Income Tax Appellate Tribunal - Nagpur
Assistant Commissioner Of Income-Tax vs Smt. Chandri N. Shah on 30 November, 1998
Equivalent citations: [1999]71ITD231(NAG)
ORDER
1. These appeals are by the revenue and pertain to the assessment years 1993-94,1994-95 and 1995-96. The issues involved in these appeals being similar, they were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. The only effective common ground urged by the revenue for all the years under consideration is against the orders of the learned Commissioner (Appeals) in treating the assessees' shares in agricultural income of Rs. 2,16,838 and Rs. 1,33,740 from the firm (in the case of Smt. Chandri N. Shah) and Rs. 96,815 and Rs. 1,46,186 from the firm (in the case of Smt. Amrit Arvind Shah) are not to be taken for rate purposes as per the provisions of section 10(2A) of the Income Tax Act, 1961.
3. In the case of Smt. Chandri N. Shah, the assessee filed the return for the assessment year 1993-94 on 23-9-1993 declaring total income at Rs. 1,27,770 and agricultural income at Rs. 2,16,838, For the assessment year 1994-95, the assessee filed the return of income on 31-8-1994 declaring total income of Rs. 2,55,710 and agricultural income at Rs. 1,33,740. In the case of Smt. Amrit Arvind Shah, the assessee filed the return for the assessment year 1994-95 on 24-8-1994 declaring total income at Rs. 3,21,720 and agricultural income at Rs. 1,07,688. The assessing officer for this year taken the agricultural income at Rs. 96,816 for rate purposes. For the assessment year 1995-1996, the assessee declared the income of Rs. 4,69,110 and agricultural income at Rs. 1,46,187.
4. The assessees were asked to state the reasons as to why the agricultural income shown by them should not be included for the rate purposes. It was submitted that the agricultural incomes did not form the part of the total income of the assessee as per section 10(2A) of the Income Tax Act, 1961 and hence the same cannot be considered for rate purpose because of section 10(2A) of the Act. However, the assessing officer rejected the contentions of the assessees and held that the agricultural income has to be considered in the hands of the assessee for rate purposes. He, accordingly, included the agricultural income shown by the assessees for all the years under consideration for rate purpose.
5. When the matter was carried before the learned Commissioner (Appeals), it was contended that with the insertion of section 10(2A) with effect from the assessment year 1993-94, in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm shall not form part of total income of the partners. As per section 2(9)(J) of Finance Act 1992, the net agricultural income of a person was to be computed in accordance with the Rules contained in Part IV of the First Schedule, it was contended. It was further contended that as per the provisions of Rule 5 of Part IV of First Schedule, nothing contained in the rule shall apply for computing the agricultural income of the assessee in relation to the assessment year commencing on or after 1-4-1993. When the agricultural income of the firm was not to be considered as agricultural income of the partners, question of aggregating such agricultural income for rate purposes in the hands of its partners did not arise. Accepting the above, submissions, the learned Commissioner (Appeals) decided the issue in favour of the assessee on the following lines :-
"The submissions are acceptable. The assessee had no agricultural income of her own. The share in agricultural income from the firm was not to be aggregated for rate purpose, in view of section 10(2A), with effect from 1-4-1993, and omission of section 67 and Rule 5 of Part IV of First Schedule of Finance Act, 1992, with effect from the same date. Accordingly, the assessing officer was not justified in considering the assessee's share in agricultural income from the firm, in which she was a partner, for rate purpose, in both the years.
It is against these orders, the assessees are in appeal before the Tribunal.
6. The learned departmental Representative, relied on the decision of the Hon'ble Supreme Court in the case of CIT v. TV Sundaram Iyengar & Sons (P.) Ltd. (1975) 101 ITR 764 wherein it has been held that if' the language of the statute is clear and unambiguous, and if two interpretations are riot reasonable possible, it would be wrong to discard the plain meaning of the words used in order to meet the possible injustice. Getting support from the decision, the learned departmental Representative submitted that the only income that may not be included in the total income is the agricultural income. Agricultural income is defined in section 2(1 A) of the Income Tax Act, 1961. Under the Finance Act, 1992, the net agricultural income is defined as under:-
"2(9)(d) 'net agricultural income', in relation to a person, means the total amount of agricultural income, from whatever source derived of that person computed in accordance with the rules contained in Part IV of the First Schedule."
Coming to Part IV of the First Schedule, the learned departmental Representative submitted that in the instant case of the assessee Rule 2 is applicable which reads as under:-
"Rule-2 - Agricultural income of the nature referred to in sub-clause (h) or sub-clause (() of clause (IA) of section 2 of the Income Tax Act (other than income derived from any building required as a dwelling house by the receiver of the rent or revenue or the cultivator or the receiver or rent-in-kind referred to in the said sub-clause (c) shall be computed as if it were income chargeable to income-tax under that Act under the head "Profits and gains of business or profession" and the provisions of sections 30, 31, 32, 36, 37, 38, 40, 40A (other than sub-sections (3) and (4) thereof) 41, 43, 43A, 43B and 43C of the Income Tax Act shall, so far as may be, apply accordingly."
Therefore, the learned departmental Representative submitted that the order of the assessing officer may be restored.
7. Countering the above submissions, the learned Authorised Representative for the assessees submitted that as far as the assessees are concerned, newly inserted section 10(2A) with effect from assessment year 1993-94 is applicable. For every year, Finance Act provides the system of calculating agricultural income. Section 2(9)(d) of the Finance Act, 1992 provides that net agricultural income in relation to a person, means the total amount of agricultural income from whatever sources derived of that per-son computed in accordance with rules contained in Part IV of the First Schedule." The Authorised Representative for the assessee further submitted that in case of a Hindu undivided family, a company or a firm, agricultural income earned by these three entities will be considered in the hands of its members, its shareholders or its partners. Therefore, it is evident that agricultural income by a firm shall not be considered as agricultural income in the hands of its firm. If the agricultural income of a firm cannot be considered as agricultural income of its partners, then the question of aggregating such agricultural income for the rate purpose is also out of question. Thus, the learned Representative summed up the arguments as under:
The assessees have no agricultural income;
The share in agricultural income from the firm, in which the assessee is a partner, should not be aggregated for the rate purpose in view of section 10(2A) with effect from 1-4-1993 Le. from the Assessment year 1993-94 and omission of section 67 and Rule 5 of Part IV of First Schedule of Finance Act, 1992 with effect from same date i.e. 1-4-1993.
Thus, the learned Authorised Representative for the assessee submitted that the orders of the Commissioner (Appeals) may be upheld.
8. I have heard the rival submissions and gone through the orders of the revenue authorities. After giving careful consideration, 1 am of the view that the order of the Commissioner (Appeals) is to be confirmed. Section 2(9)(d) of- the Finance Act, 1992 provides that net agricultural income in relation to a person means the total amount of agricultural income from whatever, sources derived of that person computed in accordance with the rules contained in Part IV of the First Schedule. The learned departmental Representative's argument that as far as the assessees are concerned, definition given in section 2(1 A) applies is a difficult proposition to accept. It defines only what is the agricultural income means and it does not form a part of the assessment procedure. Section 2(1 A) defines "agricultural income" and "agricultural income" means any rent or revenue derived from land which is situated in India and is used for agricultural purposes. This definition has widen the scope of agricultural income which includes rent and revenue derived from the land. Sub-section (b) of this section states that it includes any income derived from such land. Rates of income are provided in the Finance Act and newly inserted section 2(9)(d). I have already noted, it provides that "net agricultural income" should be computed in accordance with rule contained in Part IV of the First Schedule. The learned departmental Representative's argument is that as far as the assessees are concerned, since section 2(1 A) is applicable, the net agricultural income should be computed under Rule 2 of Part IV of Schedule 1. Rule 2 provides that agricultural income of the nature referred to in sub-clause (b) or sub-clause (c) of clause (IA) of section 2 of the Income Tax Act (other than income derived from any building required as a dwelling house by the receiver of the rent or revenue or the cultivator or the receiver of rent-in-kind referred to in the said sub-clause (c)) shall be computed as if it were income chargeable to income-tax under that Act under the head "Profits and gains of business or profession" and the provisions of sections 30, 31, 32, 36, 37, 38, 40, 40A, (otherthan sub-sections (3) and (4) thereof) 41, 43, 43A, 43B and 43C of the Income Tax Act shall, so far as may be, apply accordingly. It is further to be noted that the assessee's income is not type of income that referred in section 2(1 A). I am of the view that the learned Commissioner (Appeals) has taken the correct view and applied Rule 5 as far as these assessees are concerned. Rule 5 reads as under:-
"Where the assessee is a partner of a registered firm or an unregistered firm assessed as a registered firm under clause (b) of section 183 of' the Income Tax Act, which in the previous year has any agricultural income, or is a partner of an unregistered firm which has not been assessed as a registered firm under clause (b) of the said section 183 and which in the previous year has either no income chargeable to tax under the Income Tax Act, or has total income not exceeding the maximum amount not chargeable to tax in the case of an unregistered firm but has any agricultural income, then, the agricultural income or loss of the firm shall be computed in accordance with these rules and his share in the agricultural income or loss of the firm shall be computed in the manner laid done in sub-sections (1), sub-section (2) and sub-section (3) of section 67 of the Income tax Act and the shares so computed shall be regarded as the agricultural income or loss of the assessee".
Provided that nothing contained to this rule shall apply for computing the agricultural income of the assessee in relation to the assessment year commencing on or after the 1-41991"
It is not disputed that the assessees are the partners of the firms. As per this Rule, the assessees' share in the agricultural income or loss of the firm shall only be computed in the manner laid down in sub-sections (1), subsection (2) and sub-section (3) of the Income Tax Act and the shares so computed shall be regarded as the agricultural income or loss of the assessee. Proviso to this section further states that nothing contained in this rule shall apply for computing the agricultural income of the assessee in relation to the assessment year commencing on or after the 1-4-1993. Therefore, it makes clear that in the case of the assessees, Rule 5 shall not be applicable. Section 10(2A) inserted with effect from 1-4-1993 reads as under:-
"In the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm shall not form part of total income of the Partner".
Explanation - For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits."
Therefore, it is clear that on or after from 1-4-1993, the agricultural income of the firm is not to be regarded as agricultural income or loss of its Partners. The Finance Act, 1994, amended the Rule 5 of Part IV of Schedule 1 which reads as under:-
"Rule 5 - Where the assessee is a member of an association of persons or a body of individuals (other than a Hindu undivided family, a company or a firm) which in the previous year has either no income chargeable to tax under the Income Tax Act or has total income not exceeding the maximum amount not chargeable to tax in the case of an association of persons or a body of individuals (other than a Hindu undivided family, a company, or a firm) but has any agricultural income, then, the agricultural income or loss of the association or body shall be computed in accordance with these rules and the share of the assessee in the agricultural income or loss so computed shall be regarded as the agricultural income or loss of the assessee."
The above Rule makes it clear that in case of a Hindu undivided family or in case of a company or in case of a firm, the agricultural income earned by these three entities shall not be considered in the hands of its members, its shareholders or its partners as share of agricultural income. Therefore, it leads to the conclusion that this income shall not form part of the agricultural income of the partner of a firm for the rate purpose in the partner's hands.
9. In view of the above clear position of the law, 1 am of the view that the learned Commissioner (Appeals) was well justified in directing the assessing officer not to include the assessees' shares of agricultural income from the firms for rate purpose while computing their other income. The orders of the Commissioner (Appeals) are upheld in both the cases, of assessees.
10. In the result, the appeals by the revenue fail and are dismissed.