Kerala H.C : The petitioner in O.P. No. 3224 of 1996 is the appellant. She has sought for a declaration that cls. (i) and (ii) of sub-s. (9B) of s. 13 of the Kerala Agrl. IT Act, 1991 (for short ‘the Act’) inserted by the Kerala Finance Act, 1994 is illegal, arbitrary and unconstitutiona

High Court Of Kerala

Ms. Shema Oommen vs. Agricultural Income Tax Officer

Section Kerala Agrl IT 13(9B)

G. Sivarajan & J.M. James, JJ.

Writ Appeal No. 1475 of 2002

26th September, 2003

Counsel Appeared

Antony Dominic, for the Appellant : Raju Joseph, for the Respondent.

JUDGMENT

J.M. James, J. :

The petitioner in O.P. No. 3224 of 1996 is the appellant. She has sought for a declaration that cls. (i) and (ii) of sub-s. (9B) of s. 13 of the Kerala Agrl. IT Act, 1991 (for short ‘the Act’) inserted by the Kerala Finance Act, 1994 is illegal, arbitrary and unconstitutional. She has further sought to quash Ext. P4 proceedings of the first respondent and also for direction to the said respondent to consider the appellant’s eligibility for compounding without reference to other co-tenants’ eligibility or otherwise for payment of tax on compounded rate. Mrs. Thara Peter, Mr. Dilip Oommen, and the appellant are jointly holding 51.25 hectares of agricultural land planted with rubber. All the three had obtained the said property under Ext. P1 transfer deed dt. 1st March, 1982. The appellant has got 30 per cent of rights in the property. The income from the property has been assessed under the Agrl. IT Act, 1950, as tenants-in-common under the name and style Mrs. Thara Peter and others’. After the insertion of sub-s. (9B) by the Kerala Finance Act, 1994 w.e.f. 1st April, 1994, tenants-in-common are specifically given the right to opt compounding of agricultural income-tax under s. 13(9B), provided, the landed property held by that person within the State of Kerala is not extending more than 20 hectares as provided in s. 13(1) of the Act. The appellant made Ext. P2 application in Form No. 1-A as prescribed under the Act, seeking permission to remit the tax at the compounded rate. She also filed Ext. P3 return disclosing the tax payable before the first respondent. As per Ext. P4 proceedings dt. 5th Dec., 1995, the first respondent dismissed Ext. P2 application for compounding of the tax on the ground that the co-tenants had not opted for compounding under s. 13 of the Act, and therefore, the appellant is not entitled for compounding the tax under s. 13(9B) of the Act. The appellant, therefore, challenged the same before the learned single Judge, who dismissed the original petition, and hence this appeal.

Sri Antony Dominic, learned counsel for the appellant, submits that there is no rationale in linking the eligibility of the appellant for the benefit of compounding provided under s. 13 of the Act to the income of another person and that the conditions stipulated under sub-s. (9B) of s. 13 will amount to compelling one to do an impossible or impracticable act which is beyond one’s own power. The counsel also relied on the decision of this Court in K.G. Keshava Bhat vs. State of Kerala (2000) 158 CTR (Ker) 491 : (1999) 240 ITR 313 (Ker), S. Sundaram Pillai vs. V.R. Pattabiraman AIR 1985 SC 582 and in Raj Kumar Dey vs. Tarapada Dey AIR 1987 SC 2195. He further argued that the extent of the share of the property held by the appellant would come to only 13.35 acres, which is within the eligible limit of compounding under s. 13(1) of the Act, and merely because the other tenants-in- common are having property in excess of the extent specified under s. 13(1) of the Act, and are ineligible for getting the benefit of compounding, would not be a ground to deny the right of the appellant to pay the tax as per the principle of compounding conferred under s. 13(9B) of the Act. He also contended that the interpretation given under Ext. P4 by the first respondent is discriminatory and is violative of Art. 14 of the Constitution of India. The counsel also brought to our notice that s. 13(9B) of the Act had been subsequently deleted under Act 23 of 1999. Sri Raju Joseph, the learned special Government pleader for the respondents, on the other hand, submitted that the normal assessment of agricultural income is as provided under ss. 5 to 12 of the Act and that there is no compulsion to pay the tax at the compounded rate as provided under s. 13 of the Act. He further submitted that if the tenants-in-common want the benefit of s. 13, they have to satisfy the conditions provided in sub-s. (9B) of the said section. The Government pleader also submitted that the observation made by this Court in K.G. Keshava Bhat’s case (supra) with regard to the introduction of sub-s. (9B) as unnecessary must only be treated as an obiter. He further submitted that, but for the provisions of sub-s. (9B) of s. 13, the appellant would not have been entitled to apply for compounding.

We have considered the rival submissions. Sec. 3 is the charging section, as per which tax at the rate or rates specified in the Schedule to the Act shall be charged for each assessment year in accordance with and subject to the provisions of this Act on the total agricultural income of the previous year of every person. Sub-s. (2) provides that, subject to the provisions of this Act in the case of persons holding property as tenants-in-common and deriving agricultural income, the tax shall be assessed at the rate applicable to the agricultural income of each tenant-in-common. Sec. 4 deals with total agricultural income and s. 5 deals with computation of agricultural income. Sec. 6 provides for non-deduction of certain amounts in the computation of total income. Sec. 7 deals with depreciation and investment allowance. Sec. 8 deals with income forming part of the total agricultural income, on which no tax is payable and s. 9 deals with rebate and deduction allowable. Sec. 12 deals with carrying forward of loss. Sec. 13 provides for composition of agricultural income-tax. Sub-s. (1) of s. 13 reads thus : “13. Composition of agricultural income-tax.—(1) Notwithstanding anything contained in this Act, any person who holds landed property within the State extending to not more than twenty hectares and deriving agricultural income may apply to the Agrl. ITO for permission to compound the agricultural income-tax payable by him and to pay in lieu thereof a lump sum at the rates specified in the Table hereinunder on the planted area”.

The compounding rates are also provided in the table which is not relevant for the purpose of this case and hence not extracted. Sub-s. (9) of s. 13 states that the provisions of this section shall not apply to a member of any AOP which was assessed in the previous year under the provisions of s. 3 or to any company or co-operative society. Sub-s. (9A) inserted by the Kerala Finance Act, 1993 w.e.f. 1st April, 1993, provides for composition of tax by a firm. Sub-s. (9B) inserted by s. 6 of the Kerala Finance Act, 1994 w.e.f. 1st April, 1994, reads as follows : “(9B) Notwithstanding anything contained in sub-s. (9), any person holding landed property as tenants-in-common may, opt to pay tax in accordance with the provisions of this section if— (i) all the other tenants opt to pay tax under this section, and (ii) the share of each tenant in the common tenancy together with his individual property does not exceed the limit specified under sub-s. (1)”. Sub-s. (10) provides that any person who is permitted to pay tax in accordance with the provisions of s. 13 shall be exempted from payment of plantation tax under the provisions of the said Act during the period of such permission.

7. As already noted, we are concerned with the validity of the provisions of sub-s. (9B) of s. 13 inserted by the Finance Act, 1994 w.e.f. 1st April, 1994. The question as to whether the tenants-incommon are entitled to the benefit of compounded payment of tax for the period prior to 1st April, 1994, came up for consideration before a Division Bench of this Court in K.G. Keshava Bhat’s case (supra). The Division Bench observed that from the scheme of the Act the only inference that could be drawn is that sub-s. (9B) of s. 13 is merely explanatory in nature and argument that for the first time the benefit of compounding was conferred on tenants-in-common only by the insertion of subs. (9B) does not seem to be correct and that the scheme clearly indicates that tenants-in- common were entitled to the benefit of compounding even prior to the insertion of sub-s. (9B) which is merely clarificatory. The Division Bench also rejected the contention of the Government pleader that but for sub-s. (9B) the benefit of compounding cannot be availed by tenants-in-common under s. 13(1). The Division Bench also observed that the authorities harboured the belief bona fide but erroneously that benefit of compounding under s. 13(1) cannot be availed of by tenants-incommon and that what was implicit earlier has been made explicit by sub- s. (9B) and that the tenants-in-common will be entitled to the benefit of compounding under s. 13(1). The Division Bench ultimately held that sub-s. (9B) of s. 13 is merely explanatory and the tenants-in-common, who hold an extent of property not exceeding 20 hectares, are entitled to the benefit of compounding as persons under s. 13(1) of the Act.

8. This decision does not deal with the question that is raised in this appeal. It only says that subs. (9B) of s. 13 is only clarificatory in nature and that even de hors the said sub-section, tenants-in-common are entitled to the benefit of compounding under s. 13(1). Here, as we have already noted, the question is regarding the validity of sub-s. (9B) of s. 13. Under sub-s. (9B) tenants-incommon are entitled to the benefit of compounding only if (i) all the other tenants opt to pay tax under this section and (ii) the share of each tenant in the common tenancy together with his individual property does not exceed the limit specified under sub-s. (1). The assessing authority has rejected the request of the appellant opting for payment of tax at the compounded rate on the ground that the other tenants-in-common did not opt to pay tax under this section. According to the appellant, since other two tenants- in-common were not entitled to the benefit of compounding and since they did not satisfy the requirements of sub- s. (9B)(ii) they cannot opt for payment of tax at the compounded rate and therefore, there is no question of the other tenants-in-common satisfying the requirements of sub-s. (9B)(i) of s. 13. The contention of the appellant is that the disability of the other tenants in opting for payment of the tax at the compounded rate cannot be a ground or disentitling the appellant from availing the benefit of compounding which according to her would amount to arbitrariness and discrimination.

9. We do not find any merit in any of the contentions raised by the appellant to challenge the provisions of sub-s. (9B) of s. 13 of the Act. As already noted, the charging provision is s. 3 and sub-s. (2) of s. 3 provides for the mode of assessment of tenants-in-common. The normal mode of assessment under the Act is provided in ss. 5 to 12 of the Act. Sec. 13 is a special provision giving an option to the assessees therein to pay the tax at the compounded rate, provided the conditions stipulated therein are satisfied. By virtue of the decision of the Division Bench of this Court in K.G. Keshava Bhat’s case (supra) the position is that even prior to the introduction of sub- s. (9B) w.e.f. 1st April, 1994, tenants-in-common were entitled to opt for compounding under s. 13(1). Even under s. 13(1), compounding can be had only if each of the tenants-in-common who opt for compounding holds agricultural property having an extent of 20 hectares and below. By the insertion of sub-s. (9B) in s. 13 the tenants-in-common are entitled to compounding under s. 13(1) only if the twin conditions specified in sub-s. (9B) are satisfied. We find there is logic in prescribing the condition that in order to enable a member of the tenants-in- common to opt for compounding, the other members of the tenants-in-common must also agree to be governed by s. 13(1) and that each of the tenants-in-common shall not hold more than 20 hectares. The logic, according to us, is this : the agricultural income from the same property which was assessed hitherto in accordance with the normal provisions regarding taxation of agricultural income-tax must receive the same treatment even after opting for compounding. If compounding is allowed in the case of only one tenant-in-common and the same is not available to or availed by the other tenants-in-common either for the reason that they did not opt for compounding or for the reason that they held agricultural properties more than 20 hectares individually, there will be two types of assessments in respect of the agricultural income from the same agricultural holding, i.e., the person who is granted the compounding facility need pay tax only on the basis of the extent held and the others on the basis of the yield from the property and the expenses incurred. It would appear that the legislative intention in imposing the two conditions is to avoid such a situation. In other words, the legislature intended to have the same treatment to all the members of the tenants-in-common in respect of the agricultural income derived from the agricultural holding of the tenants in common.

We do not find any arbitrariness or illegality in imposing such a condition. The appellant has not challenged the legislative competence of the State to enact sub-s. (9B) in the manner the legislature has done. There is yet another reason to repel the challenge to the provisions of sub-s. (9B) of s. 13. Sec. 13 provides for option to compound the tax payable under the Act provided the assessee does not hold agricultural land of more than 20 hectares. The normal provision for assessment, as already noted, is provided under ss. 5 to 12 of the Act. Sec. 13 only provides for an alternate method of taxation provided under the Act which is made optional to the assessee. Sec. 13 gives an option to the assessee who is liable to tax under the Act in respect of the agricultural income derived from the agricultural holding to pay in lieu of the amount of tax payable by him during the year to pay tax by way of composition at the rate provided in the Schedule under s. 13 (1). There is no compulsion on any assessee to opt for the method of taxation provided under s. 13 (1) of the Act. It is entirely left to the choice and absolute discretion of the assessee. If the assessee thinks that it is beneficial for him to so opt, he can opt for it; otherwise he will be governed by the normal method of taxation provided under ss. 5 to 12 of the Act. The Supreme Court repelled a similar challenge in the context of the provisions of s. 5(1)(iv), s. 7(7) and sub-s. (7A) of s. 7 of the Kerala General Sales-tax Act and r. 22A of the Rules made in State of Kerala vs. Builders Association of India AIR 1997 SC 3640, contending that sub-sections are beyond the legislative competence of the State legislature or violative of cl. (29A) of Art. 366 of the Constitution of India stating that sub-ss. (7) and (7A) of s. 7 of the said Act are only optional and that there is no compulsion on any contractor to opt for the method of taxation provided under the said sub-sections. It is also observed that the legislature has evolved a convenient, hassle-free and simple method of assessment and that, by opting to this alternate method, the contractor saves himself the bother of book-keeping (sic), assessment, appeals and all that it means. It is further observed that in such a case it is not necessary to enquire and determine the extent or the value of the goods which have been transferred in the course of execution of the works contract, the rate applicable to them and so on and that a rough and ready method evolved by sub-ss. (7) and (7A) for ascertaining the tax payable under s. 5(1)(iv) cannot be said to be beyond the legislative competence of the State legislature or violative of cl. (29A) of Art. 366 of the Constitution of India. The principles laid down by the Supreme Court in the said decision will equally apply to the present case. There is nocompulsion on the part of the appellant to opt for the compounding facility provided under sub-s. (9B) of s. 13, if it is not beneficial to him. The learned single Judge has repelled the contention stating that the appellant has not made out any valid ground for challenging sub-s. (9B) of s. 13 of the Act. We fully endorse the view taken by the learned single Judge.

There is no merit in this appeal. It is accordingly dismissed.

[Citation : 270 ITR 540]

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