1979 (2) TMI 102 - SC - Indian Laws

Whether the lands were assessed to land revenue in the United Provinces or they were subject to local rate or cess assessed and collected by an officer as required under s. 2(a) of the U.P. Agrl. I.T. Act 1948? Held that - The returns were submitted by the two companies on the basis of their respective income. In the circumstances it cannot be said that the tax authorities were in error in assessing tax on the returns submitted by the two companies. The plea therefore that the assessment on the two companies in the absence of proceedings against the firm of which the companies were partners is not legal cannot be upheld. On a consideration of all the relevant facts the assessing authority came to the conclusion that the agreement in favour of the companies provided for payment of land revenue and the word rent used in the leases has to be considered in relation to the original agreements and as such it is seen that the agreement provided for payment of land revenue. The learned counsel appearing for the respondents was unable to challenge the correctness of the finding of the assessing authority. On a consideration of all the facts that were placed before the assessing authority we do not see any reason for not accepting the conclusion arrived at by the authority. This issue also we find against the assessee. Thus the High Court was in error in coming to the conclusion that the assessment proceedings against the respondent were unsustainable. Appeal allowed.

Summary

Issues Involved:
1. Assessability of individual partners vs. the partnership firm under the U.P. Agricultural Income-tax Act.
2. Whether the lands were assessed to land revenue or subject to local rate or cess as required under the U.P. Agricultural Income-tax Act.

Issue-wise Detailed Analysis:

1. Assessability of Individual Partners vs. the Partnership Firm:
The main contention raised by the appellants was that there is no express prohibition under the U.P. Agricultural Income-tax Act against assessing individual partners without proceeding against the firm. The appellants argued that tax could be assessed either on the partnership firm or on the partners individually, contrary to the High Court's view that tax can only be recovered from the firm.

The facts disclosed that the assessing authority issued notices to Raza Ltd. and Buland Ltd. under section 16(4) of the U.P. Agricultural Income-tax Act, and the companies submitted their returns. The assessment was made based on these returns. However, the High Court quashed the initial assessment orders and directed fresh assessments. Upon remand, the assessing authority assessed the two companies again, leading to another writ petition by the companies, which was allowed by the High Court on the ground that the assessment should have been made against the firm, not the individual partners.

The relevant provisions of the U.P. Agricultural Income-tax Act were examined, particularly section 18, which confers the power to assess individual members of firms, associations, and companies. The section allows the authorities to include the share of each member in the agricultural income of the firm or company in their total agricultural income for assessment purposes. The High Court accepted the respondents' submission that proceedings should have been taken under section 18(1) if the authorities wanted to proceed against individual members.

However, the Supreme Court found that there is nothing in the Act prohibiting the assessing authority from proceeding against individual partners based on the returns submitted by them. The Court cited the principle from the Indian Income-tax Act, where individual partners can be assessed directly if the firm has not made a return. The only prohibition is against double taxation. Since no assessment proceedings were taken against the firm, the assessment on the individual partners was valid. The Court held that the High Court erred in its conclusion and upheld the assessment on the two companies.

2. Assessment of Lands to Land Revenue or Local Rate or Cess:
The second contention was whether the lands were assessed to land revenue or subject to local rate or cess as required under the U.P. Agricultural Income-tax Act. The High Court did not consider this question as it had already decided in favor of the assessees on the first issue. The Supreme Court noted that it was undesirable to remit the case back to the High Court due to the prolonged litigation.

The assessing authority had elaborately considered this issue and concluded that the agreements with Raza Sugar Co. Ltd. and Buland Sugar Co. Ltd. provided for payment of land revenue. The agreements stipulated that the Rampur State would grant leases of agricultural land to the companies, and fair and equitable land revenue would be payable. The term "rent" in the leases was considered in relation to the original agreements, indicating payment of land revenue. The respondents' counsel could not challenge the correctness of this finding.

The Supreme Court accepted the assessing authority's conclusion that the lands met the requirements of being assessed to land revenue or subject to local rate or cess. Therefore, this issue was also decided against the assessees.

Conclusion:
The Supreme Court held that the High Court was in error in concluding that the assessment proceedings against the respondents were unsustainable. The judgment and order of the High Court were set aside, and the order of the assessing authority was restored. The appeal was allowed.