COMMISSIONER OF INCOME TAX versus WILLAMSON FINANCIAL SERVICES AND ORS.

Citation: [2007] 13 S.C.R. 376 · Decided: 12-12-2007 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Disposed off
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Judgment (excerpt)

A 
COMMISSIONER OF INCOME TAX 
_, 
v. 
.. 
WILLAMSON FINANCIAL SERVICES AND ORS. 
DECEMBER 12, 2007 
B 
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
-+ 
Income Tax Act, 1961: 
c 
s. 80HHC-Composite income from sale of tea, grown and 
manufactured-Export of tea-Deduction under s. 80HHC-Held: 
Allowable after 60: 40 apportionment of income under Rule 8(1)-The 
said rule segregates agricultural income which is ~xempted income, 
from business income which is chargeable to tax-For that purpose, 
D the ratio of 60 : 40 is applied-Therefore chargeability and 
computability is confined to only 40% of the income from tea which is 
taxable under Income Tax Act, 1961-In view of this, assessee cannot 
claim s.80HHC(3)(a) deduction against the entire tea composite 
income-Moreover Deductions under Chapter VL4 are deductions not 
E from a particular head of income but from gross total income-
Therefore, s. 80HHC is not part of provisions for computation of 
business income-Income Tax Rules, 1962-r.8(1). 
s.10(1)-"agricultural income "-Power to make laws with 
F 
respect to taxes on agricultural income-Held: Is on State Legislature 
under Article 246(1) of Constitution r. w. Entry 82 of List 1 in Seventh 
)' 
~ 
Schedule and Article 246(3) r. w. Entry 46 of List II in Seventh 
Schedule-Expression "agricultural income", means agricultural 
income as defined in Article 366(1) of Constitution for purpose of 
G 
enactments relating to Indian Income-tax-Constitution of India, 
1950-Articles 246(1), (3), 366(1), Seventh Schedule List I Entry 82 
and List II Entry 46. 
r~ 
The question which arose for consideration in these appeals is 
H 
376 
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.... y 
COMMISSIONER OF INCOME TAX v. WILLAMSON 
377 
FINANCIAL SERVICES 
whether Assessing Officer was right in holding that deduction under 
s.80HHC can be allowed only against part of the income from tea which 
was taxable under the Income Tax Act, 1961, namely, 40% of the 
income. 
' 
Disposing of the appeals, the Court 
HELD: 1.1. The tea income consists of two parts: (i) "agricultural 
income' upto the stage of growing the tea; and (ii) "business income" 
from the manufacture and sale of tea grown by the assessee. Under 
the Constitution, "agricultural income" can be taxed only by the State 
Governments. Rule 8(1) oflncome Tax Rules, 1962, provides that only 
40% of the composite income can be taxed under the Income Tax Act, 
1961. Power of the State Governments to levy tax extends to the balance, 
namely, 60% of the composite income. Rule 8(1) provides for the method 
in which composite income is to be computed. It says that income shall 
be computed as if it were income derived from business. Rule 8(1) uses 
the word "income" and not "total income". The 1961 Act contains 
provisions for computation of income under the head "Business". The 
computation in Rule 8(1) in respect of composite income, by reason of 
legal fiction in-built in Rule 8, cannot be read in entirety into computation 
ofincomeunderthehead "Business". [Para41) [400-E-G) 
Cambay Electric Supply Industrial Company Ltd (1978) 113 ITR 
84 SC; The Karim Tharuvi Tea Estates Ltd, Kottayam and Anr. v. State 
of Ker ala and Ors., (1963) 48 ITR 83 SC and Distributors (Baroda) Pvt . 
Ltd v. Union of India and Ors., (1985) 155ITR120 SC, held inapplicable. 
Tea Ltd. v. State of West Bengal, (1988) 173 ITR 18 SC, 
Distinguished. 
1.2. Deductions under Chapter VIA are deductions not from a 
particular head of income but from gross total income. Therefore, 
s.80HHC is not part of the computation of income under the head 
"Business". S.80HHC Deduction is required to be allowed after 
apportionment ofincome under Rule 8(1) of the 1962 Rule. 
[Paras44and45) [402-D-E) 
A 
B 
c 
D 
E 
F 
G 
H 
378 SUPREME COURT REPORTS 
[2007] 13 (Addi.) S.C.R. 
A 
2. S.10(1) exempts "agricultural income" not only from taxable 
income but also from the "total income" of the assessee. These incomes 
are different from tax-free incomes under Chapter VIA. The exemption 
of agricultural income from central taxation is based on the provisions 
in the Constitution according to which Parliament has exclusive power 
B to make laws with respect to taxes on income other than agricultural 
income, whereas State Legislature has exclusive power to make laws 
with respect to taxes on agricultural income, under Article 246(1) of the 
Constitution read with Entry 82 of List I in the Seventh Schedule and 
Article 246(3) read with Entry 46 of List II in the Seventh Schedule
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