2004 (3) TMI 29 - HC - Income Tax

Karnataka Agricultural Income-tax Act, 1957 - The new scheme of taxation applicable to registered firms is clear and unambiguous. It provides for a flat rate of 40 per cent, towards tax without any provision for reversion of unabsorbed losses allocated to the partners for the previous assessment years. The absence of any such provision does not however make the scheme unworkable or anomalous. Even the appellants do not find the new scheme of taxation to be unworkable in its present form. All that was argued was that the absence of a provision for reversion of the unabsorbed losses to the firm in setting of the same against future income makes the scheme inequitable and onerous. We do not think that the remedy for any such flaw or deficiency lies in judicial heroics. The appeal against any inequitable and oppressive consequences should be to the Legislature - writ appeals accordingly fail and are dismissed

Issues Involved:
1. Constitutional validity of the Karnataka Agricultural Income-tax Act, 1957, as amended by the Karnataka Taxation Laws (Amendment) Act, 1994.
2. Entitlement of the appellant-firm to set off unabsorbed losses allocated to its partners during preceding years against its income for the assessment year 1995-96 onwards.
3. Validity of the show cause notice and the assessment order denying the set off of unabsorbed losses.

Detailed Analysis:

1. Constitutional Validity of the Karnataka Agricultural Income-tax Act, 1957, as Amended:
The appellant challenged the constitutional validity of the amended provisions of the Karnataka Agricultural Income-tax Act, 1957, as amended by the Karnataka Taxation Laws (Amendment) Act, 1994. The court upheld the validity of the amended provisions, stating that the new scheme of assessment of tax under section 19 of the Act did not suffer from any constitutional infirmity. The court observed that the amended Act did not envisage the transfer of unabsorbed losses allocated to the partners for being set off against the income of the firm for future years, and there was no question of introducing any such provision by a process of interpretation.

2. Entitlement to Set Off Unabsorbed Losses:
The appellant argued that the Legislature had omitted to make a provision under which unabsorbed losses allocated to the partners in previous years could be set off against the future income of the firm. The court noted that sections 19A, 19B, and 19C of the Karnataka Agricultural Income-tax Act, 1957, which dealt with the assessment of registered and unregistered firms, were omitted by the Karnataka Taxation Laws (Amendment) Act, 1994. Consequently, registered partnership firms became liable to tax at a flat rate of 40% on their total agricultural income, and the share of profit allocated to each partner was exempt from further liability. The court held that the amendments did not envisage the allocation of loss to a partner or its being set off against his other income. The court rejected the argument that the loss allocated to the partners should revert to the firm, stating that the Legislature could have made such a provision but did not do so. The court emphasized that it could not imply or read into the statute a provision that was not explicitly provided for by the Legislature.

3. Validity of the Show Cause Notice and Assessment Order:
The appellant sought to quash the show cause notice and the assessment order dated April 19, 1996, which denied the benefit of set off against the accumulated unabsorbed losses. The court observed that the new scheme of taxation introduced by the Karnataka Taxation Laws (Amendment) Act, 1994, did not provide for the reversion of unabsorbed losses to the partnership concern. The court held that the absence of a provision for reversion of unabsorbed losses to the firm did not make the scheme unworkable or anomalous. The court emphasized that any appeal against inequitable and oppressive consequences should be addressed to the Legislature, which could provide relief as deemed appropriate.

Conclusion:
The court dismissed the writ appeals, upholding the validity of the amended provisions of the Karnataka Agricultural Income-tax Act, 1957, and rejecting the appellant's claim for the set off of unabsorbed losses allocated to its partners against its income for future years. The court found no grounds to quash the show cause notice and the assessment order. The appeals were dismissed without any orders as to costs.

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