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Commissioner of Income-tax, Tamil Nadu-v Vs. Puthuthotam Estates Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 557 to 561 of 1976 (Reference Nos. 431 to 435 of 1976)
Judge
Reported in[1981]127ITR481(Mad)
ActsIncome Tax Act, 1961 - Sections 33A, 33A(1), 147 and 148
AppellantCommissioner of Income-tax, Tamil Nadu-v
RespondentPuthuthotam Estates Ltd.
Appellant AdvocateA.N. Rangaswamy, Adv.
Respondent AdvocateT. Srinivasamoorthy, Adv.
Cases ReferredUnited Mercantile Co. Ltd. v. Commissioner of Income
Excerpt:
.....stranger as assessment made under central income tax are inextricably connected with agricultural income tax assessment and he had vital stake in such assessment - reopening of assessment justified. - - in that decision there was no occasion for the supreme court to consider the question, like the one before us, where another authority brought to the notice of the ito that he had made a wrong allowance inthe assesments made by him. having regard to these facts, we are satisfied that there was information and question no. 26. it is well settled that the explanation given to the members of parliament either in the shape of notes on clauses or the memoranda explaining the provision are not aids to construction. they may at best disclose the mind of the person who drafted these notes..........the grant of development allowance under section 33a of the income-ta x act, 1961, for each of the assessment years 1973-74 and 1974-75 ?' 2. of the above two questions, the first has been referred at the instance of the commissioner and the second at the instance of the assessee. we shall first deal with the first question before taking up the second. 3. the assessee is the owner of a tea estate. it submitted returns of income for the assessment years 1969-70 to 1972-73, in which there was a claim for development allowance, as provided by s. 33a of the i.t. act, 1961. in dealing with this claim for the assessment year 1969-70, the ito observed : 'no business was done in tea in the year of account. but the assessee has claimed development allowance under section 33a of the act. the.....
Judgment:

Sethuraman, J.

1. The Appellate Tribunal has under s. 256(1) of the I.T. Act, 1961, referred the following two questions :

'1. Whether, on the facts and in the circumstance of the case, the Tribunal was right in holding that the reopening of the assessments for the years 1969-70 to 1972-73 was invalid

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to the grant of development allowance under section 33A of the Income-ta x Act, 1961, for each of the assessment years 1973-74 and 1974-75 ?'

2. Of the above two questions, the first has been referred at the instance of the Commissioner and the second at the instance of the assessee. We shall first deal with the first question before taking up the second.

3. The assessee is the owner of a tea estate. It submitted returns of income for the assessment years 1969-70 to 1972-73, in which there was a claim for development allowance, as provided by s. 33A of the I.T. Act, 1961. In dealing with this claim for the assessment year 1969-70, the ITO observed :

'No business was done in tea in the year of account. But the assessee has claimed development allowance under section 33A of the Act. The expenses incurred so far that qualify for such allownace is admitted to be Rs. 2,70,982. This is found to be in order. 50% of the claim is Rs. 1,35,491. As already mentioned in th e assessment order for 1967-68 only 40% of this amount will be allowed.'

4. He, therefore, allowed Rs. 54,196 in that assessment. In the assessment order for the assessment year 1970-71, the same claim was made by the assessee and the ITO wrote in his order :

'The assessee has claimed development allowance under section 33A on new tea planting of Rs. 37,421. Necessary details have been furnished. As stated in prior years, the allowance under section 33A will be set off against other income.'

5. The 'other income' was assessed under the head 'Capital gains'. For the year 1971-72 again the ITO observed regarding the claim under s. 33A as follows :

'No business was done in the year of account in tea, as the assessee is effecting replantation in most of the areas. However, development allowance under section 33A of the Act amounting to Rs. 22,211 has been claimed. The claim is in order and the sum of Rs. 22,211 is treated as loss of the year of account in business.'

6. Similarly, for the assessment year 1972-73, the assessee claimed an allowance of Rs. 16,127 and the claim was accepted without any discussion. The assessments for the assessment years 1969-70 to 1972-73 were made on August 14, 1970, November 12, 1970, January 21, 1972, and November 16, 1972, respectively.

7. On August 7, 1973, the Commr. of Agrl. I.T. wrote to the CIT as follows :

'Messrs. Puthuthottam Estates (1943) Ltd., Pollachi, is an assessee on the books of the Agricultural Income-tax Officer, Coimbatore, under the Tamil Nadu Agricultural Income-tax Act and is assessed to agricultural income-tax in G.I.R. 2-P. He is also an assessee under the Central Income-tax Act on the file of the Income-tax Officer, Coimbatore. It is brought to my notice that the assessee-company is engaged only in growing tea and coffee and not in the manufacture of tea. The assessee-company is not assessable to Central income-tax on income from green leaf tea, as he was not mun ufacturing tea, and that the assessee is not entitled to the development allowance us. 33A under the Central Income-tax Act, since the entire income from tea is assessed as agricultural income. I am bringing this to your notice for suitable action in this case.'

8. The ITO got a copy of this letter, and reopened the assessments under s. 147(b) of the I.T. Act and in the course of the reassessment order he gave the reasons for reopening the assessments as follows :

'It was subsequently found at the time of completion of assessment for 1973-74 that subsequent to 1964 the company has been gradually clearing the estate and growing tea and there was no manufacturing process. Since the company was not manufacturing tea, it was found that the assessee was not entitled to development allowance under section 33A which was the business of growing and manufacturing tea in India. The assessment was therefore reopened under section 147 by issue of a notice under section 148.'

9. The above passage occurs in the reassessment order for the year 1969-70 and the reasons for the reopening for the other years are identical.

10. In the reassessment orders that were passed on May 28, 1974, for ea ch of these years, the ITO observed :

'The provisions of section 33A are quite clear in that it applies to an assessee who carries on the business of growing and manufacturing tea. In the absence of any manufacturing operations by the assessee, the assessee is not entitled to any development allowance. Hence the development allowance originally allowed is now disallowed and the assessment is finalised as under.'

11. Then the several amounts were disallowed for the respective years. The assessee appealed against all these assessments before the AAC. One of the contentions taken by the assessee was that the assessments were not properly reopened as the reassessments were based on a mere change of opinion and could not have been validly made by recourse to s. 147. In the course of his order, the AAC observed :

'Turning to the other ground, it is noticed that there is nothing in the record of the case wherefrom it could be inferred that the Income-tax Officer, who had orginally allowed the deductions of the amounts in question, had done so 'after due deliberation' as co ntended by the appellant's counsel. While no doubt none of the assessments inclued any income chargeable under the head 'Profits and gains of business or profession' and it is not unlikely that the Income-tax Officer was aware of this fact, there is still no in dication in his files that he had applied his mind to the question whether having regard to that fact, the company is entitled to the deduction u/s. 33A. If under-assessment is traceable to an omission to apply a provision of law to a known set of facts as a result of ignorance or inadvertence, jurisdiction to reassess can be validly assumed by the assessing authority, for which proposition authority is to by found in the Kerala High Court's decision in United Mercantile Co. Ltd. v. Commissioner of Income-tax : [1967]64ITR218(Ker) ,'

12. He held that the reassessments were fully justified both in law and of facts.

13. The assessee appealed to the Appellate Tribunal. In para. 18 of its order the Tribunal noticed that the allowance under s. 33A was to be granted in respect of planting of tea bushes on any land in India owned by an assessee who carries on the business of growing and manufcturing tea in India. In was further observed :

'The Income-tax Officer no doubt mentioned in the assessment order that no business was done. But what he apparently meant was that there was no manufacture of tea, because only in the event of manufacture of tea, income became assessable and then alone would the provisions of rule 8 be germane. The Income-tax Officer apparently took the view that the allowance was available to an assessee who carried on the business of growing tea or manufacturi ng tea. In the directors' report for the year 1969 there was a forecast that the green tea would be available for sale in the next year. There were actual sales of green tea as under thereafter : Rs. 31-3-1970 11,415-00 31-3-1971 51,712-00 31-3-1972 75,963-00

In view of the actual sales of green tea in the years commencing from 1970 the ITO could have formed the impression that the business of growing tea was carried on by the assessee.'

14. After going into what the ITO 'apparently meant' or 'could have formed the impression', the Tribunal observed :

'The question that arises is, could it be said that the view taken by the Income-tax Officer was patently erroneous. We are unable to say this was so. The Income-tax Officer was aware of the fact that no manufacturing operation was done and he granted development allowance to the assessee in the view that the assessee was growing tea and that was sufficient and the deduction of development allowance was expressly computed and allowed under the head 'Business'.'

15. In the view of the Tribunal, the ITO had no jurisdiction for reopening the assessments for the aforesaid years. It is this part of the order that has been challenged by the Commissioner in the form of the question set out earlier.

16. Section 147(b) empowered the ITO the reopen an assessment if he had, in consequence of information in his possession, reason to believe that income chargeable to tax had escaped assessment for any assessment year. Therefore, the material question that has to be considered is whether there was information in the possession of the ITO. It is not in dispute that the letter dated August 7, 1973, extracted earlier, was received by the ITO on August 13, 1973. It is, thereafter, that he went into the question whether the assessee was eligible for the allowance under s. 33A.

17. The learned counsel for the assessee contended that the relevant statements of account had been furnished to the ITO and that those statements contianed information to show that the assessee did not have any manufacturing activity in these years. It was, therefore, submitted that the ITO having given the allowance with open eyes could not change his opinion merely by taking advantage of a letter received from the Commr. of Agrl. I.T.

18. We do not consider that the learned counsel for the assessee is justified in observing that the allowance was granted 'with eyes wide open' by the ITO. We have already extracted the relevant passages from the order of the ITO for the several assessment years. In the order for the year 1972-73, there is absolutely no discussion as to the assessee being eligible for the allowance. In the other years, the ITO proceeded on the basis that even though the assessee did not decided on any business in tea, the assessee had manufacturing activity so that the assessee would be eligible for the allowance. The AAC has in our opinion brought out the way in which the ITO proceeded to consider the assessee's claim under s. 33A. There was no indication in the files that he had applied his mind on the question whether, having regard to the fact of absence of manufacturing activity, the assessee would be entitled to the allowance under s. 33A.

19. The Tribunal has not given any particular reason why this finding of the AAC is in any manner wrong. The Tribunal proceeds as if it is considering an order under s. 154, as, from the passage extracted from para. 18 of its order, it would be clear that the Tribunal posed before itself the question whether it could be stated that the view taken by the ITO was 'patently erroneous'. The question of patent error is likely to arise only in the context of s. 154. As far as s. 147(b) is concerned, the question to be examined is whether the ITO had the relevant information in his possession already and with the information so available he proceeded to accept the assessee's claim for allowance. There is absolutely nothing to show that the ITO was aware of the absence of manufacture in the present case so as to have taken the view that the assessee would be eligible for the allowance even though he did not do any manufacturing business in the relevant year.

20. The learned counsel for the assessee referred us to the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . In that case, the question that arose for the consideration of the Supreme Court was whether the ITO was legally justified in reopening the assessments under s. 147 on the basis of the view expressed by the internal audit party and received by him subsequent to the original assessments. It was held that the view expressed by the internal audit party could not be binding on him. In that decision there was no occasion for the Supreme Court to consider the question, like the one before us, where another authority brought to the notice of the ITO that he had made a wrong allowance inthe assesments made by him. The Commr. of Agrl. I.T. cannot be considered to be a stranger to these assessments because the assessments made under the Central Income-tax are inextricably connected with the agricultural I.T. assessments so that he had vital stakes in such assessments. He cannot be regarded as a rank outsider or a person incompetent to express any opinion. Having regard to these facts, we are satisfied that there was information and question No. 1 has to be answered in the negative and in favour of the revenue.

21. We now take up for consideration the second question which has been referred at the instance of the assessee. It is common ground that the assessee has only grown green tea and has not manu factured any tea in the relevant years, namely, 1973-74 and 1974-75. The assessee had already disposed of the tea factory in what was known as the Beverley Estate at the time when it sold away the said estate itself. The ITO did not allow the claim under s. 33A and the disallowance had been confirmed on appeal by the AAC and also by the Tribunal. The assessee has questioned this disallowance in the form of question No. 2.

22. Section 33A provides, in so far as it is relevant, as follows :

'(1) In respect of planting of tea bushes on any land in India owned by an assessee who carries on the business of growing and manufacturing tea in India, a sum by way of development allowance equivalent to -

(i) where tea bushes have been planted on any land not planted at any time with tea bushes or on any land which had been previously abandoned, fifty per cent. of the actual cost of planting; and

(ii) where tea bushes are planted in replacement of tea bushes that have died or have become permanently useless on any land already planted, thirty per cent. of the actual cost of planting,

shall, subject to the provisions of this section, be allowed as a deduction in the matter specified hereunder, namely :-

(a) the amount of the development allowance shall, in the first instance, be computed with reference to that portion of the actual cost of planting which is incurred during the previous year in which the land is prepared for planting or replanting, as the case may be, and in the previous year next following, and the amount so computed shall be allowed as a deduction in respect of such previous year next following; and

(b) thereafter, the development allowance shall again be computed with reference to the actual cost of planting, and if the sum so computed exceeds the amount allowed as a deduction under clause (a), the amount of the excess shall be allowed as a deduction in respect of the third succeeding previous year next following the previous year in which the land has been prepared for planting or replanting, as the case may be : Provided that no deduction under clause (i) shall be allowed unless the planting has commenced after the March 31, 1965, and no deduction shall be allowed under clause (ii) unless the planting has commenced after the March 31, 1965, and been completed before the April 1, 1970.'

23. The rest of the provisions are omitted as they are unnecessary for our present purpose. The learned counsel for the assessee contended that it was enough for the assessee to grow tea in India and that it is not necessary also to manufacture tea in India to get the benefit ofthe allowance. In other words, the contention was that the growing and manufacturing were not cumulative conditions but only alternative conditions. The question is whether the interpretation sought to be placed by the assessee is correct or not.

24. In this context, the learned counsel for the assessee drew our attention to the following passage from the Notes on Clauses and also from the Memorandum explaining the provisions in the Finance Bill, 1965, which are published in [1965] 55 ITR 106 in its statutes section. The relevant passage are :

'Clause 9 seeks to insert a new section 33A in the Income-tax Act. Under this section, a deduction by way of development allowance equivalent to 40 per cent. of the actual cost of planting of tea in new areas and 20 per cent. of the actual cost of planting in replacement of bushes in existing areas will be made in computing income from a business of growing or manufacturing tea in India subject to certain limits and conditions, which are broadly similar to those in existence in respect of the deduction of development rebate in respect of machinery or plant....

It is proposed to make a provision for the grant of a development allowance to the tea plantation industry of an amount of 40 per cent. of the cost of planting tea bushes in a new area, and 20 per cent. of the cost of replanting tea bushes in an area already under cultivation. This development allowance will be allowed as a deduction in computing the income of the assessee from the sale of tea grown or manufactured by him in India, subject to certain conditions which are broadly similar to conditions applicable for entitlement to the deduction of development rebate in respect of the cost of new machinery or plant. These provisions are made in pursuance of the recommendations of the Tea Finance Committee. (Clause 9).'

25. The emphasis in the above passages was on the underlined word 'or' occurring between 'growing' and 'manufacturing tea.' The contention was that the intention behind the statute was to give the allowance to the grower or to the manufacturer.

26. It is well settled that the explanation given to the Members of Parliament either in the shape of Notes on Clauses or the Memoranda explaining the provision are not aids to construction. They may at best disclose the mind of the person who drafted these notes or memoranda and not the person who was instrumental in drafting the statute itself. The construction of fiscal statutes is becoming more and more difficult because of the complex manner in which statutory provisions are couched so as to comprehend all conceivable cases. In such a context, the least that the court an expect of persons who have the responsibility of piloting fiscal statutes and getting them through Parliament is not to hinder the task of construction and render the court's search for meaning more difficult and onerous by offering explanations which are out of tune with the Act. Money bills introduced during the budget sessions, which contain amendments to fiscal statutes, have, in recent years, been supplemented by supporting literature called explanatory memorandum apparently to assist the legislators. They sometimes prove to be a positive hindrance, as in the present case, to those lot it is to consture them, especially when they decided on not truly reflect the meaning of the statute as drafted. We have to construe the statute on its words and not on what the supposed intention behind it was except in the somewhat rare event of the provision not yielding any meaning unless the intention is taken into account. In the present case, the description of the provisions by the explanatory memorandum is the very opposite of what the section says. Considerable argument was addressed before us on the basis of this memorandum and the result was only to make a simple matter of interpretation more difficult. It would decided on good to the drafting and interpretation of fiscal laws if greater care is taken in the preparation of those explanatory memoranda. The courts can always jettison the explanatory memoranda and go into the statutory provision itself, but the common man is likely to be taken in by them and he is likely to have arranged his fiscal affairs accordingly. If ultimately, the explanatory memorandum is proved to be based on a wrong understanding of the Act, it would have rendered considerable damage to the assessees who, after a few years, find the court's decision to be contrary to these explanations.

27. The circumstances under which the word 'and' may be construed as 'or' and vice versa should be somewhat rare. Otherwise, if the two are taken to be interchangeable terms, then it would result in Parliament throwing into the statute the two expressions indiscriminately and leave them to the courts to sort out the meaning. In ordinary usage 'and' in conjunctive and 'or' is disjunctive, but to carry out the intention of the legislature it is sometimes possible to take 'and' for 'or' and vice versa. But such occasions should be rare and should only be to avoid absurd consequences that would follow if the words are taken in their literal meaning.

28. In the present case, there are no absurd consequences that are likely to follow by taking the section as it is, without substituting the word 'and' by 'or.' The very purpose for which the development allowance was designed was to allow the relating of tea bushes in cases where the assessee grew tea and also manufactured it. If the assessee merely grew tea and did not manufacture them, the income earned by it by the sale of green tea is not likely to come into the process of assessment under the Central Income-tax Act. The legislature cannot be taken to have intended to give a benefit which is not likely to come within the purview of an assessment under the Central enactment. Therefore, it is necessary to construe the word 'and' only as a conjunctive and not as a disjunctive. Growing tea and manufacturing it are cumulative conditions. In the present case, there is no dispute about the fact that the assessee did not manufacture any tea and, therefore, it is not eligible for the allowance granted under s. 33A. The second question has, therefore, to be answered in the affirmative and in favour of the revenue. The revenue will be entitled to its costs. Counsel's fee Rs. 500 one set.


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