Bombay High Court
Godavari Sugar Mills Ltd. vs State Of Maharashtra on 17 October, 2003
Equivalent citations: 2004(1)MHLJ761
Author: J.P. Devadhar
Bench: V.C. Daga, J.P. Devadhar
JUDGMENT
J.P. DEVADHAR, J.:
1. These References arise under Section 39 of the Agricultural Income Tax Act, 1962. These References payable by the Applicant is a permissible deduction under Section 8(9) of the Act?
3. Whether in the facts and circumstances of the case the amount paid to the harvesting and carting contractors during the periods 1957-58 to 1960-61 written off as bad debts during the previous year 1964-65 are deductions permitted under Section 8(9) of the Act?
4. Whether in the facts and circumstances of the case, the amount of Rs. 4,73,522/- allocated by the Income Tax Authorities as relating to Agricultural Operation should be allowed as a deduction under the Agricultural Income Tax Act?
5. Whether in the facts and circumstances of the case, the Tribunal was justified in law in refusing to allow the deduction of amounts of Rs. 3,150/- and Rs. 8,925/- in Assessment Years 1965-66 and 1968-69 respectively being the amounts spent as perquisite to the General Manager allocated by the Income Tax Officer as attributable to Agricultural Income?
6. Whether in the facts and circumstances of the case, the loss of Rs. 7,20,890/- arising on compulsory acquisition of Land by State Govt. under Land Ceiling Act being the difference in the book value of the land and compensation receivable under the Act is an admissible expenditure if the payment of compensation is not yet made by the Government"?
SALES TAX APPLICATION NO. 3 OF 1989 PREVIOUS YEAR
1965-66 (AY 1966-67)
"7. Whether in the facts and circumstances of the case, the Agricultural Income Tax paid or payable by the Applicant is a permissible deduction under Section 8(9) of the Act"?
SALES TAX APPLICATION NO. 3 OF 1989 PREVIOUS YEAR
1966-67 (AY 1967-68)
"8. Whether in the facts and circumstances of the case, the Agricultural Income Tax paid or payable by the Applicant is a permissible deduction under Section 8(9) of the Act."?
SALES TAX APPLICATION NO. 3 OF 1989 PREVIOUS YEAR
1967-68 (AY 1968-69)
"9. Whether in the facts and circumstances of the case, the Agricultural Income Tax paid or payable by the Applicant is a permissible deduction under Section 8(9) of the Act."?
10. Whether in the facts and circumstances of the case, the Tribunal was justified in law in refusing to allow the deduction of amounts of Rs. 3,150/- and Rs. 8,925/- in Assessment years 1965-66 and 1968-69 respectively being the amounts spent as perquisite to the General Manager allocated by the Income Tax Officer as attributable to Agricultural Income?
2-3. For the sake of convenience, we refer to the facts pertaining to Sales Tax Application No. 2 of 1989 relevant to the previous year 1964-65 (A.Y. 1965-66).
4. In the relevant previous year, 1964-65, the Applicant (hereinafter referred to as the 'assessee') was partly carrying on agricultural activities of cultivating land and partly carrying on the activities of manufacturing sugar and thus, the assessee was covered under the provisions of Section 9 of the Maharashtra Agricultural Income Tax Act, 1962 ('Act' for short). As the assessee had not filed the returns under Section 22 of the Act, notice under Section 41 of the Act was served on the assessee on 5-9-1973 and the assessment for the previous years 1964-65 was completed by the Agricultural Income Tax Officer ('AITO' for short) under Section 41 of the Act on 29-12-1973. The appeal filed by the assessee against the assessment order was partly allowed by the Appellate Assistant Commissioner vide order dated 30th May, 1986. On further appeal, the Tribunal permitted the assessee to raise a new ground for the first time before it, to the effect that the assessment was barred by limitation. After hearing both the parties, the Tribunal by its Judgment and order dated 18-8-1998 held that the initiation of the assessment proceedings under Section 41 of the Act were not barred by limitation. The Tribunal held that the agricultural income tax paid by the assessee cannot be treated as item of permissible expenditure covered under Section 8(9) of the Act. The Tribunal upheld the disallowance of Rs. 2,396/- written off in the previous year 1964-65 which was claimed to have been paid as advances to the harvesting and carting contractors during the year 1957-58 to 1960-61. The Tribunal held that the amount of donation given for earning the agricultural income cannot be allowed as deduction under Section 8(9) of the Act. The Tribunal held that the amount of Rs. 3,150/- spent as perquisite on the General Manager of the company cannot be allowed. The Tribunal confirmed disallowance of loss of Rs. 7,20,890/- arising out of compulsory acquisition of land by State Government under the Land Ceiling Act (being the difference in the book value of the land and the compensation receivable under the Act.) At the instance of the assessee the Tribunal has referred the above questions for the opinion of this Court.
SALES TAX APPLICATION NO. 2 OF 1989 QUESTION NO. 1
5. Mr. Joshi, learned Counsel appearing on behalf of the assessee submitted that in the present case, the income is assessable under Agricultural Income Tax, 1962 as well as under the Income Tax Act of 1961 under the head "profits and gains of business and/or profession". In such a case if the Agricultural Income Tax officer arrives at a conclusion that the agricultural income has escaped assessment, then under Section 41 of the Act, he is entitled to reopen the assessment at any time within 8 years from the end of that year. According to Mr. Joshi the words "end of that year" in Section 41 of the Act has reference to the previous year and in the present case, for the previous year 1964-65 which ended on 31st March, 1965, notice under Section 41 of the Act could be issued on or before 31st March, 1973. However, notice under Section 41 of the Act was served upon the assessee on 5-9-1973 and hence according to Mr. Joshi, the notice itself is barred by limitation. Mr. Joshi submitted that unlike under the Income Tax Act where the assessment is made with reference to the assessment year, under the Agricultural Income Tax Act, the assessment is made with reference to the previous year and, therefore, the limitation for reopening the assessment commences from the end of the previous year and not from the end of the assessment year. To prove his point, Mr. Joshi referred to Section 4 of the Agricultural Income Tax Act which creates charge on the total agricultural income of the previous year. Similarly, he took us through to Section 22 (return of agricultural income), Section 23 (assessment), Section 25 (change in the Constitution of the firm) and Section 34 (power of revision). In all those sections, reference is to the previous year and not to the assessment year. Therefore, according to Mr. Joshi, it is reasonable to hold that the limitation under Section 41 of the Agricultural Income Tax commences from the end of the previous year and not from the end of the assessment year.
6. According to Mr. Joshi, the Tribunal was in error in relying upon the decision of the Apex Court in the case of First Additional I.T.O. v. H.N.S. Iyengar reported in 44 I.T.R. 437 (S.C.) as the said decision pertained to the interpretation of the provisions contained in the Income Tax Act, 1961 and not with reference to the provisions contained in the Agricultural Income Tax Act, 1962. According to Mr. Joshi, in the case of H.N.S. Iyengar (supra), the Apex Court was concerned with the interpretations of the words 'escaped assessment for that year' used in Section 34 I of the Indian Income Tax Act, 1922, whereas the words used in Section 41 of the Agricultural Income Tax Act are 'escaped assessment in any year'. Therefore, in view of the basic difference in the words between the two Acts, the decision of the Apex Court in the case of H.N.S. Iyengar (supra) is not applicable to the present case. He relied upon the decision of this Court in the case of Leukoplast (India) v. State of Goa reported in 71 S.T.C 180 (Bom.) and submitted that the interpretation of a definition given in one Act cannot be applied for the interpretation of a definition in another Act, especially when there is material difference in the words used in two definitions. In any event, Mr. Joshi submitted that if there is ambiguity in the section, then the construction which favours the assessee must be applied.
7. On behalf of the Revenue, it was submitted that the limitation under Section 41(1) of the Act commences from the end of the assessment year in which the escapement of agricultural income tax is discovered. Since the assessment in relation to agricultural income in any previous year is done in the assessment year, it was submitted that the words "8 years from the end of that year" used in Section 41 of the Agricultural Income Tax Act, means from the end of the assessment year and not from the end of the previous year.
8. In our opinion, the contentions of the Revenue deserves to be accepted. Under Section 2(4) of the Agricultural Income Tax Act "assessment year" or "year of assessment" is defined to mean the period of 12 months commencing on the first date of April every year. Section 3 of the Act defines 'Previous year' to mean the financial year immediately preceding the year of assessment. The return of agricultural income for the previous year filed under Section 22 of the Act, is assessed under Section 23 of the Act in the assessment year. Therefore, agricultural income tax payable for the previous year is determined by passing the assessment order in the assessment year consisting of 12 months. Escapement of agricultural income tax can arise only when the assessment order is passed in the assessment year or thereafter. Therefore, what is contemplated under Section 41 of an Agricultural Income Tax Act is that, in the case of an assessee covered under Section 9 of the Agricultural Income Tax Act, if it is discovered by the assessing officer at any time within 8 years from the end of the assessment year that agricultural Income Tax payable by that assessee has escaped assessment, then he can issue notice calling upon the assessee to file return for the purpose of reassessment. In our opinion, the words "end of that year" in Section 41 pertains to the end of the assessment year and not to the end of the previous year, because escapement of income can arise only on assessment order being passed. Ordinarily, the assessment is required to be completed within the assessment year compromising of 12 months. In some cases, assessment order may be passed within the assessment year and in some cases, the assessment may be completed beyond the period of 12 months due to administrative exigencies or on account of failure on the part of the assessee to furnish particulars. Although, there is no period of limitation prescribed under the Act for passing the assessment order, limitation for recovery of agricultural income tax escaping assessment has been fixed from the end of the assessment order. Merely because the assessment order pertains to the previous year, it cannot be said that the limitation in respect of income escaping assessment commences from the end of the previous order. As the return for the previous year is filed in the assessment year and the escapement of agricultural income can arise only on passing the assessment order in the assessment year, it is reasonable to hold that the limitation prescribed under Section 41 of the Act commences from the end of the assessment year. Accordingly, in the case of the assessee who had not filed the return, the limitation under Section 41 of the Act will commence from the end of the assessment year and the notice issued within 8 years from the end of the assessment year would be valid.
9. In this view of the matter, we answer question No. 1 in the negative i.e. in favour of the Revenue and against the assessee.
QUESTION NO. 210. According to Mr. Joshi, the agricultural income tax paid or payable by the assessee is an expenditure laid out wholly and exclusively for the purpose of deriving agricultural income and is, therefore, entitled for deduction under Section 8(9) of the Agricultural Income Tax Act. He submitted that if agricultural income tax is to be disallowed on the ground that the expenditure is incurred subsequent to the earning of agricultural income, then the expenses such as audit fees, C.A. fees would also be required to be disallowed. By relying upon the decision of this Court in the case of Brihan Maharashtra Sugar Syndicate Limited v. C.T.O, reported in 165 I.T.R. 279, Mr. Joshi submitted that an expenditure need not necessarily be incurred in the year in question and even the expenses incurred subsequently can be allowed as deductible expenditure.
11. In our opinion, there is no merit in the contentions raised on behalf of the assessee. The Agricultural Income Tax becomes payable on the net income arrived at after allowing all permissible deductions from the gross income. As rightly held by the Tribunal, Agricultural Income Tax is not an expenditure incurred of the purpose of earning profits. It is a case of application of profits after the agricultural income is earned. The decision of this Court in the case of Brihan Maharashtra Sugar Syndicate Ltd. (supra) is distinguishable on facts because, in that case, bonus paid in the accounting year relevant to the income of the previous year was held necessarily relate to earning income of the relevant previous year. Agricultural Income Tax cannot be said to be paid for deriving agricultural income. Expenditure on account of audit fees and C.A. fees stand on a different footing as those expenses are required to be incurred for arriving at the net agricultural income; whereas, the agricultural income tax is paid out of the net agricultural income earned. Therefore, payment by way of agricultural income tax cannot be put on par with the audit fees. Agricultural income tax is not paid for deriving agricultural income and hence the same has been rightly disallowed.
12. In this view of the matter, we answer the Question No. 2 in the negative i.e. in favour of the Revenue and against the assessee.
QUESTION NO. 313. According to Mr. Joshi the amount paid to the harvesting and carting contractors during the period from 1957-58 to 1960-61 which is written off as bad debts in the previous year in question must be allowed as deduction. He submitted that though the amounts were advanced earlier, it became bad debt in the previous year 1964-65 and therefore it ought to have been allowed as deductions under Section 8(9) of the Act. Mr. Joshi relying upon the decision of the Apex Court in the case of Associated Banking Corporation of India Limited v. C.I.T. reported in 56 ITR 1 submitted that the debt incurred in the earlier years but which has become bad this year is allowable. Mr. Joshi relying upon the decision of the Apex Court in the case of Madras Industrial Investment Corporation Limited v. CIT reported in 225 I.T.R. 802 (S.C.) submitted that the expenditure incurred in the earlier years can be allowed in the year in which it is written off. He referred to the decision of the Apex Court in the case of H.S. Shivakantappa v. Commissioner of Agricultural Income Tax reported in 204 I.T.R. 349 (S.C.) wherein it was held that the fees paid to auditors for preparing return of agricultural income was allowable as deductions. He also referred to the decision of this Court in case of Brihan Maha Sugar Syndicate Limited (supra) wherein the bonus paid in the relevant accounting year relating to the income of prior years was held deductible. Mr. Joshi submitted that the bad debt written off in the year in question ought have been allowed as deduction. He also relied upon the decision of the Apex Court in the case of C.I.T. v. Harprasad & Co. P. Ltd. reported in 99 I.T.R. 118 (S.C.) and submitted that when the loss which could not be set off during the year is allowed to be carried forward, there is no reason to refuse deduction of bad debt written off in the year in question.
14. The submissions made on behalf of the assessee cannot be accepted for more than one reason. Firstly, the Maharashtra Agricultural Income Tax Act, 1962 itself was brought into force with effect from 1st April, 1962, as such any expenditure incurred prior to 1st April, 1962 cannot be said to be allowable unless specifically provided in the Act. Secondly, the expenditure under Section 8(9) of the Act is allowable only if the expenditure is of the type allowable as a deduction under Section 8 of the Act and the expenditure is incurred in the relevant previous year. In the present case, the expenditure was not incurred in the year in question. Thirdly, unlike Section 36(vii) of the I.T. Act which permits deduction of the amount written off as irrecoverable, there is no such provision under the Agricultural Income Tax Act to allow deduction of bad debt which is written off. In the case of Madras Industrial Investment Corporation Ltd. (supra) the facts were altogether different. In that case, the liability to pay the discounted amount over and above the amount received for the debentures was held to be a liability incurred by the company for the purposes of its business in order to generate funds for its business activities. Moreover, the method of showing the discount in the 'discount on debentures account' and the method of writing off over the period of the debentures was found to be in conformity with the accounting practice and, therefore, the deduction was allowed in that case. In the present case no such finding is recorded. Moreover, Section 8(9) deals with the expenditure incurred in the relevant year and it does not apply to the expenditure incurred in the earlier years and written off in the relevant year. Therefore, the decision of the Apex Court in the case of Madras Industrial Investment (supra) is not applicable to the present case. Similarly the decision of the Apex Court in the case of H.S. Shivakantappa (supra) and the decision of this Court in the case of Brihan Maha Sugar Syndicate Limited (supra) are distinguishable on facts as in those cases the expenses were incurred for the purpose of business in the year in question. In the present case, the expenditure is not incurred in the year in question and hence, the same has been rightly disallowed. The decision of the Apex Court in the case of Harprasad & Co. (supra) does not support the case of the assessee. In that case the High Court had held that if the capital loss incurred in the year in which capital gains did not attract tax, such loss would still be loss under the head 'capital gain' and it could be carried forward and set off against capital gains in a subsequent year. Reversing the decision of the High Court, the Apex Court held that the capital loss could not be determined and the assessee was not entitled to the carry forward of the loss. It was held that if the loss arises in the previous year under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year from a taxable income. In the present case, prior to 1st April, 1962 agricultural Income was not taxable and hence any expenditure incurred prior to 1st April, 1962 but written off after 1st April, 1962 cannot be said to be covered under Section 8(9) of the Act and hence the same has been rightly disallowed.
15. Accordingly, we answer question No. 3 in the negative i.e. in favour of the Revenue and against the assessee.
QUESTION NO. 416. This question pertains to disallowing the sum of Rs. 4,73,522/- claimed to have been donated by the assessee for the purpose of earning agricultural income. Neither in the paper book nor in the assessment order the particulars of the donation given by the assessee are given. Mr. Joshi submitted that in view of the long lapse of time, the assessee is unable to produce the particulars of donations given in the previous year in question. In the absence of particulars it is not possible to answer as to whether the donation was for the purpose of earning agricultural income or not. In this view of the matter we have no option but to return the Question unanswered for want of particulars.
QUESTION NO. 517. Relying upon the decision of this Court in the case of Commissioner v. Phalton Sugar Works Limited reported in 121 I.T.R. 920 (Bom), Mr. Joshi submitted that when the proportionate expenditure on G.M.'s expenditure has been allowed under the Income Tax Act, 1961, the balance expenditure of Rs. 3,150/- on G.M.'s perquisites ought have been allowed as expenditure pertaining to agricultural operations. We find merit in the submission made by Mr. Joshi. When the expenditure by way of perquisite to the General Manager has been incurred for earning income under both the Acts and the expenditure allowable for earning the income under the Income Tax Act, 1961 has been determined, then the balance amount which is not allowed under the Income Tax Act will have to be allowed under Section 8(9) of the Agricultural Income Tax Act. Accordingly, we answer Question No. 5 in the negative i.e. in favour of assessee and against the revenue.
QUESTION NO. 618. Under the Land Ceiling Act, the State Government was to take over some agricultural lands of the assessee and the compensation determined by the Government was Rs. 10,76,803/- as against the book value shown by the assessee at Rs. 17,97,702/-. The assessee claimed differential amount of Rs. 7,20,899/- as capital loss, but the same was disallowed.
19. Mr. Joshi relying upon the decision of this Court in the case of Manubhai A. Sheth v. N.D. Nirgudkar reported in 128 I.T.R. 87 (Bom.) submitted that when the capital gains are made taxable, there is no reason as to why the capital loss should not be allowed as deductible expenditure.
20. As rightly observed by the Tribunal concept of capital loss is foreign to the scheme of the Agricultural Income Tax Act. When the Act does not contemplate allowing depreciation on the land, the question of allowing capital loss on agricultural land does not arise at all. The decision of this Court in the case of Manubhai Sheth (supra) does not support the case of assessee. In that case this Court was concerned with the constitutional validity of the provisions of the Income Tax Act wherein the capitals gain arising on sale of agricultural land was sought to be included in the total income under the Income Tax Act and the Court was not dealing with the issue as to whether the capital loss from the agricultural lands is admissible as expenditure for the purpose of arriving at agricultural income or not. Moreover, the loss occurring on account of the lands being taken over under the provisions of the Land Ceiling Act cannot be said to be expenditure incurred for the purpose of earning agricultural income so as to claim deduction under Section 8(9) of the Act.
21. Accordingly, we answer Question No. 6 in the negative i.e. in favour of the revenue and against assessee.
SALES TAX APPLICATION NO. 3 OF 1989 QUESTION NO. 7
22. In view of our answer to question No. 2 above, this question is answered in the negative i.e. in favour of the Revenue and against the assessee.
SALES TAX APPLICATION NO. 4 OF 1989 QUESTION NO. 8
23. In view of our answer to question No. 2 above, this question is answered in the negative i.e. in favour of the Revenue and against the assessee.
SALES TAX APPLICATION NO. 5 OF 1989 QUESTION NO. 9
24. In view of our answer to question No. 2 above, this question is answered in the negative i.e. in favour of the Revenue and against the assessee.
QUESTION NO. 1025. In view of our answer to question No. 2 above, this question is answered in the negative i.e. in favour of the assessee and against the Revenue.
26. Before concluding, we would like to place on record the assistance rendered to the Court by the Assistant Commissioner of Sales Tax Mr. R. A Harpale.
27. All the references are disposed of accordingly with no order as to costs.