HARRIES, C.J. - This is a reference made by the Agricultural Income-tax Appellate Tribunal, West Bengal, under section 63(1) of the Bengal Agricultural Income-tax Act, 1944, in which this Court is asked to state its opinion upon the following question :-
'Whether, on the facts and in the circumstances of the case, in the matter of computation of allowance admissible under section 6(1) of the Bengal Agricultural Income-tax Act, 1944, rule 5 of the said Act providing for apportionment of common charge between agricultural income and non-agricultural income has been correctly interpreted and applied ?'
The assessee is a zamindar and his zemindary comprised several touzis in the Hooghly, Midnapore and Burdwan Collectorates. His land produced both agricultural and non-agricultural income and of course under the Bengal Agricultural Income-tax Act he was only assessable in respect of his agricultural income.
The assessee had to pay land revenue and other charges in respect of his lands and he set off these charges as against his income for the purposes of arriving at the agricultural income which was assessable under the Act. Difficulties arose because parts of the lands owned by the assessee produced both agricultural and non-agricultural income and only the agricultural income was subjects to this tax.
Certain allowances are allowed under the Bengal Agricultural Income-tax Act and these allowances are set out in Section 6, 7 and 8 of the Act. Where the land produces only agricultural income no difficulties arise. But where the land produces both agricultural and non-agricultural income the question arises what allowances are to be given to the assessee.
Section 8(1), proviso (b), provides :-
'Where there is a common charge on both agricultural income assessable under this Act and income chargeable under the Indian Income-tax Act, 1922, and such charge is an allowance permissible both under this Act and the Indian Income-tax Act, 1922, the part of such charge which is to be deeded to be the allowance permissible under that Act has been determined under that Act, the remaining part of such charge shall be deeded to be the allowance to which agricultural income assessable under this Act is subject'.
It will be seen therefore that the Act provides that where for example, revenue is a common charge and the amount of the revenue which can be apportioned to income taxable under the Indian Income-tax Act has been ascertained, then that will determine the proportion which can be given as an allowance for the purposes of assessing agricultural income. In short, in assessment of agricultural income the proportion of the income found in proceedings under the Indian Income-tax Act will be binding.
In the present case there has been no apportionment under section 8(1), proviso (b), and it is common ground that the apportionment of the land revenue and other expenses must be made under rule 5 of the Bengal Agricultural Income-tax Rules of 1944. That rule is in these terms :-
'Where an allowances admissible under section 6, 7 or 8 of the Act in respect of a common charge incurred for the purpose of deriving both agricultural income assessable under the Act and income chargeable under the Indian Income-tax Act, 1922, such allowance shall, except in the case referred to in clause (b) of the proviso to sub-section (1) of section 8, be calculated as such proportion of the common charge as such agricultural income and income chargeable under the Indian Income-tax Act, 1922, in respect of which such common charge is incurred.'
It will be seen that the rule does not cover the ascertainment of the allowance if the case falls within the proviso to sub-section (1) of section 8 to which I have made reference, but it deals with all other cases.
The contention of the assessee before the taxing authorities was that the allowance must be calculate with respect to the income derived from the area or areas the income from which is subject to a common charge. For example, where an estate consists of three touzis, one only of which produces both agricultural and non-agricultural income, the allowance must be calculated under rule 5 with respect to the one touzi producing the mixed income. The assessee for the purposes of agricultural income-tax will be entitled to an allowance of such proportion of the land revenue as the agricultural income of that touzi would bear to the total income of the touzi.
On the other hand it was contended on behalf of the taxing authorities that the proper method of arriving at the allowance, where there was a common charge, was to take the proportion of the agricultural income of the whole estate to the total income of the whole estate irrespective of whether all portions of the estate produced both forms of income. In other words, where an estate consists of three touzis, one only producing agricultural income, the taxing authorities state that the proper method of computing the allowance is to take the whole of the income of the estate and ascertain what proportion the agricultural income of the whole estate bears to the total income of the whole estate and such proportion of the land revenue, for example, must be given as an allowance.
In my view the contention of the assessee is well-founded and the view of the taxing authorities appears to me be contrary to the plain words of rule 5. Rule 5 deals with the allowance admissible in respect of a common charge which has been incurred for the purpose of deriving both forms of income. The rule provides that such proportion of the common charge is to be allowed against agricultural income as the agricultural income bears to the total of both forms of income in respect of which such common charge is incurred.
The proportion must be worked out of the total income in respect of the area over which the charge operates. That must be the meaning of the words 'in respect of which such common charge is incurred.' The proportion must be worked out with regard to the area which is the subject matter of the common charge and with respect to the income of both kinds arising from that area. If the proportion is worked out with respect to the whole of the estate irrespective of whether the whole of the estate produces both forms of income or not then effect is not given to the words 'in respect of which such common charge is incurred.' If the proportion was worked out with respect to the whole income it would be worked out with regard to income in respect of which the common charges applied to part and did not apply to the remainder. It seeds to me, on the plain words of the rule, that the proportion must be worked out in respect of the income arising from such part of the estate as is covered by the common charge.
It was suggested in argument that the view that I take would create difficulties, for example, where mortgage interest is a common charge. But I cannot see that any difficulties would be created. The common charge such as mortgage interest could be quite simply apportioned as between agricultural and non-agricultural income over such part of the estate as was subject to the mortgage. Similarly, with regard to the other items, which can be claimed as allowances and which can be the subject matter of a common charge.
In my view the contention of the assessee was well-founded and that being so, I would answer the question submitted to this Court in the negative. The assessee is entitled to the costs of these proceedings.
BANERJEE, J. - I agree.
Reference answered accordingly.