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G.V.S. Raju Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1984)7ITD795(Mad.)
AppellantG.V.S. Raju
Respondentincome-tax Officer
Excerpt:
.....agricultural lands to his wife and the ito included the agricultural income from such lands in the total income of the assessee under section 64(1)(iv) for rate purposes. in this connection he has rejected the contention of the assessee that the agricultural lands belonged to his wife and, therefore, could not be included in his total income.3. aggrieved over the assessments, the assessee appealed to the commissioner (appeals) and contended that section 64(1)(iv) did not apply to agricultural lands and agricultural income was not one of the heads of income specified in section 14 of the act. these contentions were rejected by the commissioner (appeals). according to him, section 64(1)(iv) ropes in all such income as arises directly or, indirectly to the spouse of the individual from.....
Judgment:
1. These appeals by the assessee are consolidated and disposed of by a common order for the sake of convenience as they involve common issue and arise out of the consolidated order of the Commissioner (Appeals) dated 1-12-1982 wherein he upheld the action of the ITO clubbing the agricultural income arising to his wife out of agricultural lands transferred to her. In the grounds, the assessee urged that the Commissioner (Appeals) erred in applying Section 64(1)(iv) of the Income-tax Act, 1961 ('the Act'). These appeals are barred by limitation by two days and the assessee filed an affidavit accompanied by a petition for condonation of the delay. After going through the affidavit we find there was sufficient cause for the delay and, therefore, the delay is condoned.

2. The facts of the case in brief are that the assessee is a resident individual and derives income from property, share income and own business as a producer, distributor and financier of the cine films.

The assessment years involved are 1979-80 and 1980-81 for which the respective calendar years are the accounting years. The assessee gifted some agricultural lands to his wife and the ITO included the agricultural income from such lands in the total income of the assessee under Section 64(1)(iv) for rate purposes. In this connection he has rejected the contention of the assessee that the agricultural lands belonged to his wife and, therefore, could not be included in his total income.

3. Aggrieved over the assessments, the assessee appealed to the Commissioner (Appeals) and contended that Section 64(1)(iv) did not apply to agricultural lands and agricultural income was not one of the heads of income specified in Section 14 of the Act. These contentions were rejected by the Commissioner (Appeals). According to him, Section 64(1)(iv) ropes in all such income as arises directly or, indirectly to the spouse of the individual from assets transferred directly or indirectly to the spouse by guch individual otherwise than for adequate consideration into the total income of the individual and agricultural lands constituted assets though not capital assets in terms of Section 2(14)(iii) of the Act and as per provisions of the Finance Act, 1979, agricultural income should be aggregated with the non-agricultural income for the purpose of levying tax on non-agricultural income. He further observed that Section 14 itself contains saving clause, namely, 'Save as otherwise provided by this Act' and Section 4(1) of the Act also provides that income-tax should be calculated in accordance with any Central Act, namely, the Finance Act passed every year.

Accordingly, he confirmed the assessment orders and dismissed the appeals.

4. The learned counsel for the assessee reiterated the contentions urged on behalf of the assessee before the Commissioner (Appeals) and relied on the Board Circular No. 126, dated 28-11-1973, reproduced in [1974] 93 ITR (St.) 36, wherein it has been stated that as the agricultural income does not form part of total income, the provisions of Section 64 do not apply in respect of such income. In other words, it has been stated that the agricultural income derived from the assets transferred by an individual to his spouse or minor children will not form part of its net agricultural income. He referred to the decision of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 in support of his contention that the Board's circulars are binding on the authorities. Although this contention was not raised before the Commissioner (Appeals) as at any rate it is not evident from the order of the Commissioner (Appeals), nonetheless this contention could be taken before the Tribunal in view of the decision of the Madras High Court in the case of CIT v. Indian Express (Madurai) (P.) Ltd. [1983] 140 ITR 705. The learned departmental representative has been heard and he has supported the orders of the authorities.

5. We have duly considered the rival contentions and the orders of the authorities. Before deciding the issue it is necessary to consider the relevant provisions of law. Section 64 which provides that clubbing of income arising to minor child or spouse of the individual from assets transferred reads as under: 64. (1).-In computing the total income of any individual, there shall be included all such income as arises directly or indirectly-(i) to (iii) ** ** ** (iv) subject to the provisions of Clause (i) of Section 27, in a case not falling under Clause (i) of this Sub-section, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart; A plain reading of the aforesaid section will show that it is only for the purpose of computing the total income the various income enumerated therein requires to be clubbed with the income of the individual.

'Total income' is defined in Section 2(45), according to which total income means the total amount of income referred to in Section 5 of the Act, computed in the manner laid down in this Act. Section 5 provides the scope of total income both for a resident as well as non-resident.

When once the scope of total income is considered in terms of Section 5, it is necessary to consider the computation of total income in the manner laid down in this Act. Sections 1 to 59 of the Act deals with the computation of total income under various heads of income.

Therefore, it is necessary to compute the total income in accordance with Chapter IV only. Chapter V of the Act provides for inclusion of income of other persons in the total income of an assessee. In this connection it is essential to consider charging section, namely, Section 4, the relevant portion of which reads as under : 4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of this Act in respect of the total income of the previous year or previous years, as the case may be, of every person : A plain reading of the aforesaid section shows that the income-tax shall be charged for any assessment year at any rate or rates prescribed by any Central Act which is the Annual Finance Act passed by the Parliament. It is also clear that such rates prescribed by the Finance Acts shall be charged in accordance with and subject to the provisions of this Act. Therefore, the levy of prescribed tax should be in accordance with and subject to the provisions of this Act in respect of the total income. We shall now turn to heads of income provided under Section 14 which reads as under : Heads of income.-Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income : It is clear that Section 14 not only enumerates the heads of income for computation of total income, it is also for the purpose of charging income-tax. Reading Section 4 and Section 14 together, it will be evident that the charging of income-tax at the rate prescribed by the Finance Act shall be governed by Section 14 both for the purpose of charge of income-tax and computation of total income. Obviously the income arising from agricultural lands transferred to the assessee's wife falls beyond the heads of income enumerated in Section 14.

Therefore, the logical conclusion is that in accordance with and subject to the provisions of the Act, agricultural income is not a chargeable item of income. It is only the Annual Finance Act which enables the aggregation of net agricultural income for the purpose of rate or in other words for determining the appropriate rate of tax applicable, to non-agricultural income. The Finance Act provides for the net agricultural income to be taken into account in calculating the amount of income-tax payable if it exceeds Rs. 5,000. We are not concerned here with the mechanism of determining the agricultural income. In this connection, however, we have to observe that the Board in its circular cited thereof has observed as under : It should be noted that Section 64 of the Income-tax Act applies only for the purposes of computing 'total income' of the assessee under the Income-tax Act. As the agricultural income of the assessee does not form part of his total income, the provisions of Section 64 of the Act will not apply in respect of such income. In other words, agricultural income derived from assets transferred by an individual to his spouse or minor children will not form part of his net agricultural income. [1974] 93 ITR (St.) 49.

Therefore, even as per the clarification issued by the Broad, the agricultural income derived from the assets transferred by an individual to his spouse or minor child will not form part of his net agricultural income so as to be clubbed even for the purpose of ascertaining the appropriate rate of tax. In the facts and circumstances of the case, therefore, we hold that the Commissioner (Appeals) has erred in interpreting the provisions of law and coming to the conclusion that the agricultural income arising to the spouse of the individual out of the agricultural lands transferred by him should be clubbed under Section 64(1)(iv) for the purpose of total income. In this view of the matter, therefore, we set aside the orders of the authorities and direct that the agricultural income arising to the spouse of the individual out of the agricultural lands transferred by the individual to the spouse should not be clubbed under Section 64(1)(iv) and modify the assessment, accordingly.

7. I agree with the conclusion of my learned brother, stating therein that the Board circulars are merely binding on the ITO and the Commissioner to the extent the same are concerning their administrative and not judicial functions or function. The Hon'ble High Court's decisions, which are binding on the Tribunal, have also held otherwise than that are of my learned brother. The Kerala High Court also did likely. Reliance can be placed on the cases of CIT v. Malayala Manorama & Co. Ltd. [1983] 143 ITR 29 (Ker.) and CIT v. O.M.S.S. Sankaralinga Nadar & Co. [Tax Case No. 1263 (Mad.) of 1979 decided on 7-12-1982.]


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