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K.T. Ahammed Kutty Haji and Bros. Vs. Agricultural Income-tax Officer and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberOriginal Petition No. 3997 of 1974
Judge
Reported in[1979]117ITR209(Ker)
ActsKerala Agricultural Income-tax Act, 1950 - Sections 17(2), 35 and 35(1)
AppellantK.T. Ahammed Kutty Haji and Bros.
RespondentAgricultural Income-tax Officer and anr.
Appellant Advocate P.A. Mohammed, Adv.
Respondent AdvocateGovernment Pleader
Cases ReferredDistrict Wholesale Society Ltd. v. Deputy Registrar
Excerpt:
.....the subject of excessive relief. the old materials themselves, on a more careful or intelligent analysis, may effect the same result. 106): two conditions have to be satisfied before proceedings can be initiated under section 147(b): (1) the income-tax officer must have reason to believe that the income has escaped assessment; if either condition is not satisfied the action would be without jurisdiction. mohammed, learned counsel for the petitioner, replying to the arguments of the learned government pleader contends that the revised assessment orders are inspired by administrative directions and since there is no independent application of the mind of the officer concerned the impugned orders are bad in law. deputy registrar air1976ker124 ,is not applicable to a case like this where..........to the counter-affidavit filed on behalf of the 1st respondent. shri. p.a. mohammed, learned counsel for the petitioner, contends that ext. p-6 notice is bad in law for the reason that the 1st respondent has not recorded his reasons for making a reassessment under section 35(1) of the act. learned counsel refers to section 35(1) of the act, which reads : '35. income escaping assessment.--(1) if for any reason agricultural income chargeable to tax under this act has escaped 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 the 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 all or any of.....
Judgment:

Narendran, J.

1. The petitioner in this original petition is an assessee under the Agrl. I.T. Act, 1950, for short the Act, within the jurisdiction of the 1st respondent, Agrl. ITO, Manantoddy. The grievance of the petitioner is against Exts. P-10 to P-12 orders of the 1st respondent passed under Section 35 of the Act revising the assessments, Exts. P-3 to P-5.

2. The case of the petitioner is as follows: One K.T. Ahammed Kutty Haji and his three brothers jointly purchased certain agricultural properties in equal shares. The properties purchased were enjoyed and possessed by them as tenants-in-common. The income from the properties was shared equally among the four sharers who were commonly known as Messrs. Abdul Kader Haji & Bros. For the year 1960-61, they were assessed assigning the status of a company. On appeal, the Addl. AAC of Agrl. I.T. & S.T., Cannanore, by Ext. P-1 order dated August 18, 1961, set aside the assessment order holding that the status of the petitioner is one of tenants-in-common and not company. Thereupon, on the basis of Ext. P-l order, the Dy. Commr. of Agrl. I.T. & S.T., North Zone, Kozhikode, allowed a revision petition filed by the petitioner against the levy of penalty for the year 1960-61. For the subsequent years the petitioner was assessed as tenants-in-common. The 1st respondent by orders, Exts. P-3 to P-5, assessed the petitioner for the assessment years 1970-71 to 1972-73, respectively, assigning the petitioner the status of tenants-in-common. The tax due as per the assessment orders, Exts. P-3 to P-5, were also paid by the four brothers.

3. On March 16, 1974, the 1st respondent issued Ext. P-6 notice under Section 35 of the Act, informing the petitioner that the status assigned as per Exts. P-3 to P-5, orders of assessment, was not correct. In reply to Ext. P-6 notice the petitioner sent Ext. P-7 contending that the status of the petitioner is nothing but tenants-in-common. But the 1st respondent rejected the above contention of the petitioner and issued Ext. P-8 pre-assessment notice proposing to revise Exts. P-3 to P-5 assessments. To Ext, P-8 the petitioner filed Ext. P-9 objections. But, without considering Ext. P-9 objections the 1st respondent passed Exts. P-10, P-11 and P-12 revised assessments for the years 1970-71, 1971-72 and 1972-73. A counter-affidavit has been filed on behalf of the 1st respondent. In para. 8 of the counter-affidavit the reasons for holding the status of the petitioner as not tenants-in-common are enumerated. The fact that a partition was effected among the four brothers by registered document dated April 28, 1972, is also made mention of in para. 8 of the counter-affidavit. It is also seen from para. 8 that the allotment of shares as per the above partition was not equal for all the four brothers.

4. The petitioner has filed C.M.P. No. 18023 of 1975 to raise an additional ground. The petitioner has also filed a reply-affidavit to the counter-affidavit filed on behalf of the 1st respondent. Shri. P.A. Mohammed, learned counsel for the petitioner, contends that Ext. P-6 notice is bad in law for the reason that the 1st respondent has not recorded his reasons for making a reassessment under Section 35(1) of the Act. Learned counsel refers to Section 35(1) of the Act, which reads :

'35. Income escaping assessment.--(1) If for any reason agricultural income chargeable to tax under this Act has escaped 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 the 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 all or any of the requirements which may be included in a notice under Sub-section (2) of Section 17 and may proceed to assess or reassess 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;

Provided that the tax shall be charged at the rate at which it would have been charged if such income had not escaped assessment or full assessment, as the case may be :

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

5. According to the learned counsel, Ext. P-6 notice itself is without jurisdiction because the 1st respondent has not recorded his reasons for issuing the same. In support of his contention learned counsel refers to Agrl. ITO v. Srinivasa Naicken [1961] KLJ 1320, wherein M.S. Menon J. (as he then was), speaking for the court, has said :

'Section 35 of the Act provides that the notice to be issued under that section should contain 'all or any of the requirements which may be included in a notice under Sub-section (2) of Section 17'. The requirements which may be included in a notice under Section 17(2), as is clear from that sub-section, are 'a return in the prescribed form and verified in the prescribed manner setting forth (along with such other particulars as may be provided for in the notice), the total agricultural income of the person concerned during the relevant period. The notice issued does not contain all or any of those requirements and it must follow that it cannot be sustained as a valid notice under Section 35 of the Act.'

6. Learned counsel then refers to Gajendra Transports (P.) Ltd. v. Anamallais Bus Transports (P.) Ltd., : AIR1970Mad379 , and contends that in a case where initial jurisdiction is totally wanting, the High Court in the exercise of the discretion vested in it under Article 226 of the Constitution will not be prepared to ignore the ground merely on the basis that it had not been taken at the earlier stage. Reference is also made to Jagannath Kashinath Kavalekar v. Union of India, : AIR1967Delhi121 . In the above decision, it is said (p. 122):

'Since the point arises on the face of the orders and no further materials are required for disposing of this contention, I permitted the learned counsel to argue it. Since I am in agreement with the arguments of the learned counsel that the orders of the Central Board of Revenue andthe Central Government deserve to be quashed because of the absence of reasons, it is not necessary to pronounce on the other points urged by the learned counsel for the petitioner as he agrees that all those points will be available to him in appeal before the Central Board of Revenue when the same is taken up for hearing again.'

7. Learned counsel points out that since Ext. P-6 is a statutory notice, no question of any waiver of the rights conferred upon the petitioner by Section 35 of the Act under which the said notice has been issued arises. Learned counsel further points out that if Ext. P-6 notice is in any way defective, the mere fact that the petitioner has complied with the directions therein cannot spell out a waiver on the part of the petitioner. In support of this contention learned counsel also relies on Commr. of Agrl. I.T. v. Amalgamated Coffee Estates Ltd. : [1962]45ITR348(Ker) wherein M.S. Menon J. (as he then was), speaking for the court, has said:

'A period of not less than thirty days appears to have been stipulated for anything and everything that the assessee may be called upon to do in accordance with Section 16(2) by a notice under Section 35 of the Act. As the notice did not give thirty days' time, the reassessment of the assessee in pursuance of the defective notice issued under Section 35 of the Act is--in the words of the Supreme Court--'illegal and void'. From the compliance with the notice by the assessee to furnish the particulars it is not possible to hold that the requisites necessary to spell a waiver are available.'

8. Learned counsel then points out that, as a matter of fact, there was neither escapement nor under-assessment in the assessments made by Exts. P-3 to P-5 orders. The entire income of the petitioner and the entire records were before the 1st respondent, assessing authority, when Exts. P-3 to P-5 orders were issued. In this connection, learned counsel refers to Nagaraja Overseas Traders v. State of Mysore [1974] 33 STC 315, wherein the Mysore High Court has said :

'Section 12A of the Mysore Sales Tax Act, 1957, empowers the assessing authority to bring to tax an escaped turnover. When the turnover was already before the assessing authority when he made the first order of assessment, that turnover cannot be said to be an escaped turnover. In such a case the order granting deduction or exemption has to be corrected in revision under Section 21 of the Act.'

9. Reference is also made to Chickanarasimhiah v. Asst. CCT [1971] 28 STC 98, wherein the Mysore High Court has said (p. 101):

'When the turnover was before the assessing authority and that turnover was specifically exempted from tax, it cannot be said that the said turnover is an escaped turnover. If on a wrong view of the law, the assessing authority has exempted the turnover, that order has to be correctedunder Section 21 of the Mysore Sales Tax Act, 1957, in exercise of the revisional powers.'

10. Learned counsel also refers to Kanhaiyalal Bahadursingh v. Commr. of ST [1962] 13 STC 615, wherein the Madhya Pradesh High Court has said (per headnote) :

'The expression 'any information which has come into his possession' means, in the context, information which has come into his possession subsequent to the making of the original assessment. The information which was already in the possession and knowledge of the taxing authority at the time of the making of the order of assessment is not any information which has come into his possession after the original assessment. If with the information in his possession at the time of passing the assessment order the Sales Tax Officer takes a certain view of facts, figures and of the prevailing law and holds that certain sale transactions are not liable to tax under Section 27A(1)(b), he cannot subsequently on the basis of information which was already in his possession and within his knowledge act under Section 11A even though the assessee had escaped assessment. Such a case would be a case of mere change of opinion on the same state of facts and not a case of finding as a result of new information that the dealer has escaped assessment in some respects. The satisfaction of the taxing authority in the 'matter of any turnover escaping assessment must be thus on information received by him subsequent to the assessment. If in fact or in law there is no information which has come into the possession of the taxing authority subsequent to the assessment, then it has no jurisdiction to assess or reassess under Section 11A.'

11. Learned counsel points out that when once the assessing authority assigns to the petitioner the status of 'tenants-in-common', the assessing authority cannot assign to the petitioner a different status giving a different construction without any subsequent change in the status of the petitioner. Learned counsel refers to para. 8 of the counter-affidavit and para. 7 of the reply-affidavit filed by the petitioner and contends that the petitioner can be assigned only the status of 'tenants-in-common' and not 'association of individuals'. In support of the contention, learned counsel also refers to State of Madras v. VR. M. SM. Karuppan Chettiar : [1966]61ITR488(Mad) . In the above case, the assessees became divided by partitioning their common estate. But part of the estate was held by them under personal cultivation. The personal cultivation was done under a common management and a common account was maintained. In respect of the lands leased out, seeds and cultivation expenses were advanced from a common account and they were recouped at the time of the harvest. At the end of each year, the net agricultural income was apportioned among the assessees in the ratio of their holdings. On the question whether theassessees constituted an 'association of individuals', the Madras High Court held :

'......there was no common enterprise in the matter of realisation ofagricultural income. The mere fact of a single establishment or common management for carrying on personal cultivation or for leasing out property could not brand the assessees together as an association of individuals.

Section 3(3) of the Act governed the relationship between the parties and hence they were assessable as tenants-in-common.'

12. Learned Government pleader contends that in the case of ' association of persons' or 'tenants-in-common', there is no strait-jacket formula and when there is a joint venture then the status can be only one of 'association of persons'. Learned Government pleader points out that Ext. P-6 notice issued under Section 35 of the Act is not in any way bad in law for want of the necessary particulars insisted by the section. According to the learned Government pleader, as a matter of fact, all the particulars necessary and all those required under Section 17(2) of the Act are there in Ext. P-6 notice. It is also pointed out by the learned Government pleader that neither in Ext. P-7 nor in Ext. P-9 objections filed by the petitioner, the illegality of the notice was taken up as a contention. In the original petition itself this is raised as an additional contention by filing a civil miscellaneous petition for that purpose. Learned Government pleader refers to Trivandrum Cooperative District Wholesale Society Ltd. v. Deputy Registrar of Co-operative Societies : AIR1976Ker124 , and contends that the contention, that the requirements which may be included in a notice under Section 17(2) of the Act are not there in Ext. P-6 notice, having been not taken before the department, the same cannot be taken in these proceedings. It is pointed out that no explanation is given for not raising the above contention before the department and no exceptional circumstances are 'there to make the above decision not applicable in this case. Learned Government pleader then refers to Section 35 of the Act and contends that if for any reason agricultural income chargeable to tax under the Act has escaped assessment or has been assessed at too low a rate the section can be invoked. Learned Government pleader points out that Section 35 of the Act is analogous to Section 34 of the Indian I.T. Act, 1922, and to Section 147 of the I.T. Act, 1961. In support of his contentions learned Government pleader refers to a few decisions. In Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , Gajendragadkar J. (as he then was), speaking for the Supreme Court, has said (per headnote):

'Two conditions must be satisfied before the Income-tax Officer can act under Section 34(1)(b): he must have information which comes into his possession subsequent to the making of the original assessment order, and that information must lead to his belief that income chargeable to tax hasescaped assessment, has been under-assessed or assessed at too low a rate, or has been made the subject of excessive relief.'

13. In Maharajadhiraj Sir Kameshwar Singh v. State of Bihar : [1959]37ITR388(SC) , Hidayatullah J. (as he then was), speaking for the Supreme Court, has said:

'The Agricultural Income-tax Officer who omits to bring to tax in the original assessment an item of income under the belief that it was exempt, is competent to assess that item under Section 26 of the Bihar Agricultural Income-tax Act, 1938, even though that item was included in the return submitted by the assessee in connection with the original assessment proceedings.'

14. In Narayana Shenoi v. State of Kerala , this court has said:

'The jurisdiction of an officer to make a reassessment under Rule 33(1) of the Travancore-Cochin General Sales Tax Rules, 1950, is not confined to cases where the turnover has escaped assessment, because it is not before the officer by reason of inadvertence, omission, or deliberate concealment on the part of the assessee, or because of want of care on the part of the officer. That rule also authorises the officer to reopen an assessment if a legal error has been committed in the original assessment.'

15. In Annamalai Reddiar v. CIT : [1964]53ITR601(Ker) , this court has said (p. 603) :

'The assessment in each year is a separate proceeding under the Indian Income-tax Act, 1922, and the view adopted by the department in any particular year cannot possibly bind it in respect of a year subsequent thereto. New materials may produce a change of approach; the old materials themselves, on a more careful or intelligent analysis, may effect the same result.'

16. Learned Government pleader then contends that the officer exercising powers under Section 35 of the Act need only record his reasons in the file and it is not necessary that they need be communicated to the assessee. In support of his contention, learned counsel refers to S. Narayanappa v. CIT : [1967]63ITR219(SC) , wherein the Supreme Court has said (per headnote):

'Proceedings for assessment or reassessment under Section 34(1)(a) start with the issue of a notice and it is only after the service of the notice that the assessee, whose income is sought to be assessed or reassessed, becomes a party to those proceedings. The earlier stage of the proceedings for recording the reasons of the Income-tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi-judicial. There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction toproceed under Section 34 must also be communicated to the assessee. The Income-tax Officer need not communicate to the assessee the reasons which led him to initiate the proceedings under Section 34.'

17. Learned Government pleader very pertinently points out that barring the question of the requirements of Section 35 of the Act, there is no other question which cannot be decided in an appeal or second appeal under the Act itself. Learned Government pleader also refers to CIT v. Kelukutty : [1972]85ITR102(Ker) and Muthukrishna Reddiar v. CIT : [1973]90ITR503(Ker) . In CIT v. Kelukutty : [1972]85ITR102(Ker) , it is said (p. 106):

'Two conditions have to be satisfied before proceedings can be initiated under Section 147(b): (1) the Income-tax Officer must have reason to believe that the income has escaped assessment; and (2) it should be in consequence of information received after the original assessment that he should have reason to believe that the income has escaped assessment. If either condition is not satisfied the action would be without jurisdiction.'

18. In Muthukrishna Reddiar v. CIT : [1973]90ITR503(Ker) , it is said (at page 511):

'But a mistake apparent on the face of the order of assessment would constitute 'information' whether someone else supplied that information to the Income-tax Officer or whether he informed himself. An item of information available in the papers filed before the Income-tax Officer, will 'become information' only when its existence is realised and its implications are understood. Therefore, the proceedings initiated in the present case under Section 147(b) on the basis of the audit note are legal and valid.'

19. Shri P.A. Mohammed, learned counsel for the petitioner, replying to the arguments of the learned Government pleader contends that the revised assessment orders are inspired by administrative directions and since there is no independent application of the mind of the officer concerned the impugned orders are bad in law. According to the learned counsel, the decision in Trivandrum Co-operative District Wholesale Society Ltd. v. Deputy Registrar : AIR1976Ker124 , is not applicable to a case like this where there is an erroneous exercise of jurisdiction. Learned counsel also reiterates his contention that the right to insist that the reasons for invoking the powers under Section 35 of the Act must be recorded being a statutory right, no question of waiver of that right arises. Hence, according to the learned counsel, the absence of a contention on the invalidity of the notice, Ext. P-6, before the department is immaterial. Learned counsel has also a contention that Section 147(b) of the I.T. Act, 1961, and Section 35 of the Act are in pari materia.

20. There is not much force in the contentions of the learned counsel for the petitioner. Under Section 35 of the Act if the income has escaped assessment or has been assessed at too low a rate, the Agrl. ITO will have the powers to assess or reassess such income. Of course, the conditions insisted on by the section must be complied with. One of the conditions is that before issuing the notice tinder Section 35(1) of the Act, the Agrl. ITO must record his reasons. Another condition is that the notice issued must contain all or any of the requirements of a notice under Section 17(2) of the Act. The fact that the whole income was available for assessment at the time of the original assessment cannot be a reason for not invoking the powers under Section 35. It is enough if the income was assessed at too low a rate. In this case, the petitioner who ought to have been assessed as an 'association of persons' was wrongly assessed as 'tenants-in-common'. In such a case when the mistake comes to the notice of the Agrl. ITO he can invoke Section 35 because the income was assessed at too low a rate by assigning the petitioner the status of 'tenants-in-common'. The reason for the issue of Ext. P-6 notice under Section 35(1) is clear from Ext. P-6 itself. Reasons need only be recorded in the file; it is not necessary that they should be communicated to the assessee. So, it cannot be said that the Agrl. ITO has exercised the powers under Section 35 without complying with the conditions insisted by the section. The contention that Ext. P-6 notice is bad in law for want of the particulars required under Section 17(2) was not taken before the department. So, it goes without saying that the same cannot be taken for the first time in these proceedings. No relief is also sought in the original petition against Ext. P-6. There is no reason for this court to interfere with Exts. P-10 to P-12 orders.

21. The original petition is dismissed. No costs.


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