1. These are petitions under Article 226 of the Constitution for the issue of writs of eertiorari to quash the orders of the Agricultural Income-tax Officer, Manmargudi, Tanjore Dt. on the ground that they are manifestly illegal and without jurisdiction. The petitions were originally heard by one of us. In view of the importance of the question raised, they have been placed before a Division Bench for final disposal
2. It would be enough to refer to the tacts in W. P. 392 of 1961, as the facts in the other three petitions are precisely the same. The petitioner in W. P. No 392 of 1961 is a minor Muslim represented by his mother and guardian one Ayesha Beevi. The minor owns agricultural lands in Tanjore District. An application was filed before the Agricultural Income-tax Officer on his behalf for composition of the tax Under Section 65 of the Madras Agricultural Income-tax Act 1.955 which will be referred to as the Act in this judgment, for the assessment year 1958-59. The application was successful and the Officer granted the necessary permission, and levied the prescribed compounding fee in accordance with the rate specified in Part II of the Schedule to the Act For the subsequent year 1959-60, the petitioner filed a return of his income Under Section 16 of the Act It was claimed that he had not derived income during that year which would be liable to tax and that therefore he need not pay either the regular tax payable under the Act or even the compounding fee which was levied in respect of the assessment year 1958-59. By order dated 18-12 1960. the Income-tax Officer directed the petitioner to pay in accordance with the composition effected for the assessment year 1958-59, and this he did, in view of the provisions of Section 65 (4) of the Act, to which we shall refer immediately The order of the officer reads:
'The assessee's attention is invited to this office proceedings noted below Orders were already passed for the assessment years 1959-60 and 1960-61 and tax levied on the basis the composition application filed Under Section 65 of the Act for the assessment year 1958-59. No return is therefore due. He is requested to remit the tax for the assessment years 1959-60 and 1960-61 soon'.
The demand was for payment of a sum of Rs 135-75 nP As regards the petitioners in the other three writ petitions, there were similar orders of composition effected for the assessment year 1958 59. and their claim for non-payment of any tax for the year 1959-60 was turned down precisely on the same ground disclosed in the order set out above The subject-matter of these writ petitions is the order of the Agricultural Income-tax Officer demanding tax for the years 1959-60 and 1960-61. on the basis of the prior composition order relating to the assessment year 1958-59
3. Mr S. K Ahmed Meeran, learned counsel for the petitioners, contended that the basic requirement of the levy of agricultural income-tax is that agricultural income should have been derived by the assessee, and that once it is shown that the assessee did not derive any income at all during the year in question, there can be no assessment under the Act either under the regular provisions relating to assessment, or even under the special provision prescribed for composition Ho contended, further, that, if it were to be understood that Section 65 (4) would operate as against an assessee without agricultural income during the period of the composition Under Section 65 (4), then such a provision should be held to be ultra vires. The contention urged on behalf of the State is that Section 65 of the Act is self-contained, that the levy of a compounding fee would not amount to assessment to tax and that an assessee, who avails himself of the special provision Under Section 65 would be bound to pay at the compounded rate not merely for the year in respect of which the composition was effected but for a period of three years commencing from the financial year in which such permission was granted. The whole of the argument of the learned Additional Government Pleader on behalf of the State was to the effect that Section 65 was a special or overriding provision, and it would operate quite apart and independent from the other provisions in the Act prescribing the machinery of computation, assessment and levy of tax on agricultural income derived by an assessee
4. The scheme of the Act is briefly as follows The Act provides for the levy of tax on agricultural income from lands in the State of Madras Agricultural income' means any rent or revenue derived from land by agriculture An 'assessee' is defined as a person by whom agricultural Income-tax of any other sum of money is payable under the Act. 'Total agricultural income' is defined as the aggregate of all agricultural income mentioned in Section 4, computed in accordance with the provisions of Section 5, and includes all income of the description specified in Section 9 and all the receipts or the description specified in sub-section (2) of Section 10. Now Section 8 is the charging section. That provides that agricultural income-tax at the rate or rates specified in Part I of the schedule shall be charged for each financial year commencing from the 1st April, 1955, in accordance with and subject to the provisions of the Act on the total agricultural income of the previous year of every person It is true that the charge Under Section 3 is upon the income. But it should be noted that the rate of tax is that specified in Part I of the Schedule. The compounding fee Under Section 65 is prescribed under Part II the schedule Section 4 of the Act enacts what is total agricultural income. Section 5 prescribes the machinery of computation of such income. Section 10 of the Act is really important, as it is the section which grants total exemption from assessment of income-tax as regards particular categories of persons.
The Act does not apply to a person who holds land not exceeding 12% standard acres (the Act defines 'standard acre'). Agricultural income-tax shall not be payable on that part of the total agricultural income of a person which is any sum which he receives out of the agricultural income of a Hindu undivided family, an Aliyasanthana farmly or branch or a Marumakatayam farwad or tavazhi, if he receives such sum as a member of the family or farwad or tavazhi and tax under this Act has been levied on the agricultural income. The tax need not be paid as on any amount received by a person to effect an insurance on the life of such person or on the life of a wife or husband or dependent son of such person. Any amount which a person receives as his share out of the agricultural income of a firm or association of persons cannot be taxed, if the tax under this Act has been levied on the agricultural income of such firm or association. Any other sum which a person receives out of the agricultural income in respect of which tax had already been levied Under Section 9 of the Act would not also suffer tax. The gist of Section 10 is that a person, who does not hold more than twelve and a half standard acres is wholly outside the Act and that any income shall not be taxed twice Now we shall refer to Section 65, upon the (interpretation of which the ultimate decision in this case rests. Section 65 reads:
'65. Composition of Agricultural income-tax-
(1) Any person who holds land not exceeding four times the exempted extent may apply to the prescribed officer for permission to compound the agricultural income-tax payable by him and to pay in lieu thereof a lump sum at the rate or rates specified in Part II of the Schedule
(2) Every application under Sub-section (1) shall be submitted in such form, in such manner and within such time as may be prescribed
(3) The prescribed officer, after satisfying himself that the particulars specified in the application are correct may, by order in writing, grant the permission.
(4) A permission granted under sub-section (3) shall, subject to the provisions of sub-section (1), be in force for a period of three years commencing from the financial year for which such permission is granted; and in respect of that period the provisions of this Act regarding submission of returns, accounts or other document the assessment to agricultural income-tax or any other matter incidental thereto shall not apply in relation to the grantee. Provided that the provisions of sub-section (2) of Section 9 and Sections 35 and 36 shall, so far as may be, apply in relation to the composition of agricultural income-tax under this section as they apply in relation to the assessment of agricultural income-tax under this Act' (after the amendment under Madras Act 51 of 1961)
We shall also refer to the rules relating to composition application Rule 31 is the relevant rule (as substituted by G. O No 4021 of 1962). The application Under Section 63 (sic) has to be preferred in a particular form, which is form VIII. This form merely prescribes that the applicant should give the survey number, extent, nature of the land, assessment on the land, crop raised etc. There is no column in form VIII obliging the applicant to state the income derived from his holding The application has to be sent to the Agricultural Income-tax Officer by registered post ;or presented in person so as to reach him on or before the 15th of April of the year for which permission to compound the agricultural income-tax is required The Officer should scrutinise the application and make such enquiry as he deems fit to satisfy himself about the correctness of the particulars specified in the application If the particulars are correct, he shall pass orders in writing granting permission. If the particulars are not correct, the officer shall require the applicant to furnish correct particulars within such time as may be specified by him If within the time specified, the correct particulars are furnished, the Income-tax Officer shall pass orders granting the permission If they are not furnished, he shall pass orders refusing to grant permission indicating the reasons for such refusal
Sub-rule (3) of Rule 31 has got a material bearing on the question now in issue That reads:
'(3) (a). When the order of composition is in force if any change occurs in the extent held by any person, he shall notify the fact to the Agricultural Income-tax Officer on or before the last date fixed for the receipt of composition applications for the assessment year for which a change in the order already passed is necessitated on account of such change in the extent
(b) The Agricultural Income-tax Officer may then determine whether the person is eligible for composition Under Section 65, or is exempt from taxation under the Act and if in the former case he is eligible for compounding the agricultural income-tax Under Section 65 (1) what changes in the order Under Section 65 are necessary and modify the order accordingly.
(c) If the person has failed to intimate the change on or before the due date, the Agricultural Income-tax Officer, may, if he is satisfied that the failure to intimate is inadvertent, at any time before he issues a demand notice for the assessment
year, entertain an intimation regarding the change and act on such intimation.' The sub-rule necessarily implies that the only circumstance under which an order of composition can be amended or altered is that the applicant should either cease to own less than 12% standard acres or happen to own an extent of land different from what he held at the time when he made the application for composition. At any rate, there is nothing in the rules to indicate that the absence of income during the period of composition would be a circumstance giving rise to alteration or amendment of a composition order once passed.
5. The true scope of the composition Under Section 65 is quite manifest from its language. The purpose is not hidden and no interpretational aid is necessary. It is an arrangement by which the assessee undertakes to pay the compounded fee, income or no income, during the composition period, and the State agrees not to collect more than that fee, even if the assessee's income were exigible to tax in a large amount. The statute brings into effect a bilateral scheme between the assessee and the State and it will not be open either to go behind it or to read reservations or imply conditions in it. The circumstances under which it can be qualified are only those mentioned in Rule 31 sub-rule (3).
6. It is true that Section 65 sub-section (1) states that any person who holds land not exceeding 50 standard acres may apply for permission to compound the agricultural income-tax payable by him and to pay in lieu thereof a lump sum. Of course, it a person had not derived any agricultural income for the previous year in respect of which he applies for computation, he would not make any application. But once such an application is made, be it on the footing that the applicant wanted to obtain a concession in the matter of payment of tax, and a permission is granted, such permission would be in force for a period of 3 years commencing from the financial year for which the permission was granted. It cannot be said that a permission which the statute directs to be in force and operation for a specified period is itself subject to a condition that during the period of its subsistence an assessee should be in receipt of agricultural income. The whole scheme of composition Under Section 65 of the Act is that a composition order, whether it operates in favour of the assessee or prejudicially against him would not merely bind him for the year in respect of which the application was preferred, but would extend for a period of three years as specified under the Act
7. Section 65 (4) is quite explicit in indicating that the composition order is neither in form nor in substance an order of assessment under the Act. We have to take note of the second limit of Section 65 (4). which states that in respect of that period (the period of subsistence of the composition order), the provisions of the Act regarding submission of returns accounts or other documents the assessment to agricultural Income-tax or any other matter incidental thereto shall not apply in relation to the grantee The entire provisions of the Act expect Section 9(2) Section 35 and Section 36 are completely in abeyance as against the assessee who has successfully obtained permission to compound under this provision. In fact, in a different context, we have taken the same view as to the precise scope of Section 63 (sic) of the Act. We are referring to the case of State of Madras v. Subbiah Gounder, : (1962)2MLJ237 The following headnote of that case sets out the ratio of the decision in its proper perspective
'In the case of composition of agricultural income-tax Under Section 65 of the Madras Agricultural Income-tax Act, firstly, there is no assessment of income, and secondly, there is no assessment to tax. That seems to be inherent in Section 65 ;i the Act and that position is further clarified by sub-section (4) of Section 65 which states that the provisions of the Act regarding assessment of agricultural income-tax shall not apply......'
There the question was whether an appeal would lie to the Assistant Commissioner Under Section 31 of the Act from an order of composition. We are of opinion that a composition order passed Under Section 65 of the Act would be in operation for the statutory period fixed, irrespective of the fact whether the applicant-assessee does or does not derive any agricultural income during the period in question
8. Learned counsel for the petitioner contended that the Act was intended and designed to tax only agricultural income and that, if it were to be held that Section 65 can be set in motion even as against an assessee who does not derive any such income, it would be plainly ultra vires It is somewhat difficult to follow this argument. Learned counsel, however, submitted that, if the effect of Section 65 was not to tax income but only to tax agricultural land held by the assessee, it would be unconstitutional, being violative of Article 19(1)(f) of the Constitution. This argument seems to us to be without any substance The State's power to tax does not violate the fundamental right guaranteed in Part III of the Constitution. Article 265 provides that no tax shall be levied or collected except by authority of law Taxation would not amount to abridgment or curtailment of fundamental rights. Thus the levy of stamp duty under the Stamp Act for enrolment as an Advocate has been held not to be an infringement of Article 19(1)(g) - Ananthakrishnan v. State of Madras. : AIR1952Mad395 . Tax on property cannot be said to impinge on the right to hold property under Article 19(1)(f). The State, however, cannot deprive citizen of his fundamental right under the guise of taxation. A legislation to that effect would be a colourable exercise of taxing power and should be struck down as unconstitutional An oppressive and arbitrary levy of property tax under seeming exercise of taxing power, may be questioned. if in substance and in effect the tax measure is of a 'confiscatory' character The levy of tax on holding or disposing of property is not per se unconstitutional Article 19(1)(f) only declares a fundamental right to acquire, hold and dispose of property and does not grant an immnnity from taxation In State of West Bengal v Subodh Gopal Bose, : 1SCR587 Paranjali Sastri C J. observed:
'So far as the power of taxation is concerned, the Court recognises no fundamental right'
to immunity from taxation and that is why presumably no constitutional protection is provided against the exercise of that power.' But in K. T. Moopil Nair v. State of Kerala, : 3SCR77 , the majority decision of the Supreme Court has explained the relative scope of Article 265 and Article 19(1)(f). Their Lordships have made it clear that 'law' referred to in Article 265 would not be valid, if it does not comply with the requirements of Article 13. -s stated already, the legislature cannot pass a tax measure as a device to destroy property rights. In that case, the challenge was on the constitutionality of the Madras Preservation of Private Forests Act, 1949. The petitioner owned 25000 acres of forest land. Under the Act, land-tax was levied at Rs. 2/- per acre. The petitioner, therefore, became liable to pay Rs. 50,000/- per annum is land-tax. There was also a further liability to pay Rs. 4,000/ as tax on the 'surveyed portion' of the forests. The income of the petitioner from the forests was about Rs. 3,100/- per annum. The petitioner was, therefore, liable to pay more tax than his annual income. Any default on his part would, under the Act, lead to sale of the property at a public auction under the coercive process of the taxing law, and the State may become the purchaser of the land. The Supreme Court struck down the Act as violating Article 19(1)(f). The implication of the decision in K. T. Moopil Nair's case.. : 3SCR77 seems to be that, even it the impugned legislation is not 'colourable' or is not designed to expropriate owners of their property without compensation, it could be struck down as unconstitutional, if the operation and effect of the Act resulted in an encroachment of fundamental rights
In an earlier case, Express Newspapers (Private) Ltd. v. Union of India, : (1961)ILLJ339SC , the Supreme Court pointed out that mere incidental disadvantages which may manifest themselves in the working of an enactment would not be sufficient to affect the constitutionality at the Statute. At page 135 (of SCR) : (at p. 620 of AIR). His Lordship Bhagawati, J., observes: 'Those employers who are favourably situated may not feel the strain at all while those of them who are marginally situated may not be able to bear the strain and may in conceivable cases have to disappear after closing down their establishments, That, however, would be a consequence which would be extraneous........ It could therefore hardly be urged that the possible effect of the impact of these measues in conceivable cases would vitiate the legislation as such ' In our opinion, the following propositions of law may be culled out from the decisions of the Supreme Court:
(1) Article 266 does not grant unfettered freedom to legislature to tax, as even the taxing power is subordinate to fundamental rights.
(2) A bona fide exercise of taxing power for legitimate revenue purposes is not a violation of fundamental rights.
(3) The State cannot make a deprivation of a fundamental right under the robes or a 'tax law' and judicial review will extend to declare such a law as unconstitutional.
(4) In determining the constitutionality of a tax law, it is necessary to take into account the effect of the legislation on the fundamental rights quite independently of the question whether the Legislature had an oblique motive in passing the measure to invade fundamental rights.
(5) The Court has regard to substance and is not led away by the mere appearance of name in passing upon constitutional questions; the statute must be tested by its operation and effect. The contention that Section 65 (4) of the Act is unconstitutional, on the alleged ground that it is repugnant to Article 19(1)(f) fails
9. Mr. S K. Ahmed Meeran next contended that the scheme and tenor of the Act was to tax agricultural income and that a provision like Section 65 (4), which would cast a burden on the assessee irrespective of the fact whether he derived such income or not. would not merely be an incongruous provision but would also be beyond the competence of the State Legislature. There is no substance in the contention that there is no competency for the State Legislature to enact a tax law on the mere holding of property. As regards the power to tax agricultural income, entry 46 of List II of the Constitution confers a specific power, and that entry reads. 'Taxes on agricultural income' Entry 49, 'Taxes on lands and buildings' is sufficiently wide to enable the State Legislature to levy tax even on holdings of agricultural lands. We are of opinion that Section' 65 (4) cannot be challenged as being ultra vires and beyond the powers of legislation of the State. The submission of the learned counsel that Section 65 (4) is not of the same pattern as the other provisions of the Act, which are directed only against the computation, assessment and levy of tax on agricultural income, does not deserve any serious consideration. So long as the impugned Act is not ultra vires or unconstitutional, the subject is bound by that provision and cannot get out of it by merely calling the legislation clumsy or awkward.
10. In the result, these writ petitions fail and are dismissed. The rules nisi are discharged. The petitioner in W. P. No 392 of 1961 will pay the costs of the Government. Counsel's fee Rs. 100/- There will be no order as to costs in the other writ petitions.