Madhya Pradesh High Court
Suresh Chand Talera vs Commissioner Of Income Tax on 13 December, 2005
Equivalent citations: (2006)201CTR(MP)153, [2006]282ITR341(MP)
Bench: Chief Justice, A.M. Sapre
JUDGMENT
1. This is an appeal under Section 260A of the IT Act, 1961.
2. The relevant facts briefly are that the appellant carries on inter alia, the business of purchase and sale of silver and gold ornaments at Mandsaur in the State of Madhya Pradesh. For the asst. yr. 1996-97, the appellant filed a return on 2nd Sept., 1996, declaring an income of Rs. 3,94,558. A survey, under Section 133A of the IT Act (for short 'the Act') was conducted on 23rd Nov., 1999 and in the course of survey, the appellant made a declaration that there was a shortage of Rs. 2,28,000 in the difference of ornaments and cash. A questionnaire dt. 11th Aug., 1997 was served on the appellant requiring him to specify the basis of the valuation of the closing stock as per trading. The appellant answered the said questionnaire and thereafter the AO came to the conclusion that there was no consistency in the method adopted by the AO wherefrom true profits from his business could be worked out and, rejected the books of account of the appellant under Section 145(2) of the Act and made his own assessment of the income of the appellant determining the total income of appellant. In the said assessment, the AO also took into consideration the agricultural income of the minor son of the appellant for the purpose of determining the rate of income-tax applicable to the income of the appellant.
3. Aggrieved by the assessment order dt. 12th March, 1999 of the AO as well as the demand, the appellant filed an appeal before the CIT(A), Bhopal, numbered as (Appeal No. 11/U-22/1999-2000). The first two grounds of appeal related to additions of Rs. 43,742 and Rs. 39,239 on account of low GP on sale of gold and silver ornaments and the appellant urged before the CIT(A) that he had maintained proper books of account and, therefore, the books of account could not be rejected under Section 145(2) of the Act by the AO but CIT(A) held that the day-to-day stock register and quantitative tally had not been made and further sales were not recorded and, therefore, the provisions of Section 145(2) of the Act were applicable to the appellant's case. The CIT(A), however, held that the GP rates adopted by the AO were on the higher side and took the view that low GP rates should have been applied and accordingly deleted portion of the additions on account of sale of gold and silver ornaments. In the appeal, the appellant had also urged that agricultural income earned from agricultural land standing in the name of appellant's minor son could not be taken into consideration even for rate purposes for calculation of the tax payable by the appellant on his income but the CIT(A) relying on reasons given by him in his appellate order in the case of appellant for the asst. yr. 1994-95 upheld the order of AO taking into consideration the agricultural income of the appellant's minor son for the purpose of rate applicable to the income of the appellant.
4. Aggrieved by the aforesaid order dt. 29th April, 1999 passed by the CIT(A), the appellant filed a second appeal before the Tribunal, Indore, numbered as ITAT Appeal No. 668/Ind/1999 contending inter alia, that the books of account of the appellant were correctly maintained and the proviso to Section 145 of the Act was not applicable and that the agricultural income of the minor son of the appellant could not be taken into consideration for the purpose of determining the rate of tax applicable to the income of the appellant. By order dt. 26th March, 2002, the Tribunal held that no sales have been found outside the books by the AO and accordingly, set aside the order passed by the CIT(A) and directed the AO to accept the sales declared by the assessee and apply the GP rate of 20 per cent for gold ornaments and 32 per cent for silver ornaments. Regarding the agricultural income of the minor son of the appellant, the Tribunal observed that the issue had been decided against the appellant by the earlier order of the Tribunal in the case of appellant in appeal No. 668/Ind/1999 and accordingly decided the issue against the appellant. Aggrieved by the aforesaid order of the Tribunal, the appellant has filed this appeal before this Court.
5. On 6th Aug., 2002, this Court while admitting this appeal formulated the following two substantial questions of law :
(1) Whether the Tribunal having accepted the correctness of the account books of the appellant-assessee, erred in invoking Sub-section (2) of Section 145 of the IT Act and put its own assessment regarding GPs on the sale of gold and silver ?
(2) Whether the Tribunal erred in law in adding the agricultural income of minor son to the income of the appellant-assessee even when Section 10 of the IT Act expressly excluded such an income ?
After formulating the aforesaid two substantial questions of law, the Court also observed in order dt. 6th Aug., 2002 that all other questions proposed in the memo of appeal do not arise as they are mainly questions of fact. We have accordingly confined the hearing of this appeal on the aforesaid two questions of law as framed in the order dt. 6th Aug., 2002 by this Court.
6. Mr. Saxena, learned senior counsel appearing for the appellant, submitted that the Tribunal having accepted the correctness of the books of account of the appellant should have held that the books of account were not liable to be rejected under Section 146 of the Act and the Tribunal should not have directed the AO to apply the GP rate of 20 per cent for gold ornaments and 32 per cent for silver ornaments to the sales declared by the appellant. Mr. R.L. Jain, learned senior counsel appearing for the Department, on the other hand, submitted that a plain reading of the impugned order of the Tribunal would show that the Tribunal has not accepted the books of account of the appellant to be correct but has only observed that no sales have been found outside the books of account of the appellant by the AO. He submitted that the direction of the Tribunal to the AO to apply the GP rate of 20 per cent for gold ornaments and 32 per cent for silver ornaments was correct in the facts and circumstances of the case.
7. The finding of the Tribunal on the aforesaid point in question is quoted hereinbelow :
We have considered the rival submissions carefully and perused the orders of authorities below. We find some force in the contention of learned Authorised Representative. From the records, it is clear that assessee had surrendered a sum of Rs. 2,28,000 during the survey, so whatever discrepancies were there are covered by this surrender to some extent. We also find that no sales have been found outside the books by AO, therefore, we set aside the order of CIT(A) and direct the AO to accept the sales declared by the assessee and apply the GP rate of 20 per cent for gold ornaments and 32 per cent for silver ornaments.
It is clear from the aforesaid finding of the Tribunal that the Tribunal has found that the AO has not found any sales outside the books of account of the appellant but the Tribunal has not given any clear finding as to whether the accounts of the appellant were correct and complete or from the method of accounting Mowed by the appellant the income of the appellant could not be properly deduced. Section 145 of the Act would be attracted only to a case where either the accounts are not correct or complete to the satisfaction of AO or the method of accounting employed is such that in the opinion of the AO the income of the appellant could not be properly deduced from such accounts maintained by the appellant. Thus, it is only in a case where accounts were not correct or complete or where accounts are correct and complete but method employed in such accounting is not such as to enable the AO to deduce the income of the appellant properly, the assessment of the income of the appellant could be made in such manner as the AO may determine. The case of the appellant was that he had maintained the accounts correctly and the accounts were also complete and, therefore, his income (sic). We have seen that both the AO and the CIT(A) in their respective orders took the view that the accounts of appellant were not correct and complete. Aggrieved by the said finding of the AO and the CIT(A), the appellant had gone up in appeal before the Tribunal and urged that the accounts of the appellant had been correctly maintained and the Tribunal although held that the AO had not found any sales outside the books of the appellants had not given any clear finding as to whether the appellant had correctly and completely maintained the accounts or that from the accounts maintained by the appellant, his income could not be correctly deduced and yet has directed the AO not to compute the income of the appellant in accordance with his books of account but to apply GP rate of 20 per cent for gold ornaments and 32 per cent for silver ornaments. In our considered opinion, the Tribunal should have recorded a clear finding as to whether or not the account books of the appellant were correct and complete or whether or not from the accounts maintained by the appellant his income could not be properly deduced. Such a finding can be recorded only on consideration of the account books of the appellant and, therefore, we are not in a position to decide this issue. We thus direct that this issue will be decided by the Tribunal afresh on remand.
8. On the second substantial question of law, Mr. Saxena, learned senior counsel appearing for appellant, vehemently submitted that Section 10 of the Act expressly provided that in the computation of total income for the previous year of a person his agricultural income shall not be included and, therefore, such agricultural income of the minor cannot be included in the income of appellant under Section 64(1A) of the Act. He cited the decision of Madras High Court in the case of V. Devki Ammal v. Asstt. CED wherein it has been held that the legislature cannot overlook the definition of "estate duty" occurring in Article 366(9) of the Constitution and the charging section as well as the deeming provisions contained' in Sections 6 to 16 of the ED Act cannot be interpreted so as to subject an item specifically exempted from tax for the purpose of determining the rate of tax. He referred to the provisions of Section 4 of the Act to show that the income-tax is to be charged on the income of a person in accordance with and subject to the provisions of the Act. According to Mr. Saxena, Section 10 of the Act provided that the agricultural income was not to be included in the income for the purpose of levying income-tax and accordingly, agricultural income of the minor of the appellant cannot be included under Section 64(1A) of the Act even for the purpose of determining the rate of income-tax that is applicable to the income of the appellant.
9. Mr. Jain, learned Counsel appearing for Department, on the other hand, submitted that the agricultural income of the minor is not being included in the income of the appellant for the purpose of levying any income-tax on the same but has been included by the AO only for the purpose of determining the rate that is to be applicable to the income of the appellant. He submitted that since the Finance Act, 1973, every Finance Act has been making such provision for taking into consideration the agricultural income of the assessee for the purpose of determining the rate that would be applicable to the income of the assessee. He further submitted that Section 64(1A) of the Act expressly provides that in computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child.
10. Section 64(1A) of the Act is quoted hereinbelow :
64(1A).--In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child.
The language of Sub-section (1A) of Section 64 makes it clear that in adopting the total income of individual, all such income as arising or accruing to his minor son shall be included. The question to be decided in this case is whether income arising or accruing to a minor child from agricultural land would be included in the income of the individual for the purpose of determining the rate of tax applicable to the total income of any individual.
11. The word "income" has been defined in Section 2(24). The said Section 2(24) starts with the words "income includes". Amongst the items included as income in Section 2(24), agricultural income has not been specified. But the word "includes" makes it clear that the definition of income in Section 2(24) is not exhaustive. Hence, the fact that agricultural income has not been specified as one of the items in Section 2(24) does not mean that agricultural income is not included in the word "income" wherever the word "income" has been used in the Act. Section 10 of the Act provides that in computing the income for the previous year of a person, any income falling in any of the clauses mentioned therein shall not be included and the first clause mentioned therein is "agricultural income". Thus, Section 10 of the Act on which great reliance has been placed by Mr. Saxena makes it clear that agricultural income is income but by express provision therein agricultural income has been excluded from the total income of an assessee for the purpose of levy of income-tax.
12. Section 4 of the Act which is titled as charge of income-tax provides in Sub-section (1) as follows :
4.(1)--Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person.
The aforesaid charging section thus provides that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of the Act in respect of the total income of the previous year of any person. Section 4(1) thus means that while the total income of a person is to be determined in accordance with the provisions of the Act, the rate or rates at which such income-tax will be paid on such incomes for any assessment year will be stipulated in the Central Act. In accordance with the provisions of Section 4 of the Act, the Finance Act (Central Act) has been stipulating rate or rates at which income-tax is to be charged (in) the particular assessment year. For the asst. yr. 1996-97, the Finance Act, 1996, clearly provides under Chapter II, Section 2 that the net agricultural income shall be taken into account in the manner provided therein for the purpose of determining the rates of income-tax applicable to the income of the assessee. In view of the said clear provisions in Section 4 of the Act, Chapter II and Section 2 of the Finance Act, 1996, we have no doubt in our mind that agricultural income of an assessee has to be taken into consideration for the purpose of determining rate of tax that is applicable to his income. We accordingly answer the second question in the negative and hold that the Tribunal did not err in law in coming to the finding that the agricultural income of the minor son of the appellant had to be included in the income of the appellant for the purpose of determining the rate of income-tax applicable to the income of the appellant.
13. In the result, the appeal is partly allowed and the matter is remanded to the Tribunal to decide the issue on the first question of law as discussed in this judgment. The parties will appear before the Tribunal, Indore Bench, on 9th Jan., 2006 and the Tribunal may either hear the appeal on that day or fix a date of hearing and thereafter decide the issue.