1997 (9) TMI 90 - HC - Income Tax

Summary

Issues Involved
1. Interpretation of Section 65(3) of the Tamil Nadu Agricultural Income-tax Act.
2. Applicability of composition provisions to partners of registered firms or unregistered firms treated as registered.
3. Validity of the decision in R. Anandakumar v. State of Tamil Nadu [1992] 196 ITR 219 (Mad).

Detailed Analysis

1. Interpretation of Section 65(3) of the Tamil Nadu Agricultural Income-tax Act:

Section 65(3) of the Act, prior to its deletion, prohibited registered firms or unregistered firms treated as registered under Section 17(5)(b) from applying for permission to compound agricultural income-tax. However, it allowed any partner of such firms to apply for permission to compound the agricultural income-tax payable by him on the aggregate of the income derived from (a) the land held by him individually and (b) his proportionate share of the land held by the firm.

The Full Bench examined the true scope of Section 65(3) and concluded that the composition under Section 65 is not an alternate mode of assessment but an alternative to the regular assessment. The composition covers the total agricultural income-tax liability of a partner, including income from all lands held by him individually and his share in the firm's lands.

2. Applicability of Composition Provisions to Partners of Registered Firms or Unregistered Firms Treated as Registered:

The court held that the prohibition in Section 65(3) against registered firms or unregistered firms treated as registered from applying for composition does not nullify the benefit of composition for partners. The composition is meant for the partners and is an alternative to the tax payable by the partner under Section 17(5)(a) or (b).

The court clarified that the aggregation referred to in Section 65(3) does not imply that a partner must have a source of taxable income in addition to his share of the income from the firm or must hold land individually. The right to seek composition is available to partners irrespective of whether they hold land individually.

3. Validity of the Decision in R. Anandakumar v. State of Tamil Nadu [1992] 196 ITR 219 (Mad):

The Full Bench overruled the decision in Anandakumar, which had held that the prohibition against firms from availing of composition would be defeated if partners not holding land individually were allowed to apply for composition. The court found this reasoning fallacious. The court held that the absence of individual holding of land by a partner does not disentitle him from applying for composition under Section 65(3).

The court emphasized that all words used in the statute are presumed to have been used with a purpose, and the purpose of the provision for composition must be given its full scope and effect. The provision should not be truncated by reading limitations not found in it. Section 65, with its non obstante clause, overrides other provisions in the Act.

Conclusion

The Full Bench concluded that the decision in Anandakumar was erroneous and overruled it. The absence of individual holding of land by a partner of a registered firm or an unregistered firm treated as registered does not disentitle such a partner from applying for composition of agricultural income-tax under Section 65(3) of the Act. The matters referred to the Full Bench were disposed of accordingly.