1989 (4) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction under Article 226 of the Constitution.
2. Validity of ex parte assessment orders under Section 18(4) of the Agricultural Income-tax Act.
3. Legality of revenue recovery proceedings and sale notice.
4. Proper estimation of agricultural income from tea.
5. Compliance with constitutional provisions regarding taxation of agricultural income.

Issue-wise Detailed Analysis:

1. Jurisdiction under Article 226 of the Constitution:
The appellate court reviewed the decision of a learned single judge who dismissed the original petition (O.P. No. 6985 of 1984) under Article 226 of the Constitution. The dismissal was based on the petitioner's consistent defaults during the assessment proceedings and non-compliance with other liabilities. The petitioner appealed against this dismissal.

2. Validity of Ex Parte Assessment Orders under Section 18(4) of the Agricultural Income-tax Act:
The original petition sought to quash five assessment orders (Exhibit P-8 series) for the years 1977-78 to 1981-82, issued by the Agricultural Income-tax Officer. These orders were passed ex parte due to the petitioner's failure to respond to notices and provide necessary returns and accounts. The assessments were completed on a best judgment basis under Section 18(4), relying on sales tax data. The revisional authority confirmed these assessments (Exhibit P-13), rejecting the petitioner's claims, including the assertion that the estimated income from tea exceeded the statutory limit of 60%.

3. Legality of Revenue Recovery Proceedings and Sale Notice:
The petitioner challenged the revenue recovery proceedings, culminating in a sale notice (Exhibit P-7) for the Ponmudi Estate to recover various dues, including sales tax, agricultural income-tax, and employees' provident fund. The court noted that the Collector had assumed management of the estate under Sections 36 and 37 of the Revenue Recovery Act. The court found no fault in the assumption of management but clarified that the sale could proceed only for liabilities other than the disputed agricultural income-tax for the years 1977-78 to 1981-82.

4. Proper Estimation of Agricultural Income from Tea:
The court emphasized that a best judgment assessment must be honest, fair, and based on relevant material, citing precedents like CIT v. Laxminarain Badridas and Brij Bhushan Lal Parduman Kumar v. CIT. The court found that the Agricultural Income-tax Officer had improperly equated taxable turnover from sales tax assessments with agricultural income, without allowing deductions for cultivation and maintenance expenses. This approach was deemed erroneous and not in conformity with Section 3 of the Agricultural Income-tax Act.

5. Compliance with Constitutional Provisions Regarding Taxation of Agricultural Income:
The court highlighted that under Article 246(1) and (3) of the Constitution, the State Legislature can only tax agricultural income, defined under the Income-tax Act, 1961. Rule 8 of the Income-tax Rules specifies that only 60% of income from tea grown and manufactured is agricultural income. The court cited Supreme Court decisions, including Tata Tea Ltd. v. State of West Bengal, affirming that states cannot tax the non-agricultural portion of tea income. The court found that the assessments violated these constitutional provisions by taxing 100% of the income from tea sales.

Conclusion:
The court quashed the assessment orders (Exhibits P-8(a) to P-8(e)) and the revisional order (Exhibit P-13), directing the Agricultural Income-tax Officer to reassess the petitioner's income in compliance with the observations and directions provided. The revenue recovery proceedings could continue for other liabilities, but not for the disputed agricultural income-tax until reassessment. The writ appeal was allowed, with each party bearing its own costs.