COMMISSIONER OF AGRICULTURAL INCOME TAX, TRIVANDRUM versus SMT. LUCY KOCHUVAREED

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coMMisstONER bF AGRICuLTURAL iNcoME TAX, A

TRIVANDRUM v. Sl\H. LUCY KOCHUVAREED May 7, 1976

[A. C. GUPTA AND JASWANT SINGH, JJ,J

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Kera/a Agricultural Income Tax Act, 1950, ss. 34 and 35-Rt1'isio1111l power

of Con1n1issioner and assessi11g 'escaped assessn1en1', scope of.

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The asscssee made a full disclosure of his income and claimed expenses incurred for the maintenance of his immature rubber plantations as deductions. The Agricultul)ll Income Tax Officer, after considering the maUer, allowed such deductions as he thought proper. The appellant-Commissiouer, in exercise of his revisional powers under s. 34, Kerala Agricultural Income Tax Act, 1950, issued notice to the respondent (widow of the asoessee) proposing to revise the assessment on the ground that the deductions allowed were excessive. The appellant, after considering the rcspondenfs objections, held that the deductions allowed were excessive and remanded the matter to the Agricultural Income Tax Officer for fresh disposal according to Jaw. At the in.ranee of the respon· dent, tho question whether the appellant had jurisdiction to pass the order D under s. 34 was referred to the High Court, and the High Court, on the view that it was a case of re-opening escaped assessment held, relying on Ma/raraja. dhiraj Sir Kamesltwar Singh v. State of Bi/tar, (1959) 37 I.T.R. 388 (SC), that the ~ower of revision vested in the Commissioner under s. 34 could not be invoked for the purpose of assessing income that had escaped ........,ent, and that such income could be assessed only by resorting to the procedure prescribed by s. 35, \\ithin the time limit presttibed therein.

A!lowin11 the appeal to this Court,

HELD : ( !) Every case of under-assessment is not a case of escaped assess· ment. The Agricultural Income Tax Officer may have commiUcd nn error in allowing the deduetiOtlS to the extent he did, but he did so after applying his miiid to th~ claims. This is not a case where tho officer omitted to ...... any item of income disclosed in the assessee's return as in the case relied on by the High Court and as in Kamal Slngf1 v. C./.T, (1959) 35 J.T.R. I (SC) • . Therefore, it is not a ease of reopenlng escaped assessment. [662F·Hl

Deputy Commisdoner Qf Agricultural /n<:ome-tax arrd Sales Tax, Quilo" (1969) 24 S.T.C. 491,

and another v. Dharraloksltmi Vilas Casfrew Co., followed.

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(2) Since it fa not a case of escaped assessment, tho appellant had jurisdic·

!ion to make the order under s. 34.

[663BJ

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CIVIL APPELLATE JURISDICT!O).f : Civil Appeal Nos. 793 to 794 G

of 1971.

Appeal by Special Leave from the Judgment and order dated in

the 7th August, 1970 of the Kerala High Court at Ernakulam Income Tax Reference No. 9 of 1968.

T. S. Krishnamoorthy Iyer, N. Sudhakara11 and K. M. K. Nair; for

the Appellant (ln CA 793/71)

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K. M. K. Nair; for the appellant (In C.A. 794/71).

44-833 Sup. CT/76

658

SUPRE~iE coiJRi: REPORTS

[i976} SUPPLEMENTARY

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D. V. Patel and A. S. Nambiar; for the Respondent.

The Judgment of the Court was delivered by

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assessment years

. GUPTA, J.-One T. V. Kochuvarced who owned rubber planta· lions m Tnchur was assessed by the Agricultural Income-tax olhccr, incrnu, on a net agr1cu1tura1 mcome ot Ks. and 31"00.t/- !<.s. Ju,~Jb/- respectively tor the l\IJ9-60 and Jhe assessee nad in his possession immature rubber p1an 1\160-ol. tat10n covering 193 acres during the assessment year 1959-60 and 2\13 acres durmg tne assessment year 1960-61. In compu:ing the income for the saiu two years, the Agricultural Income-tax Otnccr had dis· al.Jawed om of the expenses claimed for the upkeep and maintenance and of the immature area Rs. 2500/- for the year 1959-60 C Rs.3500/- for the year 1960-61. T. V. Kochuvareed died in 1961 leaving behind him as his heir and legal representative his wife who is ,the respondent before us. On March 13, 1963 the Commissioner of AgricuJtural Income-tax issued a notice under section 34 of the respondent, Income-tax Act, 1960 Kerala Agricultural ·which was served on her on March 15, 1963, proposing to revise s1.10 motu the assessment for the said two years on the ground that the deductions allowed were excessive and without any prOper basis as a result of which Rs. 16,800/- for the year 1959-60, and Rs. 25,800/- for 1960..61 had "escaped assessment". The respon ldent was asked to me objections, if any,. within fifteen days of the. receipt of the notice. The respondent in her objection contended that the proposed revision of her husband's income which was said to have "escaped assessment" was outside the scope of section 34. E On this objection another notice was served on her on September 26, 1966 stating that ,the expression "escaped assessment'' used in the earlier notice was inadvertent and asking the respondent to file further' The respondent filed objections, if she liked, after this eradication. further objections on October 12, 1966 which the Commissioner re· jected by his order dated August 23, 1967 and remanded the cases to the Agricultural Income-tax Officer for fresh disposal. The rele· vnnt part of this order is as follows :

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"In these circumstances I find that the disallowance of Rs. 2500/- for 1959-60 and Rs. 3500/- for 1960-61 ~owards upkeep and maintenance of immature area is irregu lar as it is not based on any rational method. The orders of assessment for these years arc therefore set aside and the cases arc remanded' to the Agricultural Income-tax Officer, Trichur, for fresh disposal according to Jaw after examining each item of expenditure individually and the general charges by applying the principles laid down by the Kerala High Court in its judgment reported in (1964) 58 IT~ 629."

At the fosiance of the respondent tJ\e Commissioner of Agricultural Income-tax referred t!1e following ques'.ion of Jaw to the High Court of Kerala under section 60(2) of the Kernla Agricultural Income-Ta" Act, 1950:

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"Whether on the facts and in the circumstances of the case the Commissioner has jurisdiction to pass an order ·in this case under section 34 of ,!he Agricultural Income-Tax Act, 1950."

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The High Court by a majority held that the power of revision vested in the Commissioner under section 34 of the Act could not B be invoked for the purpose of assessing income that had "escaped assessmen'." and that such income could be assessed only by resorting to the p.rocedure under section 35 of the Act. In these appeals by special leave the appellant questions the correctness of this decision.

It is necessary to refer to the relevant provisions of the Act before proceeding to consider the contentions of the partie~. Section 3 provides that agricultural income-tax shall be charged for each financial year on the total agricultural income of the previous year at the rate or rates specified in the Schedule to the Act. Total agricul- tural income is defined in section 2( s) as the aggregate of all agricul tural income mentioned in section 4 computed in accordance with the provisions of section 5 including all income of the description specified in section 9 and all receipts of the description specified in section lO(a), ( c) and ( d). Section 5 enumerates the deductions from the .total in come which have to be made in computing the agricultural income. Section 17 ( 1) of the Act requires every person whose total agricultural income during the previous year exceeded the limit which is not charge- able to agricultural income-tax, to furnish to the Agricultural Income- tax Officer a return stating his total agricultural income in that year and the expenditure incurred by him out of that income. Section 18 deals with the powers of the Agricultural Income-tax Officer to assess the total agricultural income of the assessee and determine the sum pay- able by him. Section 19 authorises the Agricultural Income•tax Officer to cancel the assessment in certain cases at the instance of the assessee and to make a ·fresh assessment in accordance with the provisions of section 18. Section 31 provides an appeal to the Assistant Com1nis si0ner against any order of assessment with which the assessee is dis satisfied. Sub-section (7) of the section requires the Assistant Com missioner to communicate the orders passed bv him disoosing of the appeal to the assessee and the Commissioner. Under section 32 an as sessee obiecting to an order passed by a11 Assistant Commissioner may appeal to the aopellate Tribunal.. Sub-section (2) of the section oer- mits the Cnmmissioner. if he obierts to any order passed bv the Assis- tant C',nmmissioner under section 11, to d.irect the Al!ricultnral lnC<'me- tax Officer to appeal to the appellate Tribunal against such order. Sub section (5) of section 32" provides that the apoellate Tribunal after giving both parties an opportunitv of being heard may pass sud1 order thereon as he thinks fit. The tribunal' is reciufred to communicate the 1mler tn the 11.~~ssee and to the CnmmiSsfoner. Section 34 and· section ~~ "'e th<> tw-' niost.imoortant sectinnsfor the puronse of these anneals. Sectk>n 34 which confers on ~ Commfssk>ner r~vi'sional power8 is in these terms ;

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suPREMll COURl' .!UlPORTS (197.6] SUPPLEMENTARY

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"34. Revision.-(1) The Commissioner may, of bis own motion or on application by an assessce, call for the record of any proceeding under this Act which has been taken by any authority subordinate to him and may make such enquiry or cause such enquiry to be made and, subject to the provisions of this Act, may pass such orders therecn as he thinks fit :

Provided that he shall not pass any order prejudicial to an assesscc without hearing him or givmg him a reasonable opportunity of being heard :

Provided further that an order passed declining to interfere shall not be deemed to be an order pre judicial to the assessee.

(2) Any .order passed under sulr&eetion (1) shall be final subject to any reference that may be made to the High Court under section 60."

Section 35 which deals with incoJllt1 escaping assessment reads :

"35. Income escaping assessment.-( I) If for any reason agricultural income chargeable to tax under this Act has es caped assessment in any financial year or has been assessed at too low a rate, the Agricultural Income-tax Officer may, at any time within three years, of that end of that year serve on the person liable to pay the tax or in the case of a company on the principal officer thereof a notice containing ull or any of the requirements which may be included in a notice under sub-5ection (2) of section 17 and may proceed to assess or re-assess such income and the provisions of this Act shall so far as may be, apply accordingly as if the notice were a notice issued under that sub-section;

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Provided that the tax shall be charged at the rate at which it would have been charg~ if such lnccime had not escaped nsscssment or full Rs5essment, as tho case may be;

Provided further that the Agricultural Incomo-tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so.

(2) No order of assessment under section 18 or of as sessment or reassessment under sub-section ( 1) of this section shall be. made after the expiry of three years from the end of the year in which the a\;ricultural income was lirst assessable;

Provided that where a notice under sub-section ( 1) has been issued within the time therein limited, the assessment or reassessment to be made in pursuanee of such notice may be made before the expiry of one yew; from the date of .t.he ser~ vice of the notice even If at tho titrul of the assessment or missessment the three rears aforesaid have already elapsed;

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c. A. I. T. v. LUC'/ (Gupta, J.)

661

Provided further

that nothing contained

in this section limiting the time within which any nction may be taken or any order, assessment or reassessment may be made shall apply to a reassessment made under section 19 or to an assessment or reassessment made in consequence 'of, or to give effect to any finding or direction contained in, an order under section 31, section 32, section 34 or section 60.

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(3) In computing the period of limitation for the pur- poses of this section, any period during which the assess- ment proceeding is stayed by an order or injunction of any court or other competent authority shall be excluded." Section 35 as it originnlly stood contained only the provision now contained in sub-section ( 1) including the first proviso. The second proviso to sub-section (1), and sub-sections (2) and (3) were introduc- ed ,and the ori~ provision was renumbered as sub-section ( 1) by an amending Act m 1964, but the newly a~visions were given effect , above was, therefore, ap- from April 1, 1958. Section 35 as extr plicable in a proper case during the two assessment years we are con- It would appear that sub-section (2) prescribes a time cerned with. limit of three years for reassessment under sub-section ( 1) of this sec- tion from the end of the year in which the agricultural income was first D assessed though the first proviso to sub-section (2) extends the time for reassessment in a: case where notice under sub-section ( 1 ) had been issued within the time prescribed by the sub-section, till the expiry of one year from the date of service of the notice even if at the tune of 'reassessment the prescribed period of three years had elafted. The second proviso to sub-section (2) states that the limitation o time pres- cribed by section 35 will not apply to an assessment or reassessment E made in consequence of any direction c:cntained in an order under sec- tion 31, section 32, section 34 or section 60. Section 36 empowers the authority which passed an order on appeal or revision, within three years from the date of such order, and the Agricultural Inc:cme-tax Officer within three years from the date of any assessment made by him, to rectify any mistake apparent from the record of the appeal. revision, assessment or refund as the case may be. Sub-section (1) of section 60 provides that the nsscssce or the Commissioner may require the appellate tribunal to refer to the Hiff, Court any question of law arising out of an order under section 32( ). Sub-section (2) of section 60 permits an ass= who is served with a noticq of an order under to section 34 which is prejudicial to him to require the Commissioner refer to the High Court any question of law arising out of such order. The majority decision of the Hif Court took the view that this was a case of escaped assessment and t the power of revision conferred on the Commissioner by section 34 of the Act could not be utilised for the purpose of reassessment . of income that e'Scaped assessment disre- garding the provisions of section 35. Sub-s«tion (1) of section 34 makes it clear that the power of revision Is exercisable "rubject to the provisions of this Act". that section 3 5 contains a specific provision for reassessment of income that had escaped nssetmlCnt and It was held that revlsiooal powers under s~![op 34 eould be ~vailed of to reopen C11Ses of escapM assessment

It was pointed out in the majority judgment H

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662

SUPREME COURT REPORTS (1976] SUPPLEMENTARY

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this appeal.

the Bihar Act,

in that under section 26 of Income-tax Officer was competent

only within the time limit and in accordance with the procedure prescri bed by section 35. Before us, Mr. Patel, learned counsel for the respon dent, reiterated the same contention. Mr. Krishnamurthy Iyer appearing for the appellant challenged the decision of the High Court on two grounds : ( 1) the income sought to be reassessed was not income that bad "escaped" assessment and, as such, the provisions of section 35 are not relevant for the present purpose, and (2) assuming this was a case of income escaping assessment, even then the second proviso to sub-section (2) of section 35 r.emoves the bar of time for any assess ment or reassessment made to give effect to- a direction under section 34. On the first question the High Court found, relying on the decision of this Court in Maharajadhiraj Sir Kameshwar Singh v. State of Bihar, (') that this was a case of escaped income. In Kameshwar Sihgh's case one of the provisions that came up for interpretation was section 26 of the Bibar Agricultural Income-Tax Act, 1938 which is similar in many respects to section 35(1) of the Act we are concerned in Kameshwar Singh's with It was held the Agricul case item tural of income which he had omitted to tax earlier, even though in tbc return that income was included and the Agricultural Income-tax Officer then thought that it was exempt". The same view was taken in an earlier decision of this Court, Kamal Singh v. Commissioner of Income-tax;(') that : "even if tl1e assessee has submitted a return of bis income, cases may well occur where tl1c whole of the income has not been assessed and such part of the income as has not been assessed can well be re garded as having escaped assessment". But the question that arises in the case before us is not covered by either of these decisions. This is not a case where the Agricultural facome-tax Officer omitted to assess any item of income disclosed in the assessee's return. Here the assessee made a full disclosure of his income and claimed certain deductions. It is not disputed that he was entitled to claim some deductions for the maintenance of the immature rubber plantation. The Agricultural In come-tax Officer allowed such deductions as he thought proper after considerin!! the matter. The Commissioner in remanding the 'cases to the A)U"icultnral Income-tax Officer "for fresh disposal accordinl! to Jaw" thou11ht that the deductions allowed were excessive. The Agricul tural Income-tax Officer mav have committed an error in allowing de ductions to the extent he did. but he did so after applying his mind to the claim. Every case of under assessment is not a case of escaped as sessment. The view we tnke finds suooort from the decision 0f this Court in Deputv Con11nisslo11Pr nf Aer;rulturnl lnronze-tux anrl Sales Tax, Qullon and another v. Dhanalakshmi Vilas Cashew Co.(')

to "assess any

On the other question. the Hil'h Court held that the order r>f the Commissioner directing.the Agricultural' Income-tax Officer to reassess the income for the two vears was bad, having been made after the ex piry of the period prescribed bv section 35 for the reassessment of in come that bad escaped assessment. For the appellant it was contended

(!) (IO<Q1'7 TLR. 388, (2) (1959) 35 l.T.R.1. m n969l 24 s.T;C.49t.

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that the second proviso to section 35 removed the limitation of time in A the case of a reassessment made in consequence of a direction or order under section 34. As we have held that this was not a case of escaped assessment, this other question does not arise for consideration.

111 our opinion the Commissioner in this case had jurisdiction to make the order he did under section 34, and the question referred to the High Court under section 60(2) should therefore be answered in B the atfirmative. The appeals ara allowed, but in the circumstances of the case we make no order as to costs.

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Appeals allowed.

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