1995 (9) TMI 23 - HC - Income Tax

Agricultural Income, Appeal Against Assessment, Appeal To AAC, Penal Interest, Registered Firm, Total Income, Unregistered Firm

Issues Involved:
1. Interpretation of the proviso to Rule 7 in Part IV of the First Schedule to the Finance Act, 1975, and the Finance (No. 2) Act, 1980, regarding the set-off of the assessee's share of loss from a firm.
2. Whether an appeal lies before the Appellate Assistant Commissioner against the levy of interest under sections 139(8) and 215 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Interpretation of the Proviso to Rule 7:
The primary issue revolves around the interpretation of the proviso to Rule 7 in Part IV of the First Schedule to the Finance Act, 1975, and the Finance (No. 2) Act, 1980. The question is whether the assessee's share of loss from a firm should be taken into account and given set-off while computing the net agricultural income of the assessee.

Facts:
- The assessee, a partner in the firm "Shakthi Estates," claimed set-off of his share of loss from the firm against his agricultural income.
- For the assessment year 1975-76, the assessee claimed a set-off of Rs. 25,423 against his agricultural income of Rs. 28,303.
- For the assessment year 1981-82, the assessee claimed a set-off of Rs. 1,23,528 against his agricultural income of Rs. 23,060.
- The Tribunal allowed the set-off based on its interpretation of the proviso to Rule 7.

Relevant Provisions:
- Rule 5: Specifies the computation of agricultural income or loss for a partner in a firm.
- Rule 7: States that a loss from any source of agricultural income shall be set off against the income from any other source of agricultural income.
- Proviso to Rule 7: Prohibits the set-off of a partner's share of loss from an unregistered firm not assessed as a registered firm under section 183(b) of the Income-tax Act.

Contentions:
- Revenue: The firm "Shakthi Estates" is an unregistered firm not assessed as a registered firm under section 183(b), so the loss cannot be set off against the assessee's agricultural income.
- Assessee: The firm, though unregistered under the Partnership Act, is not an unregistered firm as defined under section 2(48) since it only has agricultural income, which is outside the purview of the Act.

Court's Analysis:
- The court rejected the assessee's contention, stating that the firm remains an unregistered firm under section 2(48) of the Act, regardless of its income type.
- The firm "Shakthi Estates" is not a registered firm under section 2(39) and has not been assessed as a registered firm under section 183(b).
- The proviso to Rule 7 is applicable, and the loss from the firm cannot be set off against the assessee's agricultural income.
- The interpretation by the Tribunal was incorrect, and the Revenue's interpretation was accepted.

Conclusion:
The first question in Tax Cases Nos. 408 and 409 of 1982 and the sole question in Tax Case No. 978 of 1986 were answered in the negative and in favor of the Revenue.

2. Appeal Against Levy of Interest:
The second issue is whether an appeal lies before the Appellate Assistant Commissioner against the levy of interest under sections 139(8) and 215 of the Income-tax Act, 1961.

Facts:
- The assessee appealed against the levy of interest along with the rate of tax.
- The Tribunal held that an appeal would lie before the Appellate Assistant Commissioner.

Relevant Provisions:
- Section 246: Specifies the circumstances under which an appeal can be made to the Appellate Assistant Commissioner.
- Sections 139(8) and 215: Relate to the levy of interest for late filing of returns and underestimation of advance tax, respectively.

Contentions:
- Revenue: An appeal against the levy of interest alone does not lie.
- Assessee: The appeal was not only against the levy of interest but also against the rate of tax, which is part of the assessment.

Court's Analysis:
- The court accepted the assessee's contention, stating that the appeal was against the rate of tax, which is part of the assessment.
- As per Central Provinces Manganese Ore Co. Ltd. v. CIT, if the levy is part of the assessment, an appeal would lie.
- The court also referred to Rajyam Pictures v. Addl. CIT, which held that an appeal against assessment can include a challenge to the levy of penal interest.

Conclusion:
The second question in Tax Cases Nos. 408 and 409 of 1982 was answered in the affirmative and against the Revenue.

Final Judgment:
- The first question in Tax Cases Nos. 408 and 409 of 1982 and the sole question in Tax Case No. 978 of 1986 were answered in the negative and in favor of the Revenue.
- The second question in Tax Cases Nos. 408 and 409 of 1982 was answered in the affirmative and against the Revenue.
- No costs were awarded.

← Previous Next →