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PETITIONER: COMMISSIONER OF AGRICULTURAL INCOME TAX, TRIVANDRUM

       Vs.

RESPONDENT: SMT. LUCY KOCHUVAREED

DATE OF JUDGMENT07/05/1976

BENCH: GUPTA, A.C. BENCH: GUPTA, A.C. SINGH, JASWANT

CITATION:  1976 AIR 1681            1976 SCR  657  1976 SCC  (3) 438

ACT:      Kerala Agricultural  Income Tax  Act, 1950,  ss. 34 and 35-Revisional power  of Commissioner  and assessing ’escaped assessment’, scope of.

HEADNOTE:      The assessee  made a  full disclosure of his income and claimed  expenses   incurred  for  the  maintenance  of  his immature rubber  plantations as deductions. The Agricultural Income Tax  Officer, after  considering the  matter, allowed such  deductions   as  he  thought  proper.  The  appellant- Commissioner, in  exercise of his revisional powers under s. 34, Kerala  Agricultural Income Tax Act, 1950, issued notice to the  respondent (widow  of  the  assessee)  proposing  to revise the  assessment on  the ground  that  the  deductions allowed were excessive. The appellant, after considering the respondent’s objections,  held that  the deductions  allowed were excessive  and remanded  the matter to the Agricultural Income Tax  Officer for  fresh disposal according to law. At the instance  of the  respondent, the  question whether  the appellant had jurisdiction to pass the order under s. 34 was referred to  the High Court, and the High Court, on the view that it  was a  case of  re-opening escaped assessment held, relying on  Maharajadhiraj Sir  Kameshwar Singh  v. State of Bihar, (1959) 37 I.T.R. 388 (SC), that the power of revision vested in  the Commissioner under s. 34 could not be invoked for  the  purpose  of  assessing  income  that  had  escaped assessment, and  that such  income could be assessed only by resorting to  the procedure  prescribed by s. 35. within the time limit prescribed therein.      Allowing the appeal to this Court, ^      HELD:(1) Every  case of  under-assessment is not a case of escaped  assessment. The  Agricultural Income Tax Officer may have  committed an  error in  allowing the deductions to the extent  he did, but he did so after applying his mind to the claims.  This is not a case where the officer omitted to assess any item of income disclosed in the assessee’s return as in  the case  relied on by the High Court and as in kamal Singh v.  C.I.T. (1959)  35 I.T.R.  1 (SC). Therefore, it is not a case of reopening escaped assessment. [662F-H]      Deputy  Commissioner  of  Agricultural  Income-tax  and

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Sales Tax,  Quilon and  another v.  Dhanalakshmi Vils Cashew Co., (1969) 24 S.T.C. 491, followed.      (2) Since  it is  not a case of escaped assessment, the appellant had  jurisdiction to  make the  order under s. 34. [663B]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal Nos. 793 to 794 of 1971.      Appeal by  Special Leave  from the  Judgment and  order dated the  7th August,  1970 of  the Kerala  High  Court  at Ernakulam in Income Tax Reference No. 9 of 1968.      T. S.  Krishnamoorthy Iyer,  N. Sudhakaran and K. M. K. Nair; for the Appellent (In CA 793/71)      K. M. K. Nair; for the appellant (In C.A. 794/71). 658      D. V. Patel and A. S. Nambiar; for the Respondent.      The Judgment of the Court was delivered by      GUPTA,  J.-One   T.  V.   Kochvared  who  owned  rubber plantations in  Trichur was  assessed  by  the  Agricultural Income-Tax other,  Trichue on  a net agricultural  income of Rs. 31,662/- and Rs 30,856/- respectively for the assessment years  1959-60   and  1960-61.   The  assessee  had  in  his possession immature  rubber plantation  covering  193  acres dung the  assessment year 1960-61. In computing their income for the  said two years. the Agricultural Income-tax Officer had disallowed  out of  the expenses  clammed for the upkeep and maintenance  of the     immature area  Rs. 2500/-for the year 1959-60  and  Rs.3500/-for  the  year  1960-61.  T.  V. Kochuvareed died  in 1961 leaving behind him as his heir and legal representative  his wife  who is the respondent before us. On  March 13,  1963  the  Commissioner  of  Agricultural Income-tax issued  a notice  under section  34 of the Kerala Agricultural Income-tax  Act, 1960  to the respondent, which was served  on her  on March  15, 1963,  proposing to revise suo motu the assessment for the said two year son the ground that the  deductions allowed  were excessive and without any proper basis  as a  result of which Rs. 16,800/-for the year 1959-60,  and   Rs.   25,800/-for   1960-61   had   "escaped assessment". The respondent was asked to file objections, if any   within fifteen  days of the receipt of the notice. The respondent in  her objection  contended  that  the  proposed revision of  her husband’s  income which  was said to have " escaped assessment"  was outside the scope of section 34. On this objection another notice was served on her on September 26, 1966  stating that  the expression  "escaped  assessment "used in  the earlier  notice was inadvertent and asking the respondent to  file further  objections, if she liked, after this eradication. The respondent filed further objections on October 12,  1966 which  the Commissioner  rejected  by  his order dated  August 23,  1967 and  remanded the cases to the Agricultural Income-tax  officer  for  fresh  disposal.  The relevant part of this order is as follows:           "In  these   circumstances   I   find   that   the      disallowance of  Rs. 2500/-  for 1959-60 and Rs. 3500/-      for 1960-61  towards upkeep and maintenance of immature      area is  irregular as  it is  not based on any rational      method. The  orders of  assessment for  these years are      therefore set  aside and  the cases are remanded to the      Agricultural Income-tax  Officer,  Trichur,  for  fresh      disposal according  to law after examining each item of      expenditure individually  and the  general  charges  by      applying the  principles laid  down by  the Kerala High

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    Court in its judgment reported in (1964) 58 ITR 629." At the  instance  of  the  respondent  the  Commissioner  of Agricultural Income-tax  referred the  following question of law to  the High  Court of Kerala under section 60(2) of the Kerala Agricultural Income-Tax Act, 1950: 659           Whether on  the facts  and in the circumstances of      the   case the Commissioner has jurisdiction to pass an      order in this case under section 34 of the Agricultural      Income-Tax Act, 1950.      The High  Court by  a majority  held that  the power of revision vested  in the Commissioner under section 34 of the Act could not be invoked for the purpose of assessing income that had "escaped assessment:" and that such income could be assessed only by resorting to the procedure under section 35 of the  Act. In these appeals by special leave the appellant questions the correctness of this decision.      It is  necessary to refer to the relevant provisions of the Act before proceeding to consider the contentions of the parties. Section  3 provides  that  agricultural  income-tax shall be  charged for  each  financial  year  on  the  total agricultural income  of the  previous year  at the  rate  or rates  specified   in  the   Schedule  to   the  Act.  Total agricultural income  is  defined  in  section  2(s)  as  the aggregate of  all agricultural income mentioned in section 4 computed in  accordance with  the provisions  of  section  5 including all income of the description specified in section 9 and  all receipts  of the description specified in section 10(a), (c) and (d). Section 5 enumerates the deductions from the total  income which  have to  be made  in computing  the agricultural income. Section 17(1) of the Act requires every person whose  total agricultural  income during the previous year  exceeded   the  limit   which  is  not  chargeable  to agricultural income-tax,  to  furnish  to  the  Agricultural Income-tax officer  a return  stating his total agricultural income in  that year and the expenditure incurred by him out of that  income. Section  18 deals  with the  powers of  the Agricultural  Income-tax   officer  to   assess  the   total agricultural income  of the  assessee and  determine the sum payable by  him.  Section  19  authorises  the  Agricultural Income-tax officer to cancel the assessment in certain cases at the  instance  of  the  assessee  and  to  make  a  fresh assessment in  accordance with the provisions of section 18. Section 31  provides an appeal to the Assistant Commissioner against any  order of  assessment with which the assessee is dissatisfied. Sub-section  (7) of  the section  requires the Assistant Commissioner  to communicate  the orders passed by him disposing  of the sessee objecting to an order passed by an  Assistant  Commissioner  may  appeal  to  the  appellate Tribunal.  Sub-section   (2)  of  the  section  permits  the Commissioner if  he objects  to  any  order  passed  by  the Assistant Commissioner  under  section  31,  to  direct  the Agricultural Income-tax  Officer to  appeal to the appellate Tribunal against  such order.  Subsection (5)  of section 32 provides that  the  appellate  Tribunal  after  giving  both parties an  opportunity of  being heard  may pass such order thereon as  he thinks  fit.  The  tribunal  is  required  to Communicate  the   order  to   the  assessee   and  to   the Commissioner. Section  34 and  section 35  are the  two most important section  for the purpose of these appeals. Section 34 which confers on the Commissioner revisional powers is in these terms: 660           "34. Revision.-(1).  The Commissioner  may, of his      own motion  or on  application by an assessee, call for

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    the record  of any  proceeding under this Act which has      been taken  by any authority subordinate to him and may      make such enquiry or cause such enquiry to be made and,      subject to  the provisions  of this  Act, may pass such      orders thereon as he thinks fit:                Provided that  he shall  not pass  any  order                prejudicial to  an assessee  without  hearing                him or giving him a reasonable opportunity of                being heard                Provided  further   that  an   order   passed                declining to interfere shall not be deemed to                be an order prejudicial to the assessee.           (2)  Any order  passed under  subsection (1) shall                be final subject to any reference that may be                made to the High Court under section 60." Section 35  which  deals  with  income  escaping  assessment reads:           "35. Income  escaping assessment.(1)  If  for  any      reason agricultural income chargeable to tax under this      Act has escaped assessment in any financial year or has      been assessed  at too  low  a  rate,  the  Agricultural      Income-tax Officer may, at any time within three years,      of that  end of that year serve on the person liable to      pay the  tax or  in  the  case  of  a  company  on  the      principal officer  thereof a  notice containing  all or      any of  the requirements  which may  be included  in  a      notice under  sub-section (2)  of section  17  and  may      proceed to  assess or  re-assess such  income  and  the      provisions of  this Act  shall so  far as may be, apply      accordingly as if the notice were a notice issued under      that sub-section;           Provided that the tax shall be charged at the rate      at which  it would have been charged if such income had      not escaped  assessment or full assessment, as the case      may be;           Provided further  that the Agricultural Income-tax      Officer shall not issue a notice under this sub-section      unless he has recorded his reasons for doing so.           (2) No  order of assessment under section 18 or of      assessment or  reassessment under  sub-section  (1)  of      this section  shall be  made after  the expiry of three      years  from   the  end   of  the   year  in  which  the      agricultural income was first assessable;           Provided that where a notice under sub-section (1)      has been  issued within  the time  therein limited, the      assessment or  reassessment to  be made in pursuance of      such notice  may be  made before the expiry of one year      from the  date of  the service of the notice even if at      the time  of the  assessment or  reassessment the three      years aforesaid have already elapsed; 661           Provided further  that nothing  contained in  this      section limiting  the time  within which any action may      be taken  or any  order, assessment or reassessment may      be made  shall  apply  to  a  reassessment  made  under      section 19  or to an assessment or reassessment made in      consequence of,  or to  give effect  to any  finding or      direction contained  in, an  order  under  section  31,      section 32, section 34 or section 60.           (3) In  computing the period of limitation for the      purposes of  this section,  any period during which the      assessment  proceeding   is  stayed   by  an  order  or      injunction of  any court  or other  competent authority      shall be excluded."      Section 35  as it  originally stood  contained only the

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provision now  contained in  sub-section (1)  including  the first proviso.  The second  proviso to  sub-section (1), and sub-sections (2)  and (3)  were introduced  and the original provision was  renumbered as  sub-section (1) by an amending Act in  1964, but  the newly  added  provisions  were  given effect from April 1, 1958. Section 35 as extracted above was therefore, applicable  in  a  proper  case  during  the  two assessment years we are concerned with. It would appear that sub-section (2)  prescribes a  time limit of three years for reassessment under  sub-section (1) of this section from the end of  the year  in which the agricultural income was first assessed though the first proviso to sub-section (2) extends the time  for reassessment in a case where notice under sub- section (1)  had been  issued within  the time prescribed by the sub-section,  till the  expiry of one year from the date of service of the notice even if at the time of reassessment the prescribed period of three years had elapsed. The second proviso to  sub-section (2)  states that  the limitation  of time  prescribed   by  section  35  will  not  apply  to  an assessment  or  reassessment  made  in  consequence  of  any direction contained  in an  order under  section 31, section 32, section  34 or  section  60.  Section  36  empowers  the authority which  passed an  order  on  appeal  or  revision, within three  years from  the date  of such  order, and  the Agricultural Income-tax  Officer within three years from the date of  any assessment  made by him, to rectify any mistake apparent from the record of the appeal, revision, assessment or refund  as the case may be. Sub-section (1) of section 60 provides that  the assessee  or the Commissioner may require the appellate  tribunal to  refer  to  the  High  Court  any question of law arising out of an order under section 32(5). Sub-section (2)  of section  60 permits  an assesee  who  is served with  a notice  of an order under section 34 which is prejudicial to  him to  require the Commissioner to refer to the High  Court any  question of  law arising  out  of  such order.      The majority  decision of  the High Court took the view that this  was a  case of  escaped assessment  and that  the power of  revision conferred  on the Commissioner by section 34 of  the Act  could not  be utilised  for the  purpose  of reassessment of  income that escaped assessment disregarding the provisions  of section 35. Sub-section (1) of section 34 makes it  clear that  the power  of revision  is exercisable "subject to  the provisions of this Act." It was pointed out in the majority judgment that section 35 contains a specific provision  for  reassessment  of  income  that  had  escaped assessment and  it was  held that  revisional  powers  under section 34  could be  availed of  to reopen cases of escaped assessment 662 only within  the time  limit  and  in  accordance  with  the procedure prescribed  by section  35. Before  us, Mr. Patel, learned counsel  for the  respondent,  reiterated  the  same contention.  Mr.   Krishnamurthy  Iyer   appearing  for  the appellant challenged  the decision  of the High Court on two grounds: (1)  the income sought to be reassed was not income that had  "escaped" assessment  and, as such, the provisions of section  35 are not relevant for the present purpose, and (2) assuming  this was a case of income escaping assessment, even then  the second  proviso to sub-section (2) of section 35  removes   the  bar   of  time   for  any  assessment  or reassessment made  to  give  effect  to  a  direction  under section 34.  On the  first question  the High  Court  found, relying on  the decision of this Court in Maharajadhiraj Sir Kameshwar Singh  v. State  of Bihar, that this was a case of

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escaped  income.  In  Kameshwar  Singh’s  case  one  of  the provisions that came up for interpretation was section 26 of the Bihar Agricultural Income-Tax Act, 1938 which is similar in many  respects  to  section  35(1)  of  the  Act  we  are concerned with  in this  appeal. It  was held  in Kameshawar Singh’s case  that under  section 26  of the  Bihar Act, the Agricultural Income-tax Officer was competent to "assess any item of  income which  he had  omitted to  tax earlier, even though in  the return  that  income  was  inlcuded  and  the Agricultural Income-tax  Officer then  thought that  it  was exempt". The  same view  was taken in an earlier decision of this Court,  Kamal Singh v. Commissioner of Income-tax, that : "even  if the  assessee has  submitted  a  return  of  his income, case  may well  occur where  the whole of the income has not  been assessed garded as having escaped assessment". But the  question that  arises in  the case before us is not covered by  either of  these decisions.  This is  not a case where the  Agricultural Income-tax Officer omitted to assess any item  of income disclosed in the assessee’s return. Here the assessee  made a  full  disclosure  of  his  income  and claimed certain  deductions. It  is not disputed that he was entitled to claim some dedcations for the maintenance of the immature  rubber   planation.  The  Agricultural  Income-tax Officer may  have committed  an error in allowing deductions to the  extent he did, but he did so after applying his mind to the  claim. Every  case of under assessment is not a case of escaped  assessment. The  view we take finds support from the  decision  of  this  Court  in  Deputy  Commissioner  of Agricultural Income-tax and Sales Tax, Quilon and another v. Dhanalakshmi Vilas Cashew Co.      On the  other question,  the High  Court held  that the order of the Commissioner directing the Agricultural Income- tax Officer  to reassess  the income  for the  two years was bad, having  been  made  after  the  expiry  of  the  period prescribed by section 35 for the reassessment of income that had escaped assessment. For the appellant it was contended 663 that the second proviso to section 35 removed the limitation of time in the case of a reassessment made in consequence of a direction  or order under section 34. As we have held that this was  not a  case  of  escaped  assessment,  this  other question does not arise for consideration.      In our  opinion  the  Commissioner  in  this  case  had jurisdiction to  make the order he did under section 34, and the question  referred to the High Court under section 60(2) should therefore be answered in the affirmative. The appeals are allowed, but in the circumstances of the case we make no order as to costs. V.P.S.                                      Appeals allowed. 664