Karnataka High Court
Kardicoppal Estate, Rep. By Its Prop. ... vs State Of Karnataka, The Secretary, ... on 16 September, 2003
Equivalent citations: (2004)188CTR(KAR)68, ILR2003KAR4756, [2004]266ITR20(KAR), [2004]266ITR20(KARN), 2004 AIR KANT HCR 70, 2004 TAX L. R. 48, (2004) 266 ITR 20, (2004) 188 CURTAXREP 68, (2004) 178 TAXATION 233, (2003) 55 KANTLJ(TRIB) 366
Author: R. Gururajan
Bench: R. Gururajan
ORDER R. Gururajan, J.
1. Petitioner in WP No. 13394 & 13635 - 36/2000 is questioning the retrospective amendment to Section 15 of the Karnataka Agricultural Income Tax Act (for short the Act) with a further prayer for declaration that the said amendment is prospective in character. Petitioner is also seeking for quashing of assessment orders in terms of Annexures-A, D and E. Petitioner is an assesses in terms of the Agricultural Income Tax Act. Returns were filed by the petitioner. Assessments have been made by the second respondent. The loss determined in the assessment have been allowed to be carried forward in terms of Section 15 of the Act. Section 15 was amended by the Karnataka Taxation Laws (amendment) Act, 1990 retrospectively w.e.f. 1-4-1987. Petitioner filed the annual returns for the assessment year 1995-96 claiming total loss of Rs. 11,78,901.92 which includes depreciation amount of Rs. 1,59,146/-. The assessing authority allowed the assessee to carry forward the loss to the extent of Rs. 1,59,146/- as depreciation for subsequent year. The Assessing Authority did not allow the petitioner to carry forward the loss to the extent of Rs. 10,19,755,82 in terms of the amendment. Petitioner in these circumstances is before me seeking for the above referred prayers.
2. Petitioner in WP No. 32321/2001 is seeking the same prayer as in the earlier case. Petitioner in this case filed his return in terms of the Act for the assessment year 1997-98. He declared net loss of Rs. 1,63,362/-. The loss declared was after claiming the set off the unabsorbed loss of earlier years 1996-97 to the tune of Rs. 2,01,947/- besides unabsorbed depreciation allowance for the assessment year 1995-96 and 1996-97. The set off loss and unabsorbed depreciation claimed were allowed by the assessing authority while concluding the assessment under Section 19(3) of the Act. Subsequently, a notice under Section 37 of the Act was issued to withdraw the set off of the loss claimed for the assessment year 1996-97 in view of belated filing of returns on account of the amendment of Karnataka Act No. 22 of 1957 w.e.f. 1-4-1987. The said notice is challenged in this petition.
3. In WP No. 33893/2001 petitioner filed the returns and the assessment proceedings were completed in terms of Annexure-A. Appeal was filed in terms of the appellate order. Thereafter an assessment order has been issued to the petitioner for the year 1996-97 in terms of Annexure-C. An endorsement has also been issued in terms of Annexure-D. Petitioner in this petition is also challenging the retrospective character of the amendment in addition to the notice.
4. Petitioner in WP No. 414849/2001 is also challenging the amendment in the case on hand.
5. Respondents have entered appearance and they have filed their statement of objections in all these cases. The objections are almost same in all cases. According to respondents, the constitution provides for levy of tax on Agricultural Income. The Government of Karnataka in its wisdom amended Section 15 with retrospective effect. According to respondents, this amendment has become necessary in the light of the judgment of this Court in ASHOK PLANTATIONS PVT LTD., v. ASST. COMMR., OF COMMERCIAL TAXES, MADIKERI. WP NO. 149/1994 They say that the amendment is legal and valid. They also contend that the amendment is effected to cure the defect in terms of the judgment of this Court. They justify their action.
6. Sri Sarangan learned Sr. Counsel took me through the provisions of Section 15 and 18 to contend that this retrospective character given to the amendment is illegal and unsustainable. Learned Counsel explains that even when this Court passed an order in the earlier petition, Section 18 was available to the respondents. He says that this Court has passed the earlier orders in Ashok Plantations' case following the judgment of the Supreme Court in COMMISSIONER OF INCOME TAX, PUNJAB v. KULU TRANSPORT COMPANY PVT., LTD. 77 ITR 518 He relies on various case laws to contend that no retrospective effect can be given thereby depriving a statutory right available to the petitioner. The learned Government Advocate for the State, per contra, contends that the amendment is proper and legal and he relies on the earlier judgment in his support. In the light of the arguments of the learned Counsel for the parties, let me see as to whether the petitioner has made out a case or not.
8. Agricultural Income Tax Act provides for levy of agricultural income tax in the state of Karnataka. It provides for detailed procedure in the matter of levy of tax. Section 15 before amendment read as under;
"Section 15. Carrying forward of loss.
Where any person sustains a loss in agricultural income in any year, the loss shall be carried forward to the following year and set off against the agricultural income for that year and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on, but no loss shall be carried forward for more than six years."
"Provided that, in case of loss sustained before the commencement of this Act, this Section shall apply only to such loss as was sustained in the previous year immediately before such commencements.
Provided further that no loss, which has not been determined in pursuance of a return filed under Section 18 shall be carried forward and set off under this Section.
Provided (also) that where depreciation allowance is also to be carried forward under proviso(2) to Clause (e) of Section 5, effect shall first be given to the provisions of this Section."
The said section is amended in terms of the amendment Act 1999 with retrospective effect. The said section reads as under;
"Section 15. Carrying forward of loss.
Where any person sustains a loss in agricultural income in any year, the loss shall be carried forward to the following year and set off against the agricultural income for that year and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on, but no loss shall be carried forward for more than Six years subject to the condition that the return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed is filed well within the period specified in Sub-section (1) of Section 18 or within the such extended time granted by the Assistant Commissioner of Agricultural Income Tax or the Deputy Commissioner of Agricultural Income Tax as the case may be is filed and nothing contained in Sub-section (3) of Section 18 shall apply in this regard."
Provided that, in case of loss sustained before the commencement of this Act, this Section shall apply only to such loss as was sustained in the previous year immediately before such commencements.
Provided further that no loss, which has not been determined in pursuance of a return filed under Section 18 shall be carried forward and set off under this Section.
Provided (also) that where depreciation allowance is also to be carried forward under proviso(2) to Clause (e) of Section 5, effect shall first be given to the provisions of this Section."
9. The facts in WP No. 149/1994 (Ashok Plantation's Case) were that the petitioners in that case filed a return on 31-12-1992 and subsequently revised the same on 22-5-1993 by filing another return declaring a net loss of Rs. 8,38,547/-. This net loss declared by the petitioner being the lowest, was disallowed by the respondent to a certain extent and he determined a business loss of Rs. 2,27,742/-. A direction was issued by the respondent in the course of the assessment order that the petitioner is not eligible for carry forward and set off business loss under Section 15 of the Act. This Court ruled that under Section 18, return has to be filed within four months at the end of the previous year. The Section that regulates the carry forward of loss is Section 15 and not Section 18. This Court after noticing Section 15 and 18 ruled that a perusal of the scheme of the provision would make it clear that if the assessee had filed a return and that return is sought to be modified by filing another return and latter return though not within the time allowed by the Act, but such return having been filed before the assessment is complete, definitely the decision of the SUPREME COURT IN COMMISSIONER OF INCOME TAX v. KULU TRANSPORT CO., P LTD., has to be applied. This Court ruled that the language of Section 15 and Section 18 is in parimateria with the provisions of the Act and that therefore it must be held that the petitioner is entitled to carry forward the loss. The time restriction in terms of Section 18 was not accepted by this Court. The judgment of this Court is based on the judgment of the Supreme Court in the case of INCOME TAX v. KULU TRANSPORT CO. P. LTD. In the said case, the Supreme Court has noticed Section 24(2) and Section 22(2) of the Act. After noticing these two Sections the Supreme Court has ruled as under;
"Now, the question which was submitted for the opinion of this High Court, in present case, consisted of two parts, viz., (1) Whether the loss returned by the assessee for the assessment years in question was required in law to be determined by the Income Tax officer and (2) Whether those losses could be carried forward after being setoff under Section 24(2) of the Act. The first part of the question stood concluded by the decision of this Court in Rachhoddas Karsondas' case. The Income - tax Officer could not have ignored the return and had to determined those losses. Section 24(2) confers the benefit of losses being set off and carried forward and there is no provision in Section 22 under which losses have to be determined for the purpose of Section 24(2). The question which immediately arises is, whether Section 22(2A) places any limitation on that right. This sub-section which has been reproduced before simply says that in order to get the benefit of Section 24(2) the asssessee must submit his loss return within the time specified by Section 22(1). That provision must be read with Section 22(3) for the purpose of determining the time which a return has to be submitted. It can well be said that Section 22(3) is merely a proviso to Section 22(1). Thus, a return submitted at any time before the assessment is made is a valid return. In considering whether a return made is within that section. A return whether it is a return of income, profits or gains or of loss must be considered as having been made within the time prescribed it is made within the time specified in Section 22(3). In other words, if Section 22(3) is complied with, Section 22(1) also must be held to have been complied with. If compliance has been made with the latter provision the requirements of Section 22(2A) would stand satisfied.
On behalf of the revenue, it is pointed out that a great deal of inconvenience will result if a voluntary return can be entertained at any time in accordance with Section 22(3) when loss is involved and in order to give the assessee the benefit of the carry forward of the loss a number of the assessee the benefit of the carry forward of the loss a number of assessments would have to be re-opened. It is difficult to accede to such an argument merely on the ground of inconvenience. Moreover, it is common ground that a voluntary return cannot be filed beyond the period specified in Section 34(3) of the Act. It cannot be overlooked that even if two views are possible the view which is favourable to the assessee must be accepted while construing the provisions of a taxing statute."
10. The Supreme Court did not accept the contention that the return is to be filed within time. Following the said judgment of the Apex Court, this Court ruled that the return can be filed at any time in terms of Section 15, and Section 18 has no application in the earlier case. The second judgment in WP No. 41464/1996 is nothing but following the decision in WP.No. 149/1994. Therefore it cannot be said that the amendment is effected to cure the defect as pointed out by this Court. This Court did not point out any lacuna and on the other hand, this Court only noticed both the provisions and interpreted the law as it stood then in the light of the judgment of the Apex Court. Therefore the contention of the respondent that amendment is effected to cure the lacuna cannot be accepted on the facts of this case.
11. This Court in WA No. 3798/99 considered the issue of retrospective amendment in para 28 and ruled that the retrospective amendment must not be only for the purpose of nullifying a judgment where there was no lacuna or defect pointed out in the Parent Act. No such case exists in the case on hand. On the other hand, this Court in the earlier case simply followed the judgment of the Supreme Court in D. CAWASJI & CO. , MYSORE v. THE STATE OF MYSORE, AIR 1989 SC 1780 and ruled that the return was proper in the earlier case. In these circumstances, petitioners are right in their submission. The Apex Court in has ruled as under:
"The State instead of seeking to test the correctness and effect of the judgment and order of the High Court thought it fit to have the judgment and order nullified by introducing the impugned amendment. The amendment does not proceed to cure the defect or the lacuna by bringing in an amendment providing for exigibility of sales tax on excise duty, health cess and education cess. The impugned Amending Act may not, therefore, be considered to be Validating Act. A Validating Act seeks to validate the earlier acts declared illegal and unconstitutional by Courts by removing the defect or lacuna which led to invalidation of the law. With the removal of the defect or lacuna resulting in the validation of any Act held invalid by a competent Court, the Act may become valid, if the validating Act is lawfully enacted. It appears that the only object of enacting the amended provision is to nullify the effect of the judgment which became conclusive and binding on the parties to enable the State Government to retain the amount wrongfully and illegally collected as sales tax and this object has been sought to be achieved by the impugned amendment which does not even purport or seek to remedy or remove the defect and lacuna. The defect or lacuna is not even sought to be remedied and the only justification for the steep rise in the rate of duty by the amended provision is to nullify the effect of the binding judgment. It may be open to the Legislature to impose the levy at the higher rate with prospective operation but levy of taxation at higher rate which really amounts to imposition of tax with retrospective operation has to be justified on proper and cogent grounds."
The retrospective amendment takes away the right given to the petitioner. That cannot be done in the guise of curing a non-existing lacuna by the respondents.
12. In these circumstances, these petitions are allowed. It is held that Retrospective effect to the amendment to Section 15 is contrary to the judgment of the Court in WA No. 3795/1998 dated 3.7.2002 and the judgment of the Apex Court in . Impugned orders are consequently set aside. Liberty is reserved to the respondents to proceed against the petitioner without referring to the amended Act in a manner known to law and if available to them in law.