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Annaparai Estate Limited Vs. State of Karnataka Representated by Commissioner of Agricultural Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberCivil Revision Petition Nos. 1455 to 1458 of 1979
Judge
Reported in[1984]150ITR254(KAR); [1984]150ITR254(Karn)
ActsKarnataka Agricultural Income Tax Act, 1957 - Sections 3, 32, 32(5), 34, 42, 42(1) and 53A
AppellantAnnaparai Estate Limited
RespondentState of Karnataka Representated by Commissioner of Agricultural Income-tax
Appellant AdvocateK.R. Prasad, Adv.
Respondent AdvocateS. Rajendra Babu, Adv.
Excerpt:
.....not benefited the assessee in any way with regard to its total income since there is no change in the seating capacity of the theatre or increase in the tariff rate of the ticket. it is a revenue expenditure and not a capital expenditure. - that :(i) the penalties levied under sections 42(1) and 42(2) of the act without hearing the assessee were bad in law and should, therefore, be set aside; and (iii) that the penalty imposed without exercising the discretion under section 42(1) and without considering the reasons put forward by the assessee for the default in payment of tax, like financial difficulties, etc. (ii) regarding the power to remand, sri prasad has placed strong reliance on the ratio of the decision of the supreme court in hukumchand mills ltd. this can only be done by..........s. 42(1) of the act. 4. the assessee challenged these orders of penalty before the additional deputy commissioner of commercial taxes (appeals), mangalore division, mangalore. 5. the assessee contented before the dy. commr. that : (i) the penalties levied under sections 42(1) and 42(2) of the act without hearing the assessee were bad in law and should, therefore, be set aside; (ii) that no penalty on super-tax can be levied under the act; and (iii) that the penalty imposed without exercising the discretion under section 42(1) and without considering the reasons put forward by the assessee for the default in payment of tax, like financial difficulties, etc., should be set aside as not sustainable in law. the deputy commissioner upheld the penalties of rs. 21,000 and rs. 51,000.....
Judgment:

Rajasekhara Murthy, J.

1. These four revision petitions filed under s. 55 of the Karnataka Agrl. I.T. Act, 1957 (hereinafter referred to as 'the Act') arise out of a common order dated April 4, 1978 made by the Karnataka Appellate Tribunal, Bangalore in A.I.T. Appeals Nos. 40, 41 and 56 of 1976.

2. The petitioner is a limited company owning coffee estates in Coorg and is an assessee under the Act. In the assessment of the assessee for the assessment year 1967-68, the Agricultural Income-tax Officer, Mercara (AITO) levied penalty of Rs. 21,000 for default in payment of tax under s. 42(1) of the Act and levied further sums of Rs. 87,000 and Rs. 1,10,000 for the continuing default under s. 42(2) of the Act.

3. Similarly, for the assessment year 1968-69, the Agrl. ITO levied penalty of Rs. 51,000 under s. 42(1) of the Act.

4. The assessee challenged these orders of penalty before the Additional Deputy Commissioner of Commercial Taxes (Appeals), Mangalore Division, Mangalore.

5. The assessee contented before the Dy. Commr. that :

(i) the penalties levied under sections 42(1) and 42(2) of the Act without hearing the assessee were bad in law and should, therefore, be set aside;

(ii) that no penalty on super-tax can be levied under the Act; and

(iii) that the penalty imposed without exercising the discretion under section 42(1) and without considering the reasons put forward by the assessee for the default in payment of tax, like financial difficulties, etc., should be set aside as not sustainable in law.

The Deputy Commissioner upheld the penalties of Rs. 21,000 and Rs. 51,000 levied under s. 42(1) for the two years 1967-68 and 1968-69 respectively. The Deputy Commissioner, however, reduced the penalties levied under s. 42(2) to Rs. 40,814.25 equivalent to 1/8th of the tax due for that year in accordance with the provisions of s. 42(1).

The assessee preferred further appeals before the Appellate Tribunal reiterating the above contentions.

The Appellate Tribunal which heard the appeals set aside the penalties on two grounds, viz. :

(i) that the assessee was not head before the penalties were levied, and

(ii) that the assessing authority did not exercise his discretion before levying the penalties.

6. So far as the penalty on super-tax is concerned, the commercial tax member cancelled the penalty but the District Judge Member held that the penalty on super-tax was authorised under the Act and upheld in levy.

7. There was also divergence of opinion between the two members of the Bench as regards the consequential order that should be made on the cancellation of the penalty. The commercial tax member held that the matter should rest with the cancellation and there was no need to remand the case to the assessing authority to reconsider the question of levying penalty after hearing the assessee.

8. The learned District Judge Member, while agreeing with the commercial tax member so far as the cancellation of the penalties was concerned, however, took the view that the matter must be remitted to the assessing authority to pass a fresh order after hearing the assessee.

9. In view of the divergent opinions expressed by the two members, the appeals were referred to a Full Bench of the Tribunal for its opinion. The Full Bench, on the questions formulated, agreed with the view taken by the learned judicial member and held that the Tribunal, on cancelling the penalty, would be competent to remit the matter to the assessing authority for reconsideration. The Full Bench also upheld the power of the AITO to levy penalty on super-tax.

10. The appeals were, accordingly, allowed as per the majority opinion and the matter was remanded to the assessing authority to pass fresh orders after hearing the assessee. Challenging the legality of the view taken by the Tribunal, the assessee has preferred two revision petitions for the year 1967-68 and one revision petition for the year 1968-69.

11. The following contentions were urged on behalf of the petitioner by Sri K. R. Prasad at the hearing before us :

(i) that the Tribunal has no jurisdiction to remand a case relating to penalty to the assessing authority to make a fresh order;

(ii) that the powers of the Tribunal while deciding the appeal relating to penalty under s. 42 of the Act are co-extensive with the powers of the first appellate authority viz., the Deputy Commissioner, and that the Tribunal correspondingly does not have the power to remand; and

(iii) that there is no provision under the Act to levy penalty for default to pay the super-tax and the penalty levied on super-tax is, therefore, without authority of law.

12. We shall take up the last contention first for consideration. 'Super-tax' is defined under s. 2(VV) as a tax payable under s. 53A. Such a tax is levied under s. 53A of the Act in addition to the agricultural income-tax payable under s. 3 of the Act.

13. Under the scheme of Chapter V of the Act dealing with the provisions for recovery of tax and penalties, an assessee who is in default in making payment of agricultural income-tax, will be liable to pay, in addition to the amount of arrears, a sum not exceeding 1/8th of the amount, by way of penalty under s. 42(1).

'Agricultural income-tax' is defined under s. 2(b) of the Act as the tax payable under s. 3, the charging section. What is charged under s. 3 is the tax exigible under the Act and levied at the rates specified in Part I of the Schedule.

'Super-tax' which is charged under s. 53A is apparently not a tax payable under s. 3. An assessee who is in default in paying the tax levied under s. 3 of the Act has to pay penalty under s. 3 of the Act.

14. As regards point No. (ii) regarding the power to remand, Sri Prasad has placed strong reliance on the ratio of the decision of the Supreme Court in Hukumchand Mills Ltd. v. CIT : [1967]63ITR232(SC) , in support of his contention that the Tribunal does not possess such power. The Supreme Court considered the provisions of s. 33(4) of the Indian I.T. Act, 1922 and the powers of the Appellate Tribunal thereunder. It was observed by the Supreme Court, while dealing with the appellate powers of the Tribunal under the I.T. Act, as follows (headnote) :

'The powers of the Appellate Tribunal in dealing with appeals are expressed in section 33(4) of the Income-tax Act in the widest possible terms. The word 'thereon' in section 33(4) restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words 'pass such orders as the Tribunal thinks fit' include all the powers (except possibly the power of enhancement) which are conferred on the Appellate Assistant Commissioner by section 31. Consequently, the Tribunal has authority under section 33 to direct the Appellate Assistant Commissioner or the Income-tax Officer to hold a further enquiry and dispose of the case on the basis of such enquiry.'

15. The above principle has been reiterated by the Supreme Court in CIT v. Chenniappa Mudaliar : [1969]74ITR41(SC) , in which it was observed (p. 47) :

'The scheme of the provisions of the Act relating to the Appellate Tribunal apparently is that it has to dispose of an appeal by making such orders as it thinks fit on the merits. It follows from the language of section 33(4) and in particular the use of the word 'thereon' that the Tribunal has to go into correctness or otherwise of the points decided by the departmental authorities in the light of the submissions made by the appellant. This can only be done by giving a decision on the merits on questions of fact and law and not by merely disposing of the appeal on the ground that the party concerned has failed to appear. As observed in Hukumchand Mills Ltd. v. Commissioner of Income-tax : [1967]63ITR232(SC) , the word 'thereon' in section 33(4) restricts the jurisdiction of the Tribunal to the subject-matter of the appeal and the words 'pass such orders as the Tribunal thinks fit' include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act'.

Section 33(4) of the Indian I.T. Act, 1922, is analogous to section 34(4) of the Agrl. I.T. Act, 1957.

16. The words 'pass such orders thereon as it thinks fit' in s. 34(4) of the Act must, therefore, receive the same meaning as given by the Supreme Court in two cases above referred to. That being so, the power of the Appellate Tribunal under s. 34(4) of the Agrl. I.T. Act is also circumscribed and is similar to the power conferred on the Deputy Commissioner under the Act. It means that if an order of the Deputy Commissioner is the subject-matter of an appeal before the Appellate Tribunal, then the Tribunal has the same powers which the Deputy Commissioner has, while disposing of an appeal under the Act and its power is co-extensive with the power of the Deputy Commissioner in appeal.

17. The word 'thereon' found in s. 34(4) of the Act has been used to restrict the jurisdiction of the Appellate Tribunal to the subject-matter of the appeal and the words 'pass such orders thereon as it thinks fit' as observed by the Supreme Court in Hukumchand Mills' case : [1967]63ITR232(SC) include all the powers (except possibly the power of enhancement) which are conferred upon the Deputy Commissioner under s. 32(5) of the Act. In other words, if the Deputy Commissioner, as an appellate authority, has got the power to remand any matter to the original authority, then the Tribunal could also remit in a similar matter to the original authority.

18. If, on the other hand, the Deputy Commissioner in appeal has no power to remit a matter for de novo disposal to the original authority, then the Tribunal also cannot remit in a similar matter to the original authority, for reconsideration. The Tribunal, however, could, as also submitted by the counsel on both sides, send back any matter to the Deputy Commissioner for a fresh disposal in accordance with law.

19. The answer to point No. (i) should depend upon our answer to the second point discussed above and also on the scope of the appellate power of the Deputy Commissioner under s. 32 of the Act.

'Section 32. Appeal against assessment. - (1) Any assessee objecting to the amount of income assessed or tax determined or loss computed under section 19 or the amount of tax determined under section 19 or denying his liability to be assessed under this Act, or objecting to any order under any of the provisions of sections 22, 26, 29, 30 and 42 made by the Agricultural Income-tax Officer, may appeal to the Deputy Commissioner against the assessment or order :

Provided that no appeal shall lie in respect of any assessment made under sub-section (4) of section 19.

Section 32(5). In disposing of an appeal, the appellate authority may -

(a) in the case of an order of assessment :-

(i) confirm, reduce, enhance or annul the assessment,

(ii) set aside the assessment and direct the Agricultural Income-tax Officer to make a fresh assessment after such further inquiry as may be directed; or

(b) in the case of any other order, confirm, cancel or vary such order :

Provided that no enhancement of an assessment or penalty shall be made under this section unless the appellant has had a reasonable opportunity.'

20. Section 32(1) confers a right of appeal on the assessee against an order of assessment made under s. 19, and against an order made by the assessing officer under any of the provisions of ss. 22, 26, 29, 30 and 42. In other words, the provisions of s. 32(1) expressly make a distinction between an 'assessment' and an 'order'. An order of assessment under the Act is made only under s. 19. 'Order' referred to under sub-s (1) of s. 32 must, therefore, necessarily be an order contemplated under any of the provisions of ss. 22, 26, 29, 30 and 42.

21. Section 22 provides for levy of penalty for concealment of income if it is found by the assessing authority in the course of the assessment proceedings that the assessee has concealed the particulars of income.

22. Section 26 provides the procedure to assess the income under the Act in case of a discontinued company, firm or association. It also provided for levy of penalty for non-intimation of the discontinuance of such company, firm or association to the assessing officer.

23. Section 29 provides for registration of firms.

24. Section 30 provides for determination of the claim of partition or maintenance division of the property among the various members or groups of the HUF or branch, etc.

25. Then we come to s. 42 which provides for levying penalty for default in payment of tax payable under the Act.

26. Sri Rajendra Babu, learned Government Advocate, submitted that s. 32(1), just refers to various kinds of orders which could be the subject-matter of an appeal under the Act and it makes no distinction between an order of assessment and other orders. He also urged that an assessment includes an order of penalty.

27. On a plain reading of the provisions of s. 32(1), it would be difficult to accept the contentions of Sri Babu. Section 32(1), no doubt, refers to different kinds of appealable orders, but while so describing such orders, s 32(1) also takes care to make a distinction between an assessment made under s. 19 and 'other orders' falling under ss. 22, 26, 29, 30 and 42. The orders contemplated under ss. 22, 26, 29, 30 and 42 are evidently not orders of assessment referred to in s. 19.

28. With this distinction in mind, we may now proceed further to examine the scope of the appellate powers of the Deputy Commissioner under s. 32(5).

29. Section 32(5) can be divided broadly into two parts :- s. 32(5)(a) and (b)

30. Section 32(5)(a) has again two parts. They are sub-ss. (i) and (ii).

31. Section 32(5) reads : In disposing of an appeal, the appellate authority may :-

(a) in the case of an order of assessment :-

(i) confirm, reduce, enhance or annul the assessment,

(ii) set aside the assessment and direct the Agricultural Income-tax Officer to make a fresh assessment after such further inquiry as may be directed;

(b) in the case of any other order, confirm, cancel or vary such order :

Provided that no enhancement of an assessment or penalty shall be made under this section unless the appellant has had a reasonable opportunity.'

32. It is obvious from these provisions that the order referred to in s. 32(5)(b) must necessarily be an order which is quite different from an order that is referred to in s. 32(5)(a), since clause (b) expressly deals with 'any other order'. Clause (a) deals with an appeal in the case of an order of assessment. Clause (b) deals with 'any other order' which, in the context must necessarily be an order other than an order of assessment.

33. The proviso to s. 32(5)(b) is also very significant, which makes reference enhancement in the case of an 'assessment' and 'penalty' separately. If the order of assessment, as contended by Mr. Babu, also includes an order of penalty, then there was no necessity for the Legislature to mention separately 'assessment or penalty' in the said proviso.

34. The Deputy Commissioner, in the case of an appeal against an order of assessment, may confirm, reduce, enhance or annul the assessment or set aside the assessment with a direction to the Agrl. ITO to make a fresh assessment. But, in regard to an appeal against any other order, clause (b) is not as comprehensive or as wide as clause (a) and the Deputy Commissioner could only confirm, cancel or vary such order. It does not confer power on him to direct the AITO to make a fresh order in any of the case falling under clause (b) of s. 32(5).

35. Since the appeals before the Deputy Commissioner in the instant cases were referred against the orders of penalty, they fall under clause (b) and the Deputy Commissioner could only confirm, cancel or vary such order and he has no power to remit the matter to the assessing authority for reconsideration. If the Deputy Commissioner has no power to set aside and remand a matter relating to penalty, it follows that it would be beyond the powers of the Tribunal also to remand the matter to the assessing authority to reconsider and make a fresh order since we have earlier observed that the powers of the Tribunal are just the same as those conferred on the Deputy Commissioner under the Act.

36. In the result and for the reasons stated above, we allow these revision petitions, set aside the order of the Tribunal and remit the matters to the Tribunal for fresh disposal in accordance with law, and in the light of the observations made.

37. We deem it necessary to observe that if the Tribunal remits the matter to the Deputy Commissioner to dispose of the matter afresh, then the Dupty Commissioner in turn cannot remit the matter to the assessing authority to reconsider the cases in regard to penalty. He has to dispose of the matter himself after affording an opportunity to the assessee of being heard.

38. In the circumstances of the case, we make no order as to costs.


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