9911796707
TMI Blog2005 (3) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees/writ petitioners as computed therein had escaped assessment for the different assessment years mentioned therein. The notices though are differently dated and relatable to varying assessment years, a substantial homogeneity in the contextual background being evident and common questions of law having been raised, the petitions deserve to be disposed of by this common judgment and order. I have heard Mr. R.P. Agarwalla, senior advocate assisted by Mr. R.L. Jain, advocate, for the petitioners in W.P.(C) No. 1163 of 2003, W.P.(C) No. 1258 of 2003, W.P.(C) No. 1259 of 2003, W.P.(C) No. 1260 of 2003 and W.P.(C) No. 6630 of 2003 and Mr. G. K. Joshi, senior advocate assisted by Mr. R. K. Joshi and Ms. U. Chakrabarty, advocates for the petitioners in W.P.(C) No. 4102 of 2003, W.P.(C) No. 4103 of 2003 and W.P.(C) No. 4111 of 2003. Mr. U. Bhuyan, learned standing counsel, Income-tax Department represented the Revenue. The pleaded facts in W.P.(C) No. 1163 of 2003 would be adequately illustrative of the factual premises. The petitioner-company is engaged in the business of cultivation, manufacture and sale of tea and is regularly assessed under the Act. It submitted its return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on green leaves for determining the composite income under rule 8 of the Income-tax Rules, 1962 (hereafter referred to as "the Rules"), it was not mentioned in the returns that the cess was the tax paid under the Assam Taxation (On Specified Land) Act, 1990 (hereafter referred to as "the 1990 Act"), and thereby the assessees had failed to make full and true disclosure of all material facts with regard to such payment. The Revenue maintained that as decided by this court in Jorehaut Group Ltd. v. Agrl. ITO [1997] 226 ITR 622, cess payable on green leaves under the 1990 Act is to be deducted only from 60 per cent. of the composite income and as the above judicial determination is binding on all authorities, the reassessment proceedings had been initiated. As the cess paid has been held to be a tax, in the above reported decision and the assessees are entitled to a deduction thereof only from 60 per cent. of the composite agricultural income, they cannot be allowed the said benefit in determining the 100 per cent. composite income under the Act as otherwise it would result in double deduction for the same payment. Before adverting to the rival arguments, it would be advantageous t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the cess amount paid under the 1990 Act and the taxable income under the Act and the agricultural income was calculable therefrom, the respondent authority had no jurisdiction to reopen the computation so made in face of the catena of decisions of the apex court to the above effect. It not being the case of any of the parties that the cess paid though a tax under the 1990 Act was not allowable as a permissible deduction under the Act while computing the composite income under rule 8(1) of the Rules, the impugned reassessment proceeding which has the effect of reopening the computation already made is without jurisdiction. Mr. Agarwalla further contended that as the assessment of the tax payable on the basis of the return submitted by the petitioner had been made under section 143(3) of the Act permitting the deduction of the cess amount mentioned in the return, the decision to initiate reassessment proceeding amounts to a change in the opinion of the assessing authority in favour of withdrawing the deduction earlier permitted on a non-existent ground. Inviting the attention of this court to sections 147 and 148 of the Act, learned senior counsel emphasised that the essenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se that any taxable income has escaped assessment, learned senior counsel argued that the impugned action of the respondent authorities is palpably illegal and without jurisdiction and thus the impugned notices are liable to be set aside and quashed. In support of his contentions, Mr. Agarwalla placed reliance on the following authorities. Jorehaut Group Ltd. v. Agrl. ITO [1997] 226 ITR 622 (Gauhati); CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC); Assam Co. Ltd. v. State of Assam [2001] 248 ITR 567 (SC); Tata Tea Ltd. v. State of West Bengal [1988] 173 ITR 18 (SC); Bazaloni Group Ltd. v. CIT [2005] 272 ITR 11 (Gauhati); Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax [1971] 82 ITR 147 (SC); Income-tax Officer v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); Ganga Saran and Sons Pvt. Ltd. v. ITO [1981] 130 ITR 1 (SC); Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC); Associated Stone Industries (Kotah) Ltd. v. CIT [1997] 224 ITR 560 (SC); Joint CIT (Assessment) v. George Williamson (Assam) Ltd. [2002] 258 ITR 126 (Gauhati); Hindustan Lever Ltd. v. R. B. Wadkar, Asst. CIT (No. 1) [2004] 268 ITR 332 (Bom). Mr. Joshi, learned senior coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this court's decision in Jorehaut Group Ltd. [1997] 226 ITR 622 etc., those could not by any means be dubbed as irrelevant, inadequate or non-existent. Referring to the three petitions, W.P.(C) No. 6630 of 2003, W.P.(C) No. 4111 of 2003 and W.P.(C) No. 4103 of 2003 pertaining to the assessment years 1999-2000 and 2001-02, learned counsel for the Revenue contended that as there was only an intimation and no assessment based on the facts and particulars furnished in the returns was made, the decision for reassessment did not tantamount to any change of opinion as alleged. Learned counsel, however, was candid in admitting that the impugned notices did not disclose any material to suggest either failure to submit the return or to disclose fully and truly, material facts envisaged in the proviso to section 147 and, therefore, the bar of limitation was insurmountable for the Revenue in W.P.(C) No. 1163 of 2003 and W.P.(C) No. 1258 of 2003. He, however, contended that in a given fact situation, a change of opinion is permissible even after a regular assessment provided sufficient grounds exist therefor. According to him, the writ petitions are premature having been filed against the not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les designs the determination of income under the Act. Rule 8 prescribes for computation of income derived from the sale of tea grown and manufactured by the seller in India. Such income thereunder is to be computed as if it was one income derived from business and 40 per cent. thereof is to be deemed to be income liable to tax under the Act. The legal fiction comprehended therein is that the income derived from the integrated activities of growing, manufacturing and selling of tea is to be construed and computed as income derived from business, 40 per cent. whereof is liable to be taxed following such computation under the Act. As the income contemplated is earned from the combined exercise of growing, manufacturing and selling of tea, 40 per cent. of the income so computed is the taxable income under the Act being the non-agricultural component of the composite income leaving the balance 60 per cent. thereof to be the agricultural income. This accords with the fictional classification between the two types of incomes derivable from the joint activities involved and recognised by law. It is thus axiomatic that the composite income being conceived of and computed as the income deri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income mentioned in section 2(a)(2), i.e., one derived, inter alia, by agriculture. In determining the net amount of agricultural income, the deductions as enumerated in section 8(2) are allowable. Clause (e) of section 8(2) permits deduction of any tax or rate paid under any enactment in force in Assam on the cultivation or sale of the crop from which such agricultural income is derived. The second proviso appearing under clause (h) of section 8(2) makes it explicit that in the case of agricultural income from cultivation and manufacture of tea, the agricultural income for the purposes of the 1939 Act is deemed to be that portion of income from cultivation, manufacture and sale, which is agricultural income within the meaning of the Indian Income-tax Act ascertainable by computing the income from the cultivation, manufacture and sale of tea as computed for Indian Income-tax Act from which would be deducted any allowance authorised by the 1939 Act in so far as the same had not been allowed in the computation for the Income-tax Act. This proviso thus make it abundantly evident that while calculating the net agricultural income from the gross agricultural income 60 per cent. of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me is, however, not liable to be reopened by the authorities under the State legislation to vary and/or alter the amount or percentage of the agricultural income. In other words, while assessing the agricultural income so computed under rule 8(1), it would not be open for the State machinery to redo the computation for working out the agricultural income by superseding the exercise already made under rule 8(1). As this aspect of the controversy had already been noticed by the apex court on various occasions and reliance on a few of the related pronouncements has been made, it would now be discreet to make a reference thereto. The issue, inter alia, before the apex court in Assam Co. Ltd. [2001] 248 ITR 567, was whether the Agricultural Income-tax Officer of the State of Assam, in view of the constitutional definition of agricultural income under article 366(1) of the Constitution was bound by the computation of the agricultural income made under the Central Act. On an exhaustive and elucidative analysis of the various provisions of the Act and the 1939 Act in the background of the relevant constitutional provisions, it was held that the computation of the agricultural income fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 40 per cent. of the income so computed would be deemed to be income liable to the levy of income-tax and the balance of the income would be liable to tax as agricultural income subject to such further deductions as the law pertaining to the levy of agricultural income-tax might allow. The question is whether rule 24 of the Income-tax Rules, 1922, and rule 8 of the Income-tax Rules, 1962, can be said to form part of the definition of the term 'agricultural income' under the Act of 1922 and the Act of 1961, respectively... A reading of article 245 of the Constitution with entry 82 of List I, and entry 46 of List II in the Seventh Schedule makes it clear that the State Legislature has exclusive jurisdiction to legislate in respect of taxes on agricultural income; and in respect of taxes on other income, it is Parliament alone which can legislate. The term 'agricultural income' used in that entry has to be construed in accordance with the definition of the said terms in article 366(1) of the Constitution of India and that sub-article states that agricultural income means 'agricultural income' as defined for the purposes of the enactments relating to Indian income-tax ... An analy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic limited company carrying on the business of cultivation, manufacture and sale of tea paid cess of Rs. 17,70,096 on the green leaves under the 1990 Act for the assessment year 1993-94. As the deduction claimed by it for the aforementioned amount from 60 per cent. of the income was refused, the writ jurisdiction of this court was invoked. Though no counter was filed by the Revenue the refusal to permit the deduction was sought to be justified as the claim was disputed. It was submitted on behalf of the petitioner with reference to rule 8 of the Rules and section 8(2)(e) of the 1939 Act that as the cess paid was a tax, the petitioner was entitled to the benefit of deduction from 60 per cent. of the composite income determined in terms of rule 8(1). This court principally relying on the decision of the apex court in Orissa Cement Ltd. v. State of Orissa [1991] Supp 1 SCC 430 held that the cess paid was a tax and, therefore, in view of section 8(2)(e) of the 1939 Act, the petitioner was entitled to be extended the benefit of deduction of the tax paid from 60 per cent, of the composite agricultural income. From the recital of facts available in the reported decision, it is not clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except for reasons of failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for the assessment for that assessment year. The reason to believe that any taxable income has escaped assessment is, therefore, a sine qua non for invoking the power under the above section of law. In other words, in the absence of such a reason, any action purported to be taken under section 147 of the Act would obviously be without any sanction of law. The codified legal mandate is unequivocal and clear. Existence of reasons leading to a genuine belief that any income chargeable to tax has escaped assessment is the condition precedent for valid exercise of power under the above provision of the Act. Absence of reason or irrelevance thereof or want of any perceptible nexus between the reason and the belief per se would render the exercise illegal and without jurisdiction. The expression "reason to believe" came to be considered in a number of decisions, a few may be referred to. In Sheo Nath Singh [1971] 82 ITR 147, the apex court held as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of formation of the belief that income has escaped assessment. If either of these two essentials is absent, the proposed action would be ex facie unauthorised. Not only the reason has to be one, which is relevant and recognised in law, the same has to have a rational and logical link with the belief that there has been an escapement of taxable income. The belief has to have its roots in the reasons and obviously has to be genuine and bona fide and not merely a pretence. The subjective satisfaction metamorphing into the belief has to be guided by objectivity based on existing relevant reasons acknowledged and recognised by law. A tangible and bona fide legal necessity to scuttle tax avoidance is the essence of the power and no roving enquiry on vague hunches or indeterminate and impertinent consideration is envisaged. The purported interpretation of the decision of this court in Jorehaut Group Ltd. [1997] 226 ITR 622, cited as the reason for invocation of power under section 147 of the Act in view of the above determination is plainly unsustainable. Consequently, the reason recorded in the impugned notices has to be construed as non est in law. It not having been held by this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s responsibility to advise the Assessing Officer with regard to the inference which he should draw therefrom. If such officer draws any inference which appears to be subsequently erroneous, a mere change of opinion would not justify initiation of action for reopening the assessment, it held. The same view was expressed in Associated Stone Industries [1997] 224 ITR 560 (SC). The Bombay High Court on the same issue in Hindustan Lever Ltd. [2004] 268 ITR 332, held that the reasons in support of the proposed action under section 147 of the Act must necessarily reveal all facts or materials that had not been disclosed by the assessee fully and truly necessary for assessment so as to establish the link between the reasons and evidence. It was further held that the reasons so recorded cannot be supplemented by any affidavit or oral submissions as otherwise the reasons which were lacking in the material particulars would receive supplementation by the time those are subjected to court's scrutiny. The notices admittedly do not exhibit as to what material facts were not truly and fully disclosed by the assessees necessary for assessment for the assessment years in question. The returns a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
