M/S R MASCARENHAS ASSOCIATES vs. DEPUTY COMMISSIONER OF COMML. TAXES

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

Dated this the 18th day of April, 2016

Before

THE HON’BLE DR JUSTICE VINEET KOTHARI

Writ Petition 20094 / 2016 (T Res) Between M/s R Mascarenhas Associates GIR 182/2010-11 M/s Kolarkhan Estate Sangameshwarapet 577 136 Chikmagalur Taluk & District By partner Renwick Mascarenhas 41 yrs

Petitioner

(By Sri T N Keshava Murthy, Adv.)

And

1 Deputy Commissioner of Comml. Taxes

(AIT & Audit), Near Z P Office

Jyothinagar, Chikmagalur

2 Commissioner of Comml. Taxes

Gandhinagar, Bengaluru

3 State of Karnataka - by its Prl. Secy.

Finance Department, Vidhana Soudha

Bengaluru

Respondents

(By Sri Sreenidhi V, AGA)

Writ Petition is filed under Art.226 of the Constitution of India praying to quash the impugned assessment order bearing GIR No. 182/2010-11 dated 8.3.2016 by the 1st respondent, etc.

The Petition coming on for Preliminary hearing this day, Court made the following:

ORDER

This Writ Petition is directed against the order under S.19(3) read with S.26(4) and 27 of the Karnataka Agricultural Income Tax Act, 1957 passed by the respondent Assessing Authority against the assessee raising a net demand of Rs.2,47,824/- under the impugned order.

2 The case set up by the petitioner in the present writ petition against the order is based on the background of and in pursuance of the order passed by the Karnataka Appellate Tribunal. According to the assessee, he became entitled to certain refunds of excess tax paid for the Assessment Year 2010-11 of Rs.6,20,289/- vide annexure D. The assessee applied for the refund of the said amount for the assessment year 2010-11 and the Assessing Authority in turn, sought the approval of the Joint Commissioner of Commercial Taxes, Malnad Division, Shivamoga. The Assessing Authority, however, invoking

S.26(4) Explanation thereto, held in the impugned order that the following three amounts were received by the assessee on respective dates after the date of dissolution of the assessee firm on 13.1.2010. The receipts of the amounts against the sale of cured coffee were, on 15.6.2010 (Rs.4,50,000/-); on 10.12.2010 (Rs.16,65,720/-) and 18.12.2010 (Rs.6,55,740). The Assessing Authority imposed agricultural income tax under the Act, 1957 on the said receipts after the date of dissolution on 13.1.2010 in the impugned order of denying the aforesaid refund to the assessee and on the other hand, demanded the net amount of tax of Rs.2,47,824/- by the impugned order.

3 Learned counsel for the assessee Mr T N Keshava Murthy submitted that the receipts of income on the aforesaid three dates after the date of dissolution of lfirm could not have been taxed by the Assessing Authority in the Assessment Year 2010-11 and the Assessing Authority had no jurisdiction to pass the impugned order with the oblique motive of denying the refund of the income tax as

held by the earlier order – annexure D dated 10.9.2015. He therefore, submitted that the impugned order deserves to be quashed by this Court exercising writ jurisdiction under Art.226 of the Constitution of India.

4 On the other hand, learned counsel for the Revenue raised the objection of availability of an effective alternate remedy available to the petitioner assessee against the impugned order under S.32 of the said Act of 1957 which statutory position is not disputed by the learned counsel for petitioner.

5 Learned counsel for the Revenue also relied upon the decision of the Hon’ble Supreme Court in the case of Assistant Commissioner of Income Tax Vs Netley ‘B’ Estate & Ors. rendered in Civil Appeal 8617-8635/2003 on 17.3.2015 wherein relying on various other case laws and interpreting S.26 of the Act, the Supreme Court held that the Legislature in the present case has undone the effect of the judgment of the Division Bench of this Court in the case of Cardoza’s case and by a deeming legal fiction,

with effect from 1.4.1975, the Legislature has provided that the dissolved firm shall be deemed to have continued in existence for the purpose of levy and collection of agricultural income tax, in so far as the receipts of income post dissolution but relating to transactions pre- dissolution shall be taxed in the hands of the firm itself.

6 The effect of Explanation of S.26(4) which is quoted below for ready reference, on the present case raises certain questions of facts which cannot be determined in the extraordinary writ jurisdiction under Art.226 of the Constitution. Section 26(4) with its Explanation, which deals with the cases of assessment in the case of a discontinued company or firm or association or a dissolved firm, reads as under: S.26(4): Where any business through which agricultural income is received by a company, firm or association of persons is discontinued or any such firm of association is dissolved in any year, any sum received after the discontinuance or dissolution shall be deemed to be income of the

recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance or dissolution.

Explanation:

For the removal of doubts, it is hereby declared that where before the discontinuance of such business or dissolution of a firm or association hitherto assessed as a firm or association, or as the case may be, on the company, the crop is harvested and disposed of, but full payment has not been received for such crop, or the crop is harvested and not disposed of, the income from such crop shall, notwithstanding the discontinuance or dissolution be deemed to be the income of the company, firm or association for the year or years in which it is received or receivable and the firm or association shall be deemed to be in existence, for such year or years and such income shall be assessed as the income of the company, firm or association, according to the method of accounting regularly employed by it immediately before such discontinuance or dissolution.

7 Whether the sums in question which were admittedly received after the date of dissolution of the assessee firm, in the present case on 13.1.2010, pertains to the crops actually harvested or not; whether the same could be assessed in the Assessment Year 2010-11 or not and whether the question of jurisdiction based on the findings on fact can be raised in writ jurisdiction or not, are all mixed questions of fact and law which can definitely be raised by the assessee before the appropriate Appellate Forum under S.32 of the Act.

8 The availability of an alternate remedy by way of an appeal under S.32 of the Act is not disputed by the learned counsel for petitioner but however, he submitted that in view of the question of jurisdiction raised before this Court of the assessability of the said income under S.26(4) Explanation of the said Act in the assessment year 2010- 11, the remedy by way of an appeal is not efficacious and appropriate in the present case.

9 I respectfully disagree with the submission made by learned counsel for petitioner at the Bar.

10 The Explanation on S.26(4) of the Act which enacts a deemed fiction of law of continued existence of a dissolved firm for the limited purpose of assessing a dissolved firm in respect of receipts post dissolution date and the same have been authoritatively interpreted by the Apex Court in Netley’s case (supra). The case in hand requires certain questions of facts to be determined by the appropriate authority as to whether the crop is harvested and disposed of before or after the date of dissolution; whether the full payment has been received on such sale of crops or not or; whether the crop has been harvested and not disposed of and the income from such crops is taxable in the particular assessment year or not.

11 The Assessing Authority, of course, has determined these questions against the assessee, the present petitioner

before this Court. If the assessee feels aggrieved of such assessment, he has an effective alternate remedy available to him under S.32 of the Act for determination of such questions of facts. There is no patent lack of jurisdiction with the Assessing Authority in passing the impugned order, nor the reasons to deny the refund earlier assessed by the Assessing Authority can be said to be the reason to pass the impugned order. The assessee has liberty to file an appeal against the impugned order, even now but if the time to file such an appeal has lapsed by now, the assessee is permitted to file such an appeal even now and if such an appeal is filed within a period of one month from today, the Appellate Authority would decide the same in accordance with law on merits, without raising the objection on the question of limitation. The Appellate Authority is expected to decide the appeal within six months from the date of filing the appeal. All contentions of assessee on merits are left open to be raised before the said appellate authority.

12 With these observations, the writ petitions are disposed of. No costs. Copy of the order be sent to the parties forthwith.

Sd/- Judge