Travancore Rubber and Tea Co. Ltd. and Anr vs State Of Kerala and Anr

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Petitions Nos. 237 to 239 of 61

Decision Date: 01/11/1962

Coram: Raghubar Dayal, S.K. Das, J.L. Kapur, A.K. Sarkar, M. Hidayatullah

In the matter titled Travancore Rubber & Tea Co. Ltd. and Another versus State of Kerala and Another, the Supreme Court of India delivered its judgment on 1 November 1962. The opinion was authored by Justice Raghubar Dayal and was rendered by a bench comprising Justices Raghubar Dayal, S K Das, J L Kapur, A K Sarkar and M Hidayatullah. The petitioners were Travancore Rubber & Tea Co. Ltd. and another, while the respondents were the State of Kerala and another. The case is reported in the 1964 volume of the All India Reports at page 572 and also in the 1963 Supplement to the Supreme Court Reports at page 836. The dispute concerned the Agricultural Income Tax Act of 1950 as it applied to rubber plantations, specifically the computation of agricultural income and the allowance of deductions for expenditures incurred on immature plants. The petitioners challenged the validity of an amendment introduced by the Agricultural Income Tax (Amendment) Act of 1961 (Kerala Act IX of 1961), which added Explanation 2 to section 5 of the original statute. Explanation 2 prohibited any deduction for expenditure on the cultivation, upkeep or maintenance of immature plants when such plants had not generated agricultural income in the preceding year. The petitioners argued that this provision was beyond the legislative competence of the State (ultra vires) and that it discriminated against them, violating Article 14 of the Constitution. The Court held that Explanation 2 to section 5 had been validly enacted. It observed that the State Legislature possessed full authority to tax “agricultural income” as defined in the Agricultural Income Tax Act, a definition that coincided with that in the Indian Income‑Tax Act of 1922. The legislature was therefore empowered to prescribe the deductions it deemed appropriate from such income. The Court emphasized that the term “income” carried a broad meaning and, under Entry 46 of List 11 in the Seventh Schedule of the Constitution, the State’s power to tax agricultural income was not limited to gross receipts after deducting only necessary expenses. The Court referred to earlier decisions, namely Travancore Rubber & Tea Co. Ltd. v. Commissioner of Agricultural Income‑Tax, Kerala (1961 3 S C R 279) and Navinchandra Mafatlal v. Commissioner of Income‑Tax, Bombay (1955 1 S C R 829). It further concluded that Explanation 2 was not discriminatory and did not offend Article 14. Although Explanation 2 applied to rubber plantations and not to tea plantations, the Court explained that this distinction arose from the special provisions and rules of the Income‑Tax Act. Income from tea sales comprised both agricultural and business elements, whereas income from rubber sales derived solely from agricultural activity. Consequently, the amendment’s differentiated treatment was justified.

The Court cited the decision in Travancore Rubber and Tea Co. Ltd., Kottayam v. State of Kerala, reported in the 1963 Supplement to the Supreme Court Reports at page 823. The judgment was delivered in the original jurisdiction concerning Petitions numbered 237 to 239 of 1961. The petitions were filed under Article 32 of the Constitution of India for the enforcement of fundamental rights. Counsel for the petitioners included S. T. Desai, J. B. Dadachanji, O. C. Mathur and Ravindar Narain, while the respondents were represented by A. V. Viswanatha Sastri and V. A. S. Muhammed. The judgment was pronounced on November 1, 1962, and was authored by Justice Raghu Bar Dayal.

The petitioners, identified as the Travancore Rubber and Tea Company Limited—hereafter referred to as “the company”—and one of its directors and members, sought a declaration that the Agricultural Income‑Tax (Amendment) Act, 1961 (Act IX of 1961), hereafter termed “the Amendment Act,” enacted by the Kerala State Legislature, was null and void. They further requested that appropriate orders be issued against the respondents, namely the State of Kerala and the Assistant Commissioner of Agricultural Income‑Tax in Kottayam, restraining them, their agents and servants from enforcing or acting upon any provisions of the Amendment Act against the company. In addition, they prayed for a refund of tax that they claimed had been illegally assessed and collected from the company.

The company’s business involved the ownership and management of rubber and tea estates located within the State of Kerala. The company had been assessed for agricultural income‑tax under the Agricultural Income‑Tax Act 1950—originally the Travancore‑Cochin Agricultural Income‑Tax Act XXII of 1950, subsequently amended by Act VIII of 1957 of the Kerala Legislature—hereafter called “the Agricultural Income‑Tax Act.” The assessments pertained to income derived from its rubber plantations for the accounting years 1950, 1951 and 1952, which corresponded to assessment years 1951‑52, 1952‑53 and 1953‑54 respectively. For the assessment year 1953‑54, the assessing authority did not allow deduction of expenses incurred in the upkeep and maintenance of immature rubber plants, whereas it had permitted such deductions for the preceding two years.

Both the Income‑Tax Department and the company sought clarification, and consequently, under section 60 of the Agricultural Income‑Tax Act, the matters were referred to the High Court of Kerala. The High Court ruled against the company, holding that the expenditures on immature plants could not be deducted when computing agricultural income. The company appealed this decision to the Supreme Court. In its judgment dated 15 December 1960 in Travancore Rubber and Tea Co. Ltd. v. The Commissioner of Agricultural Income‑Tax, Kerala, the Supreme Court held that the expenses were allowable under section 5(j) of the Agricultural Income‑Tax Act for the purpose of computing assessable income.

Subsequent to this judgment, the Governor of Kerala promulgated an ordinance, which was later repealed by the Amendment Act of 1961. The Amendment Act was deemed to have taken effect retrospectively from 1 April 1951. Section 2 of the Amendment Act introduced Explanation 2 to section 5 of the Agricultural Income‑Tax Act. The Explanation states: “Nothing contained in this section shall be deemed to entitle a person deriving agricultural income to deduction of.”

In the matter before the Court, the amendment to the Agricultural Income‑tax Act introduced Explanation 2 to section 5, which stated that “any expenditure laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income has been derived during the previous year” could not be deducted in computing agricultural income. By virtue of section 3, assessments that had previously been made on the ground that such expenses were not allowable were treated as valid. On 22 February 1961, relying upon the Court’s earlier judgment, the company wrote to the Income‑tax Commissioner requesting a refund of the excess tax that had been realized. The Commissioner replied on 20 June 1961, indicating that the company’s claim for refund was not maintainable so long as the assessment orders had not been varied or reversed by a competent authority, and further stating that the claim was untenable in view of the provisions contained in the Amendment Act. The effect of the contested Explanation was thus to disallow deductions for expenses incurred on the upkeep and maintenance of immature rubber plants when no agricultural income was derived from those plants during the accounting year. The State Legislature derived its power to tax agricultural income from Entry no. 46 of List II of the Seventh Schedule of the Constitution. Article 366(1) defined “agricultural income” as the term used for the purpose of enactments relating to Indian income‑tax, the definition in the Income‑tax Act being incorporated by reference in the Constitution to delineate the scope of agricultural income. Section 5(j) of the Agricultural Income‑tax Act provided that a person’s agricultural income should be computed after deducting any expenditure, other than capital or personal expenses, that was laid out or expended wholly and exclusively for the purpose of deriving that income. The State Legislature possessed full authority to tax such income within the meaning of the definition, and to prescribe the deductions it deemed appropriate. Section 5 of the Act authorized the Legislature to make such deductions. By inserting Explanation 2, the Amendment Act made clear that the Legislature intended that no deduction be permitted for expenses incurred in the upkeep of immature plants. This legislative intention was evident because Explanation 2 was enacted after the Court’s decision in Travancore Rubber and Tea Co. Ltd., which had held that such expenses were deductible under clause (j) of section 5. Consequently, the Court concluded that the State Legislature was competent to enact Explanation 2 to section 5 and thereby to provide for the non‑deduction of the expenses incurred in the upkeep or maintenance of immature plants from which no income had been derived in the accounting year.

The Court observed that the State Legislature possessed the authority to introduce Explanation 2 to section 5 of the Agricultural Income‑Tax Act, thereby stipulating that expenses incurred in the upkeep or maintenance of immature plants, from which no income was derived during the accounting year, could not be deducted. The petitioners, however, argued that, notwithstanding clause (j) of section 5, the term “income” should not be interpreted as the gross receipts of a person but rather as the receipts after deducting the necessary expenses incurred in earning those receipts. They contended that the framers of the Constitution intended this narrower meaning when they incorporated the word “income” in Entry 82 of List I and Entry 46 of List II of the Seventh Schedule. To bolster this position, the petitioners referred to the legislative practice in English income‑tax law, to the dictionary definition of “income,” and to explanations found in Stroud’s Judicial Dictionary and in Burrows’ “Words & Phrases.” The Court deemed it unnecessary to elaborate on this contention because it had already examined the issue comprehensively in Navinchandra Mafatlal v. The Commissioner of Income‑Tax, Bombay City. In that decision, Justice Das, then of the Supreme Court, explained at page 833 that the Court’s attention had been drawn only to fiscal statutes such as the Finance Act and the Income‑Tax Act where the word “income” appears, and therefore it could not be said that the term had acquired any special meaning through any particular legislative practice. He noted that several cases had been cited where the Court itself had interpreted the word “income.” Consequently, what was described as “legislative practice” was, in reality, merely judicial interpretation of the term as used in those fiscal statutes. The Court further emphasized that these cautious observations clearly pertained to the word “income” or “profit” as employed in the Income‑Tax Act and that there was no justification for asserting that such observations narrowed the ordinary English meaning of “income.” When discussing the natural and grammatical sense of the word, reference was made to its dictionary definition and to the broader interpretation of the term in the United States and Australia. At page 837, the Court observed that the wide meaning attributed to “income” by learned judges was not the result of any specific legislative practice in either the United States or the Commonwealth of Australia, but rather reflected the normal concept and connotation of the ordinary English word, whose natural meaning encompasses any profit or gain actually received. Accordingly, the Court concluded that the word “income” in the pertinent constitutional provisions carries a very wide meaning and is not confined to the narrower interpretation suggested by the petitioners.

The Court noted that the expression carried a very wide meaning and was not confined to the narrow interpretation advanced by the petitioner. The appellant’s next submission was that Explanation 2 to section 5 was discriminatory and violated Article 14 of the Constitution. The Court found no discrimination in the provisions of Explanation 2 to section 5, which applied to agricultural income derived from all crops except tea. The issue of whether Explanation 2 to section 5 applied to agricultural income from tea plantations had earlier been considered in The Karimtharuvi Tea Estates Ltd., Kottayam v. The State of Kerala(1). In that precedent the Court had held that Explanation 2 to section 5 did not apply to the agricultural income of tea plantations. The appellant argued that, if this view were adopted, the Explanation would create a distinction between agricultural income from rubber plantations and similar income from tea plantations, thereby contravening Article 14. However, it was fairly conceded that when the finding that Explanation 2 does not apply to tea‑plantation income rested on the special provisions contained in the Income‑Tax Act and the rules made thereunder for computing agricultural income from tea plantations, no discrimination arose. The decision in The Karimtharuvi Tea Estates Case(1) was indeed based on those special provisions. The Court explained that income derived from the sale of tea that is grown and processed by the seller consists partly of revenue from land‑based agriculture and partly of business profit, a situation not paralleled by the income from rubber sales. Accordingly, the computation of agricultural income from tea plantations required a different approach, which was prescribed in the rules made under section 59(3) of the Income‑Tax Act for determining the respective shares of agricultural and business income in the total proceeds from tea sales. The distinction in the rules for calculating agricultural income from tea plantations as opposed to rubber plantations was therefore founded on sound reasons. Consequently, the Court held that the provisions of Explanation 2 were not discriminatory against agricultural income from rubber plantations. Finding no merit in the petitions, the Court dismissed them with costs, one set, and ordered the petitions to be dismissed.