1. For the assessment years 1974-75 and 1975-76, the petitioner filed his returns under the Karnataka agricultural Income tax Act, 1957 (Karnataka Act 22 of 1957) (hereinafter referred to as the Act), before the Agricultural Income-tax Officer, Virajpet, Coorg District (hereinafter referred to as the AITO), who on their examination, completed the assessments and recovered the taxes due thereon also. Some time thereafter, the AITO by two separate but similar notices dated November 22, 1976, (Exhibits A and B) purporting to be under s. 36 of the Act, called upon the petitioner to show cause as to why the agricultural income derived from the lands standing in the names of his four sons should not be included in his income for the aforesaid assessment years as escaped income with penalties thereon, under s. 22 of the Act. In answer to those notices, the petitioner filed objections, inter alia, contending that the properties had been separately purchased by his sons in the year 1962-63 and there was no income which escaped assessment so as to reopen previous assessments completed under the Act. But, the AITO by two separate but identical order made on November 19, 1977 (Exhibits C and D), overruled the objection of the petitioner, brought to tax the income derived by his four sons, and issued consequent demand notices (Exhibits E and F) also levying penalties. In these petitions under art. 226 of the Constitution, the petitioner has challenged the show-cause notices, the assessment orders and the demand notices issued by the AITO.
2. Sri N. Santhosh Hegde, learned counsel for the petitioner, contends that the AITO was incompetent to examine and decide the validity of sale transactions under the Act and to include the income of the sons of his client in the agricultural income of the petitioner.
3. Sri L.M.Pandurangaswamy, learned High Court Government Pleader, appearing for the respondent, sought to justify the impugned orders.
4. In the impugned assessment order for the assessment year 1974-75, the AITO has overruled the objections of the petitioner in these words :
'On further investigation in this regard it was found our that the lands in question were purchased in the year 1962-63 and as on that day his sons were minors and had no source of income of their own. The learned representative just says that money required for purchase of the said lands were provided by his mother but he had failed to disclose or to prove with documentary evidence as to how and wherefrom his mother got the money and who provided money for development and cultivation of coffee estate. In the absence of proof, I hold that the assessee had provided money for purchase of land but was careful enough to see that the lands are purchases in his minor sons' names so that he can escape tax liability. There can be no other possibility except that he himself providing the money and also helping minor sons to possess demesne. After all who will not be interested in getting their offsprings' future secured and at the same time hoodwink the Government. Investigation further revealed that some of the demesne which was in the name of the assessee has been transferred to his sons' names. E.g.Sy.No. 99/2, 100/1 and 99/1, which were in the name of the assessee, have been transferred to Sri P. C. Kushalappa, one of his sons. Hence, it is as clear as daylight that the assessee had done all these things, i.e., transfer and purchase of property in the names of his minor sons in order to evade tax.
In the circumstances, I hold that the money invested for purchase of land in the names of minor sons was by Mr. Chermana, and it is his property. Hence, the contention of the representative is overruled and proposal is confirmed and assessed as under.'
5. In the other order for the subsequent assessment year, the AITO has passed a similar order.
6. Before the AITO, as also before this court, the petitioner has asserted that he had not transferred lands standing in his name to the names of his four sons, the correctness of which is disputed by the respondent in his return. Let me even assume that the petitioner had transferred his lands to his sons as asserted by the respondent is correct and examine the question on that basis.
7. Unlike the I.T. Act of 1961 (Central Act 43 of 1961), the Act does not empower the authorities to examine the validity of a transfer made by one person in favour of another person and bring the income of the property so transferred to the income of the assessee. When the Act does not empower the AITO to examine the validity of a transaction and include the income of one person in the income of another person, it was not open to him to ignore the transfers and include the income of the sons in the income of the petitioner at all. On this short ground, the notices issued by the AITO, the assessment orders made and the demand notices issued, which are wholly without jurisdiction, are liable to be quashed.
8. Even otherwise, every one of the reasons given by the AITO to hold that the income derived from the lands standing in the names of the sons should be included in the income of the petitioner are manifestly illegal.
9. Section 36 of the Act that was invoked by the AITO was wholly inapplicable to the facts and circumstances of the case. A person is undoubtedly entitled to adjust his affairs and reduce his tax liability which cannot be called as hoodwinking the Government, as expressed by the AITO. In this view also, the proceedings initiated by the AITO, the order made thereon and the demand notices issued thereto, which are manifestly illegal, are liable to be quashed.
10. In the light of my above discussion. I quash the impugned notices, assessment orders and demand notices issued by the AITO against the petitioner.
11. Rule issued is made absolute. But, in the circumstances of the cases, I direct the parties to bear their own costs.