IT : Ownership of land is not a prerequisite for having agricultural income and it would suffice if revenue is derived from agricultural activities carried out on an agricultural land situated in India
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[2013] 33 taxmann.com 149 (Pune - Trib.)
IN THE ITAT PUNE BENCH 'A'
Income-tax Officer, Ward-2(1), Kolhapur
v.
Gajanan Agro Farms*
SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
G.S. PANNU, ACCOUNTANT MEMBER
G.S. PANNU, ACCOUNTANT MEMBER
IT APPEAL NOS. 1285 & 1286 (PN.) OF 2011
CO. NOS. 94 & 95 (PN.) OF 2011
[ASSESSMENT YEARS 2002-03 & 2003-04]
CO. NOS. 94 & 95 (PN.) OF 2011
[ASSESSMENT YEARS 2002-03 & 2003-04]
OCTOBER 31, 2012
Section 2(1A) of the Income-tax Act, 1961 - Agricultural income [Ownership of land] - Whether ownership of land is not a prerequisite for having agricultural income and it would suffice if revenue is derived from agricultural activities carried out on an agricultural land situated in India - Held, yes - Whether further, a firm can be an agriculturalist which derives revenue from agricultural activity - Held, yes [Para 10][In favour of assessee]
FACTS
| ■ | During relevant year, assessee-firm claimed exemption in respect of its agricultural income. | |
| ■ | The Assessing Officer rejected the assessee's claim on two grounds, firstly, assessee was not owner of land and, secondly, assessee being an artificial person, created by law, it could not be an 'agriculturalist', conducting any of the agricultural activities of its own. | |
| ■ | The Commissioner (Appeals), however, allowed assessee's claim. | |
| ■ | On revenue's appeal: |
HELD
| ■ | Under section 2(1A) only agricultural income is defined and is required to be a source of income. It is not necessary that in order to come within the ambit of the Act, the person has to be an agriculturist. It is sufficient if revenue is derived from agricultural activities conducted on a land situated in India which is used for agricultural purposes. Therefore, a firm can be an agriculturist which derives revenue from agricultural activity. [Para 10] | |
| ■ | A plain reading of section 2(1A) makes it clear that all that is necessary that revenue should be derived from a land situated in India and which is used for agricultural purposes. This section does not specify that revenue has to be derived by the owner of the agricultural land only. The term 'revenue', therefore, implies some yield or some income from agricultural operations. Sub-clause (ii) and (iii) also use the terms 'cultivator' and 'receiver of rent-in-kind'. These terms also appear in clause (c) of section 2(1A). Thus, it can be inferred that agricultural income can also be derived by person who is a cultivator or who is the owner of land. It is only the receiver of rent-in-kind who can directly be held to be the owner of land as referred to in this section. | |
| ■ | A cultivator may be the owner but it is not necessary that he has to be the owner. In clause (a), there can be a recipient of rent from land which implies ownership and also a recipient of revenue derived from land, which implies that the person can be the owner or may not be the owner of land. Similarly, sub-clause (i) of clause (b) speaks of income derived from an agricultural land by agricultural. This makes it clear that revenue derived from land or from agriculture implies a periodic return of income from agricultural operations only. [Para 17] | |
| ■ | In the instant case, relationship between MSFC Ltd. and the assessee firm can be properly described as that of the landlord and a tenant. The assessee-firm had to make the payment of a fixed sum of Rs. 20 lakh every year to 'M' during the subsistence of the agreement regardless of production from the agricultural farm. Under these circumstances, the Assessing Officer was not justified in rejecting the claim of assessee on ground that income in question was derived from agricultural operations carried on the land belonging to 'M'. The conclusion of the Assessing Officer is based on improper interpretation of law and on surmises and conjectures. [Para 21] | |
| ■ | In view of above, impugned order passed by Commissioner (Appeals) was to be upheld. |
Sunil Ganoo and Mayuresh Doshi for the Appellant. S.K. Singh and Ms. Ann Kapthuama for the Respondent.
ORDER
Shailendra Kumar Yadav, Judicial Member - All these appeals and cross objections pertain to same issue of same assessee. So they are being disposed of by this common order for the sake of convenience.
2. In ITA.No.1285/PN/2011, the Revenue has filed this appeal against the order of the CIT(A) on the following grounds:
| 1. | On the facts and in the circumstances of the case, the Commissioner of Income tax (Appeals), Kolhapur failed to appreciate that to claim exemption as per section 2(1A) of the Act, the basic condition is that the assessee should have land. In the instant case, the assessee is not a owner of land, as neither the said agricultural land is appearing in the balance sheet, nor it has produced 7/12 extracts evidencing the land to be in its own name. | |
| 2. | On the facts and in the circumstances of the case, the Commissioner of Income tax (Appeals), Kolhapur erred in not appreciating that to claim exemption as per section 2(1A) of the Act, the basic condition is that the assessee should be cultivator, or receiver of rent in kind, of any process to render the produce raised or received by him fit to be taken to market. The assessee satisfies neither of the above conditions, since being an artificial person, created by law, it cannot be an "agriculturist", conduct any of the above activities of its own. | |
| 3. | The appellant prays that the order of the Commissioner of Income tax (Appeals), Kolhapur be vacated and that of the Assessing Officer be restored. |
3. The Assessing Officer disallowed the claim of the assessee with regard to agricultural income mainly in absence of non-filing of extracts in form 7/12 and 18 with regard to the agricultural land in question. In appeal, the CIT(A) has allowed assessee's claim, which has been opposed before us.
4. The Ld. Departmental Representative submitted that the CIT(A) failed to appreciate that to claim exemption as per section 2(1A) of the Act, the basic condition is that the assessee should have land. In the instant case, the assessee is not a owner of land, as neither the said agricultural land is appearing in the balance sheet, nor it has produced 7/12 extracts evidencing the land to be in its own name. The CIT(A) erred in not appreciating that to claim exemption as per section 2(1A) of the Act, the basic condition is that the assessee should be cultivator, or receiver of rent in kind, of any process to render the produce raised or received by him fit to be taken to market. The assessee satisfies neither of the above two conditions, since being an artificial person, created by law, it cannot be an "agriculturist", conduct any of the above activities of its own. So the order of the CIT(A) be set aside and that of the Assessing Officer be restored. On the other hand, Ld. Authorised Representative heavy relied on the order of the CIT(A) and reiterated the submissions made before the CIT(A).
5. After going through the above submissions and material on record, we are not inclined to interfere with the finding of the CIT(A). As per provisions contained in Bombay Tenancy and Agricultural Land Act, 1948, Indian Partnership Act and Circular issued by the Board in respect of aggregation of income, we are of the view that firm can engage in agricultural activity and derive income from such activities which yield agricultural income covered by section 10(1) of the Act. In this regard, the Assessing Officer has not considered the provisions of Maharashtra Agricultural Income-tax Act, 1962. Tax on agricultural income is a State subject (entry 46 in List II in the Seventh Schedule to the Constitution). Hence, the State is empowered to enact legislation on levying agricultural income-tax. The Maharashtra Income-tax Act has come into force from 01.04.1962. Section 2(2) of the Maharashtra Agricultural Income-tax Act, 1962 reads as under:
(2) "assessee" means a person by whom agricultural income-tax or any other sum of money is payable under this Act and includes -
| (a) | every person in respect of whom any proceeding under this Act has been taken for the assessment of his agricultural income or the agricultural income of any other person in respect of which he is assessable; | |
| (b) | every person who is deemed to be an assessee under any provision of this Act; |
Thus section 2(2) defines an assessee to mean a person by whom agricultural income-tax or any other sum of money is payable under the Maharashtra Agricultural Income-tax Act, 1962.
6. Sub-section (9) of section 2 defines the meaning of a person appearing in sub-section (2). Sub-section (9) reads as under:
(2) "person" includes-
| (a) | an individual | |
| (b) | a Hindu undivided family, | |
| (c) | a company, | |
| (d) | a firm, | |
| (e) | an association of persons or a body of individuals, whether incorporated or not, and | |
| (f) | every artificial juridical person, not falling within any of the preceding sub-clauses; |
Item (d) of this sub-section specifically includes a firm. Thereby implying that a firm can have agricultural income on which agricultural income-tax is payable.
7. Sub-section 7 to section 2 of Maharashtra Agricultural Income-tax Act, 1962 defines the terms 'firm', 'partner' and 'partnership' to have the same meaning as assigned to them in the Indian Partnership Act, 1932. Sub-section 7 reads as under:
(7) "firm", "partner" and "partnership" have the same meanings respectively assigned to them in the Indian Partnership Act, 1932, but the expression 'partner' shall also include any person who, being a minor, has been admitted to the benefits of partnership;
8. Persons who have entered into partnership with one another are individually called partners and collectively called a firm and the name under which the business is carried on is called the firm name. The provisions of the Maharashtra Agricultural Income-tax Act, 1962 clearly reveals that a partnership firm can be an agriculturist and can have agricultural income. Therefore, the conclusion drawn by the Assessing Officer that a juristic person like a firm cannot be an agriculturist in Maharashtra is not correct.
9. In the case of Narayan Bhimji Vadangale and another v. Hukumchand Chunilal Thole and another in AIR 1992 SC 503, reversing the decision of the Bombay High Court and giving reference to section 2(2) and section 63 of the BTALA, 1948, the Hon'ble Supreme Court held that it could not be said that a partnership firm being an inanimate person could not cultivate land personally and could not therefore be an agriculturist in the following words:
"Now we are required to examine whether the view taken by the High Court in treating the firm as inanimate, incapable of personal cultivation of agricultural land is correct or otherwise. No elaboration is necessary to understand the legal composition of a firm and its personality which is a name given compendiously to a group of people who comprise its partners, and those people have naturally to be live persons. When we talk of a firm cultivating land we mean to convey that it is the partners of the firm who cultivate the land and in that sense the firm cultivates it personally. The firm may be inanimate but the partners comprising thereof are people in flesh and blood. On this analysis the basis of the judgment of the High Court gets knocked off. Whether the firm is agriculturist or non-agriculturist would depend upon the activities of its partners."
10. Section 60(1) of the Civil Procedure Code has also been referred. A perusal of section 60(1) of the Civil Procedure Code, 1908, shows that the meaning of the word "agriculturist" is given in Explanation V to, mean a person who cultivates the land personally and who depends for his livelihood mainly on income from agricultural land whether as owner, tenant, partner or agricultural labour. Explanation VI to section 60(1) of the of the Civil Procedure Code 1908 mentions that an agriculturist will be deemed to cultivate the land personally if he cultivates the land by his own labour or by the labour of any member of his family or by servants or by labourers by wages payable in cash or in kind (not being a share of produce) or both. Thus, it is immaterial that the firm cannot cultivate the land personally to become an agriculturist. All that is required is that the revenue from the land should be generated by agricultural produce. The deemed cultivation of land, contained in Explanation VI makes it amply clear that a person need not cultivate the land personally to be an agriculturist under the BTALA, 1948. Further, under section 2(1A) of the Income-tax Act only agricultural income is defined and is required to be a source of income. It is not necessary that in order to come within the ambit of the Income-tax Act, the person has to be an agriculturist. It is sufficient if revenue is derived from agricultural activities conducted on a land situated in India which is used for agricultural purposes. Therefore, the CIT(A) was justified in holding that the firm can be an agriculturist which derives revenue from agricultural activity.
11. In this regard the CIT(A) rightly referred to the explanatory notes to the Finance Act 1973, which brought in the concept of aggregation to agricultural income for the purposes of levy of income-tax. In paragraph 11.1 it is mentioned that -
"The scheme of partially integrated taxation of non-agricultural income with income derived from agriculture applies only in the case of individuals, Hindu undivided families, unregistered firms, association of persons, bodies of individuals and artificial juridical persons. Registered firms, co-operative societies, local authorities and companies are thus outside the purview of the Scheme."
12. A reading of the explanatory memorandum shows that registered firms, co-operative societies, local authorities and companies have been kept outside the purview of aggregation scheme to determine the rates applicable to tax the non-agricultural income. It is evident from the above that an inference that apart from individual, HUF, unregistered firms, AOP, BOI and artificial juridical person, the other four categories of persons mentioned above can also derive agricultural income, can be drawn.
13. Regarding agricultural land is not the property of the firm, it just requires to be mentioned that the land on which the agricultural activity was carried on by the assessee belonged to MSFC Ltd., Pune. The assessee is a tenant of MSFC Ltd. The definition of 'tenant' and 'tenancy' appearing in BTLA, 1948 is given as under:
2(17) "Tenancy" means the relationship of land lord and tenant;
2(18) "tenant" means a person who holds land on lease and includes-
| (a) | a person who is deemed to be a tenant under section 4; | |
| (b) | a person who is a protected tenant; and | |
| (c) | a person who is a permanent tenant; | |
| and the word "landlord" shall be construed accordingly. |
14. There is no bar in law on the farmer becoming a tenant to a landowner. For the purposes of agricultural income, it would suffice if the farmer conducts agricultural operations on the land owned by someone else and derives income therefrom. In fact, the agreement between MSFC Ltd. and the assessee firm is entered into by Shri Sanjay D Patil and Shri Satej D Patil, both of whom were shown to be' agriculturists. They are the only partners of the firm. In fact, as per the terms of the joint cultivation agreement, there cannot be any doubt that the assessee farm was obligated to carry out all agricultural operations in the farm land and to carry out all incidental activities in relation to farming operations. This has been clearly brought out in paragraph 2 of the joint cultivation agreement which is reproduced as under:
In the Joint Cultivation the contributions and obligations of the two parties shall be as follows:
| (i) | The contribution of MSFC shall be in terms of its cultivable land admeasuring about 647 acres of its Kolhapur Farm and other capital assets, such as buildings, machinery, etc. and permanent employees of the Kolhapur farm, and expert supervision of the management of the MSFC. | |
| (ii) | The contribution and obligation of the firm shall include all operational activities in the farm lands including all input expenses, incremental staff/labour (if found necessary), establishment and office expenditure of Kolhapur Farm Office, repair and maintenance of MSFC machinery and any other expenditure incidental to the farming operations. |
Some persons are also deemed to be tenants as defined in section 4 of the BTLA, 1948, which reads as under:
"4. A person lawfully cultivating any land belonging to another person shall be deemed to be a tenant if such land is not cultivated personally by the owner and if such person is not-
| (a) | a member of the owner's family, or | |
| (b) | a servant on wages payable in cash or kind but not in crop share or a hired labourer cultivating the land under the personal supervision of the owner or any member of the owners, family, or | |
| (c) | a mortgagee in possession. |
15. Even otherwise, a firm cannot own a land under the BTALA, 1948. Hence it would be impossible to obtain registration of the land on which agricultural activities was carried out by the firm. It is not mandatory that the property has to be produced or introduced in the books of the firm before any income can be derived from it. A firm is not a legal entity in the sense of a company. Persons are individual called partners and collectively called a firm, which is the name under which the partners collectively carry out the business. It is a compendious name of partners, who come together to share profits of a business carried on by all or by any of them acting for all. Since it is not a juristic person, it is not possible to own property in the name of the firm. The reason that agricultural land was not introduced in the books does not hold much substance.
16. The Income-tax Act, 1961 defines the term "Agricultural income" in section 2(1A) as under:
"1. .....
(1) ...............
(1A) "agricultural income" means -
| (a) | Any rent or revenue derived from land which is situated in India and is used for agricultural purposes; | |
| (b) | Any income derived from such land by - |
| (i) | Agricultural; or | |
| (ii) | The performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or | |
| (iii) | The sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause; |
| (c) | any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on; |
17. Clause (a) specifically states that agricultural income means any rent or revenue derived from land which is situated in India and is used for agricultural purposes. Similarly, clause (b) speaks about income derived from a land situated in India and which is used for agricultural purposes of agriculture or any other work specified in items (ii) and (iii) of this clause. Clause (c) is not applicable in this case. A plain reading of this section makes it clear that all that is necessary that revenue should be derived from a land situated in India and which is used for agricultural purposes. This section does not specify that revenue has to be derived by the owner of the agricultural land only. Revenue therefore implies some yield or some income from: agricultural operations. Sub-clause (ii) and (iii) also use the terms "cultivator" and "receiver of rent-in-kind". These terms also appear in Clause (c) of section 2(1A). Thus, it can be inferred that agricultural income can also be derived by a person who is a cultivator or who is the owner of land. It is only the receiver of rent-in-kind who can directly be held to be the owner of land as referred to in this section. A cultivator may be the owner but it is not necessary that he has to be the owner. In clause (a), there can be a recipient of rent from land which implies ownership and also a recipient of revenue derived from land, which implies that the person can be the owner or may not be the owner of land. Similarly, sub-clause (i) of clause (b) speaks of income derived from an agricultural land by agriculture. This makes it clear that revenue derived from land or from agriculture implies a periodic return of income from agricultural operations only. As per Explanation VI to section 60(1) of the Civil Procedure Code, 1908 includes all such persons who can cultivate land by his own labour or by labour of members of his family or by servants or by labourers by wages payable in cash or in kind as an agriculturist.
18. Hence the terms 'cultivator' or 'receiver of rent-in-kind' could be inferred to be a person who cultivates the land either on his own or through assisted labour and this person includes a firm as well. In normal sense, the term 'cultivator' means one who does cultivation of the land and cultivation includes tilling of the land, sowing of the seeds, planting etc., which are the activities carried on by the assessee. It is not necessary that such activity should be done by owner of land himself or by the entity engaged in agriculture.
19. It is not a mandate of law that in order to have agricultural income the person must own the agricultural land. In that case, most of the rural population who do not own land but cultivate land of others on Batai system as it is popularly known and who are dependent on agriculture for their livelihood would not be having agricultural income at all. Ownership of land is, therefore, not a prerequisite for having agricultural income. It would suffice if revenue is derived from agricultural activities carried out on an agricultural land situated in India for an income to qualify as agricultural income recognized under the Income-tax Act.
20. The Assessing Officer had also stated that the assessee firm had not furnished any documentary evidence in support of the claim that income derived was agricultural income. In this regard the stand of the assessee has been that land in question was received by it from Maharashtra State Farming Corporation for joint cultivation to grow and produce sugarcane. Assessee also placed on record before authorities below the copy of the agreement executed for joint cultivation with Maharashtra State Farming Corporation. Thus there was no denying the fact that sugarcane was cultivated on the land owned by MSFC Ltd., and also the basic agricultural activity in the form of preparation of land for cultivation, ensuring water supply, plantation of seeds, tending of saplings of sugarcane, spraying of insecticides and pesticides, manuring etc., was carried out in respect of sugarcane by the partners of the firm. It was clear stand of the assessee before the Assessing Officer that since land was owned by MSFC Ltd., it was not reflected in the Balance Sheet. The Assessing Officer was not justified in rejecting this argument. At the same time Assessing Officer has not doubted the cultivation of sugarcane on the agricultural land in question. In this situation, the Assessing Officer was not justified in holding that income of assessee is not income from agriculture. In any case merely because the agricultural activities were conducted in the name of the firm will not take away the character of income in the hands of the recipient. It is only the agricultural income which has been distributed among partners which was derived from agricultural activities on the land in question. Even if firm would not have been in existence, this character of income would not have changed in the hands of the partners who owned the land.
21. The agreement executed between MSFC Ltd., and the assessee for joint cultivation of land belonging to MSFC Ltd. Though the agreement is in the form of a joint cultivation of land, the articles of the agreement are such that all activities of agricultural operations and enjoyment of the fruits of cultivation are given to the assessee. In return, the assessee has to undertake the following:
| (i) | Keeping a deposit of Rs. 10,00,000/- with MSFC Ltd. | |
| (ii) | Payment of Rs. 20,00,000/- p.a. as guaranteed share of produce regardless of the actual income derived from agricultural activities. | |
| (iii) | Upkeep and maintenance of the establishment owned by MSFC Ltd. in Kolhapur farms including payment of salaries etc. to the employees of MSFC Ltd. in Kolhapur farm. | |
| (iv) | Payment of land revenue and related charges and cess in respect of Kolhapur farm. | |
| (v) | Upkeep and maintenance of soil in Kolhapur farm. | |
| (vi) | Returning of 5250 metric tons of sugarcane at the termination of agreement. This condition is absent in the agreement dated 09.05.1997 relevant for assessment year 2002-03. |
This shows that relationship between MSFC Ltd., and the assessee firm can be properly described as that of the landlord and a tenant. The assessee firm has to make the payment of a fixed sum of Rs. 20,00,000/- every year during the subsistence of the agreement regardless of production from the agricultural farm. Under these circumstances and on the basis of the fact which were produced at the time of assessment, the Assessing Officer was not justified in rejecting the claim of assessee that income in question is derived by firm from agricultural operations carried on the land belonging to MSFC Ltd., Pune, as agricultural income. The conclusion of the Assessing Officer is based on improper interpretation of law and on surmises and conjectures. In view of the above, the CIT(A) was justified that amount of Rs. 32,69,820/-and Rs. 35,13,376/- for A.Ys. 2002-03 and 2003-04 respectively are agricultural income of assessee firm. This reasoned factual finding need no interference from our side. As a result, both the appeals filed by the Revenue are dismissed.
22. The Cross Objections filed were in support of the order of the CIT(A) goes academic. In view of the foregoing conclusion wherein the order of the CIT(A) has been upheld.
23. As a result, both the appeals of Revenue as well as the cross objections are dismissed.
IT : Ownership of land is not a prerequisite for having agricultural income and it would suffice if revenue is derived from agricultural activities carried out on an agricultural land situated in India
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[2013] 33 taxmann.com 149 (Pune - Trib.)
IN THE ITAT PUNE BENCH 'A'
Income-tax Officer, Ward-2(1), Kolhapur
v.
Gajanan Agro Farms*
SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
G.S. PANNU, ACCOUNTANT MEMBER
G.S. PANNU, ACCOUNTANT MEMBER
IT APPEAL NOS. 1285 & 1286 (PN.) OF 2011
CO. NOS. 94 & 95 (PN.) OF 2011
[ASSESSMENT YEARS 2002-03 & 2003-04]
CO. NOS. 94 & 95 (PN.) OF 2011
[ASSESSMENT YEARS 2002-03 & 2003-04]
OCTOBER 31, 2012
Section 2(1A) of the Income-tax Act, 1961 - Agricultural income [Ownership of land] - Whether ownership of land is not a prerequisite for having agricultural income and it would suffice if revenue is derived from agricultural activities carried out on an agricultural land situated in India - Held, yes - Whether further, a firm can be an agriculturalist which derives revenue from agricultural activity - Held, yes [Para 10][In favour of assessee]
FACTS
| ■ | During relevant year, assessee-firm claimed exemption in respect of its agricultural income. | |
| ■ | The Assessing Officer rejected the assessee's claim on two grounds, firstly, assessee was not owner of land and, secondly, assessee being an artificial person, created by law, it could not be an 'agriculturalist', conducting any of the agricultural activities of its own. | |
| ■ | The Commissioner (Appeals), however, allowed assessee's claim. | |
| ■ | On revenue's appeal: |
HELD
| ■ | Under section 2(1A) only agricultural income is defined and is required to be a source of income. It is not necessary that in order to come within the ambit of the Act, the person has to be an agriculturist. It is sufficient if revenue is derived from agricultural activities conducted on a land situated in India which is used for agricultural purposes. Therefore, a firm can be an agriculturist which derives revenue from agricultural activity. [Para 10] | |
| ■ | A plain reading of section 2(1A) makes it clear that all that is necessary that revenue should be derived from a land situated in India and which is used for agricultural purposes. This section does not specify that revenue has to be derived by the owner of the agricultural land only. The term 'revenue', therefore, implies some yield or some income from agricultural operations. Sub-clause (ii) and (iii) also use the terms 'cultivator' and 'receiver of rent-in-kind'. These terms also appear in clause (c) of section 2(1A). Thus, it can be inferred that agricultural income can also be derived by person who is a cultivator or who is the owner of land. It is only the receiver of rent-in-kind who can directly be held to be the owner of land as referred to in this section. | |
| ■ | A cultivator may be the owner but it is not necessary that he has to be the owner. In clause (a), there can be a recipient of rent from land which implies ownership and also a recipient of revenue derived from land, which implies that the person can be the owner or may not be the owner of land. Similarly, sub-clause (i) of clause (b) speaks of income derived from an agricultural land by agricultural. This makes it clear that revenue derived from land or from agriculture implies a periodic return of income from agricultural operations only. [Para 17] | |
| ■ | In the instant case, relationship between MSFC Ltd. and the assessee firm can be properly described as that of the landlord and a tenant. The assessee-firm had to make the payment of a fixed sum of Rs. 20 lakh every year to 'M' during the subsistence of the agreement regardless of production from the agricultural farm. Under these circumstances, the Assessing Officer was not justified in rejecting the claim of assessee on ground that income in question was derived from agricultural operations carried on the land belonging to 'M'. The conclusion of the Assessing Officer is based on improper interpretation of law and on surmises and conjectures. [Para 21] | |
| ■ | In view of above, impugned order passed by Commissioner (Appeals) was to be upheld. |
Sunil Ganoo and Mayuresh Doshi for the Appellant. S.K. Singh and Ms. Ann Kapthuama for the Respondent.
ORDER
Shailendra Kumar Yadav, Judicial Member - All these appeals and cross objections pertain to same issue of same assessee. So they are being disposed of by this common order for the sake of convenience.
2. In ITA.No.1285/PN/2011, the Revenue has filed this appeal against the order of the CIT(A) on the following grounds:
| 1. | On the facts and in the circumstances of the case, the Commissioner of Income tax (Appeals), Kolhapur failed to appreciate that to claim exemption as per section 2(1A) of the Act, the basic condition is that the assessee should have land. In the instant case, the assessee is not a owner of land, as neither the said agricultural land is appearing in the balance sheet, nor it has produced 7/12 extracts evidencing the land to be in its own name. | |
| 2. | On the facts and in the circumstances of the case, the Commissioner of Income tax (Appeals), Kolhapur erred in not appreciating that to claim exemption as per section 2(1A) of the Act, the basic condition is that the assessee should be cultivator, or receiver of rent in kind, of any process to render the produce raised or received by him fit to be taken to market. The assessee satisfies neither of the above conditions, since being an artificial person, created by law, it cannot be an "agriculturist", conduct any of the above activities of its own. | |
| 3. | The appellant prays that the order of the Commissioner of Income tax (Appeals), Kolhapur be vacated and that of the Assessing Officer be restored. |
3. The Assessing Officer disallowed the claim of the assessee with regard to agricultural income mainly in absence of non-filing of extracts in form 7/12 and 18 with regard to the agricultural land in question. In appeal, the CIT(A) has allowed assessee's claim, which has been opposed before us.
4. The Ld. Departmental Representative submitted that the CIT(A) failed to appreciate that to claim exemption as per section 2(1A) of the Act, the basic condition is that the assessee should have land. In the instant case, the assessee is not a owner of land, as neither the said agricultural land is appearing in the balance sheet, nor it has produced 7/12 extracts evidencing the land to be in its own name. The CIT(A) erred in not appreciating that to claim exemption as per section 2(1A) of the Act, the basic condition is that the assessee should be cultivator, or receiver of rent in kind, of any process to render the produce raised or received by him fit to be taken to market. The assessee satisfies neither of the above two conditions, since being an artificial person, created by law, it cannot be an "agriculturist", conduct any of the above activities of its own. So the order of the CIT(A) be set aside and that of the Assessing Officer be restored. On the other hand, Ld. Authorised Representative heavy relied on the order of the CIT(A) and reiterated the submissions made before the CIT(A).
5. After going through the above submissions and material on record, we are not inclined to interfere with the finding of the CIT(A). As per provisions contained in Bombay Tenancy and Agricultural Land Act, 1948, Indian Partnership Act and Circular issued by the Board in respect of aggregation of income, we are of the view that firm can engage in agricultural activity and derive income from such activities which yield agricultural income covered by section 10(1) of the Act. In this regard, the Assessing Officer has not considered the provisions of Maharashtra Agricultural Income-tax Act, 1962. Tax on agricultural income is a State subject (entry 46 in List II in the Seventh Schedule to the Constitution). Hence, the State is empowered to enact legislation on levying agricultural income-tax. The Maharashtra Income-tax Act has come into force from 01.04.1962. Section 2(2) of the Maharashtra Agricultural Income-tax Act, 1962 reads as under:
(2) "assessee" means a person by whom agricultural income-tax or any other sum of money is payable under this Act and includes -
| (a) | every person in respect of whom any proceeding under this Act has been taken for the assessment of his agricultural income or the agricultural income of any other person in respect of which he is assessable; | |
| (b) | every person who is deemed to be an assessee under any provision of this Act; |
Thus section 2(2) defines an assessee to mean a person by whom agricultural income-tax or any other sum of money is payable under the Maharashtra Agricultural Income-tax Act, 1962.
6. Sub-section (9) of section 2 defines the meaning of a person appearing in sub-section (2). Sub-section (9) reads as under:
(2) "person" includes-
| (a) | an individual | |
| (b) | a Hindu undivided family, | |
| (c) | a company, | |
| (d) | a firm, | |
| (e) | an association of persons or a body of individuals, whether incorporated or not, and | |
| (f) | every artificial juridical person, not falling within any of the preceding sub-clauses; |
Item (d) of this sub-section specifically includes a firm. Thereby implying that a firm can have agricultural income on which agricultural income-tax is payable.
7. Sub-section 7 to section 2 of Maharashtra Agricultural Income-tax Act, 1962 defines the terms 'firm', 'partner' and 'partnership' to have the same meaning as assigned to them in the Indian Partnership Act, 1932. Sub-section 7 reads as under:
(7) "firm", "partner" and "partnership" have the same meanings respectively assigned to them in the Indian Partnership Act, 1932, but the expression 'partner' shall also include any person who, being a minor, has been admitted to the benefits of partnership;
8. Persons who have entered into partnership with one another are individually called partners and collectively called a firm and the name under which the business is carried on is called the firm name. The provisions of the Maharashtra Agricultural Income-tax Act, 1962 clearly reveals that a partnership firm can be an agriculturist and can have agricultural income. Therefore, the conclusion drawn by the Assessing Officer that a juristic person like a firm cannot be an agriculturist in Maharashtra is not correct.
9. In the case of Narayan Bhimji Vadangale and another v. Hukumchand Chunilal Thole and another in AIR 1992 SC 503, reversing the decision of the Bombay High Court and giving reference to section 2(2) and section 63 of the BTALA, 1948, the Hon'ble Supreme Court held that it could not be said that a partnership firm being an inanimate person could not cultivate land personally and could not therefore be an agriculturist in the following words:
"Now we are required to examine whether the view taken by the High Court in treating the firm as inanimate, incapable of personal cultivation of agricultural land is correct or otherwise. No elaboration is necessary to understand the legal composition of a firm and its personality which is a name given compendiously to a group of people who comprise its partners, and those people have naturally to be live persons. When we talk of a firm cultivating land we mean to convey that it is the partners of the firm who cultivate the land and in that sense the firm cultivates it personally. The firm may be inanimate but the partners comprising thereof are people in flesh and blood. On this analysis the basis of the judgment of the High Court gets knocked off. Whether the firm is agriculturist or non-agriculturist would depend upon the activities of its partners."
10. Section 60(1) of the Civil Procedure Code has also been referred. A perusal of section 60(1) of the Civil Procedure Code, 1908, shows that the meaning of the word "agriculturist" is given in Explanation V to, mean a person who cultivates the land personally and who depends for his livelihood mainly on income from agricultural land whether as owner, tenant, partner or agricultural labour. Explanation VI to section 60(1) of the of the Civil Procedure Code 1908 mentions that an agriculturist will be deemed to cultivate the land personally if he cultivates the land by his own labour or by the labour of any member of his family or by servants or by labourers by wages payable in cash or in kind (not being a share of produce) or both. Thus, it is immaterial that the firm cannot cultivate the land personally to become an agriculturist. All that is required is that the revenue from the land should be generated by agricultural produce. The deemed cultivation of land, contained in Explanation VI makes it amply clear that a person need not cultivate the land personally to be an agriculturist under the BTALA, 1948. Further, under section 2(1A) of the Income-tax Act only agricultural income is defined and is required to be a source of income. It is not necessary that in order to come within the ambit of the Income-tax Act, the person has to be an agriculturist. It is sufficient if revenue is derived from agricultural activities conducted on a land situated in India which is used for agricultural purposes. Therefore, the CIT(A) was justified in holding that the firm can be an agriculturist which derives revenue from agricultural activity.
11. In this regard the CIT(A) rightly referred to the explanatory notes to the Finance Act 1973, which brought in the concept of aggregation to agricultural income for the purposes of levy of income-tax. In paragraph 11.1 it is mentioned that -
"The scheme of partially integrated taxation of non-agricultural income with income derived from agriculture applies only in the case of individuals, Hindu undivided families, unregistered firms, association of persons, bodies of individuals and artificial juridical persons. Registered firms, co-operative societies, local authorities and companies are thus outside the purview of the Scheme."
12. A reading of the explanatory memorandum shows that registered firms, co-operative societies, local authorities and companies have been kept outside the purview of aggregation scheme to determine the rates applicable to tax the non-agricultural income. It is evident from the above that an inference that apart from individual, HUF, unregistered firms, AOP, BOI and artificial juridical person, the other four categories of persons mentioned above can also derive agricultural income, can be drawn.
13. Regarding agricultural land is not the property of the firm, it just requires to be mentioned that the land on which the agricultural activity was carried on by the assessee belonged to MSFC Ltd., Pune. The assessee is a tenant of MSFC Ltd. The definition of 'tenant' and 'tenancy' appearing in BTLA, 1948 is given as under:
2(17) "Tenancy" means the relationship of land lord and tenant;
2(18) "tenant" means a person who holds land on lease and includes-
| (a) | a person who is deemed to be a tenant under section 4; | |
| (b) | a person who is a protected tenant; and | |
| (c) | a person who is a permanent tenant; | |
| and the word "landlord" shall be construed accordingly. |
14. There is no bar in law on the farmer becoming a tenant to a landowner. For the purposes of agricultural income, it would suffice if the farmer conducts agricultural operations on the land owned by someone else and derives income therefrom. In fact, the agreement between MSFC Ltd. and the assessee firm is entered into by Shri Sanjay D Patil and Shri Satej D Patil, both of whom were shown to be' agriculturists. They are the only partners of the firm. In fact, as per the terms of the joint cultivation agreement, there cannot be any doubt that the assessee farm was obligated to carry out all agricultural operations in the farm land and to carry out all incidental activities in relation to farming operations. This has been clearly brought out in paragraph 2 of the joint cultivation agreement which is reproduced as under:
In the Joint Cultivation the contributions and obligations of the two parties shall be as follows:
| (i) | The contribution of MSFC shall be in terms of its cultivable land admeasuring about 647 acres of its Kolhapur Farm and other capital assets, such as buildings, machinery, etc. and permanent employees of the Kolhapur farm, and expert supervision of the management of the MSFC. | |
| (ii) | The contribution and obligation of the firm shall include all operational activities in the farm lands including all input expenses, incremental staff/labour (if found necessary), establishment and office expenditure of Kolhapur Farm Office, repair and maintenance of MSFC machinery and any other expenditure incidental to the farming operations. |
Some persons are also deemed to be tenants as defined in section 4 of the BTLA, 1948, which reads as under:
"4. A person lawfully cultivating any land belonging to another person shall be deemed to be a tenant if such land is not cultivated personally by the owner and if such person is not-
| (a) | a member of the owner's family, or | |
| (b) | a servant on wages payable in cash or kind but not in crop share or a hired labourer cultivating the land under the personal supervision of the owner or any member of the owners, family, or | |
| (c) | a mortgagee in possession. |
15. Even otherwise, a firm cannot own a land under the BTALA, 1948. Hence it would be impossible to obtain registration of the land on which agricultural activities was carried out by the firm. It is not mandatory that the property has to be produced or introduced in the books of the firm before any income can be derived from it. A firm is not a legal entity in the sense of a company. Persons are individual called partners and collectively called a firm, which is the name under which the partners collectively carry out the business. It is a compendious name of partners, who come together to share profits of a business carried on by all or by any of them acting for all. Since it is not a juristic person, it is not possible to own property in the name of the firm. The reason that agricultural land was not introduced in the books does not hold much substance.
16. The Income-tax Act, 1961 defines the term "Agricultural income" in section 2(1A) as under:
"1. .....
(1) ...............
(1A) "agricultural income" means -
| (a) | Any rent or revenue derived from land which is situated in India and is used for agricultural purposes; | |
| (b) | Any income derived from such land by - |
| (i) | Agricultural; or | |
| (ii) | The performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or | |
| (iii) | The sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause; |
| (c) | any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on; |
17. Clause (a) specifically states that agricultural income means any rent or revenue derived from land which is situated in India and is used for agricultural purposes. Similarly, clause (b) speaks about income derived from a land situated in India and which is used for agricultural purposes of agriculture or any other work specified in items (ii) and (iii) of this clause. Clause (c) is not applicable in this case. A plain reading of this section makes it clear that all that is necessary that revenue should be derived from a land situated in India and which is used for agricultural purposes. This section does not specify that revenue has to be derived by the owner of the agricultural land only. Revenue therefore implies some yield or some income from: agricultural operations. Sub-clause (ii) and (iii) also use the terms "cultivator" and "receiver of rent-in-kind". These terms also appear in Clause (c) of section 2(1A). Thus, it can be inferred that agricultural income can also be derived by a person who is a cultivator or who is the owner of land. It is only the receiver of rent-in-kind who can directly be held to be the owner of land as referred to in this section. A cultivator may be the owner but it is not necessary that he has to be the owner. In clause (a), there can be a recipient of rent from land which implies ownership and also a recipient of revenue derived from land, which implies that the person can be the owner or may not be the owner of land. Similarly, sub-clause (i) of clause (b) speaks of income derived from an agricultural land by agriculture. This makes it clear that revenue derived from land or from agriculture implies a periodic return of income from agricultural operations only. As per Explanation VI to section 60(1) of the Civil Procedure Code, 1908 includes all such persons who can cultivate land by his own labour or by labour of members of his family or by servants or by labourers by wages payable in cash or in kind as an agriculturist.
18. Hence the terms 'cultivator' or 'receiver of rent-in-kind' could be inferred to be a person who cultivates the land either on his own or through assisted labour and this person includes a firm as well. In normal sense, the term 'cultivator' means one who does cultivation of the land and cultivation includes tilling of the land, sowing of the seeds, planting etc., which are the activities carried on by the assessee. It is not necessary that such activity should be done by owner of land himself or by the entity engaged in agriculture.
19. It is not a mandate of law that in order to have agricultural income the person must own the agricultural land. In that case, most of the rural population who do not own land but cultivate land of others on Batai system as it is popularly known and who are dependent on agriculture for their livelihood would not be having agricultural income at all. Ownership of land is, therefore, not a prerequisite for having agricultural income. It would suffice if revenue is derived from agricultural activities carried out on an agricultural land situated in India for an income to qualify as agricultural income recognized under the Income-tax Act.
20. The Assessing Officer had also stated that the assessee firm had not furnished any documentary evidence in support of the claim that income derived was agricultural income. In this regard the stand of the assessee has been that land in question was received by it from Maharashtra State Farming Corporation for joint cultivation to grow and produce sugarcane. Assessee also placed on record before authorities below the copy of the agreement executed for joint cultivation with Maharashtra State Farming Corporation. Thus there was no denying the fact that sugarcane was cultivated on the land owned by MSFC Ltd., and also the basic agricultural activity in the form of preparation of land for cultivation, ensuring water supply, plantation of seeds, tending of saplings of sugarcane, spraying of insecticides and pesticides, manuring etc., was carried out in respect of sugarcane by the partners of the firm. It was clear stand of the assessee before the Assessing Officer that since land was owned by MSFC Ltd., it was not reflected in the Balance Sheet. The Assessing Officer was not justified in rejecting this argument. At the same time Assessing Officer has not doubted the cultivation of sugarcane on the agricultural land in question. In this situation, the Assessing Officer was not justified in holding that income of assessee is not income from agriculture. In any case merely because the agricultural activities were conducted in the name of the firm will not take away the character of income in the hands of the recipient. It is only the agricultural income which has been distributed among partners which was derived from agricultural activities on the land in question. Even if firm would not have been in existence, this character of income would not have changed in the hands of the partners who owned the land.
21. The agreement executed between MSFC Ltd., and the assessee for joint cultivation of land belonging to MSFC Ltd. Though the agreement is in the form of a joint cultivation of land, the articles of the agreement are such that all activities of agricultural operations and enjoyment of the fruits of cultivation are given to the assessee. In return, the assessee has to undertake the following:
| (i) | Keeping a deposit of Rs. 10,00,000/- with MSFC Ltd. | |
| (ii) | Payment of Rs. 20,00,000/- p.a. as guaranteed share of produce regardless of the actual income derived from agricultural activities. | |
| (iii) | Upkeep and maintenance of the establishment owned by MSFC Ltd. in Kolhapur farms including payment of salaries etc. to the employees of MSFC Ltd. in Kolhapur farm. | |
| (iv) | Payment of land revenue and related charges and cess in respect of Kolhapur farm. | |
| (v) | Upkeep and maintenance of soil in Kolhapur farm. | |
| (vi) | Returning of 5250 metric tons of sugarcane at the termination of agreement. This condition is absent in the agreement dated 09.05.1997 relevant for assessment year 2002-03. |
This shows that relationship between MSFC Ltd., and the assessee firm can be properly described as that of the landlord and a tenant. The assessee firm has to make the payment of a fixed sum of Rs. 20,00,000/- every year during the subsistence of the agreement regardless of production from the agricultural farm. Under these circumstances and on the basis of the fact which were produced at the time of assessment, the Assessing Officer was not justified in rejecting the claim of assessee that income in question is derived by firm from agricultural operations carried on the land belonging to MSFC Ltd., Pune, as agricultural income. The conclusion of the Assessing Officer is based on improper interpretation of law and on surmises and conjectures. In view of the above, the CIT(A) was justified that amount of Rs. 32,69,820/-and Rs. 35,13,376/- for A.Ys. 2002-03 and 2003-04 respectively are agricultural income of assessee firm. This reasoned factual finding need no interference from our side. As a result, both the appeals filed by the Revenue are dismissed.
22. The Cross Objections filed were in support of the order of the CIT(A) goes academic. In view of the foregoing conclusion wherein the order of the CIT(A) has been upheld.
23. As a result, both the appeals of Revenue as well as the cross objections are dismissed.
IT: Where assessee, at first instance, had not accounted for amount in question and when notice under section 148 was issued then only assessee chose to disclose above receipt, provisions of section 271(1)(c) attracted
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[2013] 33 taxmann.com 406 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'B'
Dr. Bapuji Cherukuri
v.
Deputy Commissioner of Income-tax, Circle - I*
DR. O. K. NARAYANAN, VICE-PRESIDENT
AND S.S. GODARA, JUDICIAL MEMBER
AND S.S. GODARA, JUDICIAL MEMBER
IT APPEAL NOS. 1529 TO 1540 (MDS.) OF 2012
[ASSESSMENT YEARS 2000-01 TO 2005-06]
[ASSESSMENT YEARS 2000-01 TO 2005-06]
JANUARY 4, 2013
Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income [Effect of disclosure after reassessment notice] - Assessment years 2000-01 to 2005-06 - Penalty under section 271(1)(c) was imposed on assessee for his failure to disclose part of his income - Whether since assessee, at first instance, had not accounted for amount in question and when notice under section 148 was issued then only assessee chose to disclose above receipt, provisions of section 271(1)(c) attracted - Held, yes - Whether as assessee had been continuing with this practice of alleged concealment and furnishing inaccurate particulars in all six assessment years, adopting 'Doctrine of continuity' and concurrence, penalty in assessee's case was liable to be confirmed only in first assessment year, i.e., assessment year 2000-01 instead of all assessment years - Held, yes [Para 8] [Partly in favour of assessee]
FACTS
| ■ | The assessee was working as an anesthetist in a hospital. Return filed by the assessee for relevant year was processed under section 143(1). | |
| ■ | Subsequently, the department conducted certain investigations with respect to said hospital wherein it was found that certain unaccounted money was paid to the assessee which was not disclosed in return filed. Accordingly, a notice under section 148 was issued to the assessee and in accordance with notice the assessee filed revised return. The assessment was completed thereafter and penalty under section 271(1)(c) was also levied upon the assessee. | |
| ■ | The Commissioner (Appeals) upheld the penalty order. | |
| ■ | On second appeal: |
HELD
| ■ | Admittedly, the assessee, at the first instance had not accounted for the amount in question of Rs. 22,77,395/-. It was only during the investigation pertaining to the hospital, the Department had come to know about the said non-disclosure of the income by the assessee. When the notice in question under section 148 was issued to the assessee, then only he chose to disclose the above receipt and raised claim of expenditure. His claim of expenditure has also been restricted to that of 15 per cent by the Tribunal. Despite the fact that the assessment proceedings attained finality, thisipso facto does not absolve the assessee from necessary conclusion which can be drawn from his conduct that he had nevertheless concealed the income which ultimately led to furnishing inaccurate particulars in the initial return. Therefore, provisions of section 271(1)(c) are attracted in the act and conduct of the assessee. | |
| ■ | There is also no issue between the parties that in total there are six assessment years i.e., assessment years 2000-1, 01-02, 02-03, 03-04, 04-05 and 05-06. Admittedly the investigation took place in February, 2006 i.e. during the assessment year 2005-06. The assessee had been continuing with this practice of alleged concealment and furnishing inaccurate particulars in all the six assessment years. Therefore, since his act was concurrent in all six assessment years, nonetheless the conduct of the assessee in concealing the income and furnishing inaccurate particulars is one and the same. Therefore, adopting 'Doctrine of continuity' and concurrence, the penalty in the assessee's case is liable to be confirmed only in the first assessment year i.e. assessment year 2000-01 instead of all the assessment years. The concealment is collective in all six assessment years. Therefore, on this score, he is entitled for some relief as well. Hence, by upholding the penalty imposed by the Assessing Officer and affirmed by the Commissioner (Appeals) for the first assessment year i.e. assessment year 2000-01, the assessee's appeal is allowed for rest of five assessment years. [Para 8] |
V.S. Jayakumar for the Appellant. Dr. S. Moharana for the Respondent.
ORDER
1. This batch of 12 appeals filed at the behest of two different assessees namely, Dr. Bapuji Cherukuri and Dr. A.K. Pujari challenges penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 [in short the "Act"] and affirmed by the Commissioner of Income Tax (Appeals) VI, Chennai vide different orders of even dated 14.05.2012. Both the representatives are unanimous that the issue involved in all the cases for all relevant assessment years is identical. So, we take I.T.A. No. 1532/Mds/2012 for the assessment year 2003-04 as the 'lead' case.
I.T.A. No. 1532/Mds/2012
2. Brief facts of the case are that the assessee is a qualified Anesthetist working in Apollo Hospitals Ltd., Chennai. On 28.11.2003, he had filed his 'return' disclosing income of Rs. 2,85,090/- which was processed under section 143(1) of the "Act".
3. In the month of February, 2006, the 'Deptt.' had conducted certain investigations with respect to the hospital and found that it had collected moneys from the patients and did not account the same in its books. The hospital's clarification submitted in support was that it had retained 10% of the unaccounted money in the shape of provision for infrastructural facilities and the balance 90% had been paid to the concerned Doctors including the assessee. This prompted the Department to form an opinion that the assessee had also not accounted the amount of Rs. 22,77,395/- received during the impugned assessment year and had not declared it in his return already filed. Therefore, a notice under section 148 of the "Act" was served on the assessee on 17.03.2008. In response, the assessee filed a 'return'. This time, he declared his income as Rs.11,95,990/-. In the enclosures filed with the return, he raised a claim of expenditure of Rs. 13,66,500/- out of Rs. 22,77,395/- which had not been previously admitted. Thereafter, the Assessing Officer completed assessment vide order dated 24.03.2009 under section 143(3) of the "Act" disallowing the claim of assessee's expenditure and computed his total income as Rs. 25,62,490/-. Whilst finalizing the assessment, the Assessing Officer also initiated penalty proceedings under section 271(1)(c) of the Act against the assessee.
4. Aggrieved by the disallowance, the assessee preferred appeal. The CIT(A) vide order dated 24.03.2009 granted part relief to the assessee by holding that his claim of expenditure was liable to be accepted @ 30% of net receipt on estimation basis. The Department was not satisfied with CIT(A)'s order above said. Therefore, it chose to file an appeal before the 'Tribunal', wherein vide order dated 20.11.2009 in I.T.A. No. 1111/Mds/2009, the CIT(A)'s order granting relief to the assessee qua expenditure @ 30% was modified to 15%. The assessee, thereafter, did not carry the matter in appeal and quantum proceedings attained finality.
5. Since the penalty proceedings stood revived, the assessee submitted before the Assessing Officer that he had neither concealed his income nor furnished inaccurate particulars and the default in not declaring the income was not willful. His plea before the Assessing Officer was that under the genuine impression that all the amounts received by him from the hospital were included in the certificate issued by the hospital, he had not included the said receipt in the income and he had came to know about the moneys not included in the certificate only through the notice issued to him by the Department under section 148 (supra). The Assessing Officer was not convinced with assessee's explanation, in whose opinion, the act and conduct in question of the assessee amounted to concealment and that of furnishing inaccurate particulars the revised return submitted by the assessee was only after the initiation of the investigation. Therefore, he imposed penalty of Rs. 6,21,773/- as difference of tax on income admitted by the assessee and income assessed and worked out by the Assessing Officer. The assessee preferred appeal before the CIT(A), wherein his arguments have been turned down vide impugned order.
It is in this backdrop of the facts that the assessee has preferred the instant appeal before the Tribunal.
6. At the behest of the assessee, the AR has vehemently argued that the CIT(A) has wrongly affirmed the penalty imposed by the Assessing Officer under section 271(1)(c) of the "Act". In addition to this, he also reiterated various submissions raised in the grounds and prayed for acceptance of the appeal.
7. Per contra, on behalf of the Revenue, the DR has strongly supported CIT(A)'s order confirming the penalty in question and prayed for upholding the same.
8. We have heard both parties at length and also gone through relevant records pertaining to assessee's quantum proceedings as well as penalty in hand which are available in the case file. Admittedly, the assessee, at the first instance had not accounted for the amount in question of Rs. 22,77,395/-. It was only during the investigation pertaining to the hospital, the Department had come to know about the said non-disclosure of the income by the assessee. When the notice in question under section 148 was issued to the assessee, then only he chose to disclose the above receipt and raised claim of expenditure. His claim of expenditure has also been restricted to that of 15% by the Coordinate Bench of ITAT (supra). In our opinion, despite the fact that the assessment proceedings attained finality, this ipso facto does not absolve the assessee from necessary conclusion which can be drawn from his conduct that he had nevertheless concealed the income which ultimately led to furnishing inaccurate particulars in the initial return. Therefore, we are also of the view that provisions of section 271(1)(c) are attracted in the act and conduct of the assessee. It is indeed true a settled law that the assessment proceedings and penalty proceedings are altogether different and any disallowance does not result in imposition of penalty. In penalty proceedings, the assessee's conduct during assessment always carries significance. Therefore, we are not inclined to accept assessee's argument that he is not guilty of concealment and furnishing of false and inaccurate particulars of income within the meaning of section 271(1)(c) of the "Act".
There is also no issue between the parties that in total there are six assessment years before us i.e. assessment years 2000-01, 01-02, 02-03, 03-04, 04-05 and 05-06. Admittedly the investigation took place in February, 2006 i.e. during the assessment year 2005-06. The assessee had been continuing with this practice of alleged concealment and furnishing inaccurate particulars in all the six assessment years. Therefore, in our considered opinion, since his act was concurrent in all six assessment years, we observe that nonetheless the conduct of the assessee in concealing the income and furnishing inaccurate particulars is one and the same. Therefore, adopting "Doctrine of continuity" and concurrence, we hold that the penalty in the assessee's case is liable to be confirmed only in the first assessment year i.e. assessment year 2000-01 instead of all the assessment years. The concealment is collective in all six assessment years. Therefore, on this score, he is entitled for some relief as well. Hence, by upholding the penalty imposed by the Assessing Officer and affirmed by the CIT(A) for the first assessment year i.e. assessment year 2000-01, we allow the assessee's appeal for rest of five assessment years.
I.T.A. Nos. 1530 to 1540/Mds/2012
9. Both the representatives agree that our findings in the 'lead' case decided hereinabove also covers the facts and circumstances of all appeals. In this view of the matter, we hold that the findings in I.T.A. Nos. 1530 to 1540/Mds/2012 would be applicable in all other cases filed by both assessees (supra).
10. Consequently, I.T.A. No. 1529/Mds/2012 for the assessment year 2000-01 filed by Dr. Bapuji Cherukuri and I.T.A. No. 1535/Mds/2012 for the assessment year 2000-01 filed by Dr. A.K. Pujari are dismissed and I.T.A. Nos. 1530, 1531, 1532, 1533, 1534, 1536, 1537, 1538, 1539 and 1540/Mds/2012 are allowed.
USP IT : Even in absence of rule 8D, disallowances can be made under section 14A by proportionate bifurcation of expenditure
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[2013] 33 taxmann.com 240 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax-IV
v.
Sintex Industries Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 526 OF 2012†
FEBRUARY 19, 2013
Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to exempt income not includible in total income [Proportionate disallowance] - Assessee had exempt income arising out of Mutual Fund Investment - Since no bifurcation was made by assessee between total and exempt income, Assessing Officer disallowed total expenditure under section 14A - However, Tribunal held that in absence of rule 8D, no disallowances can be made under section 14A - Whether amount involved being not very large, issue was not considered on merits - Held, yes - Whether, however, it could not be said that in absence of rule 8D, no disallowance can be made under section 14A by proportionate bifurcation of expenditure - Held, yes [Para 3] [In favour of assessee]
CASE REVIEW
Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.) (para 3) followed.
CASES REFERRED TO
Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.) (para 3) and Catholic Syrian Bank Ltd. [2012] 207 Taxman 2 (Mag.)/[2011] 9 taxmann.com 148 (Ker.) (para 3).
Ms. Paurami B. Sheth for the Appellant.
ORDER
Akil Kureshi, J. - Revenue is in appeal against the judgment and order of the Income Tax Appellate Tribunal (hereinafter referred to as "ITAT") dated 19.01.2012, raising following substantial question of law for our consideration:
"A Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance u/s 14A of the act with respect to appointment of remuneration of the directors, travelling expenses etc."
2. The issue pertains to disallowance of part of the remuneration paid to the directors. The Assessing Officer noted that the assessee had earned exempt income under Section 10(35) of the Income-tax Act, 1961, arising out of Mutual Fund Investment. He was therefore of the opinion that the expenditure incurred for earning exempt income should be disallowed under Section 14A of the Act. Since no bifurcation was made by the assessee, the Assessing Officer disallowed the total expenditure under this head. In the result, he added back a sum of Rs.3,25,868/-being the amount of salary.
3. Commissioner(Appeals) and Tribunal did not approve such decision of the Assessing Officer. The Tribunal, in particular, relied on its earlier decision on the issue. In such decision, the Tribunal had relied on the decision of the Bombay High Court rendered in the case of Godrej & Boyce Mfg. Co. Ltd.v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203, where it was held that Rule 8D is not retrospective. The Tribunal also relied upon the decision of the Kerala High Court rendered in the case of CIT v. Catholic Syrian Bank Ltd. [2012] 207 Taxman 2 (Mag.)/[2011] 9 taxmann.com 148, to hold that in absence of Rule 8D of the Income-tax Rules, no disallowances can be made under Section 14A of the Act.
4. With respect to proposition that Rule 8D is not retrospective in operation, we have no hesitation in agreeing with the decision of the Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). Previously also, we had occasion to deal with the said Rule and held as and the Bombay High Court has done. That, however, does not mean in our prima-facie opinion that no disallowances can be made under Section 14A of the Act by bifurcating the expenditure in a reasonable manner towards earning of the taxable income and tax exempt income.
5. In the present case, since the amount involved is not very large, we reserve our final conclusion on such an issue in appropriate case. Therefore, we are not inclined to entertain this Tax Appeal. However, we should not be seen to have confirmed the Tribunal's view on the aspect that in absence of Rule 8D, no disallowances can be made under Section 14A of the Act, by proportionate bifurcation of the expenditure.
In the result, Tax Appeal stands dismissed.
POOJA IT : Even in absence of rule 8D, disallowances can be made under section 14A by proportionate bifurcation of expenditure
■■■
[2013] 33 taxmann.com 240 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax-IV
v.
Sintex Industries Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 526 OF 2012†
FEBRUARY 19, 2013
Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to exempt income not includible in total income [Proportionate disallowance] - Assessee had exempt income arising out of Mutual Fund Investment - Since no bifurcation was made by assessee between total and exempt income, Assessing Officer disallowed total expenditure under section 14A - However, Tribunal held that in absence of rule 8D, no disallowances can be made under section 14A - Whether amount involved being not very large, issue was not considered on merits - Held, yes - Whether, however, it could not be said that in absence of rule 8D, no disallowance can be made under section 14A by proportionate bifurcation of expenditure - Held, yes [Para 3] [In favour of assessee]
CASE REVIEW
Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.) (para 3) followed.
CASES REFERRED TO
Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.) (para 3) and Catholic Syrian Bank Ltd. [2012] 207 Taxman 2 (Mag.)/[2011] 9 taxmann.com 148 (Ker.) (para 3).
Ms. Paurami B. Sheth for the Appellant.
ORDER
Akil Kureshi, J. - Revenue is in appeal against the judgment and order of the Income Tax Appellate Tribunal (hereinafter referred to as "ITAT") dated 19.01.2012, raising following substantial question of law for our consideration:
"A Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance u/s 14A of the act with respect to appointment of remuneration of the directors, travelling expenses etc."
2. The issue pertains to disallowance of part of the remuneration paid to the directors. The Assessing Officer noted that the assessee had earned exempt income under Section 10(35) of the Income-tax Act, 1961, arising out of Mutual Fund Investment. He was therefore of the opinion that the expenditure incurred for earning exempt income should be disallowed under Section 14A of the Act. Since no bifurcation was made by the assessee, the Assessing Officer disallowed the total expenditure under this head. In the result, he added back a sum of Rs.3,25,868/-being the amount of salary.
3. Commissioner(Appeals) and Tribunal did not approve such decision of the Assessing Officer. The Tribunal, in particular, relied on its earlier decision on the issue. In such decision, the Tribunal had relied on the decision of the Bombay High Court rendered in the case of Godrej & Boyce Mfg. Co. Ltd.v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203, where it was held that Rule 8D is not retrospective. The Tribunal also relied upon the decision of the Kerala High Court rendered in the case of CIT v. Catholic Syrian Bank Ltd. [2012] 207 Taxman 2 (Mag.)/[2011] 9 taxmann.com 148, to hold that in absence of Rule 8D of the Income-tax Rules, no disallowances can be made under Section 14A of the Act.
4. With respect to proposition that Rule 8D is not retrospective in operation, we have no hesitation in agreeing with the decision of the Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). Previously also, we had occasion to deal with the said Rule and held as and the Bombay High Court has done. That, however, does not mean in our prima-facie opinion that no disallowances can be made under Section 14A of the Act by bifurcating the expenditure in a reasonable manner towards earning of the taxable income and tax exempt income.
5. In the present case, since the amount involved is not very large, we reserve our final conclusion on such an issue in appropriate case. Therefore, we are not inclined to entertain this Tax Appeal. However, we should not be seen to have confirmed the Tribunal's view on the aspect that in absence of Rule 8D, no disallowances can be made under Section 14A of the Act, by proportionate bifurcation of the expenditure.
In the result, Tax Appeal stands dismissed.
POOJA IT: Where assessee, at first instance, had not accounted for amount in question and when notice under section 148 was issued then only assessee chose to disclose above receipt, provisions of section 271(1)(c) attracted
■■■
[2013] 33 taxmann.com 406 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'B'
Dr. Bapuji Cherukuri
v.
Deputy Commissioner of Income-tax, Circle - I*
DR. O. K. NARAYANAN, VICE-PRESIDENT
AND S.S. GODARA, JUDICIAL MEMBER
AND S.S. GODARA, JUDICIAL MEMBER
IT APPEAL NOS. 1529 TO 1540 (MDS.) OF 2012
[ASSESSMENT YEARS 2000-01 TO 2005-06]
[ASSESSMENT YEARS 2000-01 TO 2005-06]
JANUARY 4, 2013
Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income [Effect of disclosure after reassessment notice] - Assessment years 2000-01 to 2005-06 - Penalty under section 271(1)(c) was imposed on assessee for his failure to disclose part of his income - Whether since assessee, at first instance, had not accounted for amount in question and when notice under section 148 was issued then only assessee chose to disclose above receipt, provisions of section 271(1)(c) attracted - Held, yes - Whether as assessee had been continuing with this practice of alleged concealment and furnishing inaccurate particulars in all six assessment years, adopting 'Doctrine of continuity' and concurrence, penalty in assessee's case was liable to be confirmed only in first assessment year, i.e., assessment year 2000-01 instead of all assessment years - Held, yes [Para 8] [Partly in favour of assessee]
FACTS
| ■ | The assessee was working as an anesthetist in a hospital. Return filed by the assessee for relevant year was processed under section 143(1). | |
| ■ | Subsequently, the department conducted certain investigations with respect to said hospital wherein it was found that certain unaccounted money was paid to the assessee which was not disclosed in return filed. Accordingly, a notice under section 148 was issued to the assessee and in accordance with notice the assessee filed revised return. The assessment was completed thereafter and penalty under section 271(1)(c) was also levied upon the assessee. | |
| ■ | The Commissioner (Appeals) upheld the penalty order. | |
| ■ | On second appeal: |
HELD
| ■ | Admittedly, the assessee, at the first instance had not accounted for the amount in question of Rs. 22,77,395/-. It was only during the investigation pertaining to the hospital, the Department had come to know about the said non-disclosure of the income by the assessee. When the notice in question under section 148 was issued to the assessee, then only he chose to disclose the above receipt and raised claim of expenditure. His claim of expenditure has also been restricted to that of 15 per cent by the Tribunal. Despite the fact that the assessment proceedings attained finality, thisipso facto does not absolve the assessee from necessary conclusion which can be drawn from his conduct that he had nevertheless concealed the income which ultimately led to furnishing inaccurate particulars in the initial return. Therefore, provisions of section 271(1)(c) are attracted in the act and conduct of the assessee. | |
| ■ | There is also no issue between the parties that in total there are six assessment years i.e., assessment years 2000-1, 01-02, 02-03, 03-04, 04-05 and 05-06. Admittedly the investigation took place in February, 2006 i.e. during the assessment year 2005-06. The assessee had been continuing with this practice of alleged concealment and furnishing inaccurate particulars in all the six assessment years. Therefore, since his act was concurrent in all six assessment years, nonetheless the conduct of the assessee in concealing the income and furnishing inaccurate particulars is one and the same. Therefore, adopting 'Doctrine of continuity' and concurrence, the penalty in the assessee's case is liable to be confirmed only in the first assessment year i.e. assessment year 2000-01 instead of all the assessment years. The concealment is collective in all six assessment years. Therefore, on this score, he is entitled for some relief as well. Hence, by upholding the penalty imposed by the Assessing Officer and affirmed by the Commissioner (Appeals) for the first assessment year i.e. assessment year 2000-01, the assessee's appeal is allowed for rest of five assessment years. [Para 8] |
V.S. Jayakumar for the Appellant. Dr. S. Moharana for the Respondent.
ORDER
1. This batch of 12 appeals filed at the behest of two different assessees namely, Dr. Bapuji Cherukuri and Dr. A.K. Pujari challenges penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 [in short the "Act"] and affirmed by the Commissioner of Income Tax (Appeals) VI, Chennai vide different orders of even dated 14.05.2012. Both the representatives are unanimous that the issue involved in all the cases for all relevant assessment years is identical. So, we take I.T.A. No. 1532/Mds/2012 for the assessment year 2003-04 as the 'lead' case.
I.T.A. No. 1532/Mds/2012
2. Brief facts of the case are that the assessee is a qualified Anesthetist working in Apollo Hospitals Ltd., Chennai. On 28.11.2003, he had filed his 'return' disclosing income of Rs. 2,85,090/- which was processed under section 143(1) of the "Act".
3. In the month of February, 2006, the 'Deptt.' had conducted certain investigations with respect to the hospital and found that it had collected moneys from the patients and did not account the same in its books. The hospital's clarification submitted in support was that it had retained 10% of the unaccounted money in the shape of provision for infrastructural facilities and the balance 90% had been paid to the concerned Doctors including the assessee. This prompted the Department to form an opinion that the assessee had also not accounted the amount of Rs. 22,77,395/- received during the impugned assessment year and had not declared it in his return already filed. Therefore, a notice under section 148 of the "Act" was served on the assessee on 17.03.2008. In response, the assessee filed a 'return'. This time, he declared his income as Rs.11,95,990/-. In the enclosures filed with the return, he raised a claim of expenditure of Rs. 13,66,500/- out of Rs. 22,77,395/- which had not been previously admitted. Thereafter, the Assessing Officer completed assessment vide order dated 24.03.2009 under section 143(3) of the "Act" disallowing the claim of assessee's expenditure and computed his total income as Rs. 25,62,490/-. Whilst finalizing the assessment, the Assessing Officer also initiated penalty proceedings under section 271(1)(c) of the Act against the assessee.
4. Aggrieved by the disallowance, the assessee preferred appeal. The CIT(A) vide order dated 24.03.2009 granted part relief to the assessee by holding that his claim of expenditure was liable to be accepted @ 30% of net receipt on estimation basis. The Department was not satisfied with CIT(A)'s order above said. Therefore, it chose to file an appeal before the 'Tribunal', wherein vide order dated 20.11.2009 in I.T.A. No. 1111/Mds/2009, the CIT(A)'s order granting relief to the assessee qua expenditure @ 30% was modified to 15%. The assessee, thereafter, did not carry the matter in appeal and quantum proceedings attained finality.
5. Since the penalty proceedings stood revived, the assessee submitted before the Assessing Officer that he had neither concealed his income nor furnished inaccurate particulars and the default in not declaring the income was not willful. His plea before the Assessing Officer was that under the genuine impression that all the amounts received by him from the hospital were included in the certificate issued by the hospital, he had not included the said receipt in the income and he had came to know about the moneys not included in the certificate only through the notice issued to him by the Department under section 148 (supra). The Assessing Officer was not convinced with assessee's explanation, in whose opinion, the act and conduct in question of the assessee amounted to concealment and that of furnishing inaccurate particulars the revised return submitted by the assessee was only after the initiation of the investigation. Therefore, he imposed penalty of Rs. 6,21,773/- as difference of tax on income admitted by the assessee and income assessed and worked out by the Assessing Officer. The assessee preferred appeal before the CIT(A), wherein his arguments have been turned down vide impugned order.
It is in this backdrop of the facts that the assessee has preferred the instant appeal before the Tribunal.
6. At the behest of the assessee, the AR has vehemently argued that the CIT(A) has wrongly affirmed the penalty imposed by the Assessing Officer under section 271(1)(c) of the "Act". In addition to this, he also reiterated various submissions raised in the grounds and prayed for acceptance of the appeal.
7. Per contra, on behalf of the Revenue, the DR has strongly supported CIT(A)'s order confirming the penalty in question and prayed for upholding the same.
8. We have heard both parties at length and also gone through relevant records pertaining to assessee's quantum proceedings as well as penalty in hand which are available in the case file. Admittedly, the assessee, at the first instance had not accounted for the amount in question of Rs. 22,77,395/-. It was only during the investigation pertaining to the hospital, the Department had come to know about the said non-disclosure of the income by the assessee. When the notice in question under section 148 was issued to the assessee, then only he chose to disclose the above receipt and raised claim of expenditure. His claim of expenditure has also been restricted to that of 15% by the Coordinate Bench of ITAT (supra). In our opinion, despite the fact that the assessment proceedings attained finality, this ipso facto does not absolve the assessee from necessary conclusion which can be drawn from his conduct that he had nevertheless concealed the income which ultimately led to furnishing inaccurate particulars in the initial return. Therefore, we are also of the view that provisions of section 271(1)(c) are attracted in the act and conduct of the assessee. It is indeed true a settled law that the assessment proceedings and penalty proceedings are altogether different and any disallowance does not result in imposition of penalty. In penalty proceedings, the assessee's conduct during assessment always carries significance. Therefore, we are not inclined to accept assessee's argument that he is not guilty of concealment and furnishing of false and inaccurate particulars of income within the meaning of section 271(1)(c) of the "Act".
There is also no issue between the parties that in total there are six assessment years before us i.e. assessment years 2000-01, 01-02, 02-03, 03-04, 04-05 and 05-06. Admittedly the investigation took place in February, 2006 i.e. during the assessment year 2005-06. The assessee had been continuing with this practice of alleged concealment and furnishing inaccurate particulars in all the six assessment years. Therefore, in our considered opinion, since his act was concurrent in all six assessment years, we observe that nonetheless the conduct of the assessee in concealing the income and furnishing inaccurate particulars is one and the same. Therefore, adopting "Doctrine of continuity" and concurrence, we hold that the penalty in the assessee's case is liable to be confirmed only in the first assessment year i.e. assessment year 2000-01 instead of all the assessment years. The concealment is collective in all six assessment years. Therefore, on this score, he is entitled for some relief as well. Hence, by upholding the penalty imposed by the Assessing Officer and affirmed by the CIT(A) for the first assessment year i.e. assessment year 2000-01, we allow the assessee's appeal for rest of five assessment years.
I.T.A. Nos. 1530 to 1540/Mds/2012
9. Both the representatives agree that our findings in the 'lead' case decided hereinabove also covers the facts and circumstances of all appeals. In this view of the matter, we hold that the findings in I.T.A. Nos. 1530 to 1540/Mds/2012 would be applicable in all other cases filed by both assessees (supra).
10. Consequently, I.T.A. No. 1529/Mds/2012 for the assessment year 2000-01 filed by Dr. Bapuji Cherukuri and I.T.A. No. 1535/Mds/2012 for the assessment year 2000-01 filed by Dr. A.K. Pujari are dismissed and I.T.A. Nos. 1530, 1531, 1532, 1533, 1534, 1536, 1537, 1538, 1539 and 1540/Mds/2012 are allowed.
USPRegards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
__._,_.___
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