1. On the request of the assessee the following question has been referred by the Agricultural Income-tax Appellate Tribunal, Rajasthan, Jaipur, under Section 86(2) of the Rajasthan Agrl. I.T, Act, 1953 (to be hereinafter called ' the Act') :
' Whether, the amount of ' agricultural income ' spent on the maintenance of medical, veterinary and educational institutions for the public and exempted under Govt. notification No. F. 52(8) DIVT/55 dated 30-8-1956 shall be included in the ' total agricultural income' for determining the rate of agricultural income-tax under Section 3 read with Section 17 of the Rajasthan Agricultural Income-tax Act, 1953 '
2. The brief facts, necessary for the decision of this reference, are that the assessee was assessed on a total income of Rs. 4,49,685 on which tax was computed at Rs. 1,87,912'19. Subsequently, the Government issued anotification No. F. 52(8) Est./55, dated August 30, 1956, under Section 80 of the Act exempting all the jagirdars from agricultural income-tax in respect of so much of their total agricultural income as was spent on the maintenance of medical, veterinary and educational institutions for the public. The assessee filed an application for rectification of the assessment order. As no relief was given to him, he filed a writ petition, D. B. Civil Writ Petition No. 1475 of 1964. It was allowed by this court on May 10,1965. The CTO, Sikar, was directed to pass a proper order under Section 65 of the Act within a period of four months from the date of the decision of this court.
3. In pursuance of this court's order, the CTO, Sikar, by his order dated September 8, 1965, determined the expenditure incurred by the assessee on maintenance of medical, veterinary and educational institutions as Rs. 2,71,615. He determined the revised liability of the assessee and held that the assessee was liable to deposit Rs. 74,411.19 as tax, as against Rs. 1,87,912.19 previously determined and deposited by the assessee and consequently a refund of Rs. 1,13,501 was allowed. The assessee, however, claimed that the tax payable by him was only Rs. 58,414 and as such an amount of Rs. 1,29,463 should have been refunded instead of Rs. 1,13,501.
4. The difference between the CTO and the assessee arose, because according to the CTO tax liability was required to be ascertained on the total agricultural income and thereafter the deductions were to be allowed and on that basis the tax was to be computed at the rate applicable to the amount of Rs. 1,78,070. The assessee's appeal against the order of the CTO was dismissed by an order dated December 29, 1965. The AAC held that the assessee was covered by Section 17 of the Act.
5. On second appeal, the Agricultural Income-tax Appellate Tribunal held by its order dated August 7, 1971, that the notification dated August 30, 1956, granted exemption from agricultural income-tax to the jagirdars in respect of so much of the total agricultural income as was spent for the maintenance of medical, veterinary or educational institutions for the public purpose and this amount alone could be excluded from the total agricultural income of the assessee and after excluding this amount the remaining amount of the total agricultural income was chargeable to agricultural income-tax at the rate applicable to the total income. On the question of interest, the Tribunal held that as there was no provision under the Act for allowing interest on the amount of refund, the interest was not payable.
6. The assessee, feeling aggrieved by the above order dated August 7, 1971, filed an application for making a reference to this court under Section 86(2) of the Rajasthan Agrl. I.T. Act, The application was allowed by theTribunal by its order, dated March 12, 1973, and the question mentioned above has been referred to this court for answer.
7. Learned counsel appearing for the assessee, placing reliance on CIT v. South Indian Bank Ltd. : 59ITR763(SC) and CIT v. K.E. Sundara Mudaliar : 18ITR259(Mad) urged that the amount spent by the assessee for educational and other institutions which were exempted from liability to pay tax under the above-noted notification ought not to have been included in the total amount of agricultural income of the assessee.
8. We have given careful consideration to the above-noted two cases and find no relevance of these cases with regard to the question in dispute before this court. Section 80 of the Act reads as under:
'80. Power to make reduction in rates.--The State Government may by notification in the Official Gazette make an exemption, reduction in rate, or other modification in respect of agricultural income-tax in favour of any class of income or in regard to the whole or any part of the agricultural income of any class of persons to the extent of such income being utilized for the development of agriculture or of being applied solely to a charitable purpose as defined in Section 4 of the Indian Income-tax Act.'
9. The notification dated August 30, 1956, was issued under the provisions of the above-noted section. If the Legislature intended that the amount spent by the jagirdars on educational and other institutions should not form part of the agricultural income, then the authority concerned could have very well granted an exemption under Section 5 of the Act. In our opinion, the notification is covered by Section 17 of the Act, which reads as under:
' 17. Amount of tax when income partly exempt.--Where there is included in the total agricultural income of any assessee any income exempted from agricultural income-tax by or under the provisions of this Act the agricultural income-tax payable by the assessee shall be the amount bearing to the total amount of the agricultural income-tax which would have been payable on the total agricultural income had no part of it been exempted, the same proportion as the unexempted portion of the total agricultural income bear to the total agricultural income.'
10. We are of the opinion that the I.T. authorities were correct in holding that the assessment of tax on the unexempted income of Rs. 1,78,070 would have to be made according to the provisions of Section 17 of the Act. The same section was applicable for the purpose of calculating super-tax in view of Section 78 of the Act.
11. Our answer to the question is that the amount of agricultural income spent over maintenance of medical, veterinary or educational institutions meant for public and exempted under Govt. notification dated August 30, 1956, is liable to be included in the ' total agricultural income ' for determining the rate of agricultural income-tax under Section 3, read with Section 17 of the Act.
12. The reference is answered accordingly. In the facts and circumstances of the case, the parties are ordered to bear their own costs.