Kerala High Court
N. Kurian George And Anr. vs Tahsildar, Kottayam on 16 September, 1993
Equivalent citations: AIR1994KER59, AIR 1994 KERALA 59, 1993 KERLJ(TAX) 627
ORDER T.V. Ramakrishnan, J.
1. A notice issued under Section 15(1) of the Kerala Buildings Tax Act, 1975 (for short "the Act") for rectification of an order of assessment already completed and the notice of demand issued after rectification of the assessment are under challenge in this O, P. filed by the two joint owners of a 4-storey building in Kottayam Town.
2. Admittedly, the building has 4-stories, each having a plinth area of 307 square metres. Construction of the building was completed in October, 1985. According to the petitioners the building was entrusted to a partnership firm called M/s. Nisha Continental for running a hotel on the basis of an unregistered deed fixing a monthly rent of Rs.8,000/-. The firm was one admittedly constituted by the petitioners and their minor children as partners as per a Partnership Deed registered with the Registrar of Firms with Registration No. 2340/85 on 26-7-1985. A hotel is being run in the building in question called Hotel Nisha Continental. The building is seen entrusted to the firm on the basis of a document called agreement of licence entered into between the first petitioner, who is referred to as the owner of building, and Hotel Nisha Continental, a partnership firm represented by its Managing Partner, the second petitioner described as the licensee of the building. The firm is allegedly running a hotel called Hotel Nisha Continental in the building.
3. On completion of the building, petitioner No. 1 submitted Ext. P 1 return in Form No. II prescribed under the Kerala Building Tax Act and the Rules. In the return, first petitioner alone was shown as the owner of the building. The date of occupation of the building was shown as 4-11-1985. Capital value of the building was shown as Rs.9,60,000/-. The building was shown as rented and the monthly rent was shown as Rs. 8,000/-. The annual value of the building fixed by the local authority was shown as Rs. 1,06,832/- (proposed). House tax levied by the local authority was indicated as Rs. 12,736.80 (proposed). On receipt of Ext. P 1 return, the respondent got the details verified through the Revenue Inspector. The Revenue Inspector after making local inspection and conducting necessary enquiries submitted his report dated 19-4-1989. In the report the Revenue Inspector reported that the building was constructed on the basis of sanction order obtained on ajoint application submitted by the two petitioners. The land on which the building is put up belongs to the two petitioners jointly. In the return the first petitioner alone was shown as the owner of the building. It was further pointed out by the Revenue Inspector that since the building is seen let out to a firm in which the only partners are the two petitioners and their minor children, it may not be proper and reasonable to fix the capital value on the basis of the rent mentioned in the licence agreement entered into between the petitioner arid his wife as the owner and licensee of the building. Revenue Inspector further reported that there are altogether 12 rooms in the 2nd and 3rd stories of the building which are being used as lodge. The rooms in the lodge portion of the building can be treated as being let out for 20 days in a month. On enquiry, the Revenue Inspector found that the rent received for an ordinary room is Rs. 40/- per day and that for an air-conditioned room the rent actually collected is Rs. 100/- per day. On the basis of the above details, the Revenue Inspector estimated the probable rent which can reasonably be expected for the ground floor at Re. 1/- per sq. ft. and for the 1st floor rooms at Rs. 2/- per sq. ft. Thereafter, an assessment order was passed accepting the capital value of the building shown in the register books kept by the local authority as it was found to be more than the capital value calculated on the basis of the monthly rent of Rs. 8,000/-shown in the return. On that basis a total amount of Rs. 80,582/- was fixed as building tax as per Ext. P2 dated 27-11-1989. Ext. P2(a) demand notice was also issued to the petitioners based upon Ext. P 2 assessment order directing the petitioners to remit the amounts in 4 quarterly instalments. The petitioners have remitted the amount in full as permitted by Ext. P 2(a) demand notice.
4. However, before the last instalment of tax was paid, the petitioners were served with Ext.P3 notice dated 1-8-1990 issued under Section 15(1) of the Act. It was indicated in Ext. P 3 that the original assessment fixing the capital value and tax at Rs. 10,68,320/- and Rs. 80,582/ - respectively is erroneous and the assessment so made is proposed to be rectified fixing the capital value and tax as Rs. 25,29,080/ - and Rs. 2,36,658/ - respectively. The petitioners were informed that a further amount of Rs. 1,56,076/- as the balance tax payable after deducting the tax already paid may have to be paid accordingly. The petitioners were directed to submit their explanation, if any, against the proposal on or before 9-8-1990. On 8-8-1990, the petitioners submitted Ext. P 4 explanation.
5. The file produced by the Government Pleader would indicate that on 9-8-1990, the party was present in person and wanted to know the basis on which the assessment was proposed to be rectified. The file would show that the party was informed that the assessment is proposed to be rectified and finalised on the basis of the probable rent which, the building would fetch instead of the rent shown in the licence deed since the same cannot be accepted as true and genuine in view of the fact that the alleged tenant to whom the building is let out is a firm, in which the two major partners are the owners of the building themselves and the other partners are their minor children. Thereafter the Tahsildar himself conducted an inspection of the building with notice to the party and the Revenue Inspector. According to the petitioners nothing was heard thereafter till Ext. P 5 demand notice was served on them. On receipt of Ext. P 5 notice the petitioners have filed this O.P. and obtained an order for a stay of collection of the enhanced tax.
6. Respondent has filed a detailed counter affidavit stating therein the circumstances under which Ext. P 3 notice was issued. Thus it was stated that after the issue of Ext. P 2 order and P 2(a) demand notice, the Auditors noticed that while finalising the assessment of building tax in respect of the building in question the assessing authority has totally omitted to take note of the report of the Revenue Inspector containing his recommendation to fix the capital value on the basis of estimated gross annual rent of the building as a hotel and lodge. When the remarks of the Auditors was brought to the notice of the assessing authority, it was found that the assessment in question was vitiated by an error apparent from the record in as much as the assessment was finalised obviously overlooking an important report of the Revenue Inspector suggesting a different method for assessing annual value and capital value different from the one adopted by the assessing authority in this case. It was specifically contended that the assessing authority has on a further scrutiny of the assessment file came to a reasonable conclusion that the assessment order already issued is vitiated by an error apparent from the record which required rectification. Accordingly, proceeding under Section 15 of the Act was initiated. In the course of the rectification proceedings a local inspection with notice to the petitioners was also held by the assessing authority before finalising the assessment as proposed in Ext. P 3 notice.
7. As regards the challenge against Ext. P 5 demand, it was pointed out that the petitioners have got effective alternative remedies provided under the Act itself like an appeal under Section 11, reference to District Court under Section 12 and revision before the Government under Section 14 of the Act. The petitioners have not availed of any such remedies. Regarding the scope of the power exercisable under Section 15 of the Act it was contended that it is a very wide power and can legitimately be exercised if the assessing authority is satisfied that there is an error apparent from the record. In the circumstances it was contended that the O.P. is without any merit and is liable to be dismissed. ,
8. Mr. Roy Chacko, counsel for the petitioners, submitted that the assessing authority will have jurisdiction to initiate proceedings under Section 15 of the Act only in cases where a mistake is apparent from the record of the assessment proceedings which requires rectification. It is not a power to make a re-assessment. There is a distinct difference between rectification of an assessment and re-assessment as pointed out in Yousef v. State of Kerala, 1993 (2) Ker LT59. The power conferred under Section 15 is akin to the powers conferred under Section 154 of the Income-tax Act and Section 35 of the Agricultural Income-tax Act. In the guise of rectification of a mistake the assessing authority cannot have a re-assessment of the assessment already completed changing the very basis on which the original assessment was completed. The power cannot be equated to that of an appellate or revisional power. Only a mistake which is obvious, glaring or self evident that can be rectified under Section 15 of the Act. Reliance was placed upon the decisions reported in T. Section Balaram v. Volkart Brothers, Bombay, AIR 1971 SC 2204 and Rajamoni Amma v. Dy. Commissioner, 1990 (2) Ker LT 585. In the instant case, the assessing authority found that the capital value fixed by the local authority in its registers is higher than the capital value determined on the basis of the gross annual rent stated in the return and as such fixed it as the capital value of the building for assessing the tax. It was after taking note of all the relevant materials that the assessing authority has completed the assessment proceedings as per Ext. P 2. There is no error apparent from the records. In the circumstances, issuance of Ext. P 3 is totally without jurisdiction and illegal. As such both Ext. P3 notice and Ext. P5 order are bad in law and are liable to be quashed.
9. Learned Government Pleader, Shri Vijayan Nair has, on the other hand, justified the initiation of the proceedings under Section 15 of the Act and the final assessment order issued under Section 15 (3) of the Act and submitted that the proper remedy of the petitioners is to prosecute their remedies against Ext. P5 order as provided in the Act. It was submitted that recourse to the extraordinary jurisdiction under Article 226 in the circumstances of the case is totally unwarranted and illegal and in the light of the effective alternative remedies available under the Act, the O.P. is liable to be dismissed on that short ground itself.
10. The crucial question arising for consideration is whether the initiation of rectification proceedings under Section 15 of the Act by issuing Ext. P3 notice was justifiable in the facts and circumstances of the case. If it is found to be not justified no further question may arise for consideration and Ext. P5 order may have to be set aside on that ground alone. On the other hand, if it is justifiable as contended by learned Government Pleader, the further question which may have to be considered is whether Ext, P5 is liable to be quashed in these proceedings or whether the petitioners should be relegated to the statutory remedies available under the Act for redressal of their grievances against it.
11. Section 15(1) of the Act is thus:
"Rectification of mistake -- (1) The appellate authority or the revisional authority may, at any time within three years from the date of an order passed by it on appeal or revision, as the case may be, and the assessing authority may, at any time within three years from the dale of any assessment or order passed by it, of its own motion, rectify any mistake apparent from the record of the appeal, revision, assessment or order, as the case may be, and shall, within the like period, rectify any such mistake which has been brought to its notice by an assessee :
Provided that no such rectification shall be made which has the effect of enhancing an assessment or reducing a refund unless the assessee has been given a reasonable opportunity of being heard in the matter."
11A. The basic legal , requirement for exercising the power of rectification under Section 15(1) of the Act is the existence of a 'mistake apparent from the record' in the orders of assessment as the case may be. As such it becomes necessary to find an each case whether the assessing authority was in the particular facts and circumstances of the case justified in coming to a conclusion that there existed a mistake apparent from the record in its order or assessment proceedings. Thus the ultimate question which may arise for consideration is whether in the facts and circumstances of the case, the assessing authority was justified in finding that there existed a mistake apparent from the record of the assessment which required rectification or not? "
12. It is now well settled that the concept of a 'mistake' apparent from the record' is not confined to clerical or arithmetical mistakes but also comprehends errors which after a judicious probe into the record from which it emanates, the discerned. It has been so held in a series of decisions rendered under Section 154 of the Income-tax Act reported in T. Section Rajam v. Controller of Estate Duty, (1968) 69 ITR 342 (Madras), National Rayon Corpn. Ltc. v. G. R. Bahmani, I.T.O., (1965) 56 ITR 114(Bombay), Ved Prakash Madar Lal v. C.I.T., (1976) 102 ITR 213 (Punjab) etc., In Narsepalli Oil Mills v. The State of Mysore, (1973) 32 STC 599 : (1974 Tax LR 1842) the Supreme Court has held that mistake liable to be rectified must be one apparent from the record. A Division Bench of this Court has held in Kil Kotagiri T. & C. Estates Co. Ltd v. Income-tax Appellate Tribunal, 1988 (2) KLT 271 : (1988 Tax LR 1680) that the expression "mistake apparent from the record" has got a wider context that the expression "error apparent on the face of the record" used in Order 47, Rule 1. CPC. In K. M. Shanmugam v. S.R.V.S. (P) Ltd., AIR 1963 SC 1626 it has been observed by the Supreme Court that the concept of "error apparent on the face of the record" in the ultimate analysis is comprised of many imponderables and is not capable of precise definition, as no objective criterion can be laid down, the apparent nature of the error to a large extent being dependent upon the subjective element. Thus, it can generally be said that the mistake apparent must be a mistake to point out which no elaborate argument is required and must be a glaring obvious and self evident one.
13. But as has been held in T. Section Rajam's case, (1968) 69 ITR 342 (Madras) a mere complexity of the problem or that some genuine argument is necessary to discover the same may not be sufficient to oust the juridiction of the taxing authorities to rectify such a mistake. But it is necessary that it should be one which could be discerned with some precision after a judicial probe into the assessment records without long drawn process of reasoning and on which no two reasonable contrary opinions are conceivable (See PadmavatUaykrishnav.C.W.T., (1976) 105 ITR 115 (Guj). These principles laid down by the Supreme Court and the various High Courts are fully applicable to a case coming under Section 15 of the Act also and it has been so applied by this Court in the decisions reported in Yousef v. State of Kerala, 1993 (2) KLT 59, Rajanloni Amma v. Dy. Commissioner, 1990 (2) KLT 585. In Yousef's case the Court has speifically pointed out the distinct difference between re-opening of an assessment and rectification of a mistake in it. Keeping in mind these principles it is necessary to examine whether the assessing authority was justified in taking the view that there existed a mistake apparent from the record in its assessment which required to be rectified in the facts and circumstances of the case.
14. It is clear from the relevant provisions of the Act that building tax chargeable under Section 5 of the Act is to be assessed on the basis of the capital value determined in accordance with the provisions contained in Section 6 of the Act. Capital value of a building as per Section 2(5) of the Act is 10 times the annual value of a building. Annual value of a building is defined in Section 2(a) of the Act as the gross annual rent at which the building may at the time of completion be expected to let from time to time or from year to year. Thus, the capital value of a building is to be assessed based upon its annual value and in fact it is 10 times the annual value calculated in accordance with the provisions of the Act. Sub-section (4) of Section 6 of the Act in detail indicates the factors which should be taken note of while determining the annual value for the purpose of sub-sections (2) and (3) of that Section. Sub-section (1) of Section 6 of the Act provides that for determining the capital value for the purpose of the Act annual value of the building shall be the annual value fixed for that building in the assesment books of the local authority in whose area the building is situate. However, sub-section (2) of that Section empowers the assessing authority to fix the annual value of the building independent of the value fixed in the assessment books of the local authority notwithstanding such entries, in the case the assessing authority is of opinion that the annual value fixed by the local authority is too low. Thus it is clear from the provisions contained in Section 6 of the Act that the assessing authority is entitled in proper cases to reject the annual value fixed by the local authority in its assessment books and to fix the annual value independently after taking note of the factors specified in Sub-section (4) of Section 6 of the Act (See Parameswaran Bharathan v. Tahsildar, 1990 (2) KLT 360 : (AIR 1991 Ker 13).
15. The file produced in this case by the learned Government Pleader would indicate 'that on receipt of Ext. PI return, the concerned Revenue Inspector was directed to varify the correctness of the details shown in the return and submit a report in the matter. Pursuant to such orders, the Revenue Inspector has in fact submitted his detailed report dated 19-4-1988. After receiving such report, the assessment order was actually passed on 9-5-1989. Page 6 of file D.Dis. 13694/86/88 would indicate that the assessing authority has not taken note of the facts and circumstances contained in the report of the Revenue Inspector, dated 19-4-1988. The assessing authority actually proceeded on the basis that really or genuinely the owners of the building has let out the building to the firm in question for a monthly rent of Rs. 8,000/- and the capital value fixed on that basis will come to only Rs. 9,60,000/-, which is less than the annual value fixed by the Municipality in its assessment books, namely, Rs. 10,68,320/-. Further the assessing authority found that the capital value assessed on the basis of the P.W.D. rate will come only to Rs. 9,66,087/-. After comparing these three figures the assessing authority accepted the annual value fixed by the Municipality as the annual value of the building for calculating the capital value and fixed at Rs. 10,68,320/-.
16. The report of the Revenue Inspector dated 19-4-1989 is available at pages 49 to 51. In the report the Revenue Inspector has pointed out the fact that the partnership firm to which the building is seen let out is a partnership firm of which the two major partners are the petitioner themselves. The other partners are all minor children of the petitioners. In this view, the Revenue Inspector has reported that it may not be reasonable or proper to adopt the monthly rent fixed as per the agreement of licence as the basis for calculating the capital value on the assumption that the said fixation of rent is genuine. He was strongly of the view that the capital value of the building should be arrived at independent of the rent mentioned in the licence deed relied upon by the petitioners. The Revenue Inspector has also given an estimate of the expected rent in his report and has estimated the capital value of the building at Rs. 26,28,080/-. Whatever may be the correctness and acceptability of the details shown in the report of the Revenue Inspector, as a matter of fact, the report of the Revenue Inspector was not taken into consideration is clear from the file produced by the learned Government Pleader. A mere perusal of the order passed by the assessing authority on 9-5-1989 would be sufficient to establish that fact. The order is to the following effect:
"On going through the records the following points are to be considered.
(1) "Nisha Continental" is a registered firm which is conducting business in the building. The owners of the building are also parties in the firm. The firm is paying rent @ Rs. 8,000/- p.m. Thus the C.V. of the building will come to Rs. 9,60,000/-.
(2) The building is owned by Sri Kurian George and Smt. Susy Kurian. They have joint ownership. They have also obtained joint sanction from the Municipality for the construction of the building. However, the building has to be considered as a single unit.
(3) The annual value fixed by the Municipality will come to Rs. 1,06,832/-. Thus the C.V. will be Rs. 10,68,320/-.
(4) The C.V. as per PWD rate will come to Rs.9,66,087/-.
Now, the highest C.V. of Rs. 10,68,320/-according to the annual value fixed by the local authority will be the criterion for assessment of B.T."
17. Further the file, No. 88-7785/90, a separate file kept from the beginning of the initiation of the proceeding under Section 15 of the Act would show that during the audit, the Auditors raised objection to the assessment completed and pointed out the mistake committed by the assessing authority in not taking into consideration the facts and circumstances pointed out in the report of the Revenue Inspector dated 19-4-1989 while finalising the assessment proceedings. It is evidently on the basis of the said audit objection, the records of the assessment proceedings were again scrutinised by the assessing authority and proceedings were initiated under Section 15 of the Act after satisfying about the mistake committed in not taking into consideration the relevant details contained in the report of the Revenue Inspector. Further it is evident from the file that the assessing authority has scrutinised only the records forming part of the assessment proceedings to come to the conclusion that there is an error in the order of assessment already issued, which is apparent from the record and which required rectification. No other extraneous material was referred to or relied upon to come to such a conclusion. The error noticed was that a wrong basis was, adopted to determine the capital value of the building as a direct result of the omission to take note of the relevant details of the report of the Revenue Inspector. Being informed of the details of the report of the Revenue Inspector, the assessing authority seems to have come to a conclusion that it is a mistake on its part to have proceeded without taking note of the above details and without considering the genuineness and acceptability of the licence arrangement set up by the assessee to contend that the building was let out for a monthly rent of Rs. 8,000/-. It was on detecting the mistake thus committed in finalising the assessment, Ext. P3 notice under Section 15 of the Act was issued proposing to change the basis adopted for arriving at the capital value of the building. The Revenue Inspector has in detail reported the rent which is estimated to be realised if the building was actually let out for the purpose for which it was used immediately after its construction. In the facts and circumstances of the case, the conclusion reached by the assessing authority that an error apparent exists in the assessment which requires to be rectified cannot in my view be considered as either unreasonable or illegal. As such in this case, the exercise of power under Section 15 of the Act based upon such a reasonable conclusion cannot also be found to be without jurisdiction. In this connection, I find that in a more or less similar case reported in Parameswaran Bharathan v. Tahsildar, 1990(2) Ker LT 360 : (AIR 1991 Ker 13), K. A. Nair, J. has upheld an order of rectification passed under Section 15 of the Act after repelling all contentions raised by the assessees in that case which were, in my view, identically similar to those raised by the petitioners in this case.
18. Learned Counsel for the petitioners has heavily relied upon the decision of this Court reported in Yousef v. State of Kerala, 1993 (2) Ker LT 59, and has submitted that the case on hand is one similar to the one decided in that decision. That was a case where the assessing authority on the direction of the District Collector has issued a notice proposing to reopen the assessment pointing out that certain irregularities and omissions have crept in while finalising the assessment. Thereafter an inspection of the building in question was conducted for collecting necessary details. The correction of the order by way of enhancing the annual value was admittedly done on the basis of the materials thus collected during the inspection conducted. It was in these circumstances this Court has held that the assessing authority in that case has acted totally without jurisdiction and allowed the O.P. In that decision it was also found that the entire proceedings initiated on the basis of the notice issued under Section 15 of the Act were vitiated on account of violation of the principles of natural justice. It was specifically found therein that the mistake alleged to have been discovered was not with reference to the record, but outside it, on further enquiry conducted pursuant to the proceedings initiated by the notice issued under Section 15 of the Act. It was further held that the final order passed on the basis of the notice (Ext. P5) was also bad because of the violation of the principles of natural justice. After finding so, this Court has set aside the final order passed therein repelling the contention raised by the respondent that the petitioner has other alternative remedy. In these circumstances, I do not think that the said decision can be considered as a decision similar to the one on hand. The said decision in my view is distinguishable and cannot be applied to the facts of the present case.
19. When once the assessing authority is satisfied that a mistake apparent from the record exists in the assessment, he is fully justified in exercising the power of rectification under Section 15 of the Act. In the rectification proceeding which is to follow the notice issued under Section 15 of the Act, the assessee is legally entitled to get a fair and reasonable opportunity to substantiate his objection against the proposed action. The assessee is also entitled to get an opportunity to present his case. Further the assessee is entitled to know the basis on which the rectification is proposed to be effected. This Court has in the decisions reported in Yousef v. State of Kerala, 1993 (2) Ker LT 59, and Sainalabdeen Musahar v. State of Kerala, 1990(1) Ker LT 21, stressed the need to comply with the principles of natural justice while finalising the assessment after rectification proceedings. In the case on hand Ext. P3 notice was issued without indicating clearly the reason why the assessment was proposed to be rectified. The file produced by the Government Pleader would indicate that the assessee has specifically requested the authority to inform them the reason for the issue of notice and the basis on which the assessment was proposed to be rectified. There is nothing on record to show that the assessing authority has communicated the exact basis on which the assessment was proposed to be rectified, except a note to the effect that the assessee was orally informed of the basis of the proposal for rectification. Further it is clear that after conducting local inspection the authority has passed the final order without holding any further enquiry, after giving the petitioners a copy of the report and an opportunity to substantiate their objections to the details contained in the report of the Revenue Inspector and the basis on which the assessment was proposed to be rectified. The petitioners have averred that they were not given any opportunity to dispute the correctness of the details reported by the Revenue Inspector and verified by the assessing authority before they were accepted as the basis for rectification of the assessment order already issued. In the circumstances, it has to be held that proceedings which followed the issue of Ext. P3 notice for rectification of the assessment and the order rectifying the same are liable to be quashed. Accordingly, Ext. P5 demand notice issued on the basis of the order passed rectifying the earlier order of assessment cannot also be sustained as violative of the principles of natural justice.
20. As I have quashed Ext. P5 notice of demand and the order rectifying the earlier assessment order on the ground that they are orders passed in violation of the principles of natural justice, it is necessary to direct the assessing authority to restore the proceedings to file and dispose of the same in accordance with law after giving the assessees a further opportunity to adduce evidence and establish their objections to the new basis proposed to be adopted as the basis for finalising the assessment. The petitioners are at liberty to put forward all their objections available in law against the new basis proposed to be adopted for determining the capital value of the building. It is also made clear that I have not gone into the sustainability or otherwise of the assessment order issued after rectification on its merits.
O.P. is allowed to the extent indicated above. No order as to costs.