Shivashankar Bhat, J.
1. An identical question arise in all these writ petitions. For the sake of convenience, the facts in Writ Petition No. 10861 of 1987 are stated hereinafter.
2. The petitioner is an assessee under the Karnatake Agricultural Income-tax Act, 1957 (hereinafter referred to as the 'Act'), an owns a coffee estate in the State. The petitioner has been following the mercantile system of accounting and has been disclosing the coffee income on the basis of actual points declared by the Coffee Board. A return under the Act was filed adopting the said basis, valuing the coffee crops for the relevant season at Rs. 4 per point; this was the actual rate declared by the Coffee Board for the particular year. However, the respondent valued the coffee crops at Rs. 7 per point, stating that it was the average of the rates of the past 3 years; by this process, the respondent adopted the first proviso to rule 9 (c) of the Agricultural Income-tax Rules ('the Rules'). This method adopted by the respondent while assessing the petitioner's income is under challenge.
3. The petitioner's contention, inter alia, has been that the first proviso to rule 9(c) could be applied only when the situation contemplated by section 7 of the Act is found to exist.
4. Section 7 reads thus :
'Method of accounting. - Agricultural income shall be computed for the purpose of section 5 and 6 in accordance with the method of accounting regularly employed by the assessee :
Provided that if no method of accounting has been regularly employed by the assessee, or if the method employed is such that, in the opinion of the Agricultural Income-tax Officer, the agricultural income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as he may determine :
Provided further that in the case of coffee crop of an assessee, the agricultural income therefrom may be computed on the basis of valuation of points declared by the Indian Coffee Board in respect of such crop.'
5. The relevant rule 9 reads :
'Method of accounting. - Where no method of accounting has been regularly employed by the assessee or where the method employed is such that in the opinion of the Agricultural Income-tax Officer the agricultural income cannot be properly deduced therefrom, the Agricultural Income-tax Officer shall, after making such enquiry as he considers necessary, compute the agricultural income of the assessee as under :-
(a) if the agricultural produce of the land has been sold, the actual price for which such produce was sold;
(b) if the agricultural produce of the land has not been sold, or if such produce has been utilised only as raw material for any manufacturing business or for distribution to labourers by way of wages in kind, the value of such produce at the average market rate prevailing for the previous year concerned shall be taken to represent the value of the crop :
Provided that if no details are available relating to quantity of corps raised on the land or the cultivation expenditure incurred in raising such crops, the Agricultural Income-tax Officer or any other superior officer in passing or revising an order of assessment may, if considered necessary inspect the land and shall determine the agricultural income to the best of his judgment, taking into view the nature of the crop, extent of the land cultivated, method of cultivation employed, seasonal conditions and the comparative date from neighbouring assesses maintaining regular accounts; (c) in the case of a coffee crop of the previous year, the case amount received within the accounting period in respect of the crop grown and consigned by the assessee to the Coffee Board or the estimated value of such crop shall be taken into account as the income of the year according to the method of accounts regularly employed by the assessee :
Provided that if the estimated value declared by the assessee is less than the average of the rates declared by the Coffee Board for three immediate previous years the Agricultural Income-tax Officer or the Assistant Agricultural Income-tax Officer shall taken into consideration the average rates for the purposes of assessment;
Provided further that any receipt in respect of the earlier season's coffee crop received during the accounting period in excess of the amount already taken into consideration in the assessments of preceding years shall be considered as the income of the previous year.'
6. The effect of these provisions is neatly brought out by a Division Bench of this court in E. M. V. Muthappan v. Agrl. ITO : [1990]184ITR161(KAR) (as reported in the ILR) the Bench said (at page 184 ITR 168 ) :
'Section 7 of the Act provides for computation of income in accordance with the method of accounting regularly employed by the assessee. If the method of accounting is defective or if no method is regularly employed, the Assessing Officer can assess on any other reasonable basis provided in the case of a coffee crop. The Assessing Officer may compute on the basis of valuation of points declared by the Coffee Board in respect of such crop.'
7. At page 3530, it is said (at p. 184 ITR169 ) :
'The method of accounting is relevant only for the purpose of computation of income, but it cannot restrict or enlarge the range or character or content of the taxable income. A regular method of accounting determines the mode of computing the taxable income but it does not determine or even alter the range of taxable income or ambit of taxation. Therefore, section 7 or rule 9 cannot control the charging section.'
8. Therefore, it is clear that, to compute that taxable income, one has to primarily look to the method of accounting regularly adopted by the assessee. As per the first proviso to section 7, if no method of accounting has been regularly employed by the assessee or, in the opinion of the Agricultural Income-tax Officer, the method employed is such that the income cannot properly be determined, then the computation shall be made on any other basis which may be determined by the Officer. To attract the first proviso to section 7, one of the two conditions should be satisfied, i.e.,
(1) The assessee did not employ any method of accounting regularly.
or
(2) The Agricultural Income-tax Officer should form an opinion that, from the method employed by the assessee, the income cannot be properly deduced.
9. Thereafter, the Officer may compute the income upon such basis and in such manner as he may determine.
10. The second proviso to section 7 provides for the computation of the income in the case of a coffee crop, on the basis of valuation on points declared by the Coffee Board in respect of such crop.
11. The second proviso governs the situation only when the conditions stated in the first proviso are satisfied. The second proviso operates only when the officer has to compute the income, when no regular method of accounting has been employed, or when the officer opines that the income cannot be properly deduced from the method of accounting adopted by the assessee. The second proviso actually provides 'the basis' and 'the manner' in which the officer, in such circumstances, may compute the income. The second proviso is not an entirely independent provision and not an exclusive and original field governing assessment of the income from coffee crops.
'It is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as a proviso.' Abdul Jabar Butt v. State of Jammu and Kashmir, : 1957CriLJ404 .
Section 7 was interpreted by a Bench of this court in Veerathradhya v. Commissioner of Agrl. I.T. : [1973]87ITR193(KAR) (of the Mysore Law Journal), the Court pointed out, after quoting section 7 (at p. 195 of 87 ITR) : 'The above provision, except the second proviso, is in pari material with section 13 of the Indian Income-tax Act, 1922. It is settled law that under section 13 of the Indian Income-tax Act, 1922, the assessing authority cannot reject the income computed in accordance with the method of accounting regularly employed by the assessee unless he is of the opinion that the income cannot properly be deduced therefrom. That is the condition precedent to the exercise of jurisdiction to reject the income computed in accordance with the method of accounting regularly employed by the assessee.'
12. Thereafter, at page 573 (87 ITR 196) :
'It is settled law that 'the effect of an excepting or qualifying proviso, according to the ordinary rules of construction, is to except out of the preceding portion of the enactment, or to qualify something enacted therein, which but for the proviso would be within it.' (Vide Craies on Statute Law, 6th edition, page 217). The body of section 7 makes it mandatory that the agricultural income shall be computed for the purpose of section 5 and 6 in accordance with the method of accounting regularly employed by the assessee. The two provisos qualify the main provisions. The first proviso governs the case of all crops inclusive of coffee, in the case of all crops except coffee, in the opinion of the assessing authority, if the agricultural income cannot properly be deduced from the method of accounting employed by the assessee, then the computation can be made upon such basis and in such manner as the assessing authority may determine. The basis of computation is thus left to the discretion of the assessing authority. But, in the case of a coffee crop, the legislature has not left the basis of computation to the discretion of the assessing authority but has provided that where action is taken under the first proviso, the computation of the income of the coffee crop shall be on the basis of valuation of points declared by the Indian Coffee Board in respect of such crop.'
13. The last sentence points out that the second proviso actually operates din the field of the first proviso; but, while computing the income, the discretion of applying the basis and the manner are to be as per the second proviso. In other words, the conditions to be satisfied to apply the second proviso are to be found in the first proviso to section 7.
14. Rule 9 was referred to by Division Bench in the above case, as supportive of the above interpretation of section 7. The assessment orders were set aside in the said case, because the assessing authority failed to express its opinion that the income derived from the coffee crop could not properly be deduced on the cash basis of accounting regularly employed.
15. The opening part of rule 9 actually repeats the phraseology of the first proviso to section 7. Rule 9(c) is attracted only when the requisite opinion stated in the opening part of rule 9 is formed by the assessing authority. Neither section 7 nor rule 9 says that, where the valuation given by the assessee is less than the average of the rates declared by the Coffee Board for the three immediate previous years, the method of accounting employed by the assessee should be rejected. Rule 9(c) in no way directs the coffee points to be valued always at the average of the rates declared by the Coffee Board for the three immediate preceding years. It is only after the assessing authority forms an opinion that there is no regular method of accounting employed by the assessee, or that from the said method of accounting income cannot be properly deduced, that he may resort to the second proviso to section 7 and rule 9(c).
16. In the instant case, there is no finding that the assessee has not employed a regular method of accounting. The order assumes that the assesses-firm has been following the mercantile system of accounting and that the assesse has offered the rate of Rs. 4 per point for the 1983-84 season crop (assessment year 1984-85). This, the authority says, is too low a rate and values the points at Rs. 7.60, because the rate given by the assessee was too low when compared to the rates declared by the Coffee Board for three previous years; hence he applied rule 9(c). In other words, the valuation given by the assessee was rejected solely because the said value did not satisfy the valuation under rule 9(c). This is clearly an erroneous approach.
17. The assessing authority has not held anywhere that from the method employed by the assessee, the income cannot properly be deduced. In the absence of such a finding, he had no jurisdiction to apply rule 9(c).
18. It is necessary to note here that under the second proviso to section 7, the valuation of the points to be 'valuation on points declared by the Indian Coffee Board in respect of such crop'. The word 'such' traces the crop from which the agricultural income of the assessee has to be computed. In a substantial number of cases, the final valuation of the points in respect of the coffee delivered out of particular coffee crop may not be available at all. Necessarily, the assessee has to make a reasonable estimate of the value, based on some relevant material. The future value of coffee and the valuation of coffee points by the Coffee Board depend upon several factors some of which are beyond the control of the assessee or the Coffee Board. It is well known that the value of coffee depends upon inter-national market conditions and to some extent on the policy of the Central Government. Therefore, it is not possible to infer as a matter of course in all cases that the value of coffee points would not be lower than the average rates declared by the Coffee Board for the three immediate previous years. This must have wished while the relevant provisions of section 7 and rule 9 were drafted.
19. For the reasons stated above, these writ petitions are allowed; the impugned assessment orders are set aside; the respondent is directed to redo the assessments in the light of the observations made above.
20. The petitioners are entitled to their costs. Advocate's fee Rs. 1,000 one set.