Wednesday, January 27, 2010
TAX ON INCOME AND AGRICULTURAL INCOME
‘Tax’ means ‘the money that must be paid to the State; charged as a proportion of personal income and business profits or added to cost of some goods and services’ ‘ Income’ means ‘a money received during a certain period for work or from investment.’ “Agriculture’, on the other hand, means ‘a science or practice of farming.’ ‘Tax on income’ is thus money to be paid on the profits earned for works or investment, while; ‘Tax on agricultural income’ is ‘the money to be paid on profit earned on the practice of farming.’ ‘Tax on income’ is a subject, administered by the Government of India (Central Govt.) through the machineries at its disposal. Article 246(1) of the Constitution of India (Constitution) empowered Parliament to make enactment of laws on the subjects, specified in Seventh Schedule- List I (Union List). ‘Tax on income other than agricultural income’, as occurred in entry 82 of the said Schedule is thus the subject of levy of tax by the Central Govt. In fact, the measure of tax on income in India was introduced in British Parliament long back in 1860 to bear the economic burden on account of armed revolution of the First War of Independence against the British regime. The reasonableness of such measure of income tax adopted, were assigned as, it is a (i) canon of ability for paying such tax; (ii) canon of certainty; (iii) canon of convenience and (iv)canon of economy. There was, however, no such tax from 1865-67 on account of public murmuring. The Income Tax Act, 1886 was brought out to build- up licence tax. The Income Tax Act, 1922 continued to be operative in post independent period too. After the Constitution took birth on January, 26th, 1950, the said Act continued remained in force with the safe guard provided under the banner of Article 277 (Savings) of the Constitution. The Income Tax Act was remodeled and it was passed in the House of Parliament in September, 1961 and the Indian Income Tax Act, 1961 (Income Act) thus came into effect. It is, in fact, a tax only on income, profits or gains and not on the capital, whether original, substituted or increased. The salient features are, therefore, - (i) income tax is only a charge on income and not the capital; (ii) the method of charging tax on income and capital gains is different; (iii) in computing the taxable income of a business, profession or vocation, only the revenue expenditure and not the capital expenditure is deducted from the trading profits. ‘Tax on agricultural income, is a subject, administered by the State Governments through the tax machineries of the State. In 1925 the Indian Taxation Enquiry Commission opined the justification of creating a measure of tax on agricultural income, but the same was not readily materialized. The Government of India Act, 1935 as well incorporated entry 41 in the Seventh Schedule of Provincial Legislative List to facilitate introduction of tax measure on agricultural income. The measure of tax on agricultural income was thus introduced and the Assam Agricultural Income Tax Act, 1939 (Agricultural Act) was enacted by the then provincial Legislatures of Assam operative from 1.4.1939. After India achieved Republican character in 1950, entry 46 in the Seventh Schedule of the Constitution provided power to the Legislatures of the State to enact law on the ‘Taxes on agricultural income tax’. The 1939 Act, however, continued to be operative by virtue of savings provisions in Article 277 of the Constitution. It is worthy to mention that within this long spell of 70 years, a number of amendments of the Act took place following administrative needs and in consideration of public interest. ‘Tax on income’, as defined in clause (29) of Article 366 of the Constitution ‘includes a tax on the nature of an excess profits tax’, ‘ Agricultural income’ as defined in clause (i) of the said Article means ‘agricultural income, as defined for the purpose of the enactments relating to Indian income tax.’ The Constitution thus maintained silence to provide independent and categorical definition on the term ‘agricultural income’ and it is kept dependent on the Income Act. The definition in the Income Act incorporated that ‘the income that is derived from the land of agriculture’. The tax on income and the tax on agricultural income are levied taking into consideration the income derived in the previous year subject to deduction of the amount, admissible under the relevant Acts out of the total quantum of income derived. Though the main theme of the agricultural Act is that, it is a tax on agricultural income, but some deviation has been made in the matter of determination of the quantum of the agricultural income of tea. Income derived from tea is to be bifurcated as income on agricultural activities and on trade activities. The ratio maintained thereof is 60 : 40- that is, 60 percent on agricultural income and 40 percent on trade income. This principle is exclusively maintained in case of tea only and not on other production like paddy, pulses, wheat, sugar cane etc. where also simultaneously question of agriculture and trade are involved. There are good numbers of tea gardens, which produce green tea leaves and effect sales to the black tea manufacturing industries. It is not exactly known how they are roped in the tax net for purpose of levy of tax on income and agricultural income in accordance with the designed ratio. The tax on land, with the measuring scale of production of green tea leaves in smaller tea gardens, are not levied directly, but on the sales made to the manufacturing tea gardens, which purchase for production of black tea. The measures, adopted seem to be fallacious. The imposed restriction on the levy of 100% tax of tea obviously created an acute set-back in the revenue generation exercise of the State. In fact, tea industry is one of the few limited industries of Assam. This aspect of law requires a rethinking for rationalizing the fiscal disequilibrium at par with the income of the other agricultural commodities. The measure of tax, as introduced by the erstwhile provincial legislature of Assam and continued for long 70 years provided ample power to the Agricultural income tax authorities to administer the Act, that is, levy of tax and other allied matters. Over the head of such ardent vested quasi-judicial power, the exclusive power of determination of the quantum of total income and bifurcation thereof has been vested upon the income tax authority, causing a double standard in the power exercise scenario. It, no doubt, amounted to be a centralization of power the identical State law under the statute of law by way of encroachment and seems to be irrational and pre-judicious. The Agricultural Income Tax Rules laid down some discretionary power to agricultural authority for scrutiny and examination on such determination and bifurcation in such cases, when circumstances warranted so. The Supreme Court of India, of late, quashed the validity of the said State rule. This has the consequential effect that the State tax authorities are to remain cipher and to act like rubber stamps on the unitary decision of the central authorities. The quasi-judicial aspect in the agricultural Act thus practically intended to seek a good bye. The Head Offices of limited numbers of industries, installed in Assam, like tea industries, oil industries, coal industries etc. are mostly located at places out side the State of Assam. The taxes on income are generally deposited by such industrial entrepreneurs out side Assam. The concerned States in which such tax revenue deposits are made use to get share of income tax, as envisaged in Article 270(2) of the Constitution. Assam is thus deprived of such benefit even though the base of production, manufacturing and trade activities is totally within the parameter of Assam. The sensitive sons of the soil of Assam, urge upon the Government of Assam to consider this revenue generation issue and raise this vital pertinent question before the central Govt. so that an amendment of the Constitution is made to ensure augmentation of revenue to this economically backward State.