proceedings in the petitioner's case for the assessment year 1957-58, pursuant to the notice dated January 18, 1967.

5. In the affidavit filed in support of the writ petition the petitioner raised two grounds, viz., (1) that the proceedings of the respondent are barred by limitation under the Act, and (2) that the income derived from lands prior to October 31, 1956, was income derived outside the new State of Mysore and that the income derived subsequent to October 31, 1956, being the income of a part of the previous year, the same is not liable to be taxed as held by this court in Bhairao Rao Ghorpade v. Agricultural Income-tax Officer. The said decision, however, was set aside by the Supreme Court by its judgment dated May 3, 1967, in State of Mysore v. Bhairao Rao Maloji Rao Ghorpade (Civil Appeals Nos. 1176 to 1178 and 1180 of 1965). The Supreme Court, after setting aside the judgment, remanded the case for disposal in the light of its judgment.

6. During the pendency of the above mentioned appeals before the Supreme Court the Mysore legislature amended the definition of the 'State' or 'State of Mysore' occurring in section 2(1) (v) of the Act by Mysore Act No. XXV of 1962. Section 2 of the Amending Act reads as follows :

'2. In sub-section (1) of section 2 of the Mysore Agricultural Income-tax Act, 1957 (Mysore Act 22 of 1957) (hereinafter referred to as 'the principal Act'), for clause (v), the following clause shall be and shall always be deemed to have been substituted, namely :- (v) 'State' or 'State of Mysore' means the State of Mysore comprising the territories specified in clauses (a), (b), (c), (d) and (e) of sub-section (1) of section 7 of the States Reorganisation Act, 1956 (Central Act No. 37 of 1956).'

7. The Supreme Court was of the opinion that the effect of the said amendment is that agricultural income derived from lands situated in the territories specified in clauses (a) to (e) of sub-section (1) of section 7 of the States Reorganisation Act is sought to be made liable to tax under the Act even for the period prior to November 1, 1956. This court in Bhairao Rao Maloji Rao Ghorpade's case, relying on the definition of the words 'State' or 'State of Mysore' came to the conclusion that the assessee was not liable to tax in respect of the agricultural income derived from lands situated in the new State of Mysore for the reason that during the part of the previous year the lands were situated in the State of Bombay. The said argument, according to the Supreme Court, does not survive now, because by the amended definition of the words 'State' or 'State of Mysore', all the lands in the territories specified in sub-section (1) of section 7 of the States Reorganisation Act are expressly covered. The learned counsel for the assessee before the Supreme Court relying on the decision in Ananthanarayana Iyer v. Agricultural Income-tax and Sales-tax Officer, urged that Mysore Act No. 25 of 1962 amending the definition of the words, 'State' or 'State of Mysore', is ultra vires of the Constitution in so far as it has extra-territorial effect. The Supreme Court remanded the case since the new question raised has not been considered by this court.

8. Since the grounds raised in the first instance are no longer tenable in view of the decision of the Supreme Court, the petition with the leave of the court raised two additional grounds : firstly, that the Amending Act No. 25 of 1962 read with sections 3 and 4 of the Act, in so far as it seeks to tax agricultural income derived from lands situated in the former State of Mysore before November 1, 1956, is unconstitutional; and, secondly, that the Mysore Agricultural Income-tax Act, 1955, having been repealed only with effect October 1, 1957, the period up to that date is governed by that Act and section 3 of the Act which seeks to charge to tax the agricultural income for the same period is repugnant to section 69 of the Act and, therefore, unenforceable. At the hearing Sri K. Srinivasan, the learned counsel for the petitioner, restricted his arguments to the new grounds he has raised.

9. Before dealing with the constitutional issue we will dispose of the second ground urged by the learned counsel for the petitioner.

10. In Bombay Burmah Trading Corporation Ltd. v. Commissioner of Agricultural Income-tax (W. P. No. 432 of 1961 on the file of this court, decided on July 30, 1962), a Bench of this court (Hegde and Khan JJ.) held that for the assessment year 1957-58 the assessee in respect of agricultural income derived from lands in Coorg is liable to be assessed under the Coorg Agricultural Income-tax Act of 1961. In Keshavamurthy Chetty v. Agricultural Income-tax Officer (Writ Petition No. 1416 of 1960 on the file of this court) another Bench of this court (Hedge and Iqbal Hussain JJ.) held that the agricultural income of the assessee derived from lands in the area of the former State of Mysore during the previous year 1957-58 is liable to be taxed under the Mysore Agricultural Income-tax Act, 1955, and not under the Act. In Mallikarjunappa v. Agricultural Income-tax Officer, Chickmagalur, the Beach consisting of Hegde and Khan JJ., without reference to the earlier decisions mentioned above, took a contrary view holding that for the assessment year 1957-58, the assess is liable to be taxed under the Act. In Devon Tea and Produce Co. Ltd. v. State of Mysore (A. I. T. R. C. No. 5 of 1966 on the file of this court) a Bench consisting of Hegde and Bhimiah JJ. held that for the assessment year 1957-58, the income of the petitioner is not liable to be assessed under the 1955 Act but under the Act. We are inclined to agree with the earlier decisions and in the ordinary course would have been disposed to refer the question to a larger Bench but, in the special circumstances of the case, it is not necessary to do so. When the petitioner was assessed under the 1955 Act for the assessment year 1957-58 by order dated December 30, 1961, it took the stand that the company is liable to be assessed not under the 1955 Act but under the 1957 Act. The reason for that stand of the petitioner is quite obvious. Before the dated of the assessment, the court in Bhairao Rao Maloji Rao Ghorpade's case decided on September 6, 1961, had held that for the assessment year 1957-58, no assessment is possible under the Act and the petitioner wanted to take advantage of that decision. In Devon Tea and Produce Co. Ltd. v. State of Mysore (A. I. T. R. C. No. 5 of 1966) this court accepted the contention of petitioner that it is liable to be taxed under the 1957 Act. The petitioner cannot take inconsistent positions at different stages of the assessment for the same year. In view of the specific answer given by this court in Devon Tea and Produce Co. Ltd. v. State of Mysore (A. I. T. R. C. No. 5 of 1966), it is not open to the petitioner to contend that its income derived during the relevant previous year is liable to be assessed under the 1955 Act and that section 3 of the Act, being repugnant to section 69, is unenforceable.

11. We will now deal with the main question relating to the constitutional validity of the Act. The argument of Sri K. Srinivasan was that section 3 and 4 of the Act read with section 2(1) (v) as amended by Mysore Act No. 25 of 1962, in so far as they seek to being to charge to tax the agricultural income derived before November 1, 1956, from lands situated in the territories of the former State of Mysore are unconstitutional. In support of the said contention, the learned counsel relied on the decision in Ananthanarayana Iyer's case. A new State to be known as the 'State of Kerala' comprising the territories specified in clauses (a) and (b) of sub-section (1) of section 5 of the States Reorganisation Act was formed with effect from November 1, 1956. The district of Malabar was separated from the Madras State and integrated in the in sew State of Kerala. Before November 1, 1956, in the district of Malabar, the Madras Plantations and Agricultural Income-tax Act, 1955, was in force. In Travancore and Cochin State, which was integrated with the new State of Kerala, the Travancore-Cochin Agricultural Income-tax Act, 1950, was in force. The legislature of the State of Kerala amended the Travancore-Cochin Agricultural Income-tax Act, 1950, by Kerala Act, No. 8 of 1957, by which the principal Act was extended to the whole State of Kerala. When assessments were made under the Travancore-Cochin Agricultural Income-tax Act, 1950, as amended by Kerala Act No. 8 of 1957, for the assessment year 1957-58, on the income derived from lands situated in the Malabar district during the relevant previous year, the assesses challenged the said assessments before the Kerala High Court on the ground that the Kerala legislature was not competent to tax the income derived before November 1, 1956, from lands situated in the district of Malabar when it was in Madras State. The Full Bench of the Kerala High Court upheld the contention of the petitioners and quashed the assessments on the ground that the State's power of taxation can have on extra-territorial operation, that the land of the assessee situated in the district of Malabar were in Madras State before November 1, 1956, and that the Kerala State had no jurisdiction to levy tax from lands in the State of Madras.

12. The law of a State can operate only on its own territory and cannot have extra-territorial operation. Article 245 of the constitution of India states that the legislature of a State may make laws for the whole or any part of the State. With respect to the matters on which the State is competent to legislate under article 246 of the Constitution read with Schedule VII, its legislate prospectively as well as retrospectively. The subject 'tax on agricultural income' is found in entry No. 46 of List II of the Seventh Schedule of the Constitution of India and, therefore, the State has got exclusive power of legislation on that subject. As stated in sub-section (2) of section 1 of the Act, the Act extends to the whole State of Mysore. The expression 'State of Mysore' has been defined in section 2(1) (v) to mean 'the State comprising the territories specified in clauses (a) to (e) of sub-section (1) of section 7 of the States Reorganisation Act.'

13. Prima facie, the Act has no extra-territorial operation since it extends only to the State of Mysore. But it was argued that, since the Act seeks to tax the income derived from lands prior to November 1, 1956, the Act has extra-territorial effect.

14. A State may tax those taxable subject only that are within its territorial boundaries. The principles that determine what taxable subjects are within its boundaries vary with the type of tax involved. In the case income-tax, the subject of taxation is said to be within the jurisdiction of the State if the source from which the taxable income is derived is situate in the State or the person whose income is taxed is resident there. It is not sufficient if the person whose income is taxed is resident in the State in the taxing year but he must be resident in the State in the year in which the income is derived : vide Rottschafer on Constitutional Law, 1939 edition, pages 638, 657-660 and Trinidad Lake Asphalt Operating Co. v. Commission of Income-tax for Trinidad and Tobago. Applying the Above principles, we have to see whether there is territorial nexus between the State levying the tax and the subject of charge. The Act has chosen the nexus of the source from which income is derived. Section 4 says that the Act shall apply to all agricultural income derived from lands situate in the State of Mysore by any person whether resident in the State or not. Part of the income during the relevant accounting period was derived from lands of the petitioner when the said lands were situated in the former State of Mysore. The former State of Mysore had full legislative competence to levy agricultural income-tax on the income derived from lands situated in its territory. Similarly, the States of Bombay, Madras, Hyderabad and Coorg were competent to levy tax on agricultural income derived from the lands in their respective territories before November 1, 1956. We have already referred to the existing Agricultural Income-tax Acts in the integrating areas of the new State of Mysore. The existing laws in force on November 1, 1956, continued to operate in their respective areas even after November 1, 1956, by virtue of section 119 of the States Reorganisation Act. The legislature of the new State of Mysore was competent to amend the Mysore Agricultural Income-tax Act, 1955. It could have also enacted an Act levying tax on the agricultural income derived from lands in the Bombay area where there was no Agricultural Income-tax Act in force on November 1, 1956. It was also open to the legislature of the new State to consolidate and amend the laws providing for the levy of tax on agricultural income for the entire new State. The new State of Mysore being the 'successor State' its powers in relation to the territories integrated in the new State are co-extensive with the powers of the former States of Mysore, Coorg, Hyderabad, Bombay and Madras. Whatever tax the former State of Mysore could have levied in relation to its territory could be levied by the new State of Mysore by retrospective of retroactive legislation. When the territory of a State, the successor State has all the powers of the predecessor State in relation to the transferred or merged territories. It is significant to note that, by levying charge on the income derived from the lands before November 1, 1956, the new State of Mysore is not encroaching on the power of taxation of any other State or States. If the contention of the petitioner is accepted, it would follow that in respect of the assessment year 1957-58, the new State of Mysore and other new States formed under the States Reorganisation Act cannot exercise the legislative power to levy tax on agricultural income conferred by the Constitution. The transfer of the territories to the new State of Mysore gives sufficient territorial connection, in our view, to levy tax on the income derived from the said land even prior to November 1, 1956. Therefore, the Act does not suffer from the vice of extra-territorial legislation. We respectfully dissent from the view taken by the Full bench of the Kerala High Court.

15. For the above reasons, the write petition fails and is dismissed but, in the circumstances, no costs.


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