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Ghee Varghese Lukose Vs. Addl. Agrl. Income-tax Officer-ii and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberOriginal Petition No. 5490 of 1982-E
Judge
Reported in[1983]143ITR404(Ker)
ActsKerala Agricultural Income Tax Act, 1950 - Sections 17, 17(2), 18, 18(1), 18(2), 18(4), 31(1), 35, 35(1) and 35(2); Constitution of India - Article 226; Revenue Recovery Act
AppellantGhee Varghese Lukose
RespondentAddl. Agrl. Income-tax Officer-ii and ors.
Appellant Advocate S.A. Razzak and; George Koshy, Advs.
Respondent AdvocateGovernment Pleader
Cases ReferredMohammed Amina v. State of Kerala
Excerpt:
.....in regard to assessment under section 18 (4) regarding relevant financial year or in relation to escaped assessment - merely because what is dealt with in assessment order is escaped assessment - it cannot be said that it is not assessment under section 18 (4) - any assessment whether it relates to assessment on basis of action taken in agricultural year or it relates to escaped assessment will be attracted by proviso - no appeal will lie against such assessment order. - - the objections were rejected and best of judgment assessments for the five financial years 1975 to 19,80 were completed under section 18(4) of the act as per exs. these orders as well as notices of demand were duly sent to and served on-the petitioner. subsequently, the arrears of tax and the penalty were..........sub-section (1) of section 35 requires that in the case of escaped assessment in any financial year, notice be issued to the person concerned within 5 years of the end of that financial year and on sending a notice, it is open to the concerned ito to proceed to assess or reassess the income. with reference to each of the financial years involved in this case, assessment had not been made in the concerned financial year. if the petitioner had agricultural income chargeable to tax under the act, it was clearly a case of escaped assessment. on sending the notice as contemplated therein, the first respondent could proceed to make the assessment. the financial years concerned in this case are from 1975 to 1980. first of these years ended on march 31, 1976. the time-limit stipulated in.....
Judgment:

U.L. Bhat, J.

1. The petitioner, an agriculturist, did not submit returns of agricultural income in any of the five financial years 1975 to 1980. The first respondent, the concerned Agrl. ITO, issued Ex. P-1 notice dated September 27, 1980, to the petitioner under Section 35(1) of the Agrl. T.T. Act, 1950 (for short ' the Act'), on the basis of escaped assessment and requested the petitioner to submit returns within 35 days. Exhibit P-l notice was served on him on November 6, 1980. The petitioner did not submit returns for the financial year 1975-76, but submitted returns for the years 1976 to 1979. The assessment order for the year 1979-80 mentions a return having been filed for that year. But the return is not seen in the concerned file. The first respondent found it not possible to act on the returns submitted to him for the years mentioned above. Notices issued under Section 18(2) of the Act did not elicit any response. He issued pre-assessment notices to the petitioner which were duly served on him. Petitioner submitted objections to the particulars stated in the pre-assessment notices, but did not adduce any evidence orproduce any document in support of his objections. The objections were rejected and best of judgment assessments for the five financial years 1975 to 19,80 were completed under Section 18(4) of the Act as per Exs. P-2 to P-6 orders. These orders as well as notices of demand were duly sent to and served on-the petitioner. He did not pay the tax assessed and demanded. Under Ex. P-8, penalty was also imposed on him for the entire period. Subsequently, the arrears of tax and the penalty were recommended to be recovered under the Revenue Recovery Act.' Petitioner, apprehending action by the 5th respondent, Tahsildar, has filed the present original petition under Article 226 of the Constitution of India. Meanwhile, he applied under Section 19of the Act to cancel Exs. P-2 to P-6 orders and that petition was dismissed. He then filed separate revision petitions under Section 34 of the Act before the second respondent and those revisions were also dismissed under Ex. P-7. He filed an application for reference under Section 60 of the Act under Ex. P-9'. No order was passed on Ex. P-9. In these circumstances, he seeks to quash Exs. P-2 to P-8, to issue a direction to the 3rd respondent to dispose of Ex, P-9, to prohibit the 5th respondent from taking revenue recovery steps against the petitioner and to declare that the first proviso to Section 35(2) of the Act is contrary to Section 35(2) and, therefore, to strike it down.

2. The learned counsel for the petitioner submitted that the assessments for all the years are invalid, because, instead of sending 5 separate notices under Section 35 of the Act, a consolidated notice, Ex. P-1, was sent to him. Exhibit P-2 relating to the financial year 1975-76 is said to be invalid because it was made and served after the expiry of the period stipulated under Section 35(2) of the Act. For that year there was no demand notice under Section 30 of the Act. Demand notices under Section 30 of the Act should have been sent separately for each year. No such separate notice has been given and, therefore, it is alleged, the imposition of penalty is illegal. Assessment should have been made under Section 35 of the Act. It has been actually made under Section 18(4) of the Act, by which action the petitioner has been deprived of the right of appeal. When once notice has been issued under Section 35 of the Act, assessments could be completed only under that section and not under Section 18(4) of the Act. It is also contended that the initiation of revenue recovery proceedings is bad in law.

3. It is no doubt true that Ex. P-1 notice of escaped assessment under Section 35(1) of the Act mentions the period as 1975 to 1980. Evidently that was the notice sent in relation to 1975-76. In the counter affidavit it is stated that separate notices have been sent for each year. The file placed before me also shows that separate notices were actually sent foreach financial year. Therefore, the infirmity alleged does not exist even assuming that a consolidated notice cannot be issued lawfully.

4. Another, argument advanced is that notices of demand have not been issued under Section 30. It is also argued that separate notices of demand are necessary and a consolidated notice is not sufficient. Either way, according to the learned counsel for the petitioner, the imposition of penalty is illegal in the absence of separate' demand notices. In the counter-affidavit it is stated that along with the assessment orders for each financial 'year, separate demand notices were sent and they were duly served on the petitioner. The file placed before me also show's that demand notices for each financial year were separately sent and served on the petitioner. Postal acknowledgments are seen in the file. . This ground of attack also, therefore, fails.

5. The next contention is that the assessment orders-have been made after the expiry of the time-limit prescribed in Sub-section (2) of Section 35 of the Act. Sub-section (1) of Section 35 requires that in the case of escaped assessment in any financial year, notice be issued to the person concerned within 5 years of the end of that financial year and on sending a notice, it is open to the concerned ITO to proceed to assess or reassess the income. With reference to each of the financial years involved in this case, assessment had not been made in the concerned financial year. If the petitioner had agricultural income chargeable to tax under the Act, it was clearly a case of escaped assessment. On sending the notice as contemplated therein, the first respondent could proceed to make the assessment. The financial years concerned in this case are from 1975 to 1980. First of these years ended on March 31, 1976. The time-limit stipulated in Section 35(1) is five years from the end of that year. In other words, action must be taken on or before March 31, 1981, in relation to the escaped assessment for the financial year 1975-76. Exhibit P-1 notice under Section 35(1) of the Act was served on the petitioner on November 6, 1980, i.e., well within the time-limit. The question of the time limit having been exceeded for the succeeding years also does not arise.

6. The main part of Sub-section (2) of Section 35 and the first proviso thereto read as follows:

'(2) No order of assessment under Section 18 or of assessment or reassessment under Sub-section (1) of this section shall be made after the expiry of five years from the end of the year in which the agricultural income was first assessable :

Provided that where a notice under Sub-section (1) has been issued within the time therein limited the assessment or reassessment to be made in pursuance of such notice may be made before the expiry of one year from the date of the service of the notice even if at the time of theassessment or reassessment the five years aforesaid have already elapsed...... ' :

Sub-section (2) requires that no order of assessment shall be made after the expiry of five years from the end of the year in which the agricultural income was first assessable. The end of the first of the financial years involved in this case was March 31, 1976. The period of 5 years expired on March 31, 1981. Exhibit P-2 assessment order relating to that year was made on March 31, 1981. According to the averments in the counter-affidavit, it was served on the petitioner on March 7, 1981. Acknowledgment found in the file placed before the court also support this averment. Thus, it is seen that the assessment order for the year 1975-76 was made and served before March 31, 1981, which is the time limit stipulated in Sub-section (2) of Section 35 of the Act.

7. The first proviso to Section 35(2) of the Act states that even if at the time of the assessment five years' period stipulated under Section 35(2) has elapsed, assessment could be made before the expiry of one year from the date of service of the notice under Section 35(1) provided such notice was issued in time. In the original petition it is stated that Ex. P-2 assessment order was served on the petitioner only on June 28, 1981. That would be after the expiry of the period of 5 years' limit, but within the one year of the date of the service of Ex. P-1 notice. That is why the petitioner 'challenges the first proviso to Sub-section (2) of Section 35. However, as already stated above, it is not correct to say that Ex. P-2 order was served on the petitioner only on June 28, 1981. The file shows that a copy of the order and the notice of demand under Section 30 were sent to him on February 27, 1981. There is postal acknowledgment in the file showing that the petitioner has signed it on March 7, 1981. Therefore, Ex. P-2 assessment is supportable under Sub-section (2) of Section 35 even without the help of the first proviso thereto. Therefore, it is unnecessary for me to consider the challenge levelled against the first proviso.

8. There is no contention before me that Exs. P-2 to P-6 orders were made or served beyond time. Verification of the relevant dates shows that they were made and served well within the time.

9. The learned counsel for the petitioner also contended that before issuing the escaped assessment notices under Section 35(1) of the Act, the first respondent ought to have recorded his reasons for doing so and since he did not do so, the entire proceedings are illegal. I find from the file that the first respondent came to know of the plantation tax assessment made with reference to the petitioner and on the basis of that assessment he took the view that the petitioner had assessable income for the years in question. That was why he decided to issue notices under Sub-section (1) of Section 35 of the Act. This is, therefore, not a case where the first respon-dent did not record any reason. He has done so. In this view, it is unnecessary for me to consider the question whether notices under Section 35(1) of the Act must be preceded by reasons to be recorded in writing.

10. The last contention urged is that since proceedings were initiated byissuing notices under Section 35(1) of the Act, the assessments should havebeen made under Section 35 of the Act and not under Section 18(4) of the Act. Thecomplaint is that since the assessments were made under Section 18(4) of theAct, the petitioner was deprived of the right of appeal under Section 31 of theAct. According to the petitioner, assessments should have been madeunder Section 35 of the Act, in which case he could have preferred appealsunder Section 31 of the Act.

11. I may now notice the procedure in regard to the assessment laid down in the Act. Sub-section (1) of Section 17 requires every person having agricultural income exceeding the limit of exemption to furnish returns in the prescribed form before the 1st June of every year in regard to the previous year. Sub-section (2) of Section 17 enables, the Agrl. ITO to serve a notice in the prescribed form requiring persons whose total agricultural income is such as to render them liable to pay agricultural income-tax for any financial year, to furnish within such period not being less than 30 days as may be specified in the notice, return in the prescribed form and verified in the prescribed manner. Sub-section (3) of Section 17 enables such person to furnish a return or a revised return before assessment is made. Sub-section (4) enables the ITO to serve on a person, who made a return or upon whom a notice has been served under Sub-section (2) of Section 17, a notice requiring him to produce or cause to be produced such accounts or documents as such officer may require on the date to be specified in such notice. Sub-section (1) of Section 18 states that if the Agrl, ITO is satisfied that a return made under Section 17 is correct and complete, he shall by order in writing assess the total agricultural income of the assessee and determine the sum payable by him on the basis of such return. Under Sub-section (2) the officer, if he is not satisfied, without requiring the presence of the person, who made the return, or the production of evidence, that the return is correct and complete, shall serve on the person, who made the return, a notice requiring him, on the date specified therein, either to attend the office of the Agrl. ITO or to produce or to cause to be produced any evidence on which such person may rely in support of the return. Sub-section (3) enables the officer concerned, after considering such evidence as may be produced and such other evidence as the officer may require, to assess the agricultural income of the assessee and determine the sum payable by him on the basis of such, assessment.

12. Sub-section (4) of Section 18 of the Act reads thus :

'(4) If any person fails to make a return under Sub-section (2) of Section 17, or fails to comply with all the terms of a notice issued under Sub-section (4) of that section or under Sub-section (2) of this section, the Agricultural Income-tax Officer shall make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment, and in the case of a firm may refuse to register it or may cancel its registration, if it is already registered. '

13. Best of judgment assessment can be made under this provision in one of the three contingencies mentioned therein, viz., where a person fails to make a return under Section 17(2) or where he fails to comply with all the terms of a notice issued under Section 17(4) or where he fails to comply with the terms of a notice issued Under Section 18(2) of the Act. Notice under Section 17(4) of the Act, as already seen, is one requiring the person to produce such accounts or documents as the officer may require. Notice under Section 18(2) of the Act is the one requiring the person to attend office or to produce any evidence on which he may rely in support of the return. If one of these contingencies exists, the officer concerned may make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment.

14. Sections 17 and 18 of the Act reveal a definite pattern and procedure for making the assessment. A person having agricultural income above the exempted limit is required to submit a return in the prescribed form, either of his own accord or at any rate, in response to a notice under Section 17(2) of the Act or even thereafter by virtue of Section 17(3) of the Act. The officer may also issue notice to him to produce accounts or documents as the officer may require under Section 17(4) of the Act. The officer may also require the person to produce any evidence on which such person desires to rely in support of the return under Section 18(2). Where a return is not filed or where a notice issued under Section 17(2) or under Section 18(2) is not complied with, the officer has to make a best of judgment assessment. If return is made and that is found acceptable the assessment has to be made on the basis of the return as stated in Section 18(1) of the Act. Where, in response to a notice under Section 18(2) of the Act, evidence is produced and/or where in response to a notice under Section 17(2) the documents required by the officer are produced, the officer may determine the income and the tax payable by the assessee on the basis of such assessment. That will not amount to best of Judgment assessment; it will be an assessment on the basis of the return and the evidence produced by the person. This is the crucial difference between best of judgment assessment and assessment made on the return and the evidence produced by the person concerned.

15. Section 31(1) of the Act provides for appeal against assessment. According to this section, any assessee objecting to the amount of income assessed or tax determined or loss computed under Section 18 or denying his liability to be assessed under this Act or objecting to any order under any of the provisions of Sections 19, 20, 21, 25, 29 and 41 made by the Agrl. ITO or to the cancellation by him of the registration of a firm or to the refusal to register a firm may appeal to the Asst. Commissioner against the assessment or against such order. The proviso to Sub-section (1) of Section 31 states that no appeal shall lie in respect of an assessment made under Sub-section (4) of Section 18. It is thus clear that when best of judgment assessment is made under Section 18(4) of the .Act, such assessment is not appealable. However, such assessment is capable of being challenged in revision under Section 34 or by a petition for cancellation of the assessment under Section 19, but no appeal will lie. Where an assessment is not made to the best of judgment of the officer concerned, but on the basis of evidence as contemplated in Section 18(3) of the Act, an appeal would certainly lie under Section 31 of the Act.

16. Sub-section (1) of Section 35 reads thus :

'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 five 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. '

17. Sub-section (2) of Section 35 has already been referred to ; it relates only to the time-limit within which an order of assessment under Section 18 or an order of reassessment under Section 35(1) is to be made.

18. Section 35 does not contain provisions similar to those contained in Section 17 or in Section 18 of the Act. In other words, the manner in which the concerned officer is to assess the income after issuing a notice under sub-Section (1) of Section 35 and the procedure to be followed are not provided for in Section 35 or other sections in the Act. It cannot be that the Legislature didnot intend to lay down the procedure for escaped assessment following a notice under Section 35(1) of the Act. On the other hand, the provisions of Sub-section (1) of Section 35 would clearly indicate the legislative intent in this behalf. '

19. In the case of escaped assessment, the officer concerned has to issue a notice containing all or any of the requirements which may be included in a notice under Section 17(2) of the Act. When once such a notice is served, the officer may proceed to assess or reassess the income and the provisions of the Act shall, so far as may be, apply accordingly as if the notice issued were a notice under 'that sub-section', i.e., under Section 17(2). This provision in Sub-section (1) of Section 35 clearly indicates that escaped assessment can be made only after issuing a notice under Section 35(1), that the notice must contain all or any of the requirements contemplated under Section 17(2) and once a notice is issued, the officer concerned may proceed to assess or reassess the income and in doing so, he will be governed by those provisions of the Act, which would be applicable as if the notice issued by him under Section 35(1) of the Act were a notice issued under Section 17(2) of the Act. In other words, this provision lays down that when a notice under Section 35(1) of the Act is issued, it must be, so far as the procedure and the manner of assessment are concerned, treated as a notice under Section 17(2) of the Act and all the consequences which would follo.w the latter must necessarily follow the former too.

20. Where a notice is issued under Section 17(2) if the return is filed, the officer may proceed under Section 18(1) of the Act. If the return is not filed, he may proceed under Section 18(4) of the Act. It is open to him to issue a notice under Section 17(4) or under Section 18(2) of the Act and proceed in accordance with Section 18(4) of the Act. The Act does not lay down any other manner or procedure for passing assessment orders in the matter of escaped assessment. Necessarily the provisions of Sections 17 and 18 of the Act would govern such escaped assessment as well. In other words, the assessment order relating to escaped assessment would also fall under three categories. The first category is the one covered by Section 18(1) on the basis of the return. The second category is the one covered by Section 18(2) of the Act on the basis of the evidence produced and the third category is the best of judgment assessment under Section 18(4) of the Act. So far as the procedure and manner of making escaped assessment is concerned, there cannot be an assessment which could be said to be made as per the procedure laid down in Section 35. That is because Section 35 does not lay down any independent procedure but makes a Reference to the procedure contemplated in Sections 17 and 18 of the Act.

21. It must, therefore, follow that when the proviso to Section 31(1) of the Act states that no appeal shall lie in respect of assessment made under Section 18(4)of the Act, it means that in regard to an assessment under Section 18(4) regarding the relevant financial year or in relation to an escaped assessment, appeal will not lie. Merely because what is dealt with in the assessment order is an escaped assessment, it cannot be said that it is not an assessment under Section 18(4) of the Act. Any assessment on best of judgment of the officer concerned, whether it relates to an assessment on the basis of action taken in the agricultural, year or it relates to an escaped assessment, will be attracted by the proviso and no appeal will lie against such assessment order. Therefore, the contention of the petitioner that had the best of judgment assessment been made 'under Section 35' of the Act, he would have a right of appeal and that the right of appeal was denied to him because the assessment was made 'under Section 18(4) of the Act, is untenable.

22. The learned counsel for the petitioner places reliance on the decision of this court in Mohammed Amina v. State of Kerala [1973] KLT 67. This decision related to a case of assessment under Section 18(4) of the Act. It was not a case of escaped assessment under Section 35(1) of the Act. The question which arose in that case was whether Section 8(1) of the Act 15 of 1970 would apply to a case of escaped assessment Section 8(1) stated that assessment or reassessment made or purported to have been made under Section 35 before April 27, 1970, shall be deemed to be as valid and effective as if such assessment or reassessment has been made under the section as amended by the Amending Act. Act 15 of 1970, which, among other things, amended Sub-section (2) of Section 35. This amendment would render valid certain assessments which would have been invalid but for the amendment. Section 8(1) of the Act was enacted to give retrospective validation to orders already passed before that amendment. It was argued before the court that since Section 35(2) of the Act refers to Section 18 also, Section 8(1) of the Amending Act saves even assessments which were not escaped assessments. This argument was repelled by the court and in doing so, it was observed that orders under Section 35(1) of the Act stand on a different footing from other assessment orders. This observation has to be read in the light of the facts which arose for consideration in that case. Section 8(1) of the Amending Act specifically refers to Section 35 of the Act. Therefore, Section 8(1) could apply to only those orders which originated from Section 35(1). In other words, the provisions cannot apply to orders which did not originate from Section 35(1). That distinction was drawn in the context of Section 8(1) of the Amending Act 15 of 1970. That was because the Amending Act itself drew a distinction. Such a distinction cannot be spelt out without reference to the Amending Act 15 of 1970. Therefore, the decision relied on by the petitioner will not help him in this case. I, therefore, hold that the assessment ordersinvolved in this case which were passed under Section 18(4) of the Act arc free from any legal infirmity.

23. Learned Government pleader submits that Ex. P-9 will be disposed of by the concerned authority. This submission is recorded.

24. On the date of the original petition, the 5th respondent has not taken any steps under the Revenue Recovery Act. The allegation is that the 5th respondent attempted to persuade the petitioner to pay the amounts due. There is nothing illegal in that.

25. In the result, the original petition is dismissed, but without costs.


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