Commissioner of Agricultural
Income-Tax, Trivandrum Vs. Kerala Estate Mooriad Chalapuram [1986] INSC 132 (15
July 1986)
PATHAK, R.S.
PATHAK, R.S.
MUKHARJI, SABYASACHI (J)
CITATION: 1986 AIR 1750 1986 SCR (3) 161 1986
SCC (3) 584 JT 1986 316 1986 SCALE (2)10
ACT:
Kerala Agricultural Income Tax Act, 1950, ss.
4 and 5- Agricultural Income -Deductions allowed under s. 5-Whether subsequent
remission thereof could be treated as "agricultural income"-Remission
and Refund-Distinction between.
HEADNOTE:
The Kerala Agricultural Income Tax Act, 1950
provides for the levy of tax on agricultural income in the State of Kerala.
Section 5 details the deductions to be made in computing the agricultural
income. Clauses (e), (g), (h) and (i) refer to interest paid by the assessee in
different kinds of cases. The interest in all these cases, has to be deducted
from the agricultural income of a person before the levy is imposed.
The respondents-assessees claimed a deduction
of Rs.33,747.09 from their agricultural income under s. 5 of the Kerala
Agricultural Income Tax Act 1950 towards interest on a loan of Rs.4 lakhs taken
from a creditor. The deduction was allowed. However, in the next accounting
period relating to the assessment year 1964-65, the said creditor waived payment
of the interest of Rs.33,747,09 and accordingly the amount was credited to the
revenue accounts of the respondents-assessees. The Assessing Authority brought
the amount to tax. But, the Tribunal as well as the High Court took the view
that the case was not one of an actual or constructive receipt or any receipt
at all but only one of remission and a remission could not give rise to a
credit item in the accounts of the assessees and that what had been given by
the creditor in favour of the assessees or returned to them could not
constitute the income of the assessees.
Dismissing the appeal of the Revenue, ^ HELD:
(1) The view taken by the High Court is right.
The remission cannot be considered as
amounting to the receipt of agricultural income. What was allowed to be
deducted from the total agricultural income of the assesses was interest
pursuant to s. 5 of the Act. It was a deduction made permissible by the Act. To
be regarded as taxable in the hands of the assessee, the amount which was the
subject of remission must be capable of being described as agricultural income.
[164F-G] In the instant case, what was returned to the assessees has nothing to
do with the activities of the assessees; it does not arise from business nor
does it arise from agricultural operations when the assessee is an
agriculturist. [164G-H] Commissioner of Income-tax, Mysore v. Lakshmamma,[1964]
52 ITR 789, approved.
Mohsin Rehman Penkar v. Commissioner of
Income-tax, Bombay City,[1948] 16 ITR 183, referred to.
(2) In order to eliminate such a controversy
in cases falling under the Indian Income-tax Act, 1922, sub-s.(2A) was added in
s. 10 of that Act, whereby a receipt such as this was expressly made liable to
tax by legal fiction as profits and gains of business, profession or vocation.
Sub.s.(2A) of s.10 of the Indian Income Tax
Act, 1922 has been replaced by an even wider provision as sub-s. (1) of s. 41
of the Income Tax Act, 1961. No provision of that nature finds place in the
Kerala Agricultural Income Tax Act.
[165A-B;D]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No.1396 of 1974 From the Judgment and order dated 28.2.1973 of the Kerala High
Court in I.T. Reference No. 84 of 1971.
T.S. Krishnamurthy Iyer, V.J. Francis and
N.M. Popli for the Appellant.
S.Balakrishnan for the Respondent.
The Judgment of the Court was delivered by
PATHAK J. This appeal by special leave is directed against the judgment of the
High Court of Kerala disposing of an Agricultural 163 Income-tax Reference and
answering the following question in favour of the assessee and against the
Revenue:
"Whether on the facts and circumstances
of the case the Tribunal was justified in holding that the amount of
Rs.33,747.09 is not agricultural income for the assessment year 1964-65."
The assessees Kerala Estate Mooriad Chalapuram, is a broad description of seven
persons possessing the status of tenants-in-common under the Kerala
Agricultural Income-tax Act, 1950. They owned an estate from which they derived
agricultural income liable to be assessed in the year 1963-
64. The assessees followed the mercantile
system of accounting. In assessment proceedings for the year 1963-64, the
assessees claimed a deduction of Rs.33,747.09 from their agricultural income on
the ground that it was payable towards interest on a loan of Rs.4,00,000 taken
by them from M/s. Associated Planters Ltd., Calicut. The deduction was allowed.
During the accounting period relating to the assessment year 1964-65 M/s.
Associated Planters Ltd.waived payment of the interest of Rs.33,747.09, and
accordingly the amount was credited to the revenue accounts of the assessees.
The assessing authority brought the amount to tax. The case was ultimately
carried in second appeal to the Tribunal on the question whether the sum of
Rs.33,747.09 credited in the relevant previous year could be assessed to tax
for the year 1964-65. The Tribunal, by majority, held that it was not
agricultural income. As the instance of the Commissioner of Agricultural
Income-tax, Kerala, a reference was made to the High Court of Kerala under
sub-s. (2) of s. 60 of the Kerala Agricultural Income-tax Act on the question
of law set forth earlier, and the High Court has answered the question in the
affirmative. The High Court has taken the view that it was immaterial that the
assessees followed the mercantile system of accounting, because the case was
not one of an actual or constructive receipt or any receipt at all but only one
of remission. According to the High Court a remission could not give rise to a
credit item in the accounts of the assessees, and that what had been given up
by the creditor in favour of the assessees or returned to them could not
constitute the income of the assessees. The High Court observed that what was
returned to the assessees had nothing to do with the activities of the
assessees, and that it did not arise from the agricultural operations carried
on by the assessees.
The Kerala Agricultural Income-tax Act, 1950
provides for the 164 levy of tax on agricultural income in the State of Kerala.
Section 3 of the Act provides that
agricultural income shall be charged for each financial year on the total
agricultural income of the previous year of every person at the rates specified
in the Schedule. Section 4 defines what 'total agricultural income' is, and s.5
details the deductions to be made in computing the agricultural income. Clauses
(e), (g), (h), and (i) of s. 5 refer to interest paid by an assessee in
different kinds of cases. The interest in all these cases has to be deducted
from the agricultural income of a person before the levy is imposed. It is not
disputed that the interest allowed to be deducted in the assessment of the
present assessees falls under one of those clauses and was, therefore, rightly
deducted in computing their agricultural income. The question is whether the
interest waived by M/s. Associated Planters Ltd. and credited to the revenue
accounts of the assessees can be regarded as their agricultural income.
There has been serious controversy through
the years on the question whether an amount refunded or remitted constitutes
the income of an assessee. In Commissioner of Income-tax, Mysore v. Lakshmama,
[1964] 52 ITR 789. the Mysore High Court took the view that a refund received
by the assessee in respect of excise fees payable by him amounted to a revenue
receipt liable to tax. In that case, however, the High Court specifically made
a distinction between cases of refund and cases of remission, and it appears to
have taken the position that an amount received as remission of duty could not
be treated as a revenue receipt, while an amount received by way of refund
could be.
In the judgment under appeal, the High Court
of Kerala noticed that decision and after exhaustively surveying several
decisions came to the conclusion that the remission in the present case could
not amount to agricultural income.
We think that the view taken by the High
Court in the case before us is right. The remission cannot, in our opinion, be
considered as amounting to the receipt of agricultural income. What was allowed
to be deducted from the total agricultural income of the assessees was interest
pursuant to s.5 of the Act. It was a deduction made permissible by the Act. To
be regarded as taxable in the hands of the assessees the amount which was the
subject of remission must be capable of being described as agricultural income.
As the High Court has observed in the present case "what was returned to
the assessee has nothing to do with the activities of the assessee, it does not
arise from business nor does it arise from agricultural operations when the
assessee is an agriculturist." 165 In order to eliminate such a
controversy in cases falling under the Indian Income-tax Act, 1922 sub-s. (2A)
was added in s. 10 of that Act, whereby a receipt such as this was expressly
made liable to tax by legal fiction as profits and gains of business,
profession or vocation. Sub- s. (2A) was inserted in s.10 in 1955. Before that
Chagla, C.J., speaking for the Court in Mohsin Rehan Penkar v. Commissioner of
Income-tax, Bombay City, [1948] 16 ITR 183 had observed: "It is impossible
to see how a mere remission which leads to the discharge of the liability of
the debtor can ever become income for the purposes of taxation". This
observation was noted by the Mysore High Court in C.I.T. v. Lakshmamma (supra),
and appears from what was said by them to have received that tacit approval of
the learned Judges.
It was made the basis of distinguishing the
case before them from that decided by the Bombay High Court.
We may point out in regard to sub-s. (2A) of
s. 10 of the Indian Income Tax Act, 1922 that it has been replaced by an even
wider provision as sub-s. (1) of s. 41 of the Income Tax Act, 1961. No
provision of that nature finds place in the Kerala Agricultural Income Tax Act.
The appeal fails and is dismissed with costs.
M.L.A. Appeal dismissed.
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