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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 18TH DAY OF NOVEMBER, 2021
PRESENT
THE HON’BLE MRS.JUSTICE S.SUJATHA
AND
THE HON’BLE MR. JUSTICE HANCHATE SANJEEVKUMAR
C.R.P.No.124/2014
BETWEEN :
M/s THE ANAPARAI ESTATES LTD., CHAMUNDI BUILDINGS K.R.S.ROAD, METAGALLI POST MYSORE-570016 REP BY ITS SECRETARY S.HARIHARAN AGED ABOUT 70 YEARS
...PETITIONER
(BY SRI M.THIRUMALESH, ADV.)
AND :
THE STATE OF KARNATAKA REP BY ITS SECRETARY FINANCE DEPARTMENT VIDHANA SOUDHA BANGALORE-560 001
…RESPONDENT
(BY SRI JEEVAN J. NEERALGI, ADV.)
THIS CRP IS FILED UNDER SECTION 55 KARNATAKA AGRICULTURAL INCOME TAX ACT, 1957, AGAINST THE ORDER DATED 22.10.2013 PASSED IN STA NO.1543/2010 ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL, BANGALORE, PARTLY ALLOWING THE APPEAL.
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THIS PETITION COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., MADE THE FOLLOWING:
O R D E R
This revision petition is filed by the petitioner – assessee under Section 55 of the Karnataka Agricultural Income Tax Act, 1957 ['Act' for short] assailing the order passed by the Karnataka Appellate Tribunal at Bengaluru ['Tribunal’ for short] in STA No.1453/2010 relating to the assessment year 2008-09.
The petition was admitted by this Court to consider the following questions of law: “1. Whether on the facts and in the circumstances of the case, the Tribunal is justified in upholding the addition made by the Assessing Officer, to the Agricultural Income computed by the Central Officer under Rule 7-B of the Central Rules?
Whether the language used in section 8 of the K.A.I.T. Act gives the Assessing Officer power to disturb the computation of Agricultural Income made by the Central Officer as per Rule 7-B of the Central Rules, and whether
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or not the Assessing Officer is bound to accept the computation of Agricultural Income as made by the Central Officer under the Central Income Tax Act, as laid down by the Supreme Court in 69 ITR 667, 248 ITR 567 and 304 ITR 1 and by our High Court in the case of M/s.Balanoor Plantation and Industries Limited in Writ Petition Nos.4320 to 4322/2009?
Whether on the facts and in the circumstances of the case the re-computation of the Agricultural Income under Section 8 of the K.A.I.T Act, by the Assessing Officer, is illegal and without jurisdiction?
Consequently, whether the addition of Rs.22,78,604/- made to the Agricultural Income on the ground of excess claim, by the Assessing Officer is sustainable in law?”
The petitioner is a Public Limited Company and is engaged in the cultivation of coffee, pepper and cardamom as well as non-plantation plants such as Areca nut, Cocoa etc. The income declared by the petitioner company from coffee relating to the
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assessment year under consideration was accepted by the Central Income Tax Officer under the Income Tax Act, 1961 which was apportioned as per Rule 7-B of the Central Income Tax Rules at the ratio of 25%:75% with respect to Central Act and State Act respectively. Accordingly, 75% of the income amounting to Rs.99,88,114/- was offered to tax under Section 8 of the State Act. In addition to the coffee income, the petitioner also admitted the income on pepper and cardamom and declared loss of Rs.49,791/-. The Assessing Officer disallowing the excess expenses claimed, re-determined the coffee income. Being aggrieved, the petitioner filed appeal before the Joint Commissioner who partly allowed the appeal. On further appeal before the Tribunal, the appeal has been partly allowed directing Assessing Authority to restrict the disallowance of expenditure under traveling, boarding and lodging 1/4th of the claim and to issue revised demand notice. Being
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aggrieved by the same, the assessee has preferred this petition.
Learned counsel appearing for the petitioner would submit that the language employed in Section 8 of the Act is clear and the powers of the Assessing Authority are limited. The Assessing Authority exercising the powers under the State Act is bound to accept the computation of agricultural income made by the Central Officer under Central Act. There can be only one assessment of income by the Central Officer under the Central Act and the Agricultural Income Tax Officer under the State Act. These vital aspects have been lost sight of, by the Tribunal. Reference was made to Rule 7-B of the Income Tax Rules and Rule 7 of the Agricultural Income Tax Rules [State]. Further, learned counsel placing reliance on the rulings of the High Court of Kerala in the case of Tata Tea Ltd., V/s. Inspecting Assistant Commissioner [SPL.] of
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Agricultural Income-Tax and Another [(2006) 283 ITR 275 (Ker)], argued that the Assessing Officer exercising the power under the State Act has exceeded the jurisdiction. Reliance was placed on the judgment of the Hon'ble Apex Court in the case of Assam Company Ltd., and Another V/s. State of Assam and Others [(2001) 248 ITR 567].
Learned counsel appearing for the Revenue would submit that the Assessing Officer has rightly determined the income disallowing the excess expenditure claimed by the assessee. The Assessing Authority has competency to assess 75% of the income which was not the subject matter of assessment under the provisions of the Central Income Tax Act. The returns filed by the assessee with respect to 25% of the income under the Central Income Tax Act has not been touched upon. As such, the findings of the Tribunal being in conformity with Central Income Tax and State
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Agricultural Rules, read with Section 8 of the Act deserves to be confirmed answering the substantial questions of law in favour of the Revenue.
We have considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.
Section 8 of the Act reads thus:
“8. Assessment of agricultural income in regard to tea [coffee and rubber]. – In the case of cultivation and manufacture of tea, [coffee and rubber] the agricultural income for the purposes of this Act shall be deemed to be that portion of the income from cultivation, manufacture and sale computed under the [Income-tax Act, 1961 (Central act 43 of 1961)] which is excluded from taxation under that Act as being agricultural income, after deducting from the said portion any allowance authorized by this Act in so far as the same has not been allowed in the computation of the income for the purposes of the [Income-tax Act, 1961 (Central Act 43 of 1961).”
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Rule 7-B of the Income Tax Rules [Central] reads thus: “Income from the manufacture of coffee. 7B. [(1) Income derived from the sale of coffee grown and cured by the seller in India shall be computed as if it were income derived from business, and twenty-five per cent of such income shall be deemed to be income liable to tax.
(1A) ……
Explanation: …..
(2) In computing [the incomes referred to in sub-rules (1) and (1A)], an allowance shall be made in respect of the cost of planting coffee 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.]”
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A reading of this provision would make it clear that income derived from the sale of coffee grown and cured by the seller in India shall be computed as if it were income derived from the business to the extent of 25%. Deduction shall be allowable as per Sub-Section [2].
Rule 7 of the Agricultural Income Tax Rules reads thus: “7. Computation of deduction on mixed income. – Where a deduction in respect of any item, admissible under Section 5 or under Rule 5, is a common charge incurred for the purpose of deriving agricultural income assessable under the Act and income chargeable under the Indian Income-tax Act, 1922, the deduction admissible under the Act shall be the actual amount relating to the income derived from agricultural operations and proved by accounts or other conclusive evidence. Where no such accounts or evidence is produced the Agricultural Income-tax Officer shall proceed to assess the income to the best of his judgment.”
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In the case of Assam Company Ltd., and Another supra, the Hon'ble Apex Court while considering the proviso to Rule 5 of the Assam Agricultural Income Tax Rules, 1939 which empowers the state authorities in given cases to refuse to accept the computation of agricultural income made by the Central Officers after examining the books already examined by such Central Officers has held that in terms of Section 49, it does not empower its officer to re-compute the agricultural income already made by the officers under the Central Act. However, the proviso to Rule 5 of the Rules empowers the State Officers for the purpose of ascertaining agricultural income, to call for any papers produced or liable to be produced before the taxing authorities administering the Central Act. Section 50 of the said Act deals with the power of the State Government to make such Rules as are necessary for the purpose of carrying out the purposes of the Act.
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Even examining under the said Section 50, no provision was found which could specifically authorize the State Government to make any such Rules in the nature of the proviso to Rule 5 of the State Rules. Thus, it has been held that the Rule which goes beyond the Act becomes in excess of the power delegated under the Act. The said Rule being made beyond the Rule making power of the state runs counter to the object of the Act. Hence, declared the proviso to Rule 5 to the extent it empowers the State Agricultural Income-tax Authorities, after examining the books already examined by the Central Officers in given cases, to refuse to accept the computation of agricultural income made by the Central Officer and to recompute the agricultural income, is ultra vires the State Act.
In Tata Tea Ltd., supra, the High Court of Kerala has held that the State Officers have no jurisdiction to vary the computation made by the
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Central Officers. If there is any necessity of varying the computation made by the Central Officers due to any omission in applying the various provisions of the Income-tax Act, 1961, or any new facts have to be brought to the knowledge of the Central Officers, the State Officers could bring it to the knowledge of the Central Officers. The State Officers cannot tinker with the computation already made by the Central Officers.
These judgments would not be applicable to the present case since the Assessing Officer has not modified or varied the computation made by the Central Officers. On the other hand, the assessment is made only to the extent of 75% of the total income declared by the assessee. At this juncture, it would be profitable to refer to the relevant paragraph of the assessment order which reads thus: “In the case of the company, there is no any assessment made by the Income Tax authority. It is only the declaration of income by
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the company and no computation of income, as assessed after allowing admissible expenditure by the Central Income Tax authorities, is furnished as contemplated under Rule7-B of Central Income Tax Act read with Section 8 of the KAIT Act, 1957. Further, there is no dispute as regards application of the percentage of apportionment of 25% under Central Income Tax and 75% under KAIT Act. It is only 75% of the income chargeable under Central Income Tax alone is taken into consideration under the Act. Thus the company has not furnished the copy of the computation order as required under 8 of the KAIT Act and also it is 75% of the income computed from cured coffee is adopted for the purpose of assessment under the Act. The income derived is a mixed one and the claim of expenditure is composite in nature. The claim of expenditure is governed by Rule 7 of the KAIT Act 1957. No doubt, the company themselves disallowed expenses which are not for deriving agricultural income. But the total expenses are subjected to scrutiny under Rule 7 of the KAIT Act, 1957. Besides the company has also derived cultivation expenses towards other plantation crops and other non-agricultural activities and clubbed the same along with the expenses
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claimed for the computation of income under Rue 7-B of the Central Income Tax Act, 1961. The Rule 7-B of the Central Income Tax Act applies only to cases where the assessee is exclusively deriving income from cured coffee which is subject to computation by the Central Income Tax Authorities. In the absence of the same, the computation of income under Rule 7 of the KAIT Act 1957 is in order. Hence, the objection is rejected.”
Since only 75% of the income chargeable under the State Income Tax Act alone is considered for assessment under the Act, the arguments of the assessee are misconceived. The First Appellate Authority as well as the Tribunal has extensively examined this aspect. The claim of the assessee that the income transferred by the assessee alone has to be treated as agricultural income and should be assessed to tax is only illogical. The Assessing Officer under the Central Act has not adjudicated upon the return filed, but has simply accepted the return, merely 75% of the
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income apportioned in the return filed under the Income Tax Act has not been disturbed by the Assessing Officer under the Income Tax Act could not be a reason for the Assessing Authority under the State Act not to consider the said 75% for the purpose of assessment under Section 8 of the Act.
For the aforesaid reasons, the questions of law are answered in favour of the Revenue and against the assessee. We find no infirmity or irregularity in the order impugned.
In the result, the petition stands dismissed.
Sd/- JUDGE
Sd/- JUDGE
NC.