Kerala High Court
Tata Tea Ltd. vs Commissioner Of Agricultural ... on 2 September, 1997
Equivalent citations: [1999]235ITR309(KER)
Author: N. Dhinakar
Bench: N. Dhinakar
JUDGMENT Mrs. K.K. Usha, J.
1. This revision, at the instance of the assessee, is directed against the order of the Commissioner of Agricultural Income-tax, Trivandrum, dated July 1, 1993. The relevant assessment year is 1980-81. The only question that arises for consideration is whether the Commissioner was justified in directing the assessing authority to adopt the notional transfer value credited in the accounts as the basis to arrive at the agricultural income of the assessee instead of the transfer value computed as per Rule 7 of the Income-tax Rules.
2. The petitioner owns and manages various tea estates and factories. It is an assessee under the Kerala Agricultural Income-tax Act as well as the Income-tax Act, 1961. While most of the green tea leaves from the estates owned by the assessee are used in such estates for the manufacture of black tea, a small portion thereof is transferred to an instant tea factory of the assessee for manufacture of instant tea for export. As per the provisions contained under Rule 8 of the Income-tax Rules, the income from black tea is subjected to tax with 40 per cent. thereof being charged to Central income-tax and balance 60 per cent. to agricultural income-tax. But the income from manufacture of export of instant tea is treated as purely business income chargeable under the Central Act and the income from the green tea leaf transferred and used for the manufacture of such instant tea is treated as purely agricultural income.
3. It is claimed that the petitioner maintained a consolidated set of accounts in respect of its various tea estates and a separate set of accounts for its instant tea division. In the former, the entire cost of cultivation of green tea leaves is initially debited and as and when green tea leaf is transferred to instant tea factory, a notional estimated value thereof is credited in the estate accounts and simultaneously debited in the instant tea account. At the end of each year, the assessee computes the cost of cultivation of green tea leaf transferred to instant tea and this, as well as the notional value thereof, are taken out of the consolidated estate account by adding back the former and deducting the latter so that the account thereafter reflects only the income from tea grown and manufactured into black tea. So also, in the case of the accounts of the instant tea, at the end of each year, the notional value of green tea leaf received from the estates is substituted by the actual value thereof computed as provided under Rule 7(2)(b) of the Income-tax Rules. Such value is arrived at by adding the cost of cultivation in respect of green tea leaf used for instant tea and a profit margin, such cost of cultivation being the same cost which is added back in the estate account in connection with computation of income from black tea.
4. For the accounting year 1979 relating to the assessment year 1980-81, a notional estimated value of Rs. 1,01,14,509 had, from time to time, been credited into the estate account and debited in the instant tea account in respect of green leaf transferred to the instant tea factory. At the end of the year, actual value was computed under Rule 7 of the Income-tax Rules at Rs. 86,75,832 made up of cost of cultivation of Rs. 78,93,537 and a profit of Rs. 7,82,295. In the consolidated estate account, the said cost of cultivation was added back and the notional value of Rs. 1,01,14,509 included therein was deducted so that the said account thereafter reflected only the income from black tea grown and manufactured. In the instant tea account, the value arrived at as per Rule 7 was substituted for the notional value by adding back the difference between the two. The above computation was accepted by the Central Income-tax Officer and assessment order was issued on March 16, 1984. The above order was subsequently revised by order dated February 24, 1987, where the Income-tax Officer computed the assessee's income from black tea in Kerala at Rs 1,70,30,979 and 40 per cent. thereof was taxed under the Income-tax Act, leaving the balance GO per cent. to be taxed under the Agricultural Income-tax Act.
5. When the Agricultural Income-tax Officer completed the assessee's agricultural income-tax assessment for the year by order dated March 18, 1986, he accepted the agricultural income from black tea as 60 per cent. of the figure computed by the Income-tax Officer under order dated March 16, 1984. But, in respect of green tea leaf used for instant tea manufacture, he recomputed the income by disallowing 30 per cent. of the cost of cultivation. Aggrieved by the above, the assessee filed an appeal before the D. C. (Appeals) who confirmed the disallowance. But, on further appeal before the Appellate Tribunal, by order dated June 20, 1996, the Tribunal accepted the contention raised by the assessee and allowed the entire cost of cultivation claimed.
6. In the meantime, a notice dated March 7, 1991, was issued by the respondent under Section 34 of the Agricultural Income-tax Act proposing to cancel the assessment order dated March 18, 1986, on the ground that value of green tea leaf transferred to instant tea unit ought to have been taken at the original notional value adopted in the assessee's account instead of the value computed as per Rule 7. Objections were filed by the assessee. It is also alleged that the matter was discussed with the respondent. But, by order dated May 30, 1991, the respondent cancelled the assessment order dated March 18, 1986. The matter was taken up in revision before this court by the assessee under T. R. C. No. 102 of 1991. This court, by judgment dated March 30, 1992, set aside the order passed by the respondent holding that the order did not satisfy the requirements of true quasi-judicial order and that it was not a speaking order as far as the merits of the case as well as the question of merger and limitation were concerned. Thereafter, the assessee filed additional objections dated June 25, 1992. The respondent then passed order dated July 1, 1993, copy of which is marked and produced, as annexure-K along with the revision petition repelling the objections raised by the assessee.
7. In annexure-K order, the respondent has noted a fact that in the Central income-tax assessment order dated February 24, 1987, the difference between the adjustment value of green tea leaves under Rule 7 and that charged in the accounts (Rs. 1,01,14,509--Rs. 86,75,832 = Rs. 14,38,677) have been added back and assessed to tax. Then, it is observed as follows :
"Hence, the contentions that the figure of Rs. 86,75,832 is the actual value as computed under Rule 7 of the Income-tax Rules and accepted by the CTO is not correct . . .Since the company had charged Rs. 1,01,14,509 to the instant tea division, this amount should be taken as gross income under sale and transfer of green tea leaves."
8. After making the above observations, the original order dated March 30, 1991, was confirmed.
9. It is contended by learned counsel for the assessee-petitioner that the statement made by the respondent as quoted above in its order dated July 1, 1993, is totally erroneous. On the other hand, the Income-tax Officer had accepted the figure of Rs. 86,75,832 computed as per Rule 7 of the Income-tax Rules as the value of the tea leaves transferred to the instant tea division. A reference to the order passed by the Income-tax Officer copy of which is marked as annexure-B-1, would clearly show the difference between the notional value shown in the accounts and the value finally computed as per Rule 7 and added to the business income of the assessee from the instant tea unit. Learned counsel pointed out that in the order passed by the Tribunal on its appeal against disallowance of the entire amount claimed as cost of cultivation, reference is made in paragraph 10 about adoption of notional transfer value. The Tribunal had stated as follows :
"Generally, the assessing authority has basically accepted the Rule 7 transfer value to arrive at the agricultural income. However, for the assessment year 1979-80, the assessing authority has adopted the notional transfer value credited in the accounts. This may be a mistake. The assessing authority is directed to deduct the entire cost of cultivation from the Rule 7 transfer value for the purpose of computing income from the transfer of green tea leaves to the instant tea division."
10. Learned Government Pleader admitted that the above order passed by the Tribunal has not been challenged by the Department.
11. After hearing both sides, we are convinced that the respondent has committed a grave error in assuming that the Income-tax Officer had not accepted the figure of Rs. 86,75,832 as the actual value of the green tea leaves transferred to the instant tea division. A reference to the above order for the relevant assessment year would clearly show that annexure-K order is vitiated by an error apparent on the face of it. We do not find any reason to accept the stand taken by the respondent that the notional value originally shown in the accounts should be taken into consideration as the value of the green tea leaves transferred to the instant tea unit. Even though this court, by annexure-I judgment, had directed the respondent to consider the matter afresh, the respondent has not done any such reconsideration. We, therefore, set aside annexure-K order under challenge. Since this court, while passing the interim order in C.M.P. No. 2848 of 1993, allowed the assessing authority to go on with the assessment proceedings, but to keep in abeyance recovery proceedings, revised assessment order has been already passed by the assessing authority on October 9, 1995, copy of which is produced as annexure-I along with C. M. P. No. 3085 of 1997. As a consequence of our setting aside annexure-K order dated July 1, 1993, passed by the respondent herein, we set aside the revised order dated October 9, 1995, also. We make it clear that it is open to the assessing authority to pass revised assessment order on the basis of the directions given by the Tribunal in its order dated June 20, 1996. The revision stands allowed as above.