Sanjeeva Row Nayudu, C.J.
1. In all these Civil Rules, the petitioners are the Maud Tea & Seed Company Ltd., Calcutta, and its director. In the petitioners' tea garden, tea bushes are grown and maintained and tea leaves are plucked from them and then carried to the factory maintained by the petitioners' estate for the purpose of being put through a manufacturing process, at the end of which the tea fit for marketing is produced. The income derived by the sale of the manufactured tea, therefore, comprises partly of the income derived from the agricultural produce and partly by the manufacturing process through which the tea leaves are put to until they reach the final shape and sold as tea in the market. The petitioners were charged to income-tax on the forty per cent. of the income and to agricultural income-tax under the Assam Agricultural Income-tax Act, 1939 (Act IX of 1939) (hereinafter referred to as 'the Assam Act'), in respect of the balance of income of sixty per cent. under Rule 24 of the Rules framed under the Indian Income-tax Act, 1922, read with the provisions of the Assam Act and the Rules made thereunder. The petitioners object for the apportionment of the income derived by the petitioners at forty per cent. as business income assessable to income-tax and sixty per cent. as agricultural income assessable under the Assam Act as unconstitutional, ultra vires the powers of the legislature and, therefore, bad.
2. The argument of the petitioners is that the said apportionment is arbitrary, that it is done under the Rules framed by the Central Board of Revenue under the control of the Central Government, that the power to make the Rules delegated to the Central Board of Revenue, as aforesaid, is a naked power, unrestricted and uncanalised and enables the executive to decide in an arbitrary manner for the aforesaid apportionment. The contention, therefore, is that the delegation of the rule making power is excessive delegation and cannot be treated as valid inasmuch as, according to the petitioners, the delegation amounts to an abdication of the power of Parliament to decide the matter in question, leaving it exclusively for the rule making authority, namely, the Central Board of Revenue, under the control of the Central Government.
3. Before we consider the respective arguments of the counsel on either side, it would be useful to extract the relevant provisions which are the subject-matter of attack in these cases. We shall first refer to the provisions of the Assam Act. Section 2(a) of the Act defines 'agricultural income' as follows:
'(a) 'Agricultural income' means--
(1) Any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land revenue in Assam or subject to a local rate assessed and collected by officers of the Government as such.
(2) Any income derived from such land by--
(i) agriculture, or
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market, or .....
Explanation.--Agricultural income derived from such land by the cultivation of tea means that portion of the income derived from the
cultivation, manufacture and sale of tea as is defined to be agricultural income for the purposes of the enactments relating to Indian income-tax.'
4. Section 2(b) of the Act defines 'agricultural income-tax' as the tax payable under the Act.
5. Section 3 of the Act, which is the charging section, is as follows :
'3. Agricultural income-tax at the rate or rates specified in the annual Assam Finance Acts subject to the provisions of Section 6 shall be charged for each financial year in accordance with, and subject to, the provisions of this Act on the total agricultural income of previous year of every individual. Hindu undivided or joint family, company, firm and other association of individuals.'
6. Section 6 of the Act enacts the limit of the taxable income. It states that the agricultural income-tax shall be payable by persons whose total agricultural income of the previous agricultural year exceeds Rs. 3,000, at such rates as may be laid down from year to year in the annual Assam Finance Acts. Section 8 of the Act deals with the determination of agricultural income mentioned in Clause (a) of Sub-section (2) of Section 2 of the Act. The second proviso to the section is important and may be extracted:
'Provided further that in cases of agricultural income from cultivation and manufacture of tea, the agricultural income for the purposes of this Act shall be deemed to be that portion of the income from cultivation, manufacture and sale which is agricultural income within the meaning of the Indian Income-tax Act and shall be ascertained by computing the income from the cultivation, manufacture and sale of tea as computed for Indian income-tax from which shall be deducted any allowances by this Act authorised in so far as the same shall not have been allowed in the computation for the Indian Income-tax Act.'
7. The petitioners attacked the vires and the validity of the Explanation to Section 2(a) of the Assam Act and also the second proviso to Section 8(2) of the Assam Act.
8. The Assam Agricultural Income-tax Rules, 1939, were framed by the State Government in exercise of the powers under Section 50, Sub-sections (1) and (2) of the Assam Act, hereinafter referred to as 'the Assam Rules'. Rule 5 of these Rules is attacked on the ground that the rule is ultra vires. This rule is as follows:
'5. In respect of agricultural income from tea grown and manufactured by the seller in the Province of Assam, the portion of net income worked out under the Indian Income-tax Act and left unassessed as being agricultural shall be assessed under this Act after allowing such deductions under the Act and the Rules made thereunder so far as they have not been allowed under the Indian Income-tax Act in computing the net income from the entire operation :
Provided that the computation made by the Indian Income-tax Officer
shall ordinarily be accepted by the Assam Agricultural Income-tax Officer
who may, for his satisfaction under Section 20 of the Assam Agricultural
Income-tax Act, obtain further details from the assessee or from the Indian
Income-tax Officer, but shall not without the previous sanction of the
Deputy Commissioner of Taxes or when there is no Deputy Commissioner of
Taxes, the Assistant Commissioner of Taxes empowered by the Commissioner
of Taxes in this behalf require under the proviso to Section 49 the production of account books already examined by the Indian Income-tax Officer
for determining the agricultural income from tea grown and manufactured
in Assam or refuse to accept the computation of the Indian Income-tax
Officer.'
9. A note is appended to this rule, which is also attacked. This note is as follows:
'Note.--(1) The Act applies to income from sales of tea grown and manufactured in Assam irrespective of whether the sale is made within or outside the Province of Assam.'
10. It may be mentioned at the outset that it is not disputed that the Assam State Legislature is competent to make laws and levy taxation in respect of agriculture and agricultural income. The Assam Act was made under the provisions of the Government of India Act, 1935, under which 'agriculture, including agricultural education and research, protection against pests and prevention of plant diseases; improvement of stock and prevention of animal diseases; veterinary training and practice; pounds and the prevention of cattle trespass' are included in item 20 of the Provincial List. Section 100 of the Government of India Act, 1935, laid down the powers of the provincial legislatures to make laws for the province or any part thereof in respect of any of the matters enumerated in List II in the Seventh Schedule to the Act, which is the provincial List. Hence, the power to make laws in regard to agriculture rests with the provincial legislature.
11. The expression 'agricultural income' is defined in Section 2(1) of the Indian Income-tax Act, 1922 (Act No. XI of 1922), which is as follows : '(1) 'Agricultural income' means--
(a) any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land-revenue in the taxable territories or subject to a local rate assessed and collected by officers of the Government as such;
(b) any income derived from such land by--
(i) agriculture, or
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind
to render the produce raised or received by him fit to be taken to market, or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in Sub-clause (ii);
(c) any income derived from, any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator, or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any operation mentioned in Sub-clauses (ii) and (iii) of Clause (b) is carried on :
Provided that the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator or the receiver of the rent-in-kind by reason of his connection with the land, requires as a dwelling-house, or as a store-house, or other out-building.'
12. It may be seen from the above that the definition of the expression 'agricultural income' adopted in the Assam Act is exactly the same as that adopted in the Indian Income-tax Act, 1922, except for the addition of the Explanation to Section 2(a) of the Assam Act.
13. Under Section 59 of the Indian Income-tax Act, 1922, power is given to the Central Board of Revenue to make rules for carrying out the purposes of the Act and for the ascertainment and determination of any class of income, subject to the control of the Central Government. The relevant portions of this section are as follows:
'59. Power to make rules.--(i) The Central Board of Revenue may, subject to the control of the Central Government, make rules for carrying out the purposes of this Act and for the ascertainment and determination of any class of income. Such rules may be made for the whole of the taxable territories or for such part thereof as may be specified.
(2) Without prejudice to the generality of the foregoing power, such rules may-
(a) prescribe the manner in which, and the procedure by which, the income, profits and gains shall be arrived at in the case of-
(i) incomes derived in part from agriculture and in part from business;
(ii) persons residing out of the taxable territories ;,........
(3) In cases coming under Clause (a) of Sub-section (2), where the income, profits and gains liable to tax cannot be definitely ascertained, or can be ascertained only with an amount of trouble and expense to the assessee which, in the opinion of the Central Board of Revenue, is unreasonable, the rules made under that sub-section may-
(a) prescribe methods by which an estimate of such income, profits and gains may be made, and
(b) in cases coming under Sub-clause (i) of Clause (a) of Sub-section (2). prescribe the proportion of the income which shall be deemed to be income, profits and gains liable to tax ;
and an assessment based on such estimate or proportion shall be deemed to be duly made in accordance with the provisions of this Act.
(4) The power to make rules conferred by this section shall, except on the first occasion of the exercise thereof, be subject to the condition of previous publication.
(5) Rules made under this section shall be published in the Official Gazette, and shall thereupon have effect as if enacted in this Act.'
14. In exercise of the powers conferred on the Central Board of Revenue by virtue of Section 59 of the said Act, rules were framed by them and these rules are known as 'The Indian Income-tax Rules, 1922'. Rules 23 and 24 are relevant and require to be considered in connection with these cases and these rules are as follows:
'23. (1) In the case of income which is partially agricultural income as defined in Section 2 and partially income chargeable to income-tax under the head 'Business', in determining that part which is chargeable to income-tax the market value of any agricultural produce which has been raised by the assessee or received by him as rent-in-kind and which has been utilised as a raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.
(2) For the purposes of Sub-rule (1),' market value ' shall be deemed to be:--
(a) Where agricultural produce is ordinarily sold in the market in its raw state, or after application to it of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be taken to market the value calculated according to the average price at which it has been so sold during the year previous to that in which the assessment is made.
(b) Where agricultural produce is not ordinarily sold in the market in its raw state, the aggregate of-
(1) the expenses of cultivation ;
(2) the land revenue or rent paid for the area in which it was grown; and
(3) such amount as the Income-tax Officer finds, having regard to all the circumstances in each case, to represent a reasonable rate of profit on the sale of the produce in question as agricultural produce.
'24. Income derived from the sale of tea grown and manufactured by the seller in the taxable territories shall be computed as if it were income derived from business, and 40 per cent. of such income shall be deemed to be income, profits and gains liable to tax :
Provided that in computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, unless such area has previously been abandoned.'
15. The petitioners claim that Rule 24 is unconstitutional and ultra vires, inasmuch as it involves excessive delegation and a naked and uncanalised and uncontrolled power is given to the executive, that is, the Central Board of Revenue under the control of the Central Government, to make the rule in question without defining the limits in which the executive's discretion and judgment has to be exercised in regard to the apportionment of the income between agricultural and income-tax.
16. In this connection, it is necessary to point out that Article 366(1) of the Constitution defines 'agricultural income' and this definition is as follows:
' 'Agricultural income' means agricultural income as defined for the purposes of the enactments relating to Indian income-tax. '
17. It may be seen that this definition adopts the definition found in the Indian Income-tax Act, 1922. Thus, what we find now is that the definition given in the Assam Act is exactly, barring the Explanation, on all fours with the Indian Income-tax Act and these definitions are accepted and adopted as correct definitions by the Constitution. It may be seen that even the Government of India Act, 1935, adopted the same definition as is done under the Constitution, in Section 311(2) thereof, which is as follows:
'(2) In this Act, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say:--
'agricultural income' means agricultural income as defined for the purposes of the enactments relating to Indian income-tax'.
and when this provision was included when the Government of India Act, 1935, was passed, the Indian Income-tax Act, 1922, as well as Rule 24 framed thereunder were in force as law. Hence, it must be assumed that the Government of India Act, 1935, adopted these definitions under the Indian Income-tax Act, and subsequently, when the Constitution was passed, the same was in the same manner adopted by the Constitution.
18. The main attack of the petitioners is against the validity of the rule making power conferred by Section 59 of the Indian Income-tax Act, 1922, and also the validity of Rule 24 made in exercise of the power conferred by that section. On the first point, the contention urged is that there has been an excessive delegation in the section, that uncontrolled, uncanalised and
unrestricted power is given to the executive to frame rules, the legislature thereby abdicating its power of legislation, as it were, in favour of the executive and that this amounted to excessive delegation, far in excess of the permissible limitations, within which delegation of legislative power could be made in favour of the executive.
19. Before we deal with this aspect of the matter, it would be necessary to notice that the Indian Income-tax Act was passed by the Central Legislature constituted under the Government of India Act, 1915. At that time the Indian Legislature had plenary power to enact the law, whereas the provincial legislature had only the power to pass laws in respect of the transferred subjects. Section 65 of the Government of India Act, 1915, dealt with the power of the Indian legislature to make laws. Under that section power was given to the making of laws for all persons, for all courts, and for all places and things, within British India and for all subjects of His Majesty and servants of the Crown, Government officers, and the armed forces anywhere in India. Section 45A of the Government of India Act, 1915, classified the central and provincial subjects. Prior to 1922 and at the time the Indian Income-tax Act, 1922, was passed, the Central Legislature had the power to impose tax on agricultural income, the local legislature having only the power to legislate in respect of the transferred subjects. Hence, so far as the legislative competence goes, there could be no question that the Indian Income-tax Act, 1922, was validly passed by the Indian legislature. The Indian Income-tax Act, 1922, continued to be operative by virtue of Section 311 of the Government of India Act, 1935.
20. The contention that Section 59 of the Indian Income-tax Act, 1922, suffers from the vice of excessive delegation has to be examined in the light of the conditions as laid down both by the Privy Council as well as by the Supreme Court in regard to the conditions governing the delegation of legislative power. That delegation to a limited extent must necessarily be made is obvious and accepted as necessary to satisfactorily giving effect to the provisions of any enactment. The leading case on the subject of delegation of legislative power of the Supreme Court is Delhi Laws Act case, A.I.R. 1951 S.C. 532. It is, however, not necessary to refer to that case in detail in connection with this matter. In Banarsi Das v. State of Madhya Pradesh, [1958] 9 S.T.C. 388, 394, 395; A.I.R. 1958 S.C. 909 the Supreme Court observed as follows:
'While a power to execute a law, it was argued, could be delegated to the executive, the power to make it must be exercised by the legislature itself,...... It was also contended that the grant of a power to an outsideauthority to repeal or modify a provision in a statute passed by the legislature was unconstitutional, and that, in consequence, the impugned notification was bad in that, in reversal of the policy laid down by the legislature in Act No. XVI of 1949 that the sales to Government should be excluded from the operation of the Act, it withdrew the exemption which had been granted thereunder. And the observations in In re the Delhi Laws Act, 1912, A.I.R. 1951 S.C. 332, 341, 399, 400. etc. and the decision in Rajnarain Singh v. Patna Administration Committee, A.I.R. 1954 S.C. 569; [1955] 1 S.C.R. 290, 301 were strongly relied on as establishing this contention. Mr. N.C. Chatterjee particularly relied on the following observations of Bose J., at page 574, in Rajnarain Singh's case:
'In our opinion, the majority view was that an executive authority can be authorised to modify either existing or future laws but not in any essential feature. Exactly what constitutes an essential feature cannot be enunciated in general terms, and there was some divergence of view about this in the former case, but this much is clear from the opinions set out above ; it cannot include a change of policy.'
21. On these observations, the point for determination is whether the impugned notification relates to what may be said to be an essential feature of the law, and whether it involves any change of policy. Now, the authorities are clear that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods, and the like.
22. In Powell v. Appollo Candle Company, [1885] 10 App. Cas. 282 (P.C.) the question arose as to whether Section 133 of the Customs Regulation Act of 1879 of New South Wales which conferred a power on the Governor to impose tax on certain Articles of import was an unconstitutional delegation of legislative powers. In holding that it was not, the Privy Council observed:
'It is argued that the tax in question has been imposed by the Governor and not by the legislature who alone had power to impose it. But the duties levied under the Order-in-Council are really levied by the authority of the Act under which the order is issued. The legislature has not parted with its perfect control over the Governor, and has the power, of course, at any moment, of withdrawing or altering the power which they have entrusted to him. In these circumstances, their Lordships are of opinion that the judgment of the Supreme Court was wrong in declaring Section 133 of the Customs Regulation Act of 1879 to be beyond the power of the legislature.'
23. Similarly, in Hampton Jr. & Co. v. United States, [1928] 276 U.S. 394; 72 L. Ed. 624 ......the question arose
whether Section 315(b) of the Tariff Act, 1922, under which the President had been empowered to make such increases and decreases in the rates of duty as were found necessary for carrying out the policies declared in the statute was not an unconstitutional delegation. Relying on the above decisions, their Lordships of the Supreme Court in the above case held that the power conferred on the State Government by Section 6(2) to amend the schedule relating to exemption was in consonance with the accepted legislative practice relating to the topic, and was not unconstitutional.
24. Reliance bas been placed on the case of Hamdard Dawakhana v. Union of Indict, A.I.R. I960 S.C. 55, 538 and the following passage, in particular, may be quoted :
'Consequently when the rule making authority specifies conditions and diseases in the Schedule it exercises the same delegated authority as it does when it exercises powers under Sub-section (1) and makes other rules and therefore it is delegated legislation. The question for decision then is, is the delegation constitutional in that the administrative authority has been supplied with proper guidance. In our view the words impugned are vague. Parliament has established no criteria, no standards and has not prescribed any principle on which a particular disease or condition is to be specified in the Schedule. It is not stated what facts or circumstances are to be taken into consideration to include a particular condition or disease. The power of specifying diseases and conditions as given in Section 3(d) must therefore be held to be going beyond permissible boundaries of valid delegation. As a consequence the Schedule in the rules must be struck down.'
25. Reliance is also placed on the following passage:
'We are of the opinion therefore that the words 'or any other disease or condition which may be specified in the rules made under this Act, confer uncanalised and uncontrolled power to the executive and are therefore ultra vires. But their being taken out of Clause (d) of Section 3 does not affect the constitutionality of the rest of the clause or section as they are severable.'
26. It is argued from this decision that as in the instant case also uncanalised and naked power is given to the executive to decide under Rule 24, as it likes, the rule must be held to be bad and the delegation must be deemed to be unconstitutional. Reliance has also been placed on Devi Das v. State of Punjab, [1967] 20 S.T.C. 430; A.I.R. 1957 S.C. 1895 where at page 1901, Subba Rao C.J. enunciated the principle of excess delegation as follows :
'The Constitution confers a power and imposes a duty on the
legislature to make laws. The essential legislative function is the determination of the legislative policy and its formulation as a rule of conduct.
Obviously it cannot abdicate its functions in favour of another. But in view
of the multifarious activities of a Welfare State, it cannot presumably work
out all the details to suit the varying aspects of a complex situation. It
must necessarily delegate the working out of details to the executive or any other agency. But there is a danger inherent in such a process of delegation. An over-burdened legislature or one controlled by a powerful executive may unduly overstep the limits of delegation. It may not lay down any policy at all; it may declare its policy in vague and general terms; it may not set down any standard for the guidance of the executive; it may confer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self-effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. It is for a court to hold on a fair, generous and liberal construction of an impugned statute whether the legislature exceeded such limits. But the said liberal construction should not be carried by the courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities. It is the duty of the court to strike down without any hesitation any arbitrary power conferred on the executive by the legislature.' (see Vasanlal Maganbhai Sanjanwala v. State of Bombay, (1961] 1 S.C.R. 341, 356-57; A.I.R. 1961 S.C. 4.11-12).
27. In that case, under Section 5 of the Punjab General Sales Tax Act, 1948, as it originally stood, an uncontrolled power was conferred on the provincial Government to levy every year on the taxable turnover of a dealer a tax at such rates as the said Government might direct. Under that section the legislature practically effaced itself in the matter of fixation of rates and it did not give any guidance either under that section or under any other provisions of the Act. Accordingly, it was held that the delegation was excessive and that Section 5 of the said Act under which power is given to the executive was held void.
28. Speaking generally, therefore, we are clearly of opinion that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working out of the taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods, and the like. Applying the tests propounded in the above quoted decisions to the instant case, we find that Section 59 of the Indian Income-tax Act, 1922, laid down the policy of the legislature in clear terms, namely, the ascertainment and determination of any class of income, and provided particularly for prescribing the manner in which and the procedure by which the income, profits and gains shall be arrived at in the case of incomes derived in part from agriculture and in part from business. The legislature has indicated in Section 59(3) the circumstances in which the rule, like Rule 24, could be framed and these are ;
(1) where the income, profits and gains liable to tax cannot be definitely ascertained; or
(2) can be ascertained only with an amount of trouble and expense to the assessee which, in the opinion of the Central Board of Revenue, is unreasonable; and in such circumstances the sub-section provides that the rules may :
(a) prescribe the methods by which an estimate of such income, profits and gains may be made ; and
(b) in cases coming under Sub-clause (i) of Clause (a) of Sub-section (2), where income is derived in part from agriculture and in part from business, prescribe the proportion of the income which shall be deemed to be income, profits and gains liable to tax under the Indian Income-tax Act.
29. It is thus clear that the object and the policy and the circumstances in which the rules have to be framed have all been set out in Section 59(3) and what was left to the executive, in the instant case the Central Board of Revenue, was to work out the details of the proportion which Rule 24 has provided. It is obvious that these are matters of detail which it is more convenient and proper to be left to the executive to determine, and it is in accordance with the policy indicated, that Rule 24 of the Indian Income-tax Rules had been framed providing for the income derived from the sale of tea, grown and manufactured by the seller in the taxable territories to be computed as if it were income derived from business, and 40 per cent. of such income shall be deemed to be income, profits and gains liable to tax. What portion of the income is derived from agriculture in the matter of tea grown and what portion should be business income for the purpose of the Indian Income-tax Act is a matter of detail which could only be effectively determined by the executive, and Rule 24 lays down that the entire income derived from the growth and manufacture of tea is to be treated as if it were business income and 40 per cent. thereof should be liable to income-tax assessment under the Indian Income-tax Act, 1922.
30. In this connection, it must be noted that the income derived from the cultivation and manufacture of tea comprises partly of the value of the tea leaf grown which is utilised in producing the tea, which is accepted as fit for marketing and partly of the value that it acquires by being put through the process of manufacture. In other words, the marketable commodity of tea acquires its value partly by reason of the fact that it is grown in the tea gardens and plucked and brought to the factory where the tea is dried and put through certain processes until it acquires the condition that it could be sold in the market, and the expenditure involved inputting the tea leaves through this process of manufacture. Thus the income derived by the sale of tea in the market is party derived by agricultural operations and partly by adopting the manufacturing processes. It is common knowledge
that the manufacturing process of tea involves the drying or withering of the green tea leaves and the rolling and drying and storing thereof. The process of drying or withering the tea leaf under the sun and rolling it by hand has been replaced by the modern method of effecting it by the machinery. This process in modern times involves the withering of the tea by the use of steam or electric power. It is then fired by means of hot air from a furnace and is then finally sorted into grades and packed for export. This process may vary in different tea gardens, depending on the nature of the machinery employed. But the fact remains that after the tea leaf passes through the manufacturing process, it is still the leaf in specie, but is reduced to a state in which it would be fit for consumption and thus being sold in the market. Hence, the grower and the manufacturer of tea incurs the expenditure in producing the tea in its final shape, partly over the agricultural operation involved in growing tea leaf and partly in the manufacturing process involved in making tea leaf fit for marketing, and this income has to be apportioned in the approximate proportion of the expenditure involved in the agricultural operations and in the manufacturing operations. That every tea producer has to grow tea and has to put it through a manufacturing process to make it fit for marketing is beyond question. In such circumstances, the legislature advisedly thought it not correct to treat the entire income derived from the sale of tea either as agricultural income or as business income and the proportion has to be maintained on a rational basis and it is this that has been done by the pissing of Rule 24, which, for the purposes of income-tax, treats the entire income as if it were business income, but lays down that only 40 per cent. thereof should be assessed as business income. We see no justification for holding that the framing of this rule involved any exercise of excessive delegation of power of legislation, nor are we satisfied that Section 59 of the Indian Income-tax Act, 1922, involved any excess delegation of legislative power.
31. In English and Scottish Joint Co-operative Wholesale Society Ltd. v. Commissioner of Agricultural Income-tax, [1948] 16 I.T.R. 270, 272 (P.C.) the assessment made under the Assam Act has been upheld by their Lordships of the Privy Council on the basis of apportionment made in Rule 24 of the Indian Income-tax Rules, 1922, and Rule 5 of the Assam Act. The following observations of their Lordships of the Privy Council may be quoted with advantage:
'The Assam Agricultural Income-tax Act applies to all agricultural income derived from land situated in the Province of Assam Section 5) and it provides by the charging section (Section 3) that agricultural income-tax at the rate specified in the annual Assam Finance Acts shall be charged for each financial year on the total agricultural income of the previous year.
The part of the definition section (Section 2) which is relevant to the present case defines agricultural income as any income derived from land used for agricultural purposes by agriculture. The Indian Income-tax Act contains a definition of agricultural income in the same terms, but by a rule (Rule 24) made under it, ' income derived from the sale of tea grown and manufactured by the seller in British India shall be computed as if it were income derived from business and 40 per cent. of such income shall be deemed to be income, profits and gains liable to tax.' The scheme of the Assam Act is to tax the remaining 60 per cent. only of the income derived from the sale of tea grown and manufactured by the seller in Assam and that result is secured by suitable provisions which need not be recited (see the Explanation to Section 2, the proviso to Section 8 and Rule 5 made under the Act).'
32. In the final result, their Lordships upheld the assessment made under the provisions of the Assam Act and the Rules framed thereunder, read with Rule 24 of the Indian Income-tax Rules,
33. The very questions that have arisen for consideration in these cases came up for consideration before a Constitution Bench of the Supreme Court in Karimtharuvi Tea Estates Ltd. v. State of Kerala,[1963] 48 I.T.R. (S.C.) 83, 88; A.I.R. 1963 S.C. 760. That was a case under the Kerala Agricultural Income-tax Act, which follows closely the provisions of the Assam Act. In that case, Kerala State's power to tax income from tea to agricultural income-tax is limited to taking 60% of the income computed for the purpose of the Indian Income-tax Act as if it were income derived from business, was questioned on the ground that the provisions of the Kerala Agricultural Income-tax Act, 1950, as amended by Act IX of 1961, were null and void. In that case, their Lordships had to examine the various provisions of the Act including the definition of 'agricultural income' as well as the rule making power of the executive under Rule 24 of the Indian Income-tax Rules. The following observations occurring at page 763 in that case may be quoted with advantage :
'The result of Rule 24 is that the income derived from the sale of tea grown find manufactured by the seller is to be computed in the first instance as if it was income derived from business. Consequently, the income would be computed in accordance with the provisions of Section 10 of the Income-tax Act. Clause (xv) of Sub-section (2) of Section 10 provides that in computing the income any expenditure by an assessee not being an allowance of the nature described in any of the Clauses (i) to (xiv) inclusive and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business, would be deducted. Of the income so computed, 40 per cent. is, under Rule 24, to be treated as income liable to income-tax and it would follow that the other 60 per cent. only will be deemed to be ' agricultural income' within the meaning of that expression in the Income-tax Act. It follows, therefore, that the power of the State legislature to make a law in respect of taxes on agricultural income arising from tea plantations will be limited to legislating with respect to the agricultural income so determined. The State legislature is free in the exercise of its plenary legislative power to allow further deductions from such computed agricultural income as it considers fit, but it cannot add to the amount of the agricultural income so computed by providing that certain items of expenditure deducted in the computation of the income from a business under the provisions of the Income-tax Act be not deducted and be considered to be a part of the taxable agricultural income.'
34. Lower down, dealing with the power of the State legislature to enact the law in respect of agricultural income, their Lordships observed:
'It is not disputed for the respondent that the power of the State legislature to enact a law in respect of agricultural income relates only to such agricultural income as is defined in Article 366 of the Constitution.
It is, however, urged that for the purpose of this definition, one has to look to the definition of ' agricultural income' in the Income-tax Act and not to the rules made thereunder. We do not agree. 'Agricultural income' as defined in the Constitution means ' agricultural income for the purpose of the enactments relating to income-tax'. One such enactment is the Income-tax Act. Rule 24 of the Income-tax Rules has been made under the powers conferred by Section 59 of the Income-tax Act and has effect as if enacted in that Act. When Section 59 of the Income-tax Act provides for the rules made under that Act to prescribe the proportions of income from business, and income from agriculture in the entire income derived in part from agriculture and in part from business, the proportion so prescribed must be taken to be prescribed by the Act. These rules were in existence in 1950 when the Constitution incorporated the definition of 'agricultural income' from the Income-tax Act by reference. The definition of the term was bound up with the rules.'
35. In view of the above observations of their Lordships of the Supreme Court, it follows that the Explanation to Section 2(a) of the Assam Act which merely gives effect to Rule 24 of the Income-tax Rules cannot be called into question. This Explanation is as follows:
'Explanation.--Agricultural income derived from such land by the cultivation of tea means that portion of the income derived from the cultivation, manufacture and sale of tea as is defined to be agricultural income for the purposes of the enactments relating to Indian income-tax.'
36. It may be seen that this Explanation contains nothing more than what is laid down in Rule 24, under which the total income is assessed as if it
were business income, and 40 per cent. is taken for the purposes of assessment under the Income-tax Act. The balance of 60 per cent. which represents the agricultural income is assessable to agricultural income-tax under the Assam Act. Any doubt on the subject has been cleared by the decision of the Supreme Court in Karimtharuvi Tea Estates Ltd. v. State of Kerala.
37. It is contended by Mr. Ghosh that having regard to the use of the word 'ordinarily' in Rule 23(2)(a), quoted earlier in this judgment, it excludes tea from its operation. The argument is not understood. There may be agricultural produce which may be sold in the market in its raw state or after application of an ordinary process to render it fit to be taken to the market. But that makes no difference at all, particularly when it is obvious that tea has to be put through the process of manufacture before it is rendered fit for marketing. The decisions relied on by Mr. Ghosh, namely, In re Bhikanpur Sugar Concern, A.I.R. 1919 Pat. 260 (F.B.) and Sheolal Ramlal v. Income-tax Commissioner, A.I.R. 1932 Nag. 61 have no application to the instant case as they do not deal with tea. Another case cited by Mr. Ghosh, Killing Valley Tea Company Ltd. v. Secretary of State, A.I.R. 1921 Cat 40 is a case long before the Indian Income-tax Act, 1922, and the Rules framed thereunder became law and, therefore, is not of much assistance.
38. Taking all the facts and circumstances into consideration, we are satisfied that both the proviso to Section 8 of the Assam Act and Rule 5 and the Explanation thereto are in conformity with the Indian Income-tax Act and the Rules framed thereunder, and therefore cannot be struck down as unconstitutional.
39. By way of reply Mr. Ghosh raised a new point, in a faint way, that although the Indian Income-tax Act, 1922, is a pre-Constitution Act, it can certainly be struck down under Article 13 of the Constitution as offending or being violative of fundamental rights. But this argument has not been advanced earlier in the case. We consider that there is no substance in this contention, which does not, in our opinion, merit serious consideration.
40. In the result, therefore, we are clearly of opinion that no exception can be taken to the assessment made against the petitioners under the Assam Act and they are liable to pay agricultural income-tax as assessed under the said Act. These petitions are dismissed and the rules are discharged. In the circumstances, we make no order as to costs.