CHAKRAVARTTI, C.J. - (1.) THIS is a reference under s. 63(1) of the Bengal Agrl. IT Act, 1944, by which the Agricultural Tribunal, West Bengal, has submitted to this Court the following question of law: "Whether the dividend received by the assessee as shareholders from tea companies or any part thereof is agrilcultural income within the meaning of the Bengal Agrl. IT Act, 1944, and assessable as such ?"
(2.) THE assessee is a firm going by the name of J. Thomas and Co. During the accounting year 1943- 44 relative to the asst. yr. 1944-45, it received from several tea companies dividends which were calculated to contain Rs. 1,65,141 as agrilcultural income. About the correctness of that calculation there is no dispute, but whether the amount was agrilcultural income is disputed. THE contention of the assessee was that no part of any dividend received by a shareholder, even if such dividend might have been paid out of the agrilcultural income of the paying company, could be agrilcultural income in the hands of the shareholder who received it. THE Department's contention was that inasmuch as by an arrangement between the Central and State taxing authorities as embodied in r. 24 framed under s. 59 of the Indian IT Act, sixty per cent. of the profits made by the tea companies out of growing and manufacturing tea was to be treated as agrilcultural income, the same percentage of the amount of dividends received by the shareholders of such companies should be treated and taxed as their agrilcultural income. That contention was in accordance with s. 8(2) of the Bengal Agrl. IT Act. THE contention of the assessee was successively repelled by the Agrl. ITO, the AAC and the Tribunal, all of whom upheld the contention of the Department. THEre-- upon, the assessee asked for a reference to this Court and the Tribunal referred a question framed in terms which I have already read. Up to the time that the Agricultural Tribunal was dealing with the assessee's case the decision of the Supreme Court in the case of Bacha F. Guzdar vs. CIT, Bombay (1955) 27 ITR 1, had not been given. We have now the benefit of that decision which, in fact, concludes the assessee. The Supreme Court had before it the converse case of an assessee under the Indian IT Act who was contending that at least sixty per cent. of the amount of dividends which he had received from the agrilcultural income of two tea companies would be agrilcultural income in his hands and, therefore, not liable to be taxed under the Indian IT Act. That contention was negatived by the Supreme Court. It was held that agrilcultural income as defined in s. 2(1) of the Indian IT Act was income proximately derived from direct association with land by a person who actually tilled the land or got it cultivated by others. It did not mean or include income which could be made out in some manner to have been ultimately derived from agrilcultural operations. In accordance with that construction of the definition of agrilcultural income as given in the Indian Act, the Supreme Court held that even though a tea company growing and manufacturing tea got an exemption from the Indian income-tax of sixty per cent. of its profits as agrilcultural income in accordance with r. 24 framed under s. 59 of the Indian Act, the dividend paid by such company to its shareholders was not derived by the shareholders out of any direct connection with the land in which tea was grown, but it was received by virtue of their right to participate in the profits of the company under the contractual relationship between the company and themselves. The whole of the amount of the dividends so received was, therefore, non-agrilcultural income and even as regards sixty per cent. of them it could not be contended that such percentage was the agrilcultural income of the shareholders. The definition of agrilcultural income as given in the Bengal Agrl. IT Act is identical with the definition given of the same income in the Indian IT Act. Indeed, by reason of the division of the legislative power as between the Central and the State Legislatures by the Constitution of India, the definitions could not validly be different. Agricultural income is within the legislative sphere of the state legislature whereas it is outside the sphere of the Central legislature. The Indian IT Act therefore defines agrilcultural income for the purpose of exempting it from tax, whereas the Bengal agrilcultural IT Act defines such income for the purpose of bringing it to tax. It is thus plain from the scheme of our Constitution that what is excepted as agrilcultural income by the Indian Act and what is included as agrilcultural income by a State Act must of necessity be the same, provided, however, the respective definitions are correctly framed and do not transgress the relevant limits. In the present case, as I have pointed out, there is no question of either of the definitions being incorrectly framed, because they are in precisely the same terms and the Indian definition has been held not to comprise dividend paid out of a company's agrilcultural income.
(3.) IF therefore, the two definitions are in precisely the same terms, what is not agrilcultural income under the Indian Act cannot be agrilcultural income under the Bengal Act. As I have already stated, dividends received by the shareholders of tea companies out of their agrilcultural income have been held by the Supreme Court to be non-agrilcultural income of the shareholders as respects the whole of the amounts of dividend, as received. That decision proceeds on a construction of the definition of agrilcultural income as given in the Indian Act. The decision being a decision of the Supreme Court is binding on everyone and, there-fore, the same construction must be put on the definition contained in the Bengal Act which is expressed in the same words. It follows that if under the definition of agrilcultural income as contained in the Indian IT Act, dividends paid by tea companies to their shareholders out of their agrilcultural income cannot be agrilcultural income in the hands of the shareholders, equally they cannot be agrilcultural income in the hands of the same shareholders under the identical definition contained in the Bengal Act. The answer to the question referred must, therefore, be against the assessee. (sic.) Mr. Sen, who appears for the Commr. of Agrl., West Bengal, however, contended that although the Department's contention so far as it was based on the definition section had been laid to rest by the decision of the Supreme Court, there were two other sections which had to be reckoned with before the question referred could be answered adversely to his client. He referred to s. 10(a) of the Bengal Act and another section to which s. 10 is expressly made subject, that is s. 17. The former section says : "Agrl. income-tax shall not, subject to the provisions of s. 17, be payable on that part of the total agrilcultural income of a person which is-- (a) any dividend which such person receives as a shareholder out of the agrilcultural income of a company which has paid or will pay the tax in respect of the said agrilcultural income . . . . . " The rest of the sub-clause is not material. Mr. Sen contended that the section obviously presupposed that dividends received by a person as a shareholder out of the agrilcultural income of a company was his agrilcultural income, because it spoke of his total agrilcultural income " which is " as to a part, any such dividend. It was said that similarly s. 17 also presupposed that dividends received by the shareholder of a company which had been paid out of the company's agrilcultural income were agrilcultural income in the shareholder's hands. Sec. 17, to quote only the material portion, provides that "a company which has paid Agrl. income-tax under this Act in respect of its agrilcultural income as such company . . . . . . . . . . shall be deemed for the purposes of s. 48 to have paid Agrl. income-tax on behalf of the share-holders of such company. " It was contended that if the shareholders were not themselves liable to pay tax on the dividends received by them on the basis that such dividends constituted agrilcultural income, there could be no meaning in saying that the company which had paid Agrl. IT in respect of its agrilcultural income was to be deemed to have paid such tax on behalf of the shareholders. Mr. Sen contended that the two sections to which he had referred were either valid or invalid. If dividend paid out of the agrilcultural income of a company was not agrilcultural but was non-agrilcultural income in the hands of the share-holder receiving such dividend, ss. 10 and 17, so far as they presupposed the contrary must be ultra vires the Constitution. If, on the other hand, they were intra vires, some means had to be sought for reconciling them with the provisions of the definition section as interpreted by the Supreme Court.;