1. This is an appeal filed by an assessee against the order dated August 12, 1977, of the Commissioner of Agricultural Income-tax, Madras, revising the income as computed by the assessing officer and refixing the tax payable by the assessee.
2. The assessee-Kulittalai Cane Farms Private Limited, Madras, had applied for and obtained permission to compound its agricultural income-tax in an extent of 679-63 ordinary acres corresponding to 611-13 standards acres on payment of Rs. 40,070.63 under s. 65 of the Agricultural Income-tax Act by the Agricultural Income-tax Officer for the year 1969-70. During the assessment year 1970-71, the assessee, however, had filed a return of income declaring a net loss of Rs. 30,630.35. The Agricultural Income-tax Officer finalised the assessment under s. 17(3) of the Act determining the net income at Rs. 86,245.77 after allowing a deduction of 'the value of standing crops at the beginning of the year amounting to Rs. 1,76,290' among others, by his order dated April 29, 1977. While perusing the records of assessment for the year 1970-71, the Commissioner of Agricultural Income-tax has felt that the extent of the value of the standing crops at the beginning of the year should not have been allowed by the Agricultural Income-tax Officer, since that amount was not brought to charge in the earlier assessment year 1969-70, and it cannot be given deduction for the subsequent year 1970-71. Therefore, he issued a show cause notice to the assessee proposing to disallow the deduction of the value of the standing crops at the beginning of the year and to refix the agricultural income and the tax payable by the assessee for the year 1970-71. However, the Commissioner, after hearing the assessee's counsel and after considering the grounds of objection, revised the order of the Agricultural Income-tax Officer in exercise of his suo motu power under s. 34 of the Act and refixed the income at Rs. 2,62,532.71 as against the net income of Rs. 86,242.71 computed by the Agricultural Income-tax Officer. The said order of the Commissioner is the subject-matter of appeal before us.
3. The following facts are not in dispute. In all the earlier years from 1958-59 to 1968-69, the assessee has been returning its income as per books of account and has been paying tax on the basis of such returns. However, for the year 1969-70, the assessee applied for and obtained permission to pay the tax on the basis of composition under s. 65 of the Act. It again reverted in the assessment for the year 1970-71 to the prior procedure of submitting its returns of agricultural income and being assessed on the basis of such returns. It is because the assessee changed the basis of assessment for one year, the question in dispute has arisen.
4. Learned counsel for the assessee submits that as per the method of accounting adopted by the company from the beginning, the value of standing crops at the end of the year is taken as the income of that year, that when the tax is levied on compounding basis for 1969-70, it covers the entire income for that year and that, therefore, any inclusion of the value of the standing crops in the beginning of the assessment year 1970-71 as income for that year will amount to double assessment of the value of the standing crops. He also submits that s. 19A of the Act has no application in this case. He also refers to the orders dated August 29, 1969, passed by the Madras Agricultural Income-tax Appellate Tribunal in ATA Nos. 53 to 60 of 1969 batch, wherein the Tribunal has equated the growing crops to work-in-progress or the foods in the process of manufacture in a manufacturing concern and had directed the Agricultural Income-tax Officer to compute the agricultural income by taking into account the value of the growing crops at the close of the assessment year. Even apart from the decision of the Tribunal, it is well-established that in cases where the assessee follows the mercantile basis of accounting and consistently values the closing stock alone for the purpose of computation of its income without reference to the opening stock of the same assessment year, that could be taken as a proper mode of computation. But here, we are not concerned with the question as to whether closing stock could be taken into account without reference to the opening stock. The question before us has arisen in a different from. Here, the assessee instead of adopting a uniform basis for assessment, has adopted a compounding basis for the year 1969-70, and adopted the return basis for the year 1970-71.
5. The statute has contemplated such a situation and has specifically provided for it. Section 19A which was inserted by s. 4 of the Agricultural Income-tax (Amendment) Act, 1966, with effect from May 13, 1966, is as follows :
'19A. If in the return of the total agricultural income submitted by any person for the previous year immediately preceding the year covered by an application for permission to compound under section 65, the value of any closing stock of agricultural produce for the said previous year has not been taken into account in computing the said total agricultural income in accordance with the method of accounting then employed by the assessee, the Agricultural income-tax Officer may, if he grants such person for that previous year after taking into account the value of the closing stock of such agricultural produce and the provisions of this Act shall, as far as may be, apply in relation to such reassessment as they apply in relation to the assessment of agricultural income-tax under this Act.'
6. The abovesaid section deals with a situation where an assessee files a return of his agricultural income for the previous year preceding the year covered by application for permission to compound under s. 65 and the value of any closing stock of agricultural produce for the previous year has not been taken into account in computing the said total agricultural income in accordance with the method of accounting then adopted by the assessee, the Agricultural Income-tax Officer may, if he grants such permission to compound, reassess the total agricultural income of such person for the previous year after taking into account the value of the closing stock of such agricultural produce. In this case, the assessee has applied for composition for the year 1969-70. The previous year preceding the year is 1968-69. In that year, the assessee had standing crops to the value of Rs. 1,77,290 at the close of the year. As per s. 19A, the Agricultural Income-tax Officer can reassess the total agricultural income for that year after taking into account the value of the standing crops at the close of that year, while granting the permission to compound under s. 65, for the subsequent year 1969-70. Here, the revision made by the Commissioner was in respect of the assessment order passed in relation to the year 1970-71. Therefore, s. 19A is not the basis of the order impugned here. According to the Commissioner, the system of accounting employed by the assessee in 'cash' system and, therefore, whatever income is realised in cash by the sale of standing crops existing at the close of the preceding year 1969-70 could be assessed in the assessment year 1970-71. The notional value of the standing crops at the end of the assessment year 12969-70 and at the beginning of the assessment year 1970-71 has been fixed are Rs. 1,76,290 by the assessee himself. The accounting period for the assessment year 1970-71, in this case, is from July 1, 11968, to June 30, 1969, and, therefore, the standing crops as on June 30, 1968, would have been harvested during the year 1970-71, and the income realised therefrom. Therefore, even if s. 19A could not be applied for reopening the assessment for the year 1970-71, the notional income of Rs. 1,76,290 which could have been realised in the assessment year 1970-71 is liable to be added as income of that year, so as to counteract its deduction as expenditure in the said assessment year.
7. Sections 16 and 17 of the Act deal with the assessment of income derived from the lands held by the assessee. The permission to compound the tax is an alternative arrangement provided in the Act for payment of certain lump sum on the holdings converted into standard acreage at the prescribed slab rate of tax. The two methods in taxation are entirely different from each other and it cannot be, therefore, held safely that the composition of tax for 1969-70 covers even the notional income from standing crops as on the last day of the year 1969-70. Therefore, the standing crops as on the last day of the assessment year 1969-70 should be taken to be the standing crops on the first day of the assessment year 1970-71, and the assessee could have realised income the sale of the said standing crops only during the assessment year 1970-71. He should have derived income by sale of standing crops only in the year 1970-71. Thus the Agricultural Income-tax Officer appears to have committed an error in allowing a deduction in the assessment year 190-71 of a sum of Rs. 1,79,290 as the expenditure incurred in relation to the standing crops at the beginning of the year 1970-71.
8. The learned counsel for the assessee then raised a contention that the order of the Commissioner dated August 12, 1977, having been passed beyond the period of three years from the expiry of the assessment year 1970-71, the Commissioner had no jurisdiction to revise the order of the Agricultural Income-tax Officer dated August 21, 1974. But it s seen that in relation to the assessment year 1970-71, the Agricultural Income-tax Officer passed an order on August 21, 1974, and that the Commissioner had revised that order on August 12, 1977, which was within three years from the date of the order sought to be revised. Hence, there is no merit in the contention based on limitation.
9. No interference is, therefore, called for with the order of the Commissioner. The tax case is dismissed. There will be no order as to costs.