Assam Agricultural Income Tax Act - effective dates in relation to tax on book profit - case of Kanoi Estates P. Ltd - many vital contentions missed by petitioner.

[CA DEV KUMAR KOTHARI]

Assam Agricultural Income Tax Act - effective dates in relation to tax on book profit - case of Kanoi Estates P. Ltd - many vital contentions missed by petitioner.

Relevant judgment and link:

Kanoi Estates P. Ltd Vs. State of Assam, Commissioner of Taxes, Assam and others.- 2013 (5) TMI 649 - Guwahati High Court

Earlier article on related subject:

Provision of Minimum Agricultural Income tax (AMAT) under the Assam Agricultural Income Tax Act, 1939 (AAIT ACT) appears to be invalid and unconstitutional provision.

By CA Dev Kumar Kothari

http://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=965

About case of Kanoi Estates P. Ltd:

Two Writ Petitions were made under the Assam Agricultural Income Tax Act 1939 (AAIT) about two amendments relating to imposition of Agricultural Income Tax on book profit and revision of rate of Agricultural Income tax on book profit. The petitioner sought directions of the Court that particular amendment should not be applied to Assessment Year 2009-10 and 2010-11 and as they can be applied to Agricultural Previous years 2009-10 relevant to Assessment Year 2010-11 and Agricultural Previous years 2010-11 relevant to Assessment Year 2011-12.

As noted by the honorable High Court, there was no challenge on the aspects of legality and constitutionality of the Amendment Acts / provisions enacted. On reading of the judgment author also find that it was not at all contended that the amendments are outside the purview of the purposes of AAIT Act , The Constitution of India read with the Income-tax Act, 1961 and Income Tax Rules 1962 so far concern power of a State Government to levy tax on Agricultural Income earned from land in the particular state.

The challenge was only to seek restrain upon Agricultural Tax Authorities not to force tax on book profit for assessment year 2009-10 and not to apply revised rates with effect from Assessment Year 2010-11. Thus the petitions were in fact to seek very limited relief by way of directions for non applicability of tax liability based on profit and loss account for Assessment Year 2009-10 and liability due to increased rate of such tax for Assessment Year 2010-11. To challenge two amendment Acts two separate petitions were made.

Applicability of the amendments to levy tax on book profit w.e.f. assessment year 2009-10 (instead of assessment year 2010-11) were also not challenged on proper grounds and contentions. Many relevant judgments were not at all referred.

The changes in law and challenge before Guwahati High Court:

1. Vide the Assam Agricultural Income Tax (Amendment) Act 2009 section 8B was inserted w.e.f. 01.04.2009 . The Amending Act was notified vide the notification no.LGL.22/2002/124 dt. 12.02.2009 after the relevant bill received assent of the Governor of Assam on 09.02.09. This was much after commencement of the previous year beginning 01.04.2008 relevant to the assessment year 2009-10. The contention that law applicable and made known before commencement of relevant previous year can only be applied to levy a tax or tax at revised rate was not at all raised.
2. When the law was not known as on the beginning of the previous year on 01.04.2008 how the tax can be imposed for the Agricultural previous year which begun much earlier on 01.04.2008 when the amendment was published in the Gazette on 12.02.09 that is just 48 days before the end of the PYE 31.03.09?   It was not contended that it was impossible for the petitioner to pay installments of advance tax on due dates as they were long before the enactment and notification of the amendment.  
3.  Vide the Assam Agricultural Income Tax (Second Amendment) Act 2009 another relevant section about tax on book profit  that is section 8C was inserted w.e.f. 01.04.2009 which was notified vide the notification no.LGL.61/2009/4 dt. 01.09.2009 which received assent of the Governor of Assam on 26.08.09. This was also much after commencement of the previous year beginning 01.04.2008 relevant to the assessment year 2009-10. Though this provision relates to credit of tax paid as tax on book profit, however, it is an important aspect of the scheme of imposition of tax on book profit, which can be adjusted in future against normal tax, if any. The Amending Act provide for tax credit within a period of five years, whereas, in IT Act this period is ten years. This seems that any of contentions relating to section 8C were not at all raised before Guwahati High Court. And this was not an issue before the High Court.
4. Vide the Assam Agricultural Income Tax (Amendment) Act 2010 sections 3, 8B and 50 were amended w.e.f. 01.04.2010 which was notified vide the notification no.LGL.61/2009/31 dt. 07. 09.2010 which received assent of the Governor of Assam on 31.08.10. This was much after commencement of the previous year beginning 01.04.2009 relevant to the assessment year 2010-11. This amendment enhanced rate of tax thus a new charge was created. This seems that contention was not at all raised.
5. The AAIT Rules 1939 were amended vide notification dt. 03.07.2010. The amendments in Rules are also about computation of book profit , tax thereon and for insertion of relevant portion in the return of agricultural income in relation to tax on book profit. These provisions, were also not available at the time of even last of due date of return for assessment year 2009-10 (that is 31.12.2009). These contentions were not at all contended.
6. It is well settled that for a legal charge of tax, the taxpayer must be made fully aware of the tax liability before commencement of the period for which tax is levied that is the previous year. Particularly so when the tax payer is also required to pay installments of tax in advance. Otherwise, the law imposes an obligation which is impossible to discharge. That is excessive power to legislate, because no one can be expected to do what is impossible at the time of intended execution.
7. Relevant provisions about legislation of law – legal provisions and procedures, when a matter covers Central enactments and state enactments both were not pressed into and it is not clear whether all procedural requirements were full filled or not.
8. Relevant important judgments about applicability of law from the effective dates vis a vis previous year or assessment year were not pressed.
9. Nothing has been mentioned about further requirements under the Indian Constitution for amendment of the Assam Agricultural Income Tax Act.

Observations of the author:

With due respect for the legal team of petitioners, and in so far as appears from a bare reading of the judgment, the author feels that apparently the Writ Petitions were prepared in much hurry and half hearted manner, without devoting necessary time and thinking on related issues and study on the subject. Furthermore the case was also not represented in a manner as it should have been considering the importance of the issue. Many vital contentions were not raised. We do not find even dates of notifications in the judgment. This may be due to reason that the counsels did not bring to the notice of the Court or could not convincingly press the same.

On overall author have a feeling that this case and the resultant judgment seems to be on a very poorly drafted, with poor coverage of contentions and very poorly prepared and presented case before the Court. All these lead to a judgment which, in view of author is not in accordance with settled legal position that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force.

High Court was not suitable forum:

In fact the claim made in the WP that Section should not be applied to AY 2009-10 (PYE 31.03.09) should have been taken in normal course of assessment and appeal instead of preferring WP.

Similarly the revised rate should be applicable from AY 2011-12 and not AY 2010-11 should have been pressed in normal course of assessment and appeal instead of preferring WP.

Therefore, based on contentions as raised by the petitioners, the forum of Guwahati High Court, by way of Writ Petition was not proper.

Suitable contentions for Writ Petition which were not raised:

Any portion of book profit of a tea company from sale of tea cultivated and manufactured by it cannot be considered ‘agricultural income’, within the meaning and scope of the AAIT Act 1939, the Income-tax Act, 1961 and Income-tax Rules 1962 and as generally understood by common man. Thus the tax on portion of book profit is not a tax on ‘agricultural income’ , and the levy is ultravirse the AAIT Act, IT Act and the Indian Constitution.

In any case imposing agricultural income tax on book profit of only companies engaged in composite activities and leaving aside companies and other assesses engaged in cultivation of tea only is not an intelligible differention.

In fact, it can be said that not imposing tax on companies (and other assessee like firm, proprietary concerns) clearly shows that the State Government itself has considered that book profit from cultivation of tea cannot be considered ‘agricultural income’.