Holding

The State Act intends agricultural income to be the same as computed under the Central Act; therefore, the State Officer lacks power to recompute it and the proviso to Rule 5 is ultra vires.

Summary

Assam Company Ltd. and another were engaged in cultivation, manufacture and sale of tea, a composite income taxable under both the Central Income Tax Act, 1961 and the Assam Agricultural Income Tax Act, 1939. The State Agricultural Income Tax Officer refused to accept the agricultural income computation made by the Central Income Tax Officer for levying Assam agricultural income tax. The appellants challenged this refusal in the Gauhati High Court, which dismissed their writ petition, leading to a civil appeal before the Supreme Court. The Court examined the provisions of the State Act, particularly Sections 20‑D, 49, 50 and the proviso to Rule 5 of the Assam Agricultural Income Tax Rules, 1939, and held that the State Act intends the agricultural income to be the same as that computed under the Central Act. Consequently, the State Officer has no authority to recompute the income, and the proviso to Rule 5 is ultra vires the State Act. The appeal was allowed, the impugned assessments were set aside and the State officers were directed to reassess based on the Central computation.

Issues considered

Whether the State Agricultural Income Tax Officer can recompute agricultural income already assessed by the Central Income Tax Officer for the purpose of levying Assam agricultural income tax.
Whether the proviso to Rule 5 of the Assam Agricultural Income Tax Rules, 1939, empowering the State Officer to refuse the Central computation, is ultra vires the Assam Agricultural Income Tax Act, 1939.

Legislation cited

Constitution of Indias. Article 246(3), s. Article 366(1), s. Entry 46 of List II
Income Tax Act, 1961s. 2(1A)

Subjects

agricultural incometea industrycomposite incomecentral vs state taxAssam Agricultural Income Tax ActIncome Tax Act 1961Rule 5 ultra viresSection 49 interpretationconstitutional definition Article 366(1)tax jurisdiction

Judgment

,.
ASSAM COMPANY LTD. AND ANR. A
t V.

STATE OF ASSAM AND ORS.

MARCH21, 2001

[S.P. BHARUCHA, N. SANTOSH HEGDE AND Y.K. SABHARWAL, JJ.] B

Assam Agricultural Income Tax Act, I 939 : Section 49.

Agricultural income-Cultivation, manufacture and sale of tea-State
Officer under State Act refused to accept computation of agricultural income
made by Central Officer under Central Act and re-computed such agricultural c
income-Validity of-Held: State Act intended the agricultural income to be
the same both under the Central and State Acts-Hence, State Officer has no
authority to 11!-compute the agricultural income made by the Central Office1~
Income Tax Act, 1961.
D
Assam Agricultural Income Tax Rules, 1939:

Rule 5 proviso-Empo1vered State Officers, in given cases, to refuse ta
accept the computation of agricultural income by Central Officer-Constitu-
tionality of-Held: The object and scheme of the State Act do not allow re-
computation of agricultural income already made by Central Officer-Hence, E
proviso to Rule 5 ultra vires the State Act.

Words and Phrases :

"Agricultural income"-Meaning of-In context of A11. 366(1) of the
Constitution of India, 1950. F

-"' The appellant was engaged in the business of cultivation, manufac-
ture and sale of tea and the income from which, being a composite income,
was exigihle to both income tax under the Income Tax Act, 1961 (Central
Act) and the Assam Agricultural Income Tax Act, 1939 (State Act). But the
Agricultural Income Tax Officer (State Officer) under the State Act G
refused to accept the computation of agricultural income made hy
... )I.
the Income Tax Officer (Central Act) for the purpose of levy of
Assam agricultural income tax. Being aggrieved the appellant-assessee
filed a writ petition before the High Court, which was dismissed. Hence
this appeal. H
515
516 SUPREME COURT REPORTS [2001] 2 S.C.R.
A On behalf of the appellant it was contended that in view of the ..
definition of "agricultural income" under Article 366(1) of the Constitu-
tion of India, the State Officer was bound by the computation of "agricul-
t
tural income" made by the Central Officer under the Central Act; and
that proviso to Rule 5 of the Assam Agricultural Income Tax Rules, 1939
empowering the State Officer, in given cases, to refuse to accept the com-
B
putation of agricultural income made by the Central Officer is ultra vires
the State Act.

The following question arose before this Court :

c Whether for the purpose of levy of Assam agricultural income tax
the State Officer has the authority to re-co.mpute the agricultural income
already assessed by the Central Officer under Central Act.

Allowing the appeal, the Court

D HELD : 1. The fact that the legislature under the Assam Agricul-
tural Income Tax Act, 1939 (State Act) intended to make the agricultural
income to be the same for the purpose of the Income Tax Act, 1961
(Central Act) as well as the State Act is clear from the provisions of Section
20-D of the State Act which provides that if there is any variation in the
assessment made by the Central Officers under the Central Act by virtue
E ·or any revision leading to enhancement or reduction, such enhanced or
reduced income shall be taken as the agricultural income for the purpose
of levy of State tax. From the provisions in the State Act and bearing in
mind the definition of agricultural Income under Article 366(1) of the
Constitution It ls clear that the State Act Intended the agricultural Income
F for the purpose of Its levy to be that which ls computed 88 such by the
Omcers acting under the Central Act. (521-B·D)
,..-
2. It Is well establlshed rule of Interpretation that while Interpreting
a. particular provision or a Statute, courts should hear In mind the object
and scheme of the entire Act. A particular provision of the Act cannot be
G considered or Interpreted in Isolation so as to give room for conflict inter st
between the provisions of the same Act. Court.~ should also bear in mind
that while interpreting a provision of the Act an interpretation leading to ....
the provision becoming ultra vires should be avoided. Thus examined, it is .A.
seen from a plain reading of Section 49 of the State Act, it does not
H authorise the Officers under the State Act to sit in judgment over the
" j

ASSAM CO. LTD. v. STATE [SANTOSH HEGDE, J.] 517
computation of income made by the Officers under the Central Act. Snch a A
,,.. reading of Section 49 of the State Act is not possible and it must be held
that Section 49 of the Act does not per se contemplate a power being vested
in the State Officers to re-compute the agricultural income already made
by the Officers under the Central Act. [521-G-H; 522·A·B] ·

3. The object and scheme of the State Act do not contemplate the B
State authorities being empowered to re-compute the agricultural income
.
¥ contrary to the computation made by the Central Officers, nor do the
subjects specified in sub-sections 2(a) to (m) of Section 50 provide for
making such rules empowering the State Officers to mak~ the computation
of agricultural income contrary to what is computed by the Central Offic. c
ers under the Central Act. By virtue of the provisions made by legislature
in explanation to Section 2(a)(2), proviso to Section 8 and Section 20-D, it
is clear that the State Legislature intended to adopt the computation of
i agricultural income made under the provisions of the Central Act. Having
specifically said so in the above Sections of the Act, if the Legislature
D
wanted to deviate from that scheme of the Act, it could have in clear terms
provided for a power being vested with its Officers in any given case to re.
compute the income keeping in mind the revenue of the State but the
Legislature has not thought it necessary to do so. Even under Section 50,
there is no provision, which specifically authorises the State Government
to make any such Rules in the nature of the proviso to Rule 5 of Assam E
"'
- Agricultural Income Tax, Rnles, 1939. It is an established principle that
the power to make Rules under an Act is derived from the enabling
provision found in such Act. Therefore, it is fundamental that a delegate on
whom such power is conferred has to act within the limits of the authority
conferred by the Act and It cannot enlarge the scope of the Act. A delegate F
cannot override the Act either by exceeding the authority or by making
provision, which Is Inconsistent with the Act. Any Rule made In exercise of
'""' such delegated power has to be In consonance with the provisions of the
Act, and If the Rule goes beyond what the Act contemplates, the Rule
becomes in excess of the power delegated under the Act, and If It does any ,.
of the above, the Rule becomes ultra viIlls of the Act. None of the provisions G
of the Act has contemplated any power to be vested in the State Officers to
..... re-compute the agricultural income from tea while proviso to Rule 5 of the
:i.. Rules in specific terms empowers the State Officers to re-compute the
agricultural income from tea different from that which is computed by the
Central Officers under the Central Act. Thus, it is seen that this Rule is not H
518 SUPREME COURT REPORTS [2001] 2 S.C.R.

A only made beyond the rule-making power of the State under Section 50 of
the State Act but also runs counter to the object of the Act itself, and
enlarges the scope of the Act. Therefore, proviso to Rule 5 of the State
i--
Rules to the extent it empowers the State officers to re-compute the agri-
cultural income already computed by the Central Officers is ultra vires the
State Act. [522-G-H; 523-AG]
B
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5047 of 1996.

From the Judgment and Order dated 21.9.95 of the Gauhati High Court
at Assam in W.A. No. 39 of 1995.

c WITH

W.P.(C) Nos. 162/96, 20/97, 61/98 and C.A. Nos. 3652198, 4788/98 and
249199.

T.R. Andhyarujina, Ramesh Aggarwal, Ramesh P. Aggarwalla, Dr. Debi
D Prasad Pal, Gopal Subramaniam, A.K. Ganguli, S. Suskumaran, R. Santhanam,
RajendraSinghvi, S.T. Singh, K.J. John, Pratap Venugopal, P.S. Sudheer, Ms.
Mayuri Nayyar, C.N. Sree Kumar, Ms. M.L. Shyjatha, H.K. Puri, S.K. Puri,
Rajesh Srivastava, Ms. Priya Hingorani, Ujjwal Banerjee, R.K. Tiwari, Vijay
Hansaria, S. Borthakur, S. Ganesh, K.C. Kaushik, Nikhil Sakhardande, B.V.

E
Balaram Das, B.K. Prasad, Ms. Sushma Suri, S.K. Roy and S.K. Nandy for
the appearing parties. ,.
The Judgment of the Court was delivered by

SANTOSH HEGDE, J. The income from cultivation, manufacture and
sale of tea being a composite income is exigible to both income-tax under
F the Indian Income Tax Act, 1961 and the Assam Agricultural Income Tax Act,
1939.

In this context, being aggrieved by the decision of the Agricultural
Income Tax Officer of the State of Assam (State Officer) who refused to
accept the computation of.agricultural income made by the Income Tax
G Officer (Central Officer) under the Income Tax Act, 1961 (Central Act) for
the purpose of the levy of Assam agricultural income tax for the relevant
assessment years, assessees-appellants approached the High Court of Guwahati
by way of writ petitions questioning the authority of the State Officer to
......
~
recompute the agricultural income already assessed by the Central Officers
H under the Central Act lilld for consequential reliefs. Their contentions being
-. f

ASSAM CO. LTD. v. STATE [SANTOSH HEGDE, J.] 519
rejected botli by the learned Single Judge and the Division Bench of High A
Court of Quwahati, these appeals/petitions have been preferred.

It was argued on behalf of the appellants before the High Court that
in view of the constitutional definition of agricultural income under Article
366(1) of the Constitution, the agricultural Income Tax Officers of the State
are bound by the computation of agricultural income made by the Income B
Tax Officer under the Central Act. They also contended before the High Court
that the Assam Agricultural Income Tax Act (the State Act) has not specifi-
cally authorised the State Officers acting under the said Act to recompute the
agricultural income which was already detennined by the Central Officers
under the Central Act and the Rules. They also contended in the alternative C
that if it is to be held that the Assam Agricultural Income Tax Act did
authorise such a recomputation of income then such provisions of the State
Act would be ultra vires of the Constitution. Per contra, it was the contention
of the State that the tax on agricultural income being a State subject under
Entry 46 of List II of the 7th Schedule to the Constitution, State has the
legislative competence to enact a law which can also empower its officers D
to recompute the agricultural income even if the same is computed by the
Central Officers under the Central Act and such a power under the State Act
is found in Section 49 read with Rule 5 of the State Rules.

The High Court in the impugned judgment after analysing the provi-
sions of the Constitution, the Central Act and the State Act and the Rules
E
came to the conclusion that under the provisions of the State Act, there was
a specific authority vested in the State Officers to recompute the agricultural
income. The High Court also came to the conclusion that such provision and
the Act is not ultra vires of the Constitution nor was beyond the scope of
Article 246(3) and 366(1) of the Constitution. However, it held that such F
power of recomputation can be exercised by the State Officers concerned only
if he came. to the conclusion that the computation of agricultural income made
by the Central Officer is contrary to the provisions of the Central Act and
the Rules. It also specifically came to the conclusion that in the decisions of
this Court in the case of Karimtharuvi Tea EstaJes l.Jd. & Anr. v. State of
G
Kerala & Ors., (1963) 48 !TR 83, Angla-American Direct Tea Trading Ca.
l.Jd. etc. v. Commissioner of Agricultural Income-tax, Kera/a, (1968) 69 !TR
667 and TaJa Tea l.Jd. & Anr. v. State of West Bengal & Ors., (1988) 173
ITR 18, this question of the State's power to enact a law permitting the
recomputation of the agricultural income by the State Authorities has been
left open, hence, this question was not res integra. In this view of the matter, H
1

520 SUPREME COURT REPORTS [2001] 2 S.C.R.
A the High Court upheld the authority of the State Officers to recompute the
agricultural income under the provisions of Section 49 of the Act read with
Rule 5 of the State Rules in the circumstances mentioned in the impugned
judgment.

Before us similar arguments as addressed before the High Court were
B addressed by the parties concerned.

For the pwpose of appreciating the arguments addressed on behalf of
the parties before us, it is necessary to note the provisions of the Constitution,
the Indian Income Tax Act, 1961, Rules made thereunder and the provisions
of the Assam Agricultural Income Tax Act and Rules, to the extent, they are
c relevant. Entry 46 of List II of the 7th Schedule to the Constitution relates
to tax on agricultural income, therefore, in view of Article 246(3) of the
Constitution power to legislate in regard to levy of agricultural income tax
is with the State Legislature. However, Article 366(1) provides that the
expression ''agricultural income" in the Constitution means "agricultural _
D income" as defined for the purpose of the enactments relating to the Indian
Income Tax Act. TI1erefore, the agricultural income regarding which the State
Legislature may enact law under Entry 46, List II would be on such income
as defined in the Indian Income Tax Act and the laws relating to the said
Act Section 2(1A) of the Income Tax Act, 1961 defines "agricultural
income". It is the common case of all parties concerned that so far as the
E
income from cultivation, manufacture and sale of tea is concerned, the same
comes within the said definition and Rule 8 of the Income Tax Rules, 1962
(the Central Rules) which provides for computation of income derived from
sale of tea grown and manufactured by the sellers in India. It provides that
40% of such income shall be deemed to be the income; liable to income-tax
F under the Central Act, therefore, the bal!lllce 60% of the said income would
be agricultural income for the purpose of levying agricultural income-tax
under tl1e State laws. A reading of the above provisions show that the
computation of agrlcultw"81 income even for the purpose of the State enactments
will have to be that which is made under the provisions of the Income Tax
G Act and Rules made thereunder.

Explanation to Section 2(a)(2) of the State Act provides that the
agricultural income from cultivation of tea means that portion of the income
derived from cultivation, manufacture and sale of tea as is defined to be
agricultural income for the purpose of the enactments relating to the Indian
H Income Tax Act. Second proviso to Section 8 of the State Act provides for
't

ASSAM CO. LTD. v. STATE [SANTOSH HEGDE, J.) 521
the method of detennination of agricultural income from cultivation and A
manufacture of tea which according to this section is deemed to be that
portion of income from such cultivation, manufacture and sale which is
agricultural income within the meaning of the Indian Income Tax Act. The
fact that the legislature under the State Act intended to make the agricultural
income to be the same for the purpose of the Central as well as the State
B
Act is also clear from the provisions of Section 200 of the State Act which
provides that if there is any variation in the assessment made by Central
Officers under the Central Act by virtue of any revision leading to enhance-
ment or reduction, such enhanced or reduced income shall be taken as the
agricultural income for the purpose of levy of State tax. From the provisions
referred to herein above in the State Act and bearing in mind the definition c
of agricultural income under Article 366(1) of the Constitution, in our
opinion, it is clear that the State Act intended the agricultural income for the
purpose of its levy to be that which is computed as such by the officers acting
under the Central Act.

D
However, the argument of the State is based on Section 49 of the State
Act read with Rule 5 of the State Rules; therefore, we will first consider
whether Section 49 of the Act in any way deviated from the abovesaid object
and scheme of the State Act. A perusal of Section 49 shows that in terms
it does notempower its officers to recompute the agricultural income already
made by the officers under the Central Act. Though we notice that under the E
proviso to the said section State Officers have been empowered for the
purpose of ascertaining agricultural income in regard to tea to call for any
papers produced or liable to be produced before the taxing authorities
administering the Central Act. Beyond th~ power of calling for records, this
Section does not confer any right on the State Officers to recompute the F
agricultural income already computed by the Central Ollicers. We also do not
think by a process of interpretation such power can be read into Section 49
of the State Act as has been done by the High Court. It is a well established
rule of interpretation that while interpreting a particular provision of a Statute,
courts should bear in mind the object and scheme of the entire Act. A
particular provision of the Act cannot be considered or interpreted in isolation G
so as to give room for conflict inter se between the provisions of the same
Act. Courts should also bear in mind that while interpreting a provision of
the Act an interpretation leading to the provision becoming ultra vires should
be avoided. Thus examined, it is seen from a plain reading of Section 49 of
the State Act, it does not authorise the officers under the State Act to sit in H
r,

522 SUPREME COURT REPORTS (2001] 2 S.C.R.
A judgment over computation of income made by the officers uuder the Central
Act. Such a reading of Section 49 of the State Act is not possible and we ·;,
accordingly hold that Section 49 of the Act does not per se contemplate a
power being vested in the State Officers to recompute the agricultural income
already made by the officers under the Central Act. At this stage, we must
notice the proviso to Section 49 of the State Act does use the words "for the
B
purpose of ascertaining agricultural income in regard to tea" but these words
in the said section, in our opinion, does not take the State's case any further
and at this stage it is sufficient to say that if the legislature intended to pennit
the State Officers to recompute the agricultural income opposed to the
computation made by the Central Officers uuder the Central Act, it could very
c well have stated so in so many words. In our opinion, the legislature advisedly
did not say so because it wanted to keep its legislation within the ambit
of the definition of agricultural income in Article 366(1) of the Constitution
which definition was obviously inserted in the Constitution to see that there
is similarity in the computation of agricultural income throughout theUnion
of India and also to see that there is no conflict in the computation of such
D
income made by the Central and State Officers, more so with reference to
agricultural produces whose income is treated as a composite income both
for the purpose of income tax under the Central Act as also the State Acts.

We will now consider the effect of Rule 5 of the State Rules. As noticed
E hereinabove, Rule 5 of the Rules in its proviso has in unequivocal tenns
empowered the State authorities in given cases to refuse to accept the
computation of agricultural income made by the Central Officers after exam-
ining the books already examined by such Central Officers. The appellants
contend that this provision is beyond the rule-making power under the Act,
hence, is in excess of the power delegated under the State Act. They also
F
contend that assuming that such rule-making power has entrusted the delega-
tion under Section 50 of the State Act, same would be ultra vires of the
Constitution.

We see force in the above contention. A perusal of Section 50 of the
G Act shows that the State Government has been empowered to make such
Rules as are necessary for the purpose of carrying out the purposes of the
Act. We have already noticed that the object and the scheme of the Act do
nm contemplate the State authorities being empowered to recompute the
agricultural income contrary to the computation made by the Central Officers,
-
nor do the subjects specified in sub-sections 2(a) to (m) of Section 50 provide """
H
r

ASSAM CO. LTD. v. STATE [SANTOSH HEGDE, J.] 523
for making such rules empowering the State Officers to make computation A
of agricultural income contrary to what is computed by the Central Officers
under the Central Act. We have noticed that by virtue of the provisions made
by the legislature in explanation to Section 2(a)(2), proviso to Section 8 and
Section 20D, it is clear that the State Legislature intended to adopt the
computation of agricultural income made under the provisions of the Central
B
Act. Having specifically said so in the above Sections of the Act, if the
Legislature wanted to deviate from that scheme of the Act, it could have in
clear terms provided for a power being vested with its officers in any given
case to recompute the income keeping in mind the revenue of the State but
the Legislature has not thought it necessary to do so. Even under Section 50,
we do not see any provision which specifically authorises the State Govern- c
ment to make any such rules in the nature of the proviso to Rule 5 of the
State Rules. It is an established principle that the power to make rules under
an Act is derived from the enabling provision found in such Act. Therefore,
it is fundamental that a delegate on whom such power is conferred has to
act within the limits of the authority conferred by the Act and it cannot
D
enlarge the scope of the Act. A delegate cannot override the Act either by
exceeding the authority or by making provision which is inconsistent with
the Act. Any Rule made in exercise of such delegated power has to be in
consonance with the provisions of the Act, and if the Rule goes beyond what
the Act contemplates, the Rule becomes in excess of the power delegated
under the Act, and if it does any of the above, the Rule becomes ultra vires E
of the Act. We have already noticed that none of the provisions of the Act
has contemplated any power to be vested in the State officers to recompute
the agricultural income from tea while proviso to Rule 5 of the Rules in
specific terms empowers the State officers to recompute the agricultural
income from tea different from that which is computed by the Central officers F
under the Central Act. Thus, it is seen that this Rule is not only made beyond
the rule-making power of the State under Section 50 of the Act but also runs
counter to the object of the Act itself, and enlarges t.oe scope of the Act. The
same also suffers from the other vices pointed out by us hereinabove, hence
such a Rule, in our opinion, is ultra vires of the Act. Therefore, proviso to
Rule 5 of the State Rules to the extent it empowers the State Officers to G
recompute the agricultural income already computed by the Central Officers
is ultra vires of the State Act.

Before we conclude, we must advert to one other aspect which requires
our consideration. Here we must notice the arguments advanced on behalf of H
524 SUPREME COURT REPORTS [2001] 2 S.C.R.
A t11e State of Assam that Rule 5 of the Rules was enacted to see that no
injustice is done to the State Revenue by erroneous assessments made
· contrary tn the provisions of the Central Act by the Officers acting under the
Central Act and if this Rule is to be held ultra vires, States will be left without
any remedy in such circumstances. We do not agree with this apprehension
expressed on behalf of the State. In our opinion, if while examining the papers
B
produced or liable to be produced before the taxing authorities administering
the Indian Income Tax Act, 1961 as contemplated under proviso to Section
49 if the State Authorities are of the opinion that the Central A.sessing
Authority has not made a proper assessment of the agricultural income of the
assessee, as required under the Central Act, then it is always open to the State
c authorities to invoke the jurisdiction of the appellate or revisional authorities
under Chapter XX(E) of the Central Act and if t11ey succeed in any such
attempt they can always recompute the agricultural income as contemplated
under Section 200 of the State Act. Therefore, the above apprehension is
baseless and we notice it is only for this limited purpose proviso .to Section
49 of the Act is incorporated by the State Legislature.
D
Having come to the conclusion that the proviso to Rule 5 of the Rules
to the extent stated hereinabove, is ultra vires of the State Act, we are of the
opinion that it is not necessary for us to go into the larger question of
constitutional validity of the provisions of the State Act or the question of
E repugnancy which was argued on tl1e basis of the presumption that the State
Act has made provisions which run counter to the constitutional provisions
and the provisions of the Central Act.

For the reasons stated above, these appeals and petitions succeed and
the same are allowed. The proviso to Rule 5 of the Assam Agricultural
F Income Tax Rules, 1939 to the extent it permits recomputation of agricultural
income by the State Officers is declared as ultra vires, the impugned orders
of assessment are set aside with a direction to the Agricultural Income Tax
Officers concerned in the State of Assam to re- assess the agricultural income
of the appellants/petitioners on the basis of the computation of agricultural
G income from tea made by the Central Officers, subject to their right to seek
relief in the manner aforestated under Chapter XX(E) of the Central Act.

TI1e appeals and petitions are allowed. No costs.

v.s.s. Petitions and Appeals allowed.
H