1. A common question arises in these two petitions. It is whether under Section 31 of the Madras Agricultural Income-tax Act, an assessee is enabled to file an appeal from the order of composition of agricultural income-tax made under Section 65 of the Act. We shall briefly set out the facts in each of these petitions.
2. T.C. Mo. 54 of 1960.--The respondent in this case applied under Section 65 of the Act for permission to compound the agricultural income-tax payable by him. His application gave particulars of the extent of land held by him, the total of which came to 92.90 acres equivalent to 29.70 standard acres. The Agricultural Income-tax Officer, after satisfying himself that the particulars given in the application were correct, granted permission to compound. The result was that the respondent was called upon to pay in lieu of the agricultural income-tax, a sum of Rs. 106.50 per year for the assessment years 1958-59, 1959-60 and 1960-61.
3. The respondent appealed to the Assistant Commissioner claiming that though he had shown the total extent of 92.90 acres in his application, 51.96 acres out of it belonged to his minor sons under a settlement effected by their grand-father. That appeal failed.
4. T.C. No. 68 of 1960.--The respondent in this case applied for permission to compound, furnishing in the application, the total extent of land held as 42.57 standard acres. Permission to compound was granted, and the amount to be paid annually by the respondent in lieu of agricultural income-tax was fixed at Rs. 247.30. This rate was to be in force for the three assessment years 1958-59, 1959-60 and 1960-61. The respondent appealed to the Assistant Commissioner. The contention appears to have been that out of the extent of 42.57 standard acres set out in the application filed by her, she owned only about 13.81 acres of land and that the remaining extent was held by her only in the capacity of trustee of a charitable trust founded by a partition deed.
5. In both cases, the Assistant Commissioner took the view that no appeal lay against an order made under Section 65 of the Act and that the remedy which the petitioner had was only to move the Commissioner of Agricultural Income-tax by way of revision.
6. Against these orders of the Assistant Commissioner, appeals were carried to the Appellate Tribunal. Before the Tribunal it was urged that under Section 31 of the Act, no appeal lay to the Assistant Commissioner against an order of composition. But the Tribunal took the view that if the plea advanced by the appellants was that they were not liable to be assessed under the Act, then Section 31 of the Act conferred a right of appeal. The result was that the orders of the Assistant Commissioner in the two cases were set aside and he was directed to dispose of the appeals afresh.
7. In these Revision Petitions, the State, as the petitioner, contends that the view of the Tribunal that an order for composition made under Section 65 of the Act is appealable under Section 31 of the Act is erroneous. The short question therefore is whether where a person holding agricultural land seeks to have the agricultural income-tax that would be payable by him compounded under Section 65, an order granting the permission and fixing the amount payable by the person in lieu of agricultural income-tax is an order against which an appeal is provided for by Section 31 of the Act.
8. Under Section 10 of the Act, there is a general exemption from assessment of tax. Section 10 (1) says:
Nothing contained in this Act shall apply to a person who holds land not exceeding 121/2 standard acres.
It is mainly relying upon this provision that the Appellate Tribunal appears to have taken the view that where a person denies his liability to assessment under the Act, a right of appeal has been conferred by Section 31. Before the correctness of this view can be examined, it is necessary to set out some of the provisions relating to composition.
9. Composition of agricultural income-tax is made at the instance of a person holding agricultural land. Section 65 enables any person who holds land not exceeding four times the exempted extent to apply for permission to compound. A form of application is prescribed., and the period within which the application should be made is also fixed by the rules. In the application, the applicant is called upon to make a verified statement furnishing particulars of the land held by him. The Agricultural Income-tax Officer makes such enquiry as he deems fit and satisfies himself that the extent claimed to be held by the applicant is within the limit of four times the exempted extent. Thereafter, he may, by an order in writing, grant the permission to compound. Part II of the Schedule to the Act prescribes the rate per standard acre at which the composition should be effected, and on the basis of these rates the lump sum payable in lieu of the agricultural income-tax is fixed by the Agricultural Income-tax Officer. Rules 30 and 31 of the Rules framed under the Act prescribe the procedure to be followed in making and in dealing with an application under Section 65 of the Act.
10. The effect of a composition permitted under Section 65 is set out in Sub-section (4) of that section. A permission granted shall be in force for a period of three years commencing from the year for which permission is granted, and in respect of that period, the provisions of the Act regarding submission of returns of accounts or other documents, the assessment to agricultural income-tax or any other matter incidental thereto, shall not apply in relation to grantee. There is a proviso to this sub-section which states further that the provisions of Sections 35 and 36 shall, so far as may be apply in relation to the composition under this section, as they apply in relation to the assessment of agricultural income-tax under the Act. It will be noticed from the above that during the period when the order of composition is in force, the provision regarding the ' assessment to agricultural income-tax ' shall not apply; and further the two sections excepted by the proviso relate to income escaping from assessment and to the rectification of any mistake which alone among the several provisions of the Act have been made applicable to cases of composition.
11. Section 31 provides for ' appeals against assessment'. The assessee is entitled to prefer an appeal when he (1) objects to the amount of income assessed; (2) to the tax determined, and (3) to the loss computed (the three items arise out of proceedings under Section 17 which relates to the assessment of income); (4) denies his liability to be assessed under the Act; (5) objects to any order made under certain specified provisions of the Act, dealing with cancellation of an assessment, penalty proceedings, assessment of individual members of associations, assessment in the case of a discontinued business, assessment after partition, and proceedings relating to recovery of tax; and cancellation of a registration of a firm and (6) refusal to register a firm. This section clearly sets out the various cases where an appeal can be filed against the assessment or an order, such as indicated above. It is noteworthy that the section itself is headed. ' Appeal's against assessment' and does not specifically make mention of a proceeding under Section 65 as an order which would be susceptible of an appeal under this section. The question is whether an order allowing composition under Section 65 can be brought up in appeal under this provision under the heading of the assessee denying ' his liability to be assessed under this Act. ' It resolves into deciding whether a composition applied for and granted under Section 65 amounts to an assessment under the Act.
12. We have already pointed out that Sub-section (4) of Section 65 clearly excludes the operation of the provisions of the Act regarding assessment of agricultural income-tax during the three assessment years when permission to compound is in force. We have also referred to the fact that all the provisions of the Act other than Section 35 relating to escape of income and Section 36 covering rectification of mistakes are made inapplicable to composition proceedings by the proviso to Sub-section (4). It is in the light of these specific provisions that the scope of the expression ' denying his liability to be assessed ' appearing in Section 31 of the Act has to be interpreted.
13. It seems to us that an order granting permission to compound and fixing the amounts to be paid by a person holding agricultural land in lieu of the agricultural income-tax does not amount to an order of assessment. It is true that where a person denies his liability to be assessed, it is not necessary that such denial should have been made before the initial assessing authority. He may, in the course of the appeal from an order of assessment, deny his liability to be assessed. In support of this proposition Rani Anand Kunwar v. Commissioner of Income-tax , has been cited. This decision however does not render help in so far as the point for determination before us is concerned. It is true that expression ' assessment' has been interpreted in decisions arising under the Income-tax Act to take in not only assessment of the income of the person but the assessment of tax as well. But, in a proceeding under Section 65 of the Act, it is indisputable that there is no assessment of the income of the person or an assessment of tax as such. The rate of levy prescribed in respect of a composition is provided in Part II of the Schedule of the Act. While Part I of that Schedule sets out the rates of agricultural income-tax in quantifying the charge under Section 3 of the Act, Part II, which is applicable to composition proceedings, does not refer to the quantum fixed as tax at all. Section 65 itself creates a demand against a person as a lump sum demand at a rate of so much per standard acre specified in Part II of the Schedule, and those rates are not stated to be rates of tax. Therefore, in the case of composition, there is firstly no assessment of income and secondly there is no assessment to tax. That seems to be inherent in Section 65 and that position is further clarified by Sub-section (4) of that section to which we have already made reference, which states that the provisions of the Act regarding assessment of agricultural income-tax shall not apply. Construing the expression 'denying his liability to be assessed ' that occurs in Section 31 of the Act, it seems to us that unless an assessment in accordance with the other provisions of the Act, which deal with assessment, has been made, this expression occurring in Section 31 of the Act will not grant a right of appeal. The assessment of income and of tax are dealt with in Section 17 of the Act. Such assessment proceedings postulate either a return made by the assessee under Section 16 or a return called for by the issue of notice under Section 16(2) of the Act, following which the Agricultural Income-tax Officer assessees the total agricultural income of the assessee and determines the tax payable by him on the basis of the return filed in the first case or of the best of his judgment in the latter case, in the absence of a return. The other sub-section of Section 17 deal with the assessment of firms, registered or otherwise, and the determination of a loss, if a loss which the assessee is entitled to set off, has been sustained. The processes of assessment being those dealt with by Sections 16 and 17 and also the provisional assessment under Section 18, we are unable to construe the expression ' denying his liability to assessment under this Act' in relation to any proceeding which does not attract the application of these three sections.
14. Reliance has been placed by the learned Counsel for the respondents on Modi v. Commissioner of Income-tax : 33ITR529(Bom) . That was a case where the question arose whether an employer, who denies his liability to make a deduction from salaries, is entitled to appeal only where he has made a deduction and has paid the amount deducted by way of tax. The employer in that case appealed against an order directing him to pay, the tax under Section 18(7) of the Act. It was held that though there was no right of appeal under Section 30(1)(A) of the Income-tax Act, a right of appeal under Section 30(1) of the Act was available for the reason that under Section 18(7) of the Act, a person who does not deduct and fails to pay tax is deemed to be an assessee in default of the tax. That was the case where under the provisions of the Income-tax Act, in respect of the amount in question, the employer became an assessee in default by virtue of the deeming provision. That amounted to an assessment and obviously the right of appeal under Section 30(1) of the Act became available to such a person. This decision does not support the contention of the learned Counsel for the respondent that an order of composition is virtually an order of assessment. The distinction between the present case and the one that we have referred to lies in the fact that Section 18(7) of the Income-tax Act enacts a deeming provision by which an employer becomes an assessee in default. The other cases cited before us do not give any material assistance on the point.
15. We hold that a proceeding under Section 65 is not an assessment and in a proceeding under Section 65, there can be no denial of liabilities to assessment within the meaning of the said expression in Section 31 of the Act.
16. The result accordingly is that the view taken by the Tribunal that in the case of composition proceedings, an appeal will lie to the Assistant Commissioner under Section 31 of the Act, cannot be sustained. The petitions are accordingly allowed with costs. Counsel's fee Rs. 100 in each case.