(2012) 234 KLR 911 IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE. P.S.GOPINATHAN MONDAY, THE 19TH DAY OF DECEMBER 2011/28THAGRAHAYANA 1933 ITA.No. 188 of 2010 ( ) ----------------------- AGAINST ORDER IN ITA.460/2006 DATED 11/08/2009 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT(S)/RESPONDENT/ASSESSEE ---------------------- THE COCHIN MALABAR ESTATES AND INDUSTRIES LIMITED, NO.39/4946 A GROUND FLOOR, NGO UNION OFFICE BUILDING, PALLIMUKKU, COCHIN 682 016. BY ADV. SRI.A.KUMAR RESPONDENT(S): -------------- UNION OF INDIA, REPRESENTED BY THE SECRETARY TO GOVERNMENT, MINISTRY OF FINANCE NEW DELHI. R, BY SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) R, BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 19-12-2011, ALONG WITH WPC. 31174/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA NO.188/2010 APPENDIX APPELLANT'S EXHIBITS
//TRUE COPY// PA TO JUDGE. jg C.R. C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... I.T.A. No.188 of 2010 & WP(C) No.31174 of 2011 .................................................................... Dated this the 19th day of December, 2011. Head Note:- Agricultural Income Tax Act - Circular No.5/2003 dated 22/05/2003 - Exemption from central income tax assessment - the assessee's case is covered by the circular and the assessee cannot be called upon to pay tax again under the Central Income Tax Act on that part of the income assessed under Rule 7 over which also tax was paid under AIT Act. Income Tax (Second Amendment) Rules, 2001 - Rule 7A - From the assessment year 2002-03 onwards, income from centrifuged latex could be assessed under Rule 7A of the Rules. J U D G M E N T Ramachandran Nair, J. The appellant-assessee is a plantation company engaged in rubber cultivation. Crop obtained from rubber trees in the form of latex is converted in the factory in to 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 assessment year 1996-97 also, the assessee returned 100% of income from their plantation obtained on sale after conversion of field latex into centrifuged latex for assessment under the Kerala Agricultural Income Tax Act and no part was offered for assessment under the Central Income Tax 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 Income Tax Act, the return was processed under Section 143(1)(a) and intimation was issued to the assessee. However, thereafter the Assessing Officer took up the assessment as a scrutiny under Section 143(3) and assessed part of the income obtained from assessee's plantation on sale of centrifuged latex by applying Rule 7 of the Income Tax 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 (Appeals) cancelling the assessment. However, on Revenue's appeal, the Tribunal vacated the CIT (Appeals)'s order that was in favour of the assessee and restored the assessment under Rule 7 of the Rules. As a result of the confirmation of assessment on part of the income from centrifuged latex under the Central Income Tax 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 Income Tax Act. Since the assessment under the Agricultural Income Tax Act has become final and since there is demand of tax both under the Central Act and under the Kerala Agricultural Income Tax Act, the assessee has filed Writ Petition under Article 226 of the Constitution of India for avoiding double assessment of the same income both under the Central and the State Acts. 2. 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. 3. 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 Rule 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 therefrom for assessment under the Agricultural Income Tax Act treating the same as 100% agricultural income. The Central Income Tax 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, Rule 7A was introduced to the Rules specifically declaring 35% 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 with effect from 01/04/2002. Rule 7A is extracted hereunder for easy reference:- "7A : (1) Income centrifuged latex orderived or from cenex latex the based sale of 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 clause (31) of section 10, is not includible in the total income." 4. It may be noticed that Rule 7A is not given any retrospective effect. However, it so happened that even during the period Rule 7A was in contemplation, some of the Assessing Officers started assessing part of the income from sale of centrifuged latex under the Central Income Tax Act by applying Rule 7. Further, after the introduction of Rule 7A, assessments already completed in the case of some assessees were reopened and revised by the Assessing Officers under Section 147 of the Income Tax Act and by the Commissioners of Income Tax under Section 263 of the Income Tax Act. When this came to the notice of the Central Board of Direct Taxes, the Central Board issued circular No.5 of 2003 dated 22/05/2003 prohibiting reopening of assessment under Section 147 as well as under Section 263 of the Income Tax Act for any assessment year prior to the assessment year 2002-03, if the assessees have returned 100% of the income from centrifuged latex and paid agricultural income tax for such income. By virtue of this circular the Income Tax Department is prevented from making any revision of assessment brining 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% of such income. 5. The assessment and demand in this case is for the assessment year 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 Section 147 or under Section 263 of the Income Tax Act. However, in this case, it so happened that the Assessing Officer after issuing notification under Section 143(2) took up the assessment as a scrutiny assessment and completed the same under Section 143(3) of the Income Tax Act. The assessee's case is that going by the spirit of circular No.5/2003 dated 22/05/2003 assessee should have been granted exemption from central income tax assessment, no matter the assessment is not one revised under Section 147 or under Section 263 but a scrutiny assessment under Section 143(3) of the Act. 6. 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 Income Tax Act for any period prior to the assessment year 2002-03. According to the learned counsel, it makes no difference whether the assessment is made by the Central Income Tax Department by way of reassessment under Section 147 or based on orders under Section 263 or whether it be a regular assessment under Section 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 Section 147 or Section 263 of the Income Tax Act that too based on Rule 7A of the Rules, nothing prohibits the Assessing Officer for making regular assessment under Section 143(3) for brining to tax part of the income from sale of centrifuged latex as business income by applying Rule 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 Rule 7A, if Rule 7 was sufficient to make assessment of part of income from centrifuged latex as business income, he contended that Rule 7A is only clarificatory in nature and its objective is to prevent litigation by fixing and apportioning 35% of the income from sale of items referred to therein towards business income and balance 65% as agricultural income. 7. 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% of the income from centrifuged latex. Wherever assessments were completed in time by the Central Income Tax Department excluding assessment of any part of income from centrifuged latex as business income, they are prohibited from revising the assessments under Section 147 or Section 263 for bringing to tax such income by virtue of the circular. However, in cases where the Assessing Officers delayed assessments under the Central Act, they are free to make regular assessment under Section 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 Assessing Officers, assessments and demand could be made for any assessment year prior to 2002-03 whereas for assessments completed promptly upto the assessment year 2002-03 the Department is not entitled to make revision of assessment under Section 147 or Section 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% of the income from centrifuged latex to the State Agricultural Authorities because AIT 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% of the income from centrifuged latex, will not be reassessed under the Central Act for any year prior to the assessment year 2002-03. This circular in our view applies to a category of assessees who have paid tax on 100% of the income from centrifuged latex to the Agricultural Income Tax Department, and so much so, in our view, even regular assessment under Section 143 is not permissible, if the AIT assessment on 100% 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 Income Tax Act up to assessment year 2002-03, if 100% of the income from centrifuged latex is returned by the assessee and assessed under the Agricultural Income Tax 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 Income Tax Act on that part of the income assessed under Rule 7 over which also tax was paid under AIT Act. 8. We are of the further view that Rule 7 is not authorised to be applied after the introduction of Rule 7A and for the periods prior to the assessment year 2002-03, if Rule 7 was sufficient to make assessment of part of business income from centrifuged rubber, we see no reason why Rule 7A was introduced to the Rules along with Rule 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 Rule 7A should be deemed to have come into force only when Rule 7A was introduced i.e. with effect from 01/04/2002. 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 (Appeals) in regard to assessment of income from centrifuged latex. However, from the assessment year 2002-03 onwards, income from centrifuged latex could be assessed under Rule 7A of the Rules. (C.N.RAMACHANDRAN NAIR, JUDGE) (P.S.GOPINATHAN, JUDGE) jg |
I.T.A. No. 188 of 2010 - Cochin Malabar Estates and Industries Ltd. Vs. Union of India, (2012) 234 KLR 911posted Mar 16, 2012, 7:53 AM by Kesav Das [ updated Mar 16, 2012, 7:58 AM ] |
