Kalpetta Estates Ltd. vs Commissioner of Agricultural Income Tax

G. Sivarajan, J.—This referred case, at the instance of the assessee, raises three questions for the decision of this, court. They are :

" (1) Whether, on the facts and in the circumstances of the case, the Commissioner of Agricultural Income Tax was justified in law in directing disallowance of the entire Rs. 2,08,439 provision made for payment of Central sales tax and allowed in the original assessment ?

(2) Alternatively, and in any view of the matter, should not the Commissioner of Agricultural Income Tax hold that the assessee is entitled to deduction of at least Rs. 83,660, the amount paid towards Central sales tax liability, in accord with the notification of the Government, dated March 21, 1979 ?

(3) What is the scope and impact of the Government notification dated March 21, 1979, vis-a-vis the claim of the assessee for deduction for the assessment year 1978-79 as the liability accrued under the Central Sales Tax Act ?"

The assessee is a company. The assessment year concerned is 1978-79. The assessment for the year was originally completed as per the order dated March 8, 1983, passed by the Inspecting Assistant Commissioner (Special), Kottayam, fixing a total agricultural income of Rs. 17,10,815. In the said assessment, the assessing authority allowed deduction of a sum of Rs. 2,08,439 being provision for Central sales tax on inter-State sale of rubber for the years 1970-71 to 1973-74.

The Commissioner of Agricultural Income Tax on perusal of the assessment records for the year 1978-79 found that the State Government as per G. O. (MS) 48/79/TD, dated March 21, 1979, had waived the collection of sales tax due under the Central Sales Tax Act on the inter-State sale of rubber by rubber planters in Kerala for the period prior to June 1, 1978, that the said Government order applied to the assessee so far as the claim is concerned, and that, therefore, the deduction allowed towards provision for Central sales tax liability in the original assessment order is erroneous and prejudicial to the interests of the Department. He, therefore, issued notice dated March 7, 1987, to the assessee-company. The assessee-company filed objections dated March 21, 1987. After considering the objections, the Commissioner of Agricultural Income Tax by order dated August 7, 1988, set aside the assessment for the year 1978-79 and directed the assessing authority to recompute the total agricultural income of the company after disallowing the claim for deduction of a sum of Rs. 2,08,439.

Aggrieved by the said order of the Commissioner of Agricultural Income Tax, the assessee filed an application u/s 60(2) of the Agricultural Income Tax Act seeking for reference of certain questions of law, as arising out of the revisional order dated August 7, 1988. The said application being rejected, the assessee-company filed an application before this court for compelling the Commissioner of Agricultural Income Tax to refer the questions specified in the reference application. This court by judgment dated October 6, 1989, in O. P. No. 4531 of 1989, directed the Commissioner of Agricultural Income Tax to refer the three questions extracted hereinabove for the decision of this court.

Though learned counsel for the assessee sought to raise a question regarding the jurisdiction of the Commissioner of Agricultural Income Tax in passing the order u/s 34 of the Act as beyond a reasonable period, we found on a perusal of the judgment in O. P. No. 4531 of 1989 that this court refused to refer the question of jurisdiction holding that Section 34 of the Act does not provide for any limitation. In view of the specific refusal to refer the said question for the decision of this court, we cannot consider the said question raised by the assessee as a facet of the question referred for the decision of this court.

Now, coming to question No. 1 referred to this court, namely, whether the Commissioner of Agricultural Income Tax was justified in law in directing disallowance of the entire sum of Rs. 2,08,439 being provision made for payment of Central sales tax and allowed in the original assessment, the said question will depend on the applicability of the Government Order G. O. (MS) 48/79/TD, dated March 21, 1979, as per which the Government had waived the collection of sales tax due under the Central Sales Tax Act on the inter-State sale of rubber by rubber planters in Kerala prior to June 1, 1978. It is not disputed before us either by learned counsel for the assessee or by the learned Government Pleader that the said Government order will apply to the case on hand.

The Government order is not on record and, therefore, we are not in a position to know the full contents of the said order. However, we find on a perusal of the judgment in O. P. No. 4531 of 1989 in the compelling reference application that the Government by notification waived the tax payable under the Central Sales Tax Act with the rider that any tax, already paid, will not be refunded.

It is true that an assessee, who is maintaining accounts following the mercantile system of accounting is eligible to make a provision for sales tax payable, even though the tax due has not been quantified and demand notice served by the assessing authority. It has been so held by the Supreme Court in The Kedarnath Jute Mfg. Co. Ltd. Vs. The Commissioner of Income Tax, (Central), Calcutta, . But the assessee will not be entitled to make a provision in its accounts in a case where the liability is non-existent. By virtue of the Government order dated March 21, 1979, the liability to pay Central sales tax on the inter-State sale of rubber by rubber planters for the period prior to June 1, 1978, has ceased and, therefore, the assessee was not liable to pay any sales tax under the Central Sales Tax Act for the period prior to June 1, 1978. It is submitted on behalf of the assessee that the assessee has paid a sum of Rs. 83,660 towards this liability pursuant to the assessment orders for the year 1978-79. It is also an admitted fact that the balance amount of provision has not been demanded or paid later.

In a case where an assessee has made a provision in respect of his liability to tax under a statutory provision and if it is subsequently found that such a liability is non-existent, it is open to the assessing authority to disallow the claim made on this count and assess the said amount of tax. In the instant case, the Government order dated March 21, 1979, was available even at the time when the original assessment was completed. It appears that the assessing authority has not noticed the Government order or the contents thereof. If the Government order was noticed, the assessing authority would not have granted the deduction towards provision for sales tax on the inter-State sale of rubber in the original assessment.

From the above, it is clear that the order passed by the Inspecting Assistant Commissioner is prejudicial to the interests of the Department. It is in such circumstance that the Commissioner of Agricultural Income Tax invoked suo motu jurisdiction u/s 34 of the Act and set right the illegality in the assessment order dated March 8, 1983. The Commissioner of Agricultural Income Tax has complied with the provisions of Section 34 of the Act and there is no grievance to the assessee that the provisions have not been complied with. In such circumstances, we do not find any illegality in the order passed by the Commissioner of Agricultural Income Tax u/s 34 of the Act.

Learned counsel for the assessee alternatively submitted that the company had paid a sum of Rs. 83,660 towards liability to Central sales tax for which provision has been made in the accounts, when coercive proceedings were initiated for recovery of the said amount and that by virtue of the provisions of the Government order dated March 21, 1979, which adds a rider to the effect that any tax already paid will not be refunded the said amount is liable to be deducted. Though learned counsel for the assessee submitted before us that at least this amount must be allowed as a deduction, no material has been placed before us to show that this amount has been paid prior to March 21, 1979, by way of tax and not under any other order. So, we are not in a position to accede to the contention of the assessee that the said sum must be directed to be allowed as a deduction by us. Learned counsel for the assessee also submitted before us that the rider contained in the order dated March 21, 1979, was the subject-matter of challenge before this court and this court by judgment upheld the said contention and directed refund of the said sum of Rs. 83,660 paid by the assessee. But learned counsel for the assessee or the learned Government Pleader was not in a position to place before us the records in support of the said contention. Learned counsel for the assessee also submitted before us that if the sum of Rs. 83,660 already paid towards the demand of Central sales tax on the inter-State sale of rubber in respect of the assessment year has not been refunded pursuant to the said judgment, the assessing authority may be directed to allow the claim to that extent. As already stated, since we are not in a position to enter a finding on this issue, we direct the assessing authority to consider the said claim made by learned counsel for the assessee and if it is found that the said sum of Rs. 83,660 has not been refunded and is not refundable also, the said amount may be deducted in the computation of the agricultural income of the assessee for the year 1978-79.

Accordingly, we answer question No. 1 referred to in the affirmative, of course, subject to the observations contained in this judgment, i.e., against the assessee and in favour of the Department.

In view of the observations and directions regarding the deduction of Rs. 83,660 contained in the judgment, we decline to answer question No. 2 referred for our decision. We also leave open question No. 3 referred to us, as the said question is academic, in view of our answer to questions Nos. 1 and 2.

A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Commissioner of Agricultural Income Tax, Trivandrum, for passing consequential orders.