Cochin Plantations Ltd. vs Inspecting Assistant Commissioner of Agricultural Income Tax and Sales Tax

T.L. Vishwanatha Iyer, J.—The petitioner, a public limited company, owning agricultural lands, was assessed to tax under the Agricultural Income Tax Act, 1950 (Kerala) (hereinafter referred to as "the 1950 Act"), for the assessment year 1986-87, corresponding to the accounting year May 1, 1984, to April 50, 1985. This order of assessment, exhibit P-3, made by the Inspecting Assistant Commissioner of Agricultural Income Tax, Kollam, is dated April 23, 1986, and determined the accumulated loss to be carried forward to the next year at Rs. 4,44,200 after setting off the loss carried forward from the previous year, namely, Rs. 7,77,200, against the income of Rs. 3,33,000 for the current year. The order was rectified on June 5, 1986, by another order, exhibit P-4, refixing the loss to be carried forward at Rs. 2,28,060. The order, exhibit P-4, was not challenged and became final.

Long thereafter, the petitioner was served with a notice, exhibit P-4, dated March 24, 1992, from the Inspecting Assistant Commissioner (Agricultural Income Tax and Sales tax), Kottayam (referred to hereinafter as "the Kottayam officer") u/s 35 of the 1950 Act, read with Section 99 of the Kerala Agricultural Income Tax Act, 1991 (15 of 1991) (which replaced the 1950 Act with effect from April 1, 1991) (hereinafter referred to as "the 1991 Act"), intimating the petitioner that its agricultural income for the year 1986-87 has either escaped assessment or been the subject of excessive relief and, therefore, calling upon the petitioner to deliver a return of its income assessable for the said year "not later than March 30, 1992". The notice was served on March 24, itself. The petitioner objected to the reopening of the assessment by its reply, exhibit P-6, but the objections were overruled and a fresh assessment was completed on March 31, 1992, determining an income of Rs. 5,49,142 as taxable for the year (as against the loss of Rs. 2,28,060 fixed under exhibits P-3 and P-4) and demanding an amount of Rs. 3,29,484 as tax payable for the year. A true copy of this assessment is exhibit P-7 and that is under challenge in this writ petition filed under Article 226 of the Constitution.

The reassessment under exhibit P-7 is challenged on various grounds. I shall deal with them seriatim, but before proceeding to do so, I may mention that the 1950 Act was repealed and replaced by the 1991 Act with effect from April 1, 1991. There is no case for the petitioner that the proceedings initiated by the notice, exhibit P-5, and culminating in the order of assessment, exhibit P-7, are incompetent because of the repeal and the re-enactment in the meanwhile.

The first point raised is one of jurisdiction. According to the petitioner, its files had been transferred from Kollam to the Inspecting Assistant Commissioner at Ernakulam (the Ernakulam officer) and, therefore, the Kottayam officer had no jurisdiction to take any proceedings for reassessment as he had no seisin of the case. The petitioner refers to some letters, exhibits P-8 to P-10, received by it from the Ernakulam officer in support of this plea. But it has been pointed out in the counter affidavit of the respondents that the Kottayam officer was having jurisdiction in the matter since October 1, 1991, by virtue of the proceedings of the Board of Revenue of even date and that the transfer to Ernakulam will take effect only after completion of the assessments which will get time-barred on March 31, 1992. That is the position here. There is therefore no substance in the plea of want of jurisdiction in the Kottayam officer.

The next point is one of limitation, but I do not find any substance in this submission as well. The reassessment, exhibit P-7, was completed on March 31, 1992, after the proceedings were initiated by service of the notice u/s 35 of the 1950 Act on March 24. The assessment year concerned is 1986-87 (i.e., year ending March 31, 1987), corresponding to the petitioner''s accounting year ending April 30, 1985. Sub-section (1) of Section 35 of the 1950 Act enables initiation of proceedings for assessment of income which has escaped assessment for any financial year by service of a notice on the assessee at any time within five years of the end of that year. Sub-section (2) says that no order of reassessment shall be made after the expiry of five years from the end of the year in which the agricultural income was first assessable ; and the proviso thereto lays down that once the notice is issued within the time so limited, the reassessment may be made within another period of one year from the date of service of the notice. Section 41 is the corresponding provision in the 1991 Act. It provides for a longer period of ten years for reopening an assessment though Sub-section (2) thereof limits the period to five years unless the Commissioner of Agricultural Income Tax is satisfied on the reasons recorded by the Agricultural Income Tax Officer that it is a fit case for issue of notice to reopen the assessment. According to the petitioner, the Commissioner has not recorded his satisfaction in this case and, therefore, going even by the terms of Section 41 of the 1991 Act, the reassessment is barred.

The proceedings have been initiated by the notice, exhibit P-5, issued u/s 35 of the 1950 Act. Though the petitioner has a contention that Section 35 is inapplicable after the repeal of the 1950 Act and that the proceedings could, if at all, be only u/s 41 of the 1991 Act, I am unable to uphold it in the light of the provisions contained in Section 99(3) of the latter Act, reserving power, inter alia, to initiate proceedings for assessment of escaped agricultural income under the repealed enactment. Even otherwise, I do not find anything in substance in this contention apart from the technicality of it, as the initiation of the proceedings by exhibit P-5 is well within the time-limit, whether it is u/s 35 of the 1950 Act or Section 41 of the 1991 Act.

The period of time fixed for service of the notice contemplated by Sub-section (1) of Section 35 of the 1950 Act or Sub-section (2) of Section 41 of the 1991 Act is five years from the end of the financial year in which the income has escaped assessment. Section 2(j) of the 1950 Act defines "financial year" as the year beginning on the first April and ending on the 31st March next following. Section 3 of this Act provides for the levy of agricultural Income Tax for each financial year in accordance with and subject to the provisions of the Act. The financial year under this Act is the assessment year as is commonly known, though that term is not as such defined or used in the Act. The 1991 Act does not define a "financial year" but contains a definition of "assessment year" in its Section 2(9) as the period of twelve months commencing on the first day of April every year. The charge to tax u/s 3 is for each assessment year on the total agricultural income of the previous year. Section 41, however, uses the word "financial year". Evidently the expression "financial year" in Section 41 means only the assessment year as the tax is levied in each assessment year and the escape from assessment could only be with reference to that year.

The period of five years is thus liable to be reckoned under either of the enactments only from the end of the assessment year concerned, which in this case is 1986-87, i.e., the year ending March 31, 1987. The period of five years thus expired only on March 31, 1992, and therefore, the order, exhibit P-7, passed on that day is within time. This contention is, therefore, overruled.

The plea which is substantial and which has got to be accepted is the next one raised by the petitioner, namely, that the notice, exhibit P-5, which forms the foundation of the reassessment proceedings, was invalid, null and void as it did not comply with the requirements of Section 35(1) of the 1950 Act or Section 41(1) of the 1991 Act. These provisions which enable the Agricultural Income Tax Officer to reopen an assessment prescribe that the officer shall serve on the assessee, within the time specified, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 17 or Sub-section (2) of Section 35 of the respective Acts. One of these requirements is the grant of a minimum of thirty days'' time to furnish a return in the prescribed form containing the requisite particulars. The grant of thirty days'' time to furnish the return is imperative and the direction to furnish the return within any lesser period invalidates the notice and all the proceedings taken pursuant thereto. The notice, exhibit P-5, served on the petitioner on March 24, 1992, called upon him to furnish the return not later than March 30, 1992. It is, therefore, pointed out that it was insufficient to sustain the reopening of the assessment.

In my opinion, the position of law as set forth by the petitioner admits of no doubt, but it is useful occasionally to recapitulate the law, lest the basics are overlooked as has evidently happened in this case.

The provisions concerned correspond to Section 34 of the Indian Income Tax Act, 1922, which has been the subject of consideration in a number of decisions. In Y. Narayana Chetty and Another Vs. The Income Tax Officer, Nellore and Others, , the Supreme Court held that the service of a valid notice as required by the section constitutes the very foundation of the jurisdiction of the Income Tax Officer to reopen an assessment and, therefore, failure to serve such notice or any invalidity in the notice will render the proceedings illegal and void. Gajendragadkar J., observed (at page 392) :

"The notice prescribed by Section 34 cannot be regarded as a mere procedural requirement ; it is only if the said notice is served on the assessee as required that the Income Tax Officer would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid then the validity of the proceedings taken by the Income Tax Officer without a notice or in pursuance of an invalid notice would be illegal and void. That is the view taken by the Bombay and Calcutta High Courts in Commissioner of Income Tax, Bombay City I Vs. Ramsukh Motilal, Bombay, and R.K. Das and Co. Vs. Commissioner of Income Tax, West Bengal, . We think that that view is right."

Y. Narayana Chetty and Another Vs. The Income Tax Officer, Nellore and Others, , was a case of non-issue of notice to the assessee u/s 34 but the case of Commissioner of Income Tax, Bombay City I Vs. Ramsukh Motilal, Bombay, , approved therein, was one in which precisely the same question, as in this case, arose for consideration. The time allowed for filing the return in the notice u/s 34 was less than the period of thirty days prescribed in Section 22(2) which corresponds to Section 17(2) of the 1950 Act and Section 35(2) of the 1991 Act. Chagla C. J., speaking for the court, declared the law as under (at page 59) :

"Each of the three requirements mentioned in Section 22(2) is qualified by the Legislature providing that the notice must give time to the assessee to comply with that requirement within a period which cannot be shorter than 30 days. The requirement is not merely to make a return or to verify or to give particulars. The requirement is in each case that the return must be made, the verification must be made, or the particulars must be given, within a period of not less than 30 days. Therefore, it is clear that if a notice u/s 34 embodies any of the requirements u/s 22(2), it must at the same time permit the assessee to comply with that requirement within a period which is not less than 30 days. If the period is shorter than 30 days, then the requirement is not the requirement as set out in Section 22(2). In this case, the notice gave only six days to the assessee to make a return u/s 34. Therefore the requirement was different from the requirement u/s 22(2) and the notice was clearly bad."

In COMMISSIONER OF AGRICULTURAL Income Tax, KERALA Vs. AMALGAMATED COFFEE ESTATES LTD., , a notice u/s 35 of the Madras Plantations Agricultural Income Tax Act, 1955, which did not give thirty days'' time to give particulars was held defective and the reassessment made pursuant thereto, illegal and void. T.A. George Vs. Agricultural Income Tax Officer and Another, was a similar case where a notice granting a lesser time to file return u/s 35 of the 1950 Act was held invalid (see also Commissioner of Income Tax, Gujarat II Vs. Nanalal Tribhovandas and Another, . It is unnecessary to multiply authorities. The law remains well settled, that (a) the service of a notice u/s 35 of the 1950 Act corresponding to Section 41 of the 1991 Act is a condition precedent for the validity of the proceedings to reopen an assessment ; (b) the notice so issued should be a valid notice ; (c) the notice is not valid if is allows only a period of less than thirty days to file the return.

I shall now turn to the facts of this case. The notice, exhibit P-5, which was served on the petitioner on March 24, 1992, gave it only six days time to file the return on March 30, 1992. Therefore, it is clearly invalid and not sufficient to sustain the proceedings u/s 35. The order, exhibit P-7, is, therefore, unsustainable in law.

The original petition is, therefore, allowed. The notice, exhibit P-5, and the order of assessment, exhibit P-7, are quashed.