DELHI CLOTH & GENERAL MILLS CO. LID. v. STATE OF U.P. & ORS.

Citation: [1979] 2 S.C.R. 109; 1978 INSC 209

Court: Supreme Court of India

Bench: P.N. BHAGWATI , V.D. TULZAPURKAR, R.S. PATHAK

Judgment date: 1978-10-18

Case summary

1978 INSC 209. Supreme Court of India judgment dated 1978-10-18. DELHI CLOTH & GENERAL MILLS CO. LID. v. STATE OF U.P. & ORS. Read the judgment and case...

Judgment text

110 SUPREME COURT REPORTS [1979] 2 S. C. R. DELffi CLOTH & GENERAL MILLS CO. LID. v. STATE OF U. P. & ORS. October 18, 1978 [P. 'N. BHAGWATI, V. D. TuLZAPURKAR AND R. S. PATHAK, JJ. ] U. P. Ag[icultural Income tax Act, 1948-S. 6(1) scope of-Assessee given option to select one of the two alternative methods of computarion of agricultural income-Option exercised with the return changed when filing revised return-If permissible. Section 6(1) of the U. P. Agricultural Income tax Act, 1948 gives an option to an assessee to select one of the two alternative methods of computation of agricultural income as provided ins. 6(2), whichever is more advantageous to him. Such option is required to be indicated along with his return submitted under s. 15 of the Act. While submitting its return for the assessment year 1954-55 the assessee chose the option to be assessed under s. 6(2)(b) of the Act. It later submitted a revised return under s. 15(4) but stuck to the option to be assessed under s.

6(2)(b). The assessing authority, notwithstanding the filing of these two returns by the assessee, cailled upon it to file a return of the income computed under s. 6(2) (a). Thereafter the assessing authority served a notice on the assessee requiring it to produce evidence in support of it rsetum. After the assessee produced the required evidence, the assessing authority issued notice to tho effect that certain income escaped assessment and called for its objections, if any. The assessee asked for inspection of records; but it was refused. At the ins1ance of the assessee the Revision Board dtrected the assessing authority to permit inspection of the record. After inspection of the record the assessee filed a fresh (third) return. At this stage the assessee preferred the method of computation of income provided under s. 6(2) (a) instead of s. 6 (2 J (b) which it chose earlier.

Without deciding the question as to whether the assessee was entitled to change the option, the oosessing authority made a best judgment assessment under s. 6(2)(b). On appeal the Commissioner directed the assessing authority to first decide the question rel21ting to change of option whereupon the assessing authority held that the assessee had no right to change its earlier option. On further appeal the Revision Board upheld the order of the assessing authority. In the assessee's writ petition challenging the order of the assessing authority a single Judge of the High Court held that it was open to the assessee to change its option at the time of filing a subsequent or fresh return. But the Division Bench was of the view that the assessee had no right to change its option.

\ In its appeal the assessee contended before this Court that (I) it is open to the assessee to change its oplion not merely every year but during the year by filing a fresh return or a revised return provided it is done before the assessment is completed (2) although the assessee filed its fit>! return and the revised return, the assessing authority issued a notice under s. 15(3) along with statement of provisional estimate computed in accordance with s. 6(2)(~) pursuant to which the assessee filed the t'hird return exercising the option for computation in accordance withs. 6(2) (a) and, therefore, the assessing authority had to make the assessment in accordance with s. 6 (2 )(a) and ( 3) in any event since the assessing authority had proceeded to make a best judgment assessment under s. 16(4) it had no option but to make the assesstne! lt with due regard to the provisional estimate served under s. 15(3B) not\VithstanOirig any option exercised under s. 6(1) of the Act.

Allowing the appeals, HELD : The Division Bench of the High Court was wrong in holding that when once the option is exercised by an assessee by filing the ~equisite declaration he will have no right to change the option by filing a fresh return or revised return before the assessment is made for that year. [121 C] 1. V\. 'hatever restrictions had been imposed on the change of option by the original proviso to s. 6(1) had been removed arul the concept of "fi~st return" was deleted from r. 5. That being so, the expression "his return of income" cccurring in r. 5 would app)y to any of returns contemplated under s. 15, In fact r. 5 is obligatory and makes it incumbent upon an assessce to file, along with his return, ai declaration indicating his option under s. 6(1 ). The exercise of such optio:i.

including a change of option indicated in the declaration filed along with a subsequent return or a fresh return or a revised retu1n, will be valid provided the return itself is validly submitted. (120 G-H] 2. 1f the return was filed under s. 15 ( 4), then in order to avail of the change of the option the assessee will have to show that it was real! y a revised re1urn in the sense that the same had been filed because vf a v1rong statement discovered in the earlier returns. Clearly the third return was filed in response tq the notice issued by the assessing authority under s. 15(3). This return was rejected by the assessing authority not on the ground that it had been filed beyond time but on the ground that the assessee had no right to change its option ~·hich suggests that the return was treated by the atisessing authority as having been filed within time but was rejected on merits holding that the assessce \Vas not entitled to change its option. Therefore the third return V:.

'as not a revised return under s. 15 ( 4) but a fresh return filed \Vithin time in response to the notice under s. 15(3) and as such the assessee was entitled to change its option and haive the computation made in accordance \Vith s. 6(2) (a). The fact that the assessee had produced some t:vidence in pursuance to the notice in relation to its earlier returns or that it took inspection of the records cannot and does not amount to acquiescence or waiver of its right to file a declaration indicating its option afresh along with the return l validly filed in response to the notice under •· 15(3) of the Act. (121 F-0; 122D; G-H] 3. Moreover, irrespective of whatever option might ha. ve been exercised by the assessee the best judgment assessment has to be made by the assessing authority by having due regard to the statement of pr:ovisional estimate of fl agricultural income made in accordance with s. 6(2)(a).

TJnder ~· 16(4) whenever the assessing authority proceeds to make the assessment the same is required to be made "with due regard to the statement, if any, sent under DELHI CLOTH MILLS v. u. P. STATE (Tulzapurkar, J. ) 111 s. 151)-B) notwithstanding any option exercised under s. 6(1). " The scheme ' . of s. 16(4) clearly shows that in regard to the best judgment as:;essment there is nothing sacrosanct about the option exercised by the assessee under s. 6(1); equally it can be said that in regard to the assessments other thari. best judgment assessments under the scheme of s. 15 there is nothing sacrosari. ct about tho particular option previously exercised by the assessee and he need not be held bound by it provided he changes the option by filing a subsequent or a fresh or a revised return in accordance with the applicable provisions in s. 15. SO ' far a~ the assessing authority is concerned such option, whether original or ·subsequent, would be binding on it.

(124 F; H] CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1249 of 1968 and 1946 of 1972. From th~ Judgment and Order dated 27-9-1965 of the Allahabad High Court in Special Appeal No. 95/62. V. S. Desai and Rameshwar Nath for the Appellant (In CA 1946/ 72). G. N. Dikshit and 0. P. Rana for the Respondent in C. A. 1946/ 72. The Judgment of the Court was delivered by TuLzAPURKAR, J. -These appeals by certificate under Art. 133'(1). ·of the Constitution raise an important question whether an assessee having onc0 exercised the option regarding the method of computation of his agricultural income by filing the requisite declaration alongwith his return is entitled to change the option under the U. P. Agricultural Incom" Tax Act, 1948 ? The appellant-assessee (The Delhi Cloth and General Mills Company Limited, Delhi) is a company registered under the Indian Com-panies Act and has certain a!

Vicultural farms at Daurala in Meerut District from which it derives agricultural income chargeable to levy ·Of agricultural income-tax and super tax under s. 3 of the U. P. Agri- •Cultural Income-Tax Act, 1948 (hereinafter called 'the Act'). Section 6(2) of the Act provides two alternative methods of computation of agricultural income, (a) Rental method (multiple of Annual Rental income) mentioned in clause (a) or (b); Produce l ·method (subject to deductions) mentioned in clause (b) and under s. 6(il) an option is given to the assessee to select one or the other method whichever may be advantageous to him. Such option is required \ to be indicated in a Declaration in the prescribed Form No. A. I. T. -2 to 'be submitted under Rule 5 of the U. P. Agricultural Income-tax Rules, 1949 alongwith his return under s. 15 of the Act. Fo. r the assessment year 1954-55 a return of the agricultural income for the relevant ;previous year ending June 30, 1954 (1361 Fasli) was filed undoc s.

15(2) of the Act on November 27, 1954 by the appellant-assessee, returning a net income of Rs. 1,06,664. Alongwith the return a declaration in Form No. A. I. T. -2 was also filed indicating the option to be assessed in accordance with s. 6(2) (b) of the Act. On April 4, I 1955 the appellant-assessee discovering some mistake in the said return filed a revised return under s. 15 ( 4) of the Act showing the net income at Rs. 98,854 and explaining that the difference was due to certain further deductions that were claimed on account of expenses, and while filing such revised return the option under s. 6(2) (b) was adhered to. However, notwithstanding the filing of the aforesaid two returns, one on November 27, 1954 and the revised return on April 4, 1955, on April 7, 1955 the Assessing Authority served upon the appellant-assessee a notice under s.

15(3) requiring the latter to fur-nish within period specified in the notice a return in the prescribed form and verified in the prescribed manner setting forth its total agricultural income in the previous year relevant to the assessment year 19 54- 55 and alongwith such notice a provisional estimate of the assessee's agricultural income for the previous year (i. e. 1361 Fasli) computed under s. 6(2)(a) was also furnished as required by s. 15 (3-B) of the Act; the provisional estimate made in accordance with s. 6(2) (a) of the Act showed the income of the assessce at Rs. 2,07,923/9/-. It appears that neither the original return filed on November 27, 1954 nor the revised return filed on April 4, 1955 was found to be correct or complete by the Assessing Authority and, therefore, on April 14, 1955 the Assessing Authority served a notice under s.

16(2) of the Act on tl1e appellant-assessee requiring it to produce evidence in support of its return; in reply the assessee produced some evidence in the form of accounts and vouchers and details of the various expenses were also supplied. On September 29, 1955, however, an-other notice was given to the appellant-assessee stating that its income had escaped assessment to the tune of Rs. 38,947 /- and objections were invited. Thereupon, the appellant-assessee applied for inspection of the record before the Assessing Authority, but the application was rejected on October 18, 1955 against which a revision was filed by the appellant before the Revision Board and on April 29, 1958 the 1 Board allowed the revision application and the Assessing Authority was directed to permit the inspection of the record.

Thereupon the appellant took inspection of the record, but on November 8, 1958, being the date fixed for the hearing of the objections, the appellant I filed a fresh return (third return) in respect of its agricultural income for the self-same previous year (1361 Fasli) and this was done in response to the notice dated April 7, 1955 that had been served upon it by the Assessing Authority under s. 15(3-B) of the Act and along- DELHI CLOTH MILLS v. u. P. STATE (Tulzapurkar, J. ) 113 with this return, which showed the net income of Rs. 1,79,543/519, a declaration in the prescribed Form No. A. I. T. -2 selecting the method of computation of agricultural income under s. 6(2) (a) was also filed and the appellant prayed that it should be allowed to change the option and have its income computed undec s. 6(2) (a} instead of under • s. 6(2) (b) as previously intimated.

The Assessing Authority, without first deciding the question • whether the appellant was entitled to change the option as sought, by its order dated March 27, 1959 made a best judgment assessment in accordance with the method under s. 6(2) (b) of the Act and assessed the appellant's income at Rs. 4,82,231. 05 nP on which the tax liability was assessed at Rs. 2,88,488. 46 nP. The appellant challenged the assessment order in an appeal to the Commissioner who by his order dated July, 1, 1959 allowed the appeal, set aside the assessment and remanded the case back to the Assessing Authority with a direction that he should first dispose of the question celating to change of option which the appellant had claimed he was entitled to have and then make the assessment in accordance with law after allowing the appellant an opportunity to lead evidence in support of its return.

The Assessing Authority thereupon went into the question of change of option and by its order dated November 17, 1959 held that the appellant had no right to change its option and that the assessment had to be made in accordance with s. 6(2) (b) of the Act. The appellant went in revision before the Agricultural Income-Tax Revision Board challenging the said order of the Assessing Authority bnt the Revision Board by its order dated January 27, 1960 upheld the decision of the Assessing Authority. The Board took the view that an assessee having exercised the option once in Form No. A. I. T. -2 filed alongwith the original return could not change that option subsequently while filing anothec return or revised return under the Act. By a Writ Petition, being Civil Misc. Writ No.

1382 of 1960 filed in the Allahabad High Court the appellant challenged the validity of the two orders, one of the Assessing Authority and the other of the Revision Board and sought a mandamus directing the Assessing • • Authority to assess the appellant's tax liability after computing its agricultural income for the relevant previous year in accordance with s. 6(2) (a) of the Act instead of undec s. 6(2) (b) of the Act. The learned Siugle Judge who heard the writ petition by his judgment and \ order dated October 13, 1961 accepted the contention of the appellant that it was open to it to change its option with the filing of a sub£equent or fresh return with the result that the impugned orders were quashed and he issued a direction to the Assessing Authority that it shall proceed to assess the appellant-assessee in accordance with the option expressed by it on November 8, 1958. The respondents preferred an appeal to the Division Bench of the High Court being Special Appeal No.

95 of 1962 and the Division Bench allowed ' the appeal, set aside the decision of the learned Single Judge and restored the orders passed by the Assessing Authority and the Revision Board. In its judgment dated September 27, 1965, the Divisicin Bench took the view that the assessee had no right to change the option. Initially the appellant preferred an appeal to this Court being Civil Appeal No. 1249(NT) of 1968 on the strength of a certificate ·~. issued by the Allahabad High Court under Art. 133(1)(a) of t n. Rules 6 and 7 were totally deleted. The amended s. 6 as it stands today runs thus : "6. Computation of agricultural income. -(!

) The agricultural income mentioned in sub-clause (i), (ii) and (iii) of clause (b) of sub-section ( 1) of Section 2 shall, at the option of the assessee, be computed in accordance with clause (a) or clause (b) of sub-section (2), Provided that the agricultural income as aforsesaid for lea gardens shall be computed in accordance with clause (b) of sub-section (2). (2) (a) Subject to such deductions in respect of agricul-t:iral calamities as may be prrscribed, the income from the land shall be deemed t(} be an amount equal to its rent multi-plied by such multiple not exceeding 12t as the Land Reforms Commissioner may fix, and different multiples may be fi>. ed for different districts or portion' of district and for different classes of groves and orchards: Provided that the Land Reforms Commissioner may direct that the multiple for calculating income from land newly brought under cultivation shall for a specified number of years be such lower figure as may be prescribed. Explanation.

-In this section rent shall be de! '! med to be an amount calculated at the latest sanctioned rent rates applicable to hereditary tenants of the highest class of soil in the village in the case of orchards and groves and of simibr class of soil in other cases. ( b) the income shall be the gross proceeds of sale of all the produce of the land subject to the following deductions: (Here followed sub-clauses (i) to (xiii) specifying the deductions). ( 3) If the assessing authority is satisfied that the proceeds of sale have not been correctly shown by the assessee or that any portion of the produce has not actually been sold, he may assess the value of the produce for purposes of clause (b) of sub-section ( 1) of Section 2 by determining. tu the best of his judgment, the amount of produce and the market value thereof. " The amended Rule 5 as it now stands runs thus : "5. An assessee shall, along with his return of income, file a declaratioJ! in Form A. I. T.

-2 indicating his option under sub-section ( 1) of Section 6. " ' The Form No. A. l. T. -2 of declaration of the option for computation " of income under s. 6 reads thus: ,. "In pursuance of Section 6 (1), I, ............ do here- .. , by declare that I have elected the method of computation of 1 a~i:icultural income provided by Section 6(2)(a) /6(2. )(b) and have computed my income accordingly. " It seems to us clear that s. 6 as originally framed gave an asses~ee >----the right to exercise the option, unfettered, only once after the com-mencement of the Act if he once sel! 'c_\ed one 1J1ethod of computation of agricultural income he could not vary it subsequently in any year without the permission of the Board of Revenue which was given l! bsolute discretion to grant or to refuse such permission. At any rat~, that was how the original unamended provisions were authori-tatively interpreted by the Allahabad High Court. Relying upon the deletion of the original proviso to s.

6(1) of the Act by the Amending Act XVIll of 1954 and the deletion of the word "first" which occurred originally in Rule 5 as also the deletion of Rules 6 and 7, counsel for jhe appellant contended that whatever may have been the position under the original s. 6 and original Rules 5, 6 and 7, under the amended s. 6 read with the amended Rule 5 it would be clear that there is no restriction on the assessee's right to change the option and it would be open to an assessee not merely to change his option every year but eV@.. J! to change his option during the year by filing a fresh return or a revised return for the same year indicating the change in the declaration accompanying such fresh return or revised re. turn provided, of course, it is do11e before the assessment is completed by the Assessing Authority. In our view, there is considerable force in this contention for the rea~on that whatever restrictions had been imposed on the change of option by the original proviso to s.

6(1) have been removed and the concept of "first return" is deleted from .. Rule 5. That being so, the expression "his return of income" occurring in Rule 5 would apply to any of rcturr. s contemplated U. 'lder s. 15 of the Act, namely, (1) a return filed in pursuance of the { general notice issued and published by the Collector under s. 15 (1); (2) a return filed by the Principal Officer of a Company under section 15(2) read withs. 21; (3) a return filed in pursuance of indivi-dual notice served upon an assessee by the Assessing Authority under DELHI CLOTH MILLS v. u. P. STATE (Tulzapurkar, !. ) 121 ~. 15(3) and (4) a return or a revised return filed by an assessee under s. 15 ( 4), provided that in the first three cases the return is filed within time specified in the notice or the rule or within the extended ..

time granted by the Assessing Authority and in the last case the revised return is filed on account of discovery of a wrong statement in the previous return and is filed before the assessment is complete. In .. fact, Rule 5 is obliga! _ory and makes it incumbent upon an assessee to file along with his return of income a declaration in Form No. A. I. T. - 2 indicating his option under s. 6(1) of the Act and as such the exercise of such oJl_tion including a change of the option indicated in the declaration filed along with a subsequent return or a fresh return or a revised return will be valid provided the return itself is validly sub-lllitted. In this view of the matter it is not possible to accept the view of the Division Bench of the High Court th!

it if 011ce option is exercised by an assessee by filing the requisite declaration along with his return for a particular year_ he will have no right to chauge his optio11 by filing a fresh return or a revised return before the assessment is made for that year. Turning to the factual aspects in the case the main question that arises is whether the return filed by the appellant on November 8, 1958 was in pursuance of the notice served by the Assessing Authority upon the appellant under s. 15(3) of the Act or whether it was a revised return filed under s. 15 ( 4) of the Act and this question assumes significance because it was along with ibis return that the assessee bad filed a declar the appellant during the pre§i6us -~j/i' 1953-54 which estimate .. y~s prepared in accordance with ,lh'lf·J,rovisions of s. 6(2)(a). Admit¥. Jy, the change of opinion songht to be exercised by the appellant vvali.

denied to it by the Assessing Authority and the AsseJ~ing Authority proceeded with the assess-ment of tbc agricultural income of the appellant-assessee in accordance \\~th s. li(2)(b). Admittedly further, the Assessing Authority had issued a notice under s. 16(2) requiring the appellant to produce evidence in support of its earlier returns. On September 29, 1955 the • Assessing Authority served a further notice upo11 the appellant in-forming the l;ltter t! Jat agricultural income to the tune of Rs. 38,947 /- 8 had escaped assessment and invited objections from the appellant whereafter it seems that the Assessing Authority not being satisfied mth tllr evidence produced by the appellant proceeded to make its best judgment ! iO. Clioment under s. 16(4). Section 16(4) runs thus: "16(4) If the principal officer of any company or other person fails to make a r\'.!

um under sub-sections (2) or ( 3) of Section 15, as t_l:ie case may be, or, having made the return, fails to comply with all the terms of the notice issued under sub-section (2) of this >ection or to produce any evidence required under sub-section (3) the assessing authority shall make the assessment to the best of his judgment wi! h due regard to the statement, if any, sent under sub-section (3-B) of Section 15, notwithstanding any option exercised under sub-section (1) of Section 6. " It will appear clear from the aforesaid provision contained in s. 16(4) that whenever the Assessing Authority ])rocee<ls to make the assessment to the best of its judgment the same is required to be made "with due regard to the ~atel! )ent, if any, sent under sub-section (3-B) of s. 15 notmthstanding any option exercised under sub-s. (1) of s. 6. " lt is thus clear that irrespective of whatever option might have been exercised by the assessee the best judgment assessment has .....

to be made by the Assessing Authority by having due regard to the statement of provisional estimate of agricultural income made in accordance with s. 6(2)(a) of the Act. The non-obstante clause leaves it open to the Assessing Authority to select whatever basis it consi-d~rs appropri_ate for computing and determining the true agricultural income of the assessee; it may adopt any one of the bases in respect of the entire agricultural area or adopt one basis in respect of one t part of agricultural area and the other basis in respect of anather part, the only obligation being to have "due regard" to the statement under s. 15(3-B)· The scheme of s. 16(4) clearly shows that in regard to .. the best judgment assessment there is nothing sacrosanct about the 1'. option exercised by the assessee under s. 6( 1) of the. Act, equally it can be said that in regard to assessments other than best judgment assessments under the scheme of s.

15 there is nothing sacrosanct about the particular option previously exercised by the assessee and he need DELHI CLOTH MILLS v. u. P. STATE (Tulzapurkar, J. ) 125 not be held bound by it provided he changes the option by filing a subsequent or a fresh or a revised return in accordance with the a0Jlicablc provisions contained in s. 15, the object being to cietermine his trnc agricultural income for the rel,vant previous year,-though so far as the Assessing Authority is COJ! cerned such option, whether original or subsequent, would indisputably be binding on it. • In view of the aforesaid discu~sion, we are clearly of the view that the learned Single Judge of the Allahabad ]J:igh Court was right in • his conclusion that the appellant assessee was entitled to have the computation of its agricultural income for the previous year 1953-54 (1361 Fasli) relevant to the assessment year 1954-55 done in accordance with s. 6(2)(a) of the Act.

The appeals are, therefore, allowed, the order of the Division Bench dated September 27, 1965 in Special Appeal No. 95 of 1962 is set aside and that of the learned Single Judge dated October 13, 1961 in Civil Misc. Writ No. 1382 of 1960 is restored. The appellant will get the costs of Civil Appeal No. 1946(NT) of 1972 fro. m the respondents while each party will bear and pay its own costs of Civil Appeal No. 1249 (NT) of 1968. . P. B. R. Appeal allowed.

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