AI Structured Summary
Not yet generated for this judgment
Judgment
C.N. Ramachandran Nair, J.—The appellant-assesses is a plantation company engaged in rubber cultivation. Crop obtained from rubber trees in the form of latex is converted in the factory into centrifuged latex, and the sale of the same by the assessee is as a value added agricultural product. Besides field latex generated from assessee''s own plantation, the assessee is also buying latex from small planters, convert into centrifuged latex and sell the same. Following the practice for several years, for the asst. yr. 1996-97 also, the assessee returned 100 per cent of income from their plantation obtained on sale after conversion of field latex into centrifuged latex for assessment under the Kerala Agricultural IT Act and no part was offered for assessment under the Central IT Act. So far as the payment of agricultural income tax is concerned, assessment was completed based on the income returned and the order has become final. Even though no income from sale of centrifuged latex obtained by conversion of field latex from assessee''s own plantation was returned for assessment under the IT Act, the return was processed under s. 143(1)(a) and intimation was issued to the assessee. However, thereafter the AO took up the assessment as a scrutiny under s. 143(3) and assessed part of the income obtained from assessee''s plantation on sale of centrifuged latex by applying r. 7 of the IT Rules (hereinafter referred to as the Rules for short), which provides for assessment of income obtained partly in the form of agricultural income and partly in the form of business income. The assessee challenged the assessment in appeal, which was allowed by the CIT(A) cancelling the assessment. However, on Revenue''s appeal, the Tribunal vacated the CIT(A)''s order that was in favour of the assessee and restored the assessment under r. 7 of the Rules. As a result of the confirmation of assessment on part of the income from centrifuged latex under the Central IT Act by the Tribunal, the assessee has suffered double assessment of same income both under the Central Act as well as under the Kerala Agricultural IT Act. Since the assessment under the Agricultural IT Act has become final and since there is demand of tax both under the Central Act and under the Kerala Agricultural IT Act, the assessee has filed writ petition under Art. 226 of the Constitution of India for avoiding double assessment of the same income both under the Central and the State Acts. At the request of the assessee, the writ petition filed was ordered to be posted along with the income tax appeal and we have heard both the cases together. We have heard learned counsel for the assessee, learned senior standing counsel for the Revenue and also learned Government Pleader for the State.
Before proceeding to consider the grounds raised and the relief sought by the assessee in the income tax appeal as well as in the writ petition, we have to consider the development of the law on the subject. Even though r. 7 of the Rules, which provides for assessment of income obtained partly as agricultural income and partly as business, was in force from 1962 onwards, the rubber plantation companies in the State engaged in conversion and sale of centrifuged latex were returning entire income there from for assessment under the Agricultural IT Act treating the same as 100 per cent agricultural income. The Central IT Department never raised any claim for assessment of part of the income from sale of centrifuged latex as "business income" for several decades. For the first time, r. 7A was introduced to the Rules specifically declaring 35 per cent of the income from sale of processed rubber in the form of intermediary products like centrifuged latex as business income by the income tax (Second Amendment) Rules, 2001 w.e.f. 1st April, 2002. Rule 7A is extracted hereunder for easy reference:
7A : (1) income derived from the sale of centrifuged latex or cenex or latex based crepes (such as pale latex crepe) or brown crepes (such as estate brown crepe, remilled crepe, smoked blanket crepe or flat bark crepe) or technically specified block rubbers manufactured or processed from field latex or coagulum obtained from rubber plants grown by the seller in India shall be computed as if it were income derived from business, and thirty-five per cent of such income shall be deemed to be income liable to tax.
(2) In computing such income, an allowance shall be made in respect of the cost of planting rubber plants in replacement of plants that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of cl. (31) of s. 10, is not includible in the total income.
It may be noticed that r. 7A is not given any retrospective effect.
However, it so happened that even during the period r. 7A was in contemplation, some of the AOs started assessing part of the income from sale of centrifuged latex under the Central IT Act by applying r. 7. Further, after the introduction of r. 7A, assessments already completed in the case of some assessees were reopened and revised by the AOs under s. 147 of the IT Act and by the CIT under s. 263 of the IT Act. When this came to the notice of the CBDT, the Central Board issued Circular No. 5 of 2003 dt. 22nd May, 2003 [(2003) 182 CTR (St) 1] prohibiting reopening of assessment under s. 147 as well as under s. 263 of the IT Act for any assessment year prior to the asst. yr. 2002-03, if the assessees have returned 100 per cent of the income from centrifuged latex and paid agricultural income tax for such income. By virtue of this circular the IT Department is prevented from making any revision of assessment bringing to tax any part of income on the sale of centrifuged latex during the assessment years prior to 2002-03 as business income, and the only condition is that the assessee should have paid agricultural income tax for 100 per cent of such income.
The assessment and demand in this case is for the asst. yr. 1996-97 and by virtue of the notification, the assessee would have got exemption from income tax assessment if such assessment was made through proceedings under s. 147 or under s. 263 of the IT Act. However, in this case, it so happened that the AO after issuing notification under s. 143(2) took up the assessment as a scrutiny assessment and completed the same under s. 143(3) of the IT Act. The assessee''s case is that going by the spirit of Circular No. 5 of 2003 dt. 22nd May, 2003 assessee should have been granted exemption from central income tax assessment, no matter the assessment is not one revised under s. 147 or under s. 263 but a scrutiny assessment under s. 143(3) of the Act.
Before us learned counsel for the assessee submitted that the circular should be understood to mean exemption from central income tax on part of the business income from centrifuged latex to all assessees assessable under the Agricultural IT Act for any period prior to the asst. yr. 2002-03. According to the learned counsel, it makes no difference whether the assessment is made by the Central IT Department by way of reassessment under s. 147 or based on orders under s. 263 or whether it be a regular assessment under s. 143(3) of the Act. Learned standing counsel for the Revenue on the other hand contended that the circular cannot be stretched beyond what is stated therein and when prohibition is only against revision of assessment under s. 147 or s. 263 of the IT Act that too based on r. 7A of the Rules, nothing prohibits the AO for making regular assessment under s. 143(3) for bringing to tax part of the income from sale of centrifuged latex as business income by applying r. 7 of the Rules. To our specific request to the learned senior standing counsel for the Revenue as to what was the need to introduce r. 7A, if r. 7 was sufficient to make assessment of part of income from centrifuged latex as business income, he contended that r. 7A is only clarificatory in nature and its objective is to prevent litigation by fixing and apportioning 35 per cent of the income from sale of items referred to therein towards business income and balance 65 per cent as agricultural income.
After hearing both sides, we are of the view that if the circular is applied in the manner stated by the Revenue''s counsel, consequence will be discrimination between the same class of assessees who have paid agricultural income tax on 100 per cent of the income from centrifuged latex. Wherever assessments were completed in time by the Central IT Department excluding assessment of any part of income from centrifuged latex as business income, they are prohibited from revising the assessments under s. 147 or s. 263 for bringing to tax such income by virtue of the circular. However, in cases where the AOs delayed assessments under the Central Act, they are free to make regular assessment under s. 143(3) of the Act on part of the business income from sale of centrifuged latex. In other words, in case of delay in completion of regular assessment by the AOs, assessments and demand could be made for any assessment year prior to 2002-03 whereas for assessments completed promptly upto the asst. yr. 2002-03 the Department is not entitled to make revision of assessment under s. 147 or s. 263 of the Act by virtue of the circular above referred. In our view, there is no distinction between the same class of assessees, who have returned and paid tax on 100 per cent of the income from centrifuged latex to the State Agricultural Authorities because agricultural income tax assessments have become final. Further the object of the above circular is to prevent double assessment and demand of tax on the same income from the assessees. The circular makes it very clear that the assessees who have paid agricultural income tax on 100 per cent of the income from centrifuged latex, will not be reassessed under the Central Act for any year prior to the asst. yr. 2002-03. This circular in our view applies to a category of assessees who have paid tax on 100 per cent of the income from centrifuged latex to the Agricultural IT Department, and so much so, in our view, even regular assessment under s. 143 is not permissible, if the agricultural income tax assessment on 100 per cent of income from centrifuged latex has become final. We are therefore of the view that in order to have equal, equitable and even application, the circular should apply to all cases of assessments and reassessments under the Central IT Act upto asst. yr. 2002-03, if 100 per cent of the income from centrifuged latex is returned by the assessee and assessed under the Agricultural IT Act. We, therefore, hold that the assessee''s case is covered by the circular and the assessee cannot be called upon to pay tax again under the Central IT Act on that part of the income assessed under r. 7 over which also tax was paid under Agricultural IT Act. We are of the further view that r. 7 is not authorised to be applied after the introduction of r. 7A and for the periods prior to the asst. yr. 2002-03, if r. 7 was sufficient to make assessment of part of business income from centrifuged rubber, we see no reason why r. 7A was introduced to the Rules along with r. 7B. So much so, in our view, the charging provision of assessment of part of the income from the sale of items of rubber covered by r. 7A should be deemed to have come into force only when r. 7A was introduced i.e. w.e.f. 1st April, 2002.
We, therefore, allow the income tax appeal as well as the writ petition by vacating the orders of the Tribunal and by restoring the order of the CIT(A) in regard to assessment of income from centrifuged latex. However, from the asst. yr. 2002-03 onwards, income from centrifuged latex could be assessed under r. 7A of the Rules.