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Chandypore Tea Estate Vs. Commissioner of Taxes, Assam. - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberAgricultural Income-tax Reference No. 1 of 1964
AppellantChandypore Tea Estate
RespondentCommissioner of Taxes, Assam.
Prior history
C. S. NAYUDU J. - This reference is by the Assam Board of Revenue, hereinafter referred to as the "Board", under section 28(2) of the Assam Agricultural Income-tax Act, 1939, hereinafter called the "Act", for the decision of this court on the following questions of law :
"(1) Whether, for the purpose of the Assam Agricultural Income-tax Act, 1939, the partnership firm of Chandypore Tea Estate is a separate assessable entity apart from the individual partners who consti
Excerpt:
.....or the like on behalf of persons jointly interested in such land or in the agricultural income derived therefrom, the aggregate of sums payable as agricultural income-tax by each person on the agricultural income derived from such land and received or receivable by him shall be assessed on such common manager, receiver, administrator or the like and he shall be deemed to be the assessee in respect of the agricultural income-tax so payable by each such person and shall be liable to pay the same. as may be seen from the above, section 13 provides that where any person holds the land from which agricultural income sought to be assessed is derived as a common manager appointed under any law or under an agreement or as a receiver, administrator, or the like on behalf of persons..........under the indian partnership act, 1932, hereinafter called the "income-tax act." the income derived by the petitioner-firm having been regarded as agricultural income, forty per cent. thereof had been assessed to income-tax, and in doing so, as the firm was registered under the income-tax act, the assessment procedure indicated in section 23(5)(a) of the income-tax act was followed and the incomes of the partners were individually assessed; but as regards the balance of the income, namely, sixty per cent. thereof, which is assessable under the act, was assessed to the income-tax on the basis of the agricultural income of the firm as a separate entity and not on the individual shares of the partners. such an assessment under the act, necessarily involves payment of.....
Judgment:

C. S. NAYUDU J. - This reference is by the Assam Board of Revenue, hereinafter referred to as the "Board", under section 28(2) of the Assam Agricultural Income-tax Act, 1939, hereinafter called the "Act", for the decision of this court on the following questions of law :

"(1) Whether, for the purpose of the Assam Agricultural Income-tax Act, 1939, the partnership firm of Chandypore Tea Estate is a separate assessable entity apart from the individual partners who constitution the firm ?

(2) Whether, from the facts and circumstances of the case, the provisions of section 13 of the Assam Agricultural Income-tax Act, 1939, are applicable to the Chandypore Tea Estate ?"

This reference was apparently made at the instance of the Chandypore Tea Estate, hereinafter referred to as the "petitioner-firm". The reference has relation to the assessment of the petitioner-firm to the agricultural income-tax for the assessment year 1956-57 and 1957-58. The petitioner-firm is a firm registered under the Indian Partnership Act, 1932, hereinafter called the "Income-tax Act." The income derived by the petitioner-firm having been regarded as agricultural income, forty per cent. thereof had been assessed to income-tax, and in doing so, as the firm was registered under the Income-tax Act, the assessment procedure indicated in section 23(5)(a) of the Income-tax Act was followed and the incomes of the partners were individually assessed; but as regards the balance of the income, namely, sixty per cent. thereof, which is assessable under the Act, was assessed to the income-tax on the basis of the agricultural income of the firm as a separate entity and not on the individual shares of the partners. Such an assessment under the Act, necessarily involves payment of agricultural income-tax at a higher rate than what would have become assessable, had the partners been treated as separate individuals and separately assessed in respect of their respective shares of the income. The Income-tax Officer had assessed the net income from the income of the petitioner-firm from tea at Rs. 1,11,277 for the year 1956-57 and Rs. 1,40,846 for the year 1957-58. The sixty per cent. portion of this net income amounted to Rs. 66,766 for the year 1956-57 and Rs. 84,507 for the year 1957-58, and on this part of the income, agricultural income-tax was levied in a sum of Rs. 15,325.31 for the 1956-57 and Rs. 20,822.13 for 1957-58, treating the firm as an assessable entity, as already indicated. The firm appealed against the order of the Agricultural Income-tax Officer to the Assistant Commissioner of Taxes, claiming that each individual partner should have been assessed separately, the partnership firm itself not having been regarded as a distinct legal entity. But those appeals were rejected on the principal ground that the partnership firm was a distinct entity by itself, apart from that of the partners who constituted the firm. Against this order rejected the appeals, the petitioner-firm preferred further appeals before the Board before whom it was urged that the petitioner-firm was not a separate juristic person and as such could not be assessed and that, therefore, the individuals partners alone could be assessed on the basis of their respective shares in the income and that the firm was a common manager for the partners and should get the benefit of section 13 of the Act and that the sixty per cent. of the total income was not agricultural income at all. The Board dismissed the appeals rejecting all the points raised by the firm.

Having been dissatisfied with the order of the Board, the petitioner firm moved the latter requiring the Board to the make a reference to this court under the Act, which decided to make the reference, as already indicated.

Taking up the first of the points referred by the Board, the principal contention is based on the provisions of the Income-tax Act, which, the petitioner-firm claimed, should, on principle, the be followed and applied to the assessment under the Act. It would be necessary to refer to the relevant provisions of the Act as well as of the Income-tax Act in this connection. Section 3 of the Act is the charging section and is in the following words :

"3. Agricultural Income-tax at the rate or rates specified in the annual Assam Finance Acts subject to the provisions of section 6 shall be charged for each financial year in accordance with, and subject to, the provisions of this Act on the total agricultural income of the previous year of every individual, Hindu undivided or joint family, company, firm and other association of individuals."

The expression "agricultural income" has been defined in section 2(a) of the Act, the relevant portion whereof is extracted below :

"2. In this Act, unless there is anything repugnant in the subject or context -

(a) agricultural income means -

(1) Any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land revenue in Assam or subject to a local rate assessed and collected by officers of the Government as such.

(2) Any income derived from such land by -

(i) agricultural, or

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market, or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii);

Explanation. - Agricultural income derived from such land by the cultivation of tea means that portion of the income derived from the cultivation, manufacture and sale of tea as is defined to be agricultural income for the purposes of the enactments relating to Indian Income-tax........"

The Explanation to this provisions shows that so far as the agricultural income derived from land by the cultivation of tea was concerned, it is only that portion of the income derived from the cultivation, manufacture and sale of tea as is defined to be agricultural income for the purpose of the Income-tax Act, that would be the agricultural income which would be liable to assessment under the Act. Section 8 of the Act provides for the determination of the agricultural income mentioned in clause (a) (2) of section 2, and the proviso to sub-section (2) of section 8 of the Act is relevant and is as follows :

"Provided further that in cases of agricultural income from cultivation and manufacture of tea, the agricultural income for the purposes of this Act shall be deemed to be that portion of the income from cultivation, manufacture and sale which is agricultural income within the meaning of the Indian Income-tax Act and shall be ascertained by the computing the income from the cultivation, manufacture and sale of tea as computed for Indian Income-tax from which shall be deducted any allowance by this Act authorised in so far as the same shall not have been allowed in the computation for the Indian Income-tax Act."

It would, therefore, the necessary to refer to the corresponding provisions of the Income-tax Act. Under the Income-tax Act, "agricultural income" is defined in section 2(1), the relevant portion whereof is as follows :

"2. In this Act, unless there is anything repugnant in the subject or context, -

(1) agricultural income means -

(a) any rent of revenue derived from land which is used for agricultural purposes, and is either assessed to land-revenue in the taxable territories or subject to a local rate assessed and collected by officers of the Government as such;

(b) any income derived from such land by -

(i) agricultural, or

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market, or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii)......."

"Agricultural income" is included as one of the items in the charging section in the Income-tax Act of the income to which the Act is held to apply. Section 23(5)(a) of the come-tax Act is important. It reads as follows :

"23. (5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under sub-section (1), sub-section (3) or sub-section (4), as the case may be, -

(a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him an on the basis of such assessment shall, be determined.........."

Applying this provision under the Income-tax Act, forty per cent. of the income which is assessable under that Act was apportioned among the partners according to their share and the income-tax assessment was made.

It is contended that as the petitioner-firm is registered both under the Income-tax Act as well as under the Partnership Act, the same principle of apportionment must be followed and the firm should not be assessed as an individuals but the income of each partner according to his share should be assessed under Act in the same way as it was done under the Income-tax Act. This argument was sought to be countered by the learned Advocate-General by pointing out that the charging section, namely, section 3 of the Act did not permit of any such apportionment, as the total agricultural income of the every firm and other association of individuals is liable to agricultural income-tax. He contended that as both an individuals and a firm or association of individuals are separately mentioned in section 3 and as the petitioner-firm is a firm within the meaning of the Act, the total agricultural income of the pervious year is assessable under the Act. He further claimed that the proviso to section 8 of the Act, which applied to agricultural income derived from tea, a portion of the income from such cultivation, etc., which is agricultural income within the meaning of the Income-tax Act is assessable and that it is only for the computation of the income from such cultivation, etc., it should adopt the same method as was adopted for computation of income for purposes of the Income-tax Act. In other words, the learned Advocate-Generals argument is that the method of arriving at the agricultural income for assessment under the Act shall be the same as that adopted under the Income-tax Act, and that as the normal rule under the Income-tax Act is that the total income of the firm is assessable, barring the special case provided for in section 23(5) of the Income-tax Act, the same method is applicable in calculating the income of the firm under the Act. We consider that there is considerable force in this argument. On a careful consideration of the provisions of the Act, we are satisfied that for purposes of assessment under the Act, it is the net income of the firm that is assessable and there being no provisions corresponding to section 23(5) of the Income-tax Act, in the Act, the Board was fully justified and, in fact, quite correct in treating the net income of the firm as the basis for the assessment under the Act. Hence, we hold that sixty per cent. of the income, as computed and determined under the Income-tax Act, is liable to assessment as the agricultural income of the firm and that there is no scope under the Act to treat the shares of the individuals partners in that income as their separate income and to assess the same on that basis. In our considered opinion, therefore, there is no substance in the point taken by the petitioner.

The next contention of Mr. Ghose is based on sections 13 and 14-A(1) of the Act. Section 13 reads as follows :

"13. Where any person holds land, from which agricultural income is derived, as a common manager appointed under any law for the time being in force or under any agreement or as receiver, administrator, or the like on behalf of persons jointly interested in such land or in the agricultural income derived therefrom, the aggregate of sums payable as agricultural income-tax by each person on the agricultural income derived from such land and received or receivable by him shall be assessed on such common manager, receiver, administrator or the like and he shall be deemed to be the assessee in respect of the agricultural income-tax so payable by each such person and shall be liable to pay the same."

Section 14A(1) is as follows :

"14A. (1) In any case covered by sections 13 and 14 where any agricultural income or any part thereof is not specifically received on behalf of any one person, or where the individual shares of the persons on whose behalf they are received are in determinate or unknown, the tax shall be levied and be recoverable at the rate applicable to the total amount of such income."

As may be seen from the above, section 13 provides that where any person holds the land from which agricultural income sought to be assessed is derived as a common manager appointed under any law or under an agreement or as a receiver, administrator, or the like on behalf of persons jointly interested in such land or in the agricultural income derived therefrom, then the agricultural income-tax payable by each of such parsons on the income so derived from such land and received or receivable by him and the aggregate of those sums shall be assessed on the common manager, who shall be deemed to be the assessee in respect of the said land and the agricultural income-tax payable thereon. In other words, where a number of persons are jointly interested in the agricultural land in question or in the agricultural income derived therefrom and all those persons are represented by a common manager, receiver or administrator or the like, the agricultural income-tax payable by each of these persons on his own share of the income has to be assessed and the aggregate of sums so assessed in respect of all the persons shall be payable by their representative, namely, the common manager, receiver, administrator, or the like as the case may be.

Mr. Ghose contends that as each partner is an agent of the other and of the firm, the partner must be deemed to be jointly interested in the land in question and the managing partner must be regarded as the common manager within the meaning of section. We are unable to subscribe to this contention. The expression "common manager" is, in our opinion, used in a restricted sense and applies only to the one appointed as such under any law in force for the time being or under any special agreement, declaring and detailing him as the common manager. Had the legislature intended that the managing partner of a firm would come within the scope of the expression "common manager", it would have said so in plain terms by adding the words "managing partner of a firm" in the list of office-holders enumerated in the section. We are satisfied that the managing partner of the section. Instance of common manager, as pointed out by the learned Advocate-General, may be seen in various enactments, for example, the Bengal Wills and Intestacy Regulation, 1799 (Bengal Regulation 5 of 1799), wherein section 4 makes provisions for the appointment of a common manager. As the case, in our opinion, is not covered by section 13, it is unnecessary to examine whether section 14A would be of any assistance as that section contemplates only cases covered by sections 13 and 14 of the Act.

In the result, therefore, we are satisfied that the board was correct in levying the assessment on the sixty per cent. of the total income of the firm as computed and determined under the provisions of the Income-tax Act, treating that part of the income as the income of the firm and not as that of the individual partners. Having regard to the provisions of the Act, the assessment in these circumstances could only be made regarding the firm as a person and the income of the firm as the income on which the assessment is to be made.

In the result, we answer the question referred to us as follows :

1. For the purpose of the Assam Agricultural Income-tax Act, 1939, the partnership firm of Chandypore Tea Estate must be regarded as a separate assessable entity and the income derived by it assessed as such and not on the share of individual partners, who constitute the firm.

2. From the facts and circumstances of the case, the provisions of section 13 of the Assam Agricultural Income-tax Act, 1939, are not applicable to the Chandypore Tea Estate.

In the entire circumstances, we do not with to make any order as to costs in this reference.


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