H. Kenche Gowda Vs. State of Karnataka (Joint Commissioner of Agrl. Income-tax) - Court Judgment

Rajendra Babu, J.

1. These petitions are filed under section 55 of the Karnataka Agricultural Income-tax Act, 1957 ('the Act' for short), against the order dated June 9, 1986, purporting to revise the assessment orders passed by the Agricultural Income-tax Officer for the assessment years 1979-80 and 1980-81 in respect of one Kenche Gowda and the assessment order against the other coparceners of the erstwhile Hindu undivided family (HUF).

2. The facts of the case in brief are as follows :

3. Kenche Gowda, his two sons, Makappa and Kumar, constituted a Hindu undivided family which was assessed in that status up to the year 1977-78. The Hindu undivided family became divided and properties partitioned by metes and bounds on March 15, 1977. The Assessing Officer accepted the said partition and for the years 1978-79 and 1980-81, the divided coparceners filed separate returns which included their share in 'Coffee back pool payments', relating to coffee crop supplied by the erstwhile Hindu undivided family to the Coffee Board prior to the date of partition among them. The Assessing Officer assessed them separately on the basis of the returns filed by them. The Joint Commissioner of Commercial Taxes (hereinafter referred to as 'the Commissioner'), in exercise of his suo motu power, invoked the provisions of section 35 of the Act considering that the Assessing Officer wrongly assessed the coffee back pool payments as though they were separate individual income and in the wrong hands which he ought to have assessed in the hands of the erstwhile Hindu undivided family which was disrupted on March 15, 1977. Such an order, in his view was erroneous and prejudicial to the interests of the Revenue. He also invoked the aid of the Explanation to section 30 (2) of the Act. The show-cause notice issued under section 35 of the Act having remained unanswered, the Commissioner confirmed the proposal made in the said notices.

4. In the petitions filed against the said order, it is contended that the erstwhile Hindu undivided family, in respect of whose income the orders are sought to be made, was maintaining its accounts on cash receipt basis; that on the date of partition, i.e., March 15, 1977, the erstwhile Hindu undivided family had not received the coffee back pool payments; that the payments having been received subsequent to the partition, in the absence of a specific provision in law, could not be assessed in the hands of the quondam Hindu undivided family and that the said income must be assessed in the hands of the separated coparceners. The Commissioner initiated revisional proceedings on the erstwhile Hindu undivided family which had ceased to exist and had not been assessed for the years 1979-80 and 1980-81 at all and hence there was no order in respect of the erstwhile Hindu undivided family for invoking the powers of revision. It was further submitted that the Explanation to section 30 (2) applies only to the crops harvested and not disposed of prior to the partition and not to a situation as in the present case where the crops had not only been harvested but also disposed of before partition and hence the order of the Commissioner cannot be sustained. Further, it is submitted that the Hindu undivided family, in respect of which revisional proceedings had been initiated, not being in existence, no assessment could be made, much less would a revision lie.

5. In answer, Sri R. H. Chandan Goudar, learned Government Advocate, contended that when income was assessed in the hands of wrong persons, proceedings may subsequently be taken to revise the assessment so that the persons properly chargeable in respect of that income may be assessed, and relied on the decision of the Supreme Court in Manji Dana v. CIT : [1966]60ITR582(SC) and in the case of ITO v. Bachu Lal Kapoor : [1966]60ITR74(SC) . Elaborating his contention, learned Government Advocate submitted that section 35 of the Act empowers the Commissioner to initiate proceedings if he comes to a conclusion that in any proceedings there is an order which is erroneous and prejudicial to the interests of the Revenue. In the instant case, the income has been assessed in the hands of the separated coparceners while it should have been assessed in the hands of the erstwhile Hindu undivided family and in making proper adjustment, the Revenue had power to bring to tax the income of the family while revising the assessment on the individual members.

6. In answer to the contention raised on the applicability of the Explanation to section 30(2) of the Act, the learned Government Advocate submitted that the expression 'disposed of' in the proviso should be understood as meaning 'transferred for consideration', and that consideration not having been received, the proviso is applicable. Alternatively, it was also submitted that in view of section 30(2) of the Act, the Hindu undivided family must be deemed to have continued even though partition had been recognised by the Assessing Officer in respect of the income attributable to crops harvested prior to the partition.

7. There is no doubt that the Revenue can initiate proceedings for reassessment if the conditions laid down therefor are complied with against a person on the ground that the income, though it has been assessed in the hands of another, has escaped assessment in his hands. This principle could be extended to apply to the case of a Hindu undivided family the income of which has escaped assessment. The assessment in the hands of a karta, in his individual assessment, will not militate against the jurisdiction of the Assessing Officer to take proceedings for reassessment if income has escaped assessment. In the instant case, there is no assessment at all in respect of the erstwhile Hindu undivided family and hence there is no proceeding or order amenable to revision under section 35 of the Act. The two decisions of the Supreme Court relied on by learned counsel for the Revenue relate to proceedings arising under section 34 of the Indian Income-tax Act, 1922, which are in pari materia with section 36 of the Act. If an order passed by the Assessing Officer is found to be erroneous and prejudicial to the interests of the Revenue, as the assessment had been done in the hands of a wrong person, the result is that income has escaped assessment in respect of the right person in whose hands it should have been made and the power to be exercised is the one under section 36 of the Act and not under section 35 of the Act. Therefore, the said two decisions are not applicable.

8. Even assuming that the power of revision of the Commissioner under section 35 of the Act and the power of reassessment under section 36 of the Act to bring escaped income to tax overlap to a certain extent, the law applicable to such a situation is as enunciated by this court in the case of Bidar Sahakar Sakkare Karkhane Ltd. v. State of Karnataka : ILR1984KAR973 . It was observed therein (at p. 67) :

'That the revisional power cannot be exercised in respect of a matter which falls within the power to reassess the escaped turnover. The revising authority, in other words, should not trench upon the powers which are expressly reserved to the assessing authority under section 12A of the Act. The Deputy Commissioner, in exercise of his revisional jurisdiction, should not ignore that limitation.'

9. Hence, the contention of the Revenue on this aspect has got to be rejected.

10. Now, as regards the second question raised, the question that falls for consideration is as to the applicability of section 30 and the Explanation thereto.

11. Section 30 of the Act provides that at the time of making an assessment, if any claim is made that the Hindu undivided family hitherto assessed in the undivided status is now divided and that a partition has taken place among the coparceners, the Assessing Officer has to make an inquiry and on being satisfied that there has been a partition by metes and bounds, he shall record an order to that effect. When such order is passed, he shall make an assessment of income received by or on behalf of the family, as if no partition had taken place and apportion the tax liability. The proviso provides for apportionment of the tax liability amongst quondam coparceners proportionately. The Explanation to section 30(2) of the Act provides that income from the crop harvested but not disposed of, shall be deemed to be the income of such Hindu undivided family and shall be assessed as income of the year in which it is received according to the method of accounting regularly employed by them. Hence, the meaning of the expression 'disposed of' in the proviso will have to be understood accordingly.

12. In State of Kerala v. Bhavani Tea Produce Co. Ltd. : [1966]59ITR254(SC) , the Supreme Court held that when growers delivered coffee crop under section 25 of the Coffee Act to the Board, all their rights therein were extinguished and coffee crop exclusively vested in the Board. In the present case, the crop that is involved is coffee and the income that arises from payment made by the Coffee Board is back pool payment. The expression 'disposed of' is understood as 'transfer of goods to another'. As held in K. Cheyyabba v. State of Karnataka : 1979(2)KarLJ249 when the rights of the grower had extinguished on supply of coffee crop to the Coffee Board, the resulting position is that the coffee crop has been 'disposed of' for purposes of the proviso. Admittedly, the coffee crop had been harvested and disposed of prior to partition by the petitioner by supply to the Coffee Board as contemplated under section 25 of the Coffee Act. Thus, the conclusion is irresistible that the proviso has no application to the instant case at all.

13. Even so, learned counsel for the Revenue contended that in view of sub-section (2) of section 30 of the Act and the proviso thereto, the Hindu undivided family which had harvested the crop prior to partition received any income in any subsequent year after the partition, the assessment must be made on the individual although the income is attributable to the Hindu undivided family. But that is not the effect of the section at all. What it provides is that when an order accepting the partition has been passed under section 30 (1), the assessment of the total agricultural income received by or on behalf of the family which had been received up to the date of partition, could be made as if the partition had not taken place. This fiction, created under the Act, cannot be extended beyond its scope. In this view, we are fortified by the decision of this court in the case of Madwa Ramachandra Mutalik v. Agrl. ITO [1980] 2 (Supp.) Kar. LJ 370, wherein it was held that 'the income to be assessed would be income of the undivided Hindu family. After a division among the members of the family, the receipts cannot be termed as the income of the undivided family as such. The assessment that could be made on the undivided family, even though it was divided at the time of making the assessment, is in respect of the income derived or accrued to the undivided Hindu family as such, i.e., the income derived up to the date of division and that is to be assessed in the hands of the undivided Hindu family ....

14. The closing words of this proviso make it abundantly clear that the assessment that could be made is only in respect of the income derived up to the date of partition.'

15. Whatever may be the position, so far as these cases are concerned, the revisional authority having invoked the revisional power under section 35 of the Act which, as already held, is not applicable to the facts of the case, no other argument survives for consideration. Hence, we have no other option but to set aside the order of the Commissioner. Accordingly, we set aside the order of the Commissioner.

16. Civil revision petitions are allowed.