- (1.) THE CIT (A) in his order observed that Rule 8 has no applicability in the matter of calculation of Fringe Benefit Tax. Rule 8 of the Income Tax Rules provides as follows: Income from the manufacture of tea. 8. (1) Income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax. (2) 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, if such area has not previously been abandoned [and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of Clause (30) of Section 10, is not includible in the total income.]
(2.) MR . Majumdar, learned advocate appearing for the appellant/assessee, drew our attention to Clause 1 of Article 366 of the Constitution of India wherein agricultural income has been defined as follows: (1) "Agricultural income" means agricultural income as defined for the purposes of the enactments relating to Indian income -tax; Pursuing the aforesaid definition, he drew our attention to the definition of agricultural income appearing in Section 2(1A) of the Income Tax Act. He also drew our attention to Schedule 7 to the Constitution of India in particular to entry 82 of the Union List, which reads as follows: 82. Taxes on income other than agricultural income. Correspondingly, he also drew our attention to entry 46 of the State List also appearing in Schedule 7, which reads as follows: 46. Taxes on agricultural income.
(3.) HE also drew our attention to paragraphs 27 and 30 of the judgment in the case of Tata Tea Ltd. and Another vs. State of West Bengal & Ors., : 1988 (Supp) Supreme Court Cases 316. From paragraph 27 he pointed out that Their Lordships ruled that Rule 24 of the Income Tax Rules, 1922 and Rule 8 of the Income Tax Rules, 1922 are in pari materia. From paragraph 30 of the said judgment he read out the following portion: 30. In Karimtharuvi Tea Estates Ltd. v. State of Kerala, a Bench comprising of five learned Judges of this Court was called upon to consider the question of the power of a State legislature to make a law in respect of taxes on agricultural income arising from tea plantations and the Bench took the view that the power of the State legislatures in this connection is limited to legislating with respect to agricultural income determined in accordance with Rule 24 of the Indian Income Tax Rules, 1922, under which income derived from the sale of tea grown and manufactured by the seller is first to be computed under Section 10 of the Act of 1922, as if it were income derived from business. Any expenditure by the assessee, not being an allowance described in clauses (i) to (xiv) of Section 10(2) of the Act of 1922 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of such business would be deductible. Of the income so computed, 40 per cent, being under Rule 24 of the Indian Income Tax Rules, 1922 treated as income liable to income tax, the other 60 per cent alone will be "agricultural income". The State legislature is free in the exercise of its plenary legislative power to allow further deductions from such computed agricultural income in the case of tea plantations as it considers fit but it cannot add to the amount of agricultural income so computed by providing that certain items of expenditure deducted in the computation of the income from business under the provisions of the Indian Income Tax Act, 1922 be not deducted and be considered to be a part of the taxable agricultural income. The State legislature cannot enact such a provision which would make agricultural income from tea plantations higher than what it would be if computed in accordance with Rule 24 read with Section 10 of the Indian Income Tax Act.;