Gauhati High Court
George Williamson (Assam) Ltd. And Anr. vs Union Of India (Uoi) And Ors. on 22 June, 2007
Equivalent citations: 2007(3)GLT695
Author: H.N. Sarma
Bench: D. Biswas, H.N. Sarma
JUDGMENT H.N. Sarma, J.
1. Questioning the constitutional validity of the provisions of Section 115-C(1) and Section 115-C(3) of the Income Tax Act, 1961, (hereinafter referred to as the "Act"), so far as levy of the additional income-tax on dividends distributed on the basis of agricultural income on the ground of legislative incompetence of Parliament and also praying for a writ in the nature of mandamus to cancel/withdraw the levy of additional income-tax assessed upon the petitioners for the periods 1996-97 to 1999-2000, the present writ petition has been filed.
2. We have heard Dr. D. Pal, learned senior counsel along with Dr. A. K. Saraf, learned senior counsel, and Mr. U. Bhuyan, learned standing counsel for the revenue.
3. The necessary facts, relevant for the purpose of disposal of this writ petition, inter alia, are that petitioner No. 1 is a company limited by shares, of which petitioner No. 2 is the shareholder. Petitioner No. 1 owns several tea estates within the State of Assam, wherein it produces green tea leaves by agricultural process and manufactures black tea therefrom in each of its tea estates and sells it in the market. The petitioner also purchases green tea leaves from other tea estates and manufactures black tea and derives income therefrom. Petitioner No. 1 is an assessee under the Income Tax Act and necessary assessments have been completed up to the assessment year 1997-98, it duly filed all the returns up to the assessment year 1999-2000 and paid all taxes either by way of advance tax or by way of tax deducted at source and/or on self-assessment and/or on the basis of demand after finalization of assessments and since the income of the petitioner company is a composite one all the returns showing the income and all the taxes on the said income were paid on the income determined as per rule 8 of the Income-tax Rules, 1962. It is further pleaded that petitioner No. 1 is also an assessee under the Assam Agricultural Income-tax Act, 1939, and duly filed returns before the Assam agricultural income-tax authority up to the assessment year 1999-2000.
4. The petitioner-company has pleaded that in the financial year 1996-97, relevant to the assessment year 1997-98 the income derived from the sale of tea grown and manufactured in India was Rs. 4,25,63,251. Forty per cent, of this being Rs. 1,70,25,301 is assessable as per rule 8 of the Income-tax Rules and 60 per cent, of the income being Rs. 2,55,37,950 was assessable under the Assam Agricultural Income Tax Act as agricultural income. The total tax payable by the petitioner-company upon the assessable income along with interest assessable, aggregated to Rs. 4,81,61,237, which the petitioner duly paid either by way of advance tax or by way of tax deducted at source and/or on self-assessment. The petitioner-company also filed return under the Assam Agricultural Income Tax Act before the Agricultural income-tax authority declaring 60 per cent, of the composite income amounting to Rs. 4,25,63,251 as agricultural income earned from growing and manufacturing of tea and the total amount disclosed as agricultural income for the assessment year 1997-98 was Rs. 2,50,37,951 and the agricultural income-tax due thereon amounting to Rs. 1,50,22,771 was duly paid by way of advance tax. The petitioner-company having paid some excess amount of tax for the said period it claimed refund of the excess amount so paid amounting to Rs. 31,77,229. The assessing officer computed the assessment of the petitioner for the assessment year, 1997-98 at Rs. 14,91,96,025 and took 40 per cent, thereof as per rule 8 of the Income-tax Rules as income assessable under the Act. Being aggrieved by the said assessment order, the petitioners preferred an appeal before the Commissioner (Appeals), which is still pending.
5. So far as the financial year 1997-98 relevant to the assessment year 5 1998-99, the income derived from the sale of tea grown and manufactured by the petitioner-company in India was Rs. 15,18,78,266, 40 per cent, whereof Rs. 6,07,51,306 was the income assessable under rule 8 of the Income-tax Rules and 60 per cent, thereof amounting to Rs. 91,26,960 was assessable as agricultural income under the Assam Agricultural Income Tax Act. It is alleged that the petitioner-company duly paid necessary tax either by way of advance tax or by way of tax deducted at source and/or on self-assessment amounting to Rs. 6,02,03,079 under the Act. The petitioner also paid the necessary agricultural income-tax payable by it on 60 per cent, of the composite income of Rs. 15,18,78,266 and the total agricultural income-tax payable after necessary calculation amounting to Rs. 4,08,82,977 was duly paid either by way of advance tax or by way of tax deducted at source and/or on self-assessment. The petitioner-company having paid some excess amount, it claimed refund of such amount, in the return so filed.
6. Similarly for the financial year 1998-99, relevant for the assessment year 1999-2000, the income derived from the sale of tea grown and manufactured was Rs. 33,55,02,961, 40 per cent, of which Rs. 13,41,01,184 being the income assessable under the Act and 60 per cent, of the said income was Rs. 20,13,01,777 being agricultural income assessable under the Agricultural Income Tax Act aggregated at Rs. 12,17,96,200 with interest paid either by way of advance tax or by way of tax deducted at source and/or on self-assessment. The petitioner-company also filed return under the Agricultural Income Tax Act for the said period declaring agricultural income being 60 per cent, of the composite income amounting to Rs. 10,82,400 claiming necessary deduction admissible under the law. The petitioner-company paid necessary agricultural income-tax payable upon the agricultural income amounting to Rs. 8,92,82,027 either by way of advance tax or by way of tax deducted at source and/or on self-assessment
7. The further pleadings of the petitioner-company are that Parliament having amended the provisions of the Income Tax Act by the Finance Act, 1997, inserted Chapter XII-D consisting of Section 115-C with effect from June 1, 1997, providing for payment of additional income-tax on any amount declared, distributed or paid by a domestic company by way of dividend whether out of current or accumulated profits, the petitioner-company was liable to pay such additional income-tax at the rate of 10 per cent, under the amended provision. The petitioner-company having paid dividend amounting to Rs. 5,67,00,000 during the financial year 1996-97 became liable for additional income-tax thereon. The petitioner-company also having paid sizeable amounts by way of dividend to its shareholders for the financial years 1996-97, 1997-98, 1998-99 and 1999-2000 they also became liable to pay additional income-tax in terms of newly inserted provisions under Section 115-C of the Act on the dividend paid during the said period.
8. The petitioner-company further pleaded that Article 246(1) of the Constitution confers exclusive power to legislate with respect to any matter enumerated in List I (Union List) in the Seventh Schedule upon Parliament and under Article 246(3), the State Legislature has exclusive power to make laws with respect to any of the matters enumerated in List II (State List) in the Seventh Schedule of the Constitution. Article 246(2) of the Constitution, empowers both Parliament and the State Legislature to make laws with respect to any matter enumerated in List III, i.e. Concurrent List, of the Seventh Schedule. Entiy 82 of List I (Union List) deals with the subject CIT v. Khatau Makanji Spg. and Wvg. Co. Ltd. ;
Tata Tea Ltd. v. State of West Bengal ;
Khatau Makanji Spg. and Wvg. Co. Ltd. v. CIT ;
Jayshree Tea and Industries Ltd. v. Union of India ;
Gannon Dunkerley and Co. v. State of Rajasthan ;
CIT v. Vadilal Lallubhai/Sakarlal Balabhai ;
Anglo-American Direct Tea Trading Co. Ltd. v. Commr. of Agrl. I. T. ;
CIT v. Mother India Refrigeration Industries P. Ltd. ;
Ajay Hasia v. Klialid Mujib Sehravardi ;
R. M. D. Chamarhaugwalla v. Union of India ; and S. Kumaraswami v. ITO .
9. In the conspectus of submissions made by learned counsel for the parties, the question that falls for consideration is as to whether Parliament has legislative competence to enact law levying additional income-tax upon the amount of dividend paid by a company having certain amount of its income from agriculture, or in other words whether the provisions of Section 115-C(1) and Section 115-C(3) of the Income Tax Act is an invalid piece of legislation, having been enacted without having any legislative competence of Parliament. Juxtaposing the submissions countenanced by learned counsel for the parties, it further requires to be gone into as to whether the dividends paid by the petitioner-company can be treated as an income paid by the petitioner out of the part of income derived from the agricultural income.
10. For ready and handy reference, the impugned provisions of Section 115-C as introduced by the Finance Act, 1997, are quoted hereinbelow.
Taxes on income other than agricultural income". Entry 46 of List II (State List) deals with the subject "Taxes on agricultural income" and the State Legislature has the exclusive power and jurisdiction to legislate laws in respect of agricultural income-tax and Parliament has the exclusive power to legislate laws on matters other than agriculture income. Therefore, it is contended that the petitioner-company having derived its income from the composite activities by growing and manufacturing tea a portion of such income is agricultural income and the remaining portion is non-agricultural income. As per rule 8 of the Income-tax Rules, 1962, the income derived from sale of tea grown and manufactured by the seller is computed as if it is income derived from business and 40 per cent, of such income so computed shall be deemed to be non-agricultural income liable to pay income-tax and the remaining balance of 60 per cent, of the income so computed is to be treated as agricultural income which can be taxed only by the State Legislature under the agricultural income-tax. Parliament has no competence, authority or jurisdiction either to legislate or to impose any tax with respect to such agricultural income. The petitioners have further pleaded that Parliament has no legislative competence to levy additional income-tax upon dividend paid from past agricultural income paid by them and, as such, the said provision of the Act is not a valid piece of legislation legislating on a subject not falling under the Union List and, therefore, is liable to be struck down as ultra vires. Consequently, the petitioners claim for withdrawal of all the levies of additional income-tax for the financial years 1996-97, 1997-98, 1998-99 and 1999-2000 in respect of the profits which represent agricultural income, distributed as dividend and restraining the respondents from imposing any additional income-tax in respect of that part of the profit it being agricultural income and distributed as dividend.
Countering the averments made in the writ petition, an affidavit in 9 opposition has been filed on behalf of the revenue wherein it is pleaded, inter alia, that the challenge to the power, jurisdiction and competence of Parliament to legislate and levy additional income-tax by inserting Section 115-C to the Income Tax Act is unfounded and untenable. The provisions of Section 115-C(1) and 115-C(3) of the Act are intra vires the Constitution and it is also within the legislative competence of Parliament to enact the said piece of law. Nor does the impugned statutory provisions infringe any fundamental right or any Constitutional provision, it is contended.
In support of the rival contentions of the parties, the following decisions have been cited at the Bar.
Ordinarily, capitalization means conversion of profits or income into capital, e.g., by a resolution of the company. A company subject to its constitution capitalizes its profits by applying them by paying up unissued shares on debentures, or other securities as fully paid to its members. The profits of a company can be capitalized according to the articles of association and the law.
The definition "dividend" which is an inclusive one discloses that five different categories of sums have been included under it out of which, four are "distribution" by a company and the fifth one is "payment" by the company. Sub-clauses (a) to (d) of Section 2(22) of the Act speaks of distribution by the company to the shareholders. The concept of taking share of the accumulated profits distributed by a company and received by its shareholders is inherent in these sub-clauses. Again turning to Sub-clause (e), it is seen that the said clause deals with individual shareholders.
The Income Tax Act provides levying of tax on the income. The following heads of income can be found under Section 14 of the Act.
(a) Salaries,
(b) Interest on securities (omitted by the Finance Act, 1988),
(c) Income from house property,
(d) Profits and gains of business or profession,
(e) Capital gains,
(f) Income from other sources.
Section 10 of the Act shows that in computing the total income, the agricultural income is not to be included. "Agricultural income" has been defined under Section 2(1A) of the Act which provides, inter alia, that "agricultural income" means any rent or revenue derived from land which is situated in India and is used for agricultural purposes, any income derived from such land by agriculture or 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 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 paragraph (ii) of this sub-clause and 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 process mentioned in paragraphs (ii) and (iii) of Sub-clause (b) is carried on.
On analysis of the incidence of the agricultural income to be fallen under jurisdictional authority of the State Legislature under entry 46 of the State List for enactment any tax relating thereto, such agricultural income must come within the four corners of the definition of agricultural income as defined in Section 2(1A) of the Act, which provides that such income should be derived from the land, building used for the agricultural purpose and the income derived from such land by way of agricultural purpose by any process ordinarily employed by the cultivator therefor.
The concept of "dividend" as defined in the Act with its necessary underneath concept, paid out of the income is distinct and separate, without having any direct relation to the agriculture, may be the income from which such dividend is paid is derived by way of agriculture. The concept of "dividend" as well as "agricultural income" are distinct and separate and both do not fall within the common category to be subjected to analogously for the purpose of taxing as additional income-tax.
Turning to the cases cited at the Bar, we first take up the case of Mrs. Bacha F. Guzdar v. CIT . The apex court dismissing the appeal of the appellant/assessee, held, inter alia at paragraphs 6 and 7 as follows (pages 4, 5) :
In order, however, that dividend may be held to be agricultural income it will be incumbent upon the appellant to show that, within the terms of the definition, it is rent or revenue derived from land which is used for agricultural purposes. Mr. Kolah, for the appellant, contends that it is revenue derived from land because 60 per cent, of the profits of the company out of which dividends are payable are referable to the pursuit of agricultural operations on the part of the company. It is true that the agricultural process renders 60 per cent, of the profits from land which is used for agricultural purposes exempt from tax in the hands of the company but can it be said that when such company decides to distribute its profits to the shareholders and declares the dividends to be allocated to them, such dividends in the hands of the shareholders also partake of the character of revenue derived from land which is used for agricultural purposes ? Such a position if accepted would extend the scope of the vital words 'revenue derived from land' beyond its legitimate limits. Agricultural income as defined in the Act is obviously intended to refer to the revenue received by direct association with the land which is used for agricultural purposes and not by indirectly extending it to cases where that revenue or part thereof changes hands either by way of distribution of dividends or otherwise. In fact and truth dividend is derived from the investment made in the shares of the company and the foundation of it rests on the contractual relations between the company and the shareholder. Dividend is not derived by a shareholder by his direct relationship with the land. There can be no doubt that the initial source which has produced the revenue is land used for agricultural purposes but to give to the words 'revenue derived from land' the unrestricted meaning apart from its direct association or relation with the land, would be quite unwarranted. For example, the proposition that a creditor advancing money or interest to an agriculturist and receiving interest out of the produce of the lands in the hands of the agriculturist can claim exemption of tax upon the ground that it is agricultural income within the meaning of Section 4, Sub-section (3)(viii), is hardly statable. The policy of the Act as gathered from the various sub-clauses of Section 2(1) appears to be to exempt agricultural income from the purview of the Income Tax Act. The object appears to be not to subject to tax either the actual tiller of the soil or any other person getting land cultivated by others for deriving benefit therefrom, but to say that the benefit intended to be conferred upon this class of persons should extend to those into whosoever hands that revenue falls, however, remote the receiver of such revenue may be, is hardly warranted.
It was argued by Mr. Kolah on the strength of an observation made by Lord Anderson in the 'Commrs of Inland revenue v. Forrest (1924) 8 Tax Cas. 704 at p. 710(A), that an investor buys in the first place a share of the assets of the industrial concern proportionate to the number of shares he has purchased and also buys the right to participate in any profits which the company may make in the future. That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word "assets" in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a shareholder vis-a-vis the company was explained in the 'Sholapur Mills case"ï¿1/2Chiranjit Lal Choudhuri v. Union of India, . That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company. It is true that the shareholders of the company have the sole determining voice in administering the affairs of the company and are entitled, as provided by the articles of association, to declare that dividends should be distributed out of the profits of the company to the shareholders but the interest of the shareholder either individually or collectively does not amount to more than a right to participate in the profits of the company. The company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shareholders. Reliance is placed on behalf of the appellant on a passage in Buckley's Companies Act (12th Ed. page 894) where the etymological meaning of dividend is given as dividendum, the total divisible sum but in its ordinary sense it means the sum paid and received as the quotient forming the share of the divisible sum payable to the recipient. This statement does not justify the contention that shareholders are owners of a divisible sum or that they are owners of the property of the company. The proper approach to the solution of the question is to concentrate on the plain words of the definition of agricultural income which connects in no uncertain language revenue with the land from which it directly springs and a stray observation in a case which has no bearing upon the present question does not advance the solution of the question. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the articles of association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole as Lord Anderson puts it.
11. In Jayshree Tea and Industries Ltd. v. Union of India , a Division Bench of the Calcutta High Court relying on the decision in the case of Mrs. Bacha F Guzdar rejected the challenge to the constitutional validity of Section 115-C of the Act. The High Court is of the view that such additional tax would be levied on the basis of 40 per cent, liability as additional income-tax. In the instant case, however, the petitioner has not raised such an issue, and the issued raised is only the constitutional validity of Section 115-C of the Act which has been rejected by the Calcutta High Court.
12. The other case relied on by the petitioner is CIT v. Khatau Makanji Spg. 22 and Wvg. Co. Ltd. , wherein one of the questions that fell for consideration before the apex court was whether the findings of the Tribunal that the excess dividend was deemed to be paid out of the undistributed profits of the earlier year ending on which necessary rebate under the law was given in the assessment year 1952-53. The Tribunal observed that additional income-tax was also a tax on income and that the Finance Act could say that the tax would be payable on the income of any year preceding the previous year. However, the Tribunal found and referred four questions to the High Court and the High Court answered all the four questions in the negative. The revenue approached the apex court wherein it was held that the dividend in question which is the subject matter of issue in that case shall be deemed to be paid out of the profits not of the previous year under assessment but of some other years. Unless the Finance Act stated that after the working out of the fiction the profits of the back year or years shall be deemed to be a part of the total income of the previous year under assessment, the purpose of the Act clearly falls. It also held that, the income-tax is a tax on income of the previous year, and it would not cover something which is not the income of the previous year, or made fictionally so. The apex court accordingly held that it is impossible to say that the additional income tax was properly levied upon the total income, because what was actually taxed was never a part of the total income of the previous year. But if we analyse the provision of Section 115-C of the Act, it demonstrates a different picture. As indicated earlier, amended Section 115-C(1) starts with a non obstante clause and the dividend paid by the company to be subjected to additional income-tax is either from current or accumulated profits which was not the case before the apex court in Khatau Makanji Spg. and Wvg. Co. Ltd. . The judgment rendered by the apex court is in a different context than that of which we are now seized. Accordingly, the ratio of the aforesaid case is not applicable in the present case.
13. The next case relied on by the petitioners is Tata Tea Ltd. v. State of 23 West Bengal , to show that the profits earned from the income of a tea estate amounts to agricultural income and if a company suffers loss in a particular year and distributed dividend on the basis of earlier reserves the same cannot be subjected to additional tax as sought to be made as that would amount to additional tax on income from which tax already paid on previous year. Dr. Pal, particularly, refers to paragraphs 29, 35 and 39 of the judgment. But the aforesaid decision does not lay any support to the contention of the petitioner, it is held in that said decision, inter alia, that under rule 8(1) of the Income-tax Rules, the income earned from the sale of tea grown and manufactured by a seller in India has to be computed as if it were income derived from business which would imply that the deductions allowable under the Act in the case of income derived from the sale of tea grown and manufactured by a seller and further allowance would be granted as set out in rule 8(2) and 40 per cent, of the income so computed would be deemed to be income liable to the levy of income-tax and the balance of the income would be liable to tax as agricultural income subject to such further deductions as the law pertaining to the levy of agricultural income-tax might allow. The apex court further held that a reading of Article 245 of the Constitution with entry 82 of List I and entry 46 of List II in the Seventh Schedule makes it clear that the State Legislature has exclusive jurisdiction to legislate in respect of taxes on agricultural income and in respect of taxes on other income, it is Parliament alone which can legislate.
14. There is no dispute on the aforesaid proposition of law but the same does not help the petitioners as the question that has been paused before us is a different one, as indicated above.
15. In the case of S. Kumaraswami v. ITO , the Madras High Court, examining and analysing the definition "dividend" has categorically held as follows (page 426) :
This necessarily leads to the conclusion that, even if the accumulated profits in the hands of the company were derived from agriculture and as agricultural income these profits were exempt from tax, the money received by the shareholder would not retain the same character. In other words, neither a dividend nor a deemed dividend paid out of agricultural income is itself agricultural income.
16. Dealing with such an issue by the Patna High Court in the case of Raja Bahadur Vishweshwara Singh v. CIT , the Honï¿1/2ble Ramaswami J, speaking for the Division Bench held, inter alia (page 590) :
For these reasons I think that the immediate and effective source of the dividend is the statutory contract between the company and the shareholders and the statutory declaration of a dividend at the placed before the Special Bench. As Sections 115J, 115JA and 115JB deal with the same subject, it is indispensable for us to consider the provisions of section not only under Section 115JA but also under Section 115JB. Further, in the case of one of the interveners before us, M/s. Bhushan Steel and Strips Ltd., the relevant assessment year is 2003-04 to which Section 115JB is applicable. Therefore, we make it clear that by discussing the law contained in Section 115JB, we have not exceeded our brief. In fact we have decided the issue in the light of Section 115JA, but only thing is that the discussion on Section 115JB is an inherent fall out of the case before us. 68 Now the files will go back to the regular Benches, which will pass appropriate orders on the basis of the grounds raised in the respective appeals.
The legal position is that the articles of association bind the company and the shareholders as a statutory covenant, and the immediate and effective source of the dividend is the statutory covenant and not the agricultural operation carried on by the company. It may be that the source of the dividend is the agricultural operation of the company in the ultimate sense but in testing whether the income is agricultural within the meaning of Section 2(1) of the Act we must look not to the ultimate or remote source of the income but to the immediate and effective source. This view is borne out by the decision of the judicial committee in CIT v. Kamakhaya Narayan Singh (Raja Bahadur) (1948) 16 ITR 325." The court further reiterated similar principle of law declared by the Judicial Committee holding that (page 590) :
The same principle is implicit in the decision of the judicial committee in Premier Construction Co. Ltd. v. CIT (1948) 16 ITR 380 (PC). In that case a managing agent was remunerated at 10 per cent, on the annual profits of the company. It was admitted that a part of the income of the company was agricultural income and the question arose whether the income of the managing agent was exempt from taxation as agricultural income. It was held by the Judicial Committee that no part of the remuneration of the managing agent was exempt from being taxed as agricultural income. At page 384 Sir John Beaumont states :ï¿1/2'In their Lordships' view the principle to be derived from a consideration of the terms of the Income Tax Act and the authorities referred to is that where an assessee receives income, not itself of a character to fall within the definition of agricultural income contained in the Act, such income does not assume the character of agricultural income by reason of the source from which it is derived, or the method by which it is calculated. But if the income received falls within the definition of agricultural income it earns exemption, in whatever character the assessee receives it.". The court also followed the ratio of the law laid down by the Apex Court in Mrs. Bacha F. Guzdar .
In a subsequent reference case, the Madras High Court in the case of C. M. Kothari v. CIT , rejected a similar claim made by the assessee, declaring that (page 322) : "the law on the subject has been settled by the decision of the Supreme Court in Mrs. Bacha Guzdar v. CIT , and the question answered in the negative against the assessee.
The Calcutta High Court had also the occasion to deal with and answered a similar question in the case of J. Thomas and Co. v. CAIT . The question referred for answer in that case was (page 456) : "Whether the dividend received by the assessee as shareholders from tea companies or any part thereof is agricultural income within the meaning of the Bengal Agricultural Income Tax Act, 1944, and assessable as such?
17. Answering the said question in the negative on the basis of the ratio of Mrs. Bacha F. Guzdar , it was held that no part of the dividend received by the assessee as a shareholder from the various tea companies was agricultural income within the meaning of the Bengal Agricultural Income Tax Act, 1944.
18. The Madras High Court again rejected the plea of inclusion of dividend income distributed out of agricultural income applying the ratio of Mrs. Bacha F. Guzdar in the case of Av. R. A. Veerappa Chettiar v. CJT .
19. A similar view has been taken by the Madras High Court also in the case of Peirce Leslie and Co. Ltd. v. CIT (1960) 38 ITR 356 and held that the dividends received from plantation companies whose main business was agriculture cannot be said to be agricultural income entitling exemption and negated the contention of the assessee, applying the principle of Mrs. Bacha F. Guzdar .
20. A survey of various judicial pronouncements covering the issue involved, including the ratio of Mrs. Bacha F. Guzdar as rendered by the Apex Court, it is no longer res integra that such dividend income though received out of agricultural income does not fall under the category of "agricultural income" within the meaning of law.
21. The constitutional validity of Section 115-O of the Act having been challenged by the petitioners assailing the legislative competence of Parliament to enact on the subject covering the dividend income being distributed out of the income derived from agricultural income and the unanimous judicial pronouncement including that of the Apex Court, as referred to above, having depicted a contrary view, the contention of the petitioners must fail. The Apex Court in the case of M. P. V. Sundararamier and Co. v. State of A. P. , has held, inter alia, that the issue does not simply involve whether the statute in question falls within the legislative jurisdiction of a particular Legislature but the point is whether a particular subject or legislation falls within the ambit of one or the other entry assigned to different Legislatures. In the instant case, the subject of legislation being taxes on income squarely falls within entry 82 of the Union List; on all the counts Parliament has the legislative competence to enact the said provision under Section 115-O of the Income Tax Act.
22. In view of the above discussions, we hold that Parliament has legislative 36 competence to enact the provisions of Section 115-O of the Income Tax Act as inserted by the Finance Act of 1997 and the said piece of legislation is not ultra vires the Constitution. The writ petition stands dismissed directing the parties to bear their own costs.