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TMI Blog2005 (3) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... nior 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 for the assessment year 1995-96 on November 29, 1995, and paid all the taxes due as per the return. It submitted along with its return, all relevant documents such as computation of income, audited statements of accounts, tax audit report, etc. The jurisdictional Assessing Officer on completion of the assessment for the year in question determined the total taxable income at Rs. 3,45,05,704, which was subsequently revised. The petitioner/assessee duly paid all taxes as assessed. It was thereafter that the impugned notice dated March 27, 2002, by the Assistant Commissioner of Income-tax (Circle 2), Dibrugarh, was issued notifying the petitioner that the said au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 to notice the recorded reasons in support of the impugned decision as communicated to the petitioners. It transpires from the communications to the above effect that the concerned respondent authority was of the view that in terms of the decision of this court in Jorehaut Group Ltd. [1997] 226 ITR 622, the assessees were entitled to deduction of cess on green leaves only from 60 per cent, of the composite agricultural income and, therefore, 40 per cent, of the cess amount allowed as deduction in determining the composite income under rule 8(2) of the Rules, was an income which had escaped assessment within the meaning of section 147 of the Act. Mr. Agarwalla has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 essential preconditions for invocation of power thereunder being conspicuously absent in the instant case, the impugned notices are on the face of the records illegal, unauthorised and unsustainable in law and are liable to be quashed. There being no legally acceptable reason to believe that any income chargeable to tax had escaped assessment in any of the assessment years involved, the impugned action being per se opposed to the mandate of the above provisions of the Act is liable to be adjudged illegal and unconstitutional. The petitioners having admittedly submitted its return, in W.P.(C) No. 1163 of 2003 and W.P.(C) No. 1258 of 2003 pertaining to the assessment years 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistant 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 counsel, while endorsing the above assertions urged that under the constitutional scheme read with the relevant provisions of the Act, the taxable income under the Act and the gross agricultural income are computable from the calculations made to work out the composite income in terms of rule 8 of the Rules. He contended with reference to articles 246, 366(1), as well as entry 82 of List I and entry 46 of List II of the Seventh Schedule to the Constitution of India that the computation of the composite income made under rule 8 is final and absolute not liable to be reopened or reassessed to vary the apportionments for identifying the business income and the agricultural in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial 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 notices of reassessment contending that any objection thereto could have been taken in the course of the assessment proceedings. He further assailed the maintainability of the writ proceedings citing the bar of alternative efficacious remedy. Mr. Bhuyan placed reliance on the following authorities. 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); Jorehaut Group Ltd. v. Agrl. ITO [1997] 226 ITR 622 (Gauhati). I have carefully reflected on the competing arguments. The impugned notices addressed to the two groups of petitioners though marginally differently w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 derived from business, all permissible deductions allowable for such computation under the Act have to be extended to work out the composite income. Sections 37 and 43B of the Act deserve reference at this juncture. While under the former, any expenditure, not being one of the nature described in sections 30 to 36 and in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively for the purposes of the business or profession is allowable in computing the income chargeable under the head "profits and gains of business or profession", the latter comprehends deductions under the heads enumerated therein only on actual payment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 composite income computed under rule 8(1) only those deductions permissible under the 1939 Act would be authorised wherefor no allowances had been made in computing the composite income under the Indian Income-tax Act. This is understandably to obviate the incidence of double deductions under the same head while assessing the net agricultural income. As a corollary, an assessee would be entitled to the benefit of the deductions allowable under the 1939 Act for computation of the net agricultural income if allowances therefor have not been permitted while working out the composite income under rule 8(1). In the present case, however, there is no dispute that the tax under the 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 flowing from the determination of the composite income made under rule 8(1) of the Rules, even for the purpose of the State enactment will have to be that which is made under the provisions of the Income-tax Act and the Rules made thereunder. On the aspect of the power of the State Officers under the 1939 Act to recompute the agricultural income already made under the Central Act, the apex court, while referring to section 49 of the 1939 Act held that the said provision did not per se contemplate such a power and to the contrary, the intent of the State Legislature was advisedly to keep its legislation within the ambit of the definition of agricultural income under article 366(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusive 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 analysis of the said decisions shows that this court has taken the view that, in the case of income from the sale of tea grown and manufactured by an assessee, rule 24 of the Indian Income-tax Rules, 1922, and rule 8 of the Income-tax Rules, 1962, although at first glance they appear to be rules of apportionment and computation, must be treated as incorporated in the definition of the term 'agricultural income' in the Act of 1922 and the Act of 1961, respectively ... What article 366(1) provides is that the term 'agricultural income' has the same meaning as attributed to it for the purposes of enactments relating to Indian income-tax and, in our view, it is quite clear that rule 8 of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 as to whether while computing the composite income under rule 8(1), deduction on account of cess paid was allowed. Such a question also did not figure to be determined by this court. No finding was also recorded therein that the cess paid was not an allowable deduction in the process of making the computation under rule 8(1) or that the deduction on that count was permissible only from the agricultural income component of the composite income worked out under the said provision of the Rules. There is no quibble that deduction, even if allowed, for the cess paid in computing the composite income, the said amount was not further deductible from the resultant agricultural income in terms of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 under: "There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court." The same view was expressed in Income-tax Officer v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssence 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 court in Jorehaut Group Ltd. [1997] 226 ITR 622, that the assessee is entitled to deduction on the cess on green leaves only from 60 per cent. of the composite agricultural income, the very foundation of the reason for the impugned action is missing. Not only has the concerned authority misread the reported decision, there appears to have been a total non-application of mind to the relevant legal provisions. The present thus is not only a case where no reason exists for invoking the power under section 147 of the Act but also is one where the so called belief is not a bona fide one being patently imaginary in the accompanying facts and circumstances of the case. The notices impugned in the above premises, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 admittedly mention about the cess on green leaves paid and deductions as permissible were allowed. In view of the exposition of law on the point mentioned hereinabove, the inescapable conclusion is that the impugned notices in W.P.(C) No. 1163 of 2003 and W.P.(C) No. 1258 of 2003 are also not sustainable being barred by time. In view of the conclusions reached hereinabove, which by themselves are determinative of the invalidity of the impugned notices, any dilation on the rival contentions bearing on the change of opinion of the concerned authority is unwarranted. The upshot of the above narration is that the impugned notices being illegal and without jurisdiction are quashed. The petitions succeed and are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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