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Commissioner Of Agricultural Income-Tax, Madras v. M.K Harihara Iyer.
Summary of Opinion — Tax Case No. 73 of 1963 (Reference No. 20 of 1963)
Factual and Procedural Background
This reference arises under section 60(2) of the Travancore-Cochin Agricultural Income-tax Act, 1950. The assessee is Sri M.K. Harihara Iyer, the sole legal representative of his deceased wife, Lakshmi Ammal, who died on 7 December 1949. During her lifetime she instituted suit O.S. No. 89 of 1121 (Nagercoil) against a lessee for arrears of rent and eviction. After her death the assessee was impleaded as her legal representative. Subsequently the assessee realised arrears of rent: Rs. 3,982.62 in respect of the assessment year 1957–58 and Rs. 857.86 in respect of 1958–59. These arrears related to rent due for the years 1945–49 (period before the Travancore‑Cochin Agricultural Income-tax Act came into force on 1 April 1951).
The Agricultural Income-tax Officer assessed these receipts as exigible to tax for the respective assessment years and rejected the assessee's contention that the amounts were barred by limitation or not assessable under sections 24 and 34. On appeal the Assistant Commissioner held that the assessee (as legal representative) was liable to pay income-tax which would have been payable by the deceased, but directed that the income of Rs. 3,982.10.9 (1957–58) and Rs. 857.86 (1958–59) be assessed separately through her legal representative and that the Agricultural Income-tax Officer follow procedure under section 24(2) or 24(3) as applicable.
The Commissioner, suo motu, invoked section 34 and gave notice to the assessee proposing assessment. The assessee objected that the Commissioner lacked jurisdiction under section 34 to revise the Assistant Commissioner's order when the revenue had not preferred an appeal. The Commissioner rejected the objection and held that on death the assessee acquired the properties and that the amounts realised were available to and received by him and therefore taxable in the relevant years.
Legal Issues Presented
- Whether the Commissioner has power to set aside suo motu the appellate order of the Assistant Commissioner under section 34 of the Travancore‑Cochin Agricultural Income‑tax Act, 1950.
- Whether the receipt by the husband (assessee) of amounts due to his deceased wife, which were realised during the assessment years in question, is income to be clubbed with income from properties inherited by him (i.e., whether those receipts are taxable on the assessee).
Arguments of the Parties
Appellant's (Assessee's) Arguments
- Under section 34 of the Act the Commissioner has no jurisdiction to revise the Assistant Commissioner's order where the revenue had not preferred an appeal against that order.
- The amounts received by the assessee were due to Lakshmi Ammal during her lifetime and therefore cannot be clubbed with and taxed as income from properties inherited by the husband.
- Because the rent related to the period 1945–49 (before the Act commenced on 1 April 1951), the sums are not liable to tax under the Travancore‑Cochin Agricultural Income‑tax Act.
Revenue's Arguments and Positions (as reflected in the record)
- The Agricultural Income‑tax Officer maintained that the amounts realised by the assessee during the assessment years were exigible to tax and were not barred by limitation.
- The Assistant Commissioner took the view that the legal representative of the deceased is liable to pay income‑tax which would have been payable by the deceased and directed separate assessment through the legal representative under section 24(2) or 24(3) as applicable.
- The Commissioner contended (in invoking section 34 suo motu) that on the death of Lakshmi Ammal the assessee stepped into her shoes, became full owner in his own right, and the agricultural income due to her was available to him in his own right; since he received the amounts during the relevant periods he was liable to tax for those years along with other items of income for those periods.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Anantha Mallan v. Commissioner Of Agricultural Income‑Tax, [1963] 47 I.T.R. 93 | Held (in that decision) that jurisdiction under section 34 becomes exercisable only where the Commissioner had not already formed an objection in favour of the department (i.e., limited exercise of revisional power). | The Court in this opinion rejected the reasoning of that decision and stated it was unable to accept that restriction on the Commissioner's revisional powers under section 34. |
| Commissioner of Income‑tax v. Amarchand N. Shroff (Supreme Court decision cited) | Interpreting section 24B of the Indian Income‑tax Act: legal personality of a deceased assessee extends for the whole previous year in which he died, so income received before death and income received by heirs within that previous year are assessable in the relevant assessment year; section 24B does not authorise taxation of receipts by legal representatives in assessment years following that previous year. | The Court applied the principle to hold that section 24 (corresponding to section 24B) cannot be invoked to tax the assessee for amounts received after the relevant previous year; consequently, the revenue cannot invoke section 24 to tax the assessee for the amounts received in the years at issue. |
| Ramakrishnan v. Agricultural Income‑tax Officer (this Court) | Held that the Travancore‑Cochin Agricultural Income‑tax Act cannot have retrospective operation to tax a sum which became payable long before the Act came into force; realisation of arrears arising prior to commencement cannot be brought within the Act for levy. | The Court relied on this decision to conclude that the two sums (relating to rent for 1945–49) are not liable to tax because they arose before the Act came into force and the Act cannot be made retrospective to subject these realisations to tax. |
Court's Reasoning and Analysis
The Court proceeded in two analytical strands corresponding to the two questions referred.
1. Power of Revision under Section 34:
- The Court examined the statutory scheme: assessment by the Agricultural Income‑tax Officer (section 18), appeal to the Assistant Commissioner (section 31), appeal from the Assistant Commissioner to the Appellate Tribunal (section 32) and revision by the Commissioner (section 34), with supervisory jurisdiction of the High Court under section 60.
- Section 34 expressly enables the Commissioner "of his own motion or on application by an assessee" to call for records of subordinate proceedings and to make such enquiry and pass such orders as he thinks fit, subject to the Act and with the proviso of hearing the assessee where an order may be prejudicial.
- The Court compared the Travancore‑Cochin provision with the corresponding Madras Act provision (which contains express restrictions on exercise of revision where time for appeal has not expired, where appeal lies, or where order is over three years old). The Travancore‑Cochin section contains no such restriction; therefore there is no bar under section 34 to the Commissioner exercising revision when no appeal has been preferred to the Appellate Tribunal.
- The Court rejected the submission that where the Commissioner is aggrieved he must only direct the Income‑tax Officer to appeal under section 32 rather than invoke revision under section 34. The Court found no statutory restriction to that effect in section 34.
- While the Court noted that departmental bias complaints have been raised in other contexts and criticized the Commissioner's attitude in this case (quoting his remark suggesting officers may take different views to prompt higher appeals), these criticisms did not negate the statutory power of revision; the Court emphasized that all these authorities are enjoined to act judicially under the statute.
- The Court expressly disagreed with the reasoning in Anantha Mallan (cited by the assessee's counsel) that would limit section 34's exercise only where the Commissioner had not formed an objection in favour of the department.
2. Taxability of the Amounts realised by the Assessee:
- The Court found that section 24 of the Travancore‑Cochin Act (corresponding to section 24B of the Indian Income‑tax Act) had no application to the facts of this case, applying the Supreme Court's construction in Commissioner of Income‑tax v. Amarchand N. Shroff. Under that construction the legal personality of the deceased extends only for the duration of the previous year in which he died; amounts received by heirs after that previous year are not rendered taxable as if the deceased had received them.
- Therefore, section 24B (and by correspondence section 24 of the Travancore‑Cochin Act) cannot be used to tax the assessee for amounts received by him in years of assessment succeeding the previous year in which the deceased died.
- Separately, because the arrears related to 1945–49 (a period prior to the Act coming into force on 1 April 1951), the Court relied on Ramakrishnan v. Agricultural Income‑tax Officer to hold that the Act cannot be given retrospective effect to tax realisation of claims that arose long before commencement. Thus the two sums could not be brought within the Act for levy.
Holding and Implications
Holding:
First question: Resolved in favour of the revenue — the Commissioner does have power under section 34 of the Travancore‑Cochin Agricultural Income‑tax Act, 1950 to call for records and exercise suo motu revision of subordinate orders even where no appeal has been preferred to the Appellate Tribunal.
Second question: Resolved in favour of the assessee — the amounts realised by the assessee (arrears of rent relating to 1945–49 and realised in assessment years 1957–58 and 1958–59) are not taxable on the assessee under the Act.
Direct consequences and costs:
- The two sums are not liable to tax under the Travancore‑Cochin Agricultural Income‑tax Act for the stated assessment years.
- The revenue was ordered to pay the assessee's costs; counsel's fee awarded to the assessee was Rs. 250.
Implications beyond the parties: The opinion does not purport to create a broad new rule beyond these holdings; it resolves the statutory scope of section 34 (permitting suo motu revision by the Commissioner in the circumstances of this case) and applies established authority on the limits of section 24/24B and on non‑retrospectivity where amounts arose prior to the Act. The Court expressly disagreed with the Anantha Mallan decision's restrictive view of section 34, but the opinion confines its orders to the issues presented.
Tax Case No. 73 of 1963 (Reference No. 20 of 1963)
Decided on November 18, 1965
The Judgment of the Court was delivered by
Kailasam, J.:— The two questions that are referred to us for decision under section 60(2) of the Travancore-Cochin Agricultural Income-tax Act, 1950, are: (1) Whether the Commissioner has no power to set aside suo motu the appellate order of the Assistant Commissioner under section 34 of the Travancore-Cochin Agricultural Income-tax Act, 1950, and (2) Whether the receipt of an amount due to her (deceased wife) during the lifetime of the deceased wife and actually received by the husband, is an income to be clubbed with the income from the properties inherited by her husband.
2. The assessee is Sri M.K Harihara Iyer on the file of the Agricultural Income-tax Officer, Nagercoil. His wife, Lakshmi Ammal, was possessed of certain properties. She died on 22-4-1125 M.E (December 7, 1949), leaving behind the assessee as her only legal representative. During her lifetime Lakshmi Ammal filed a suit, O.S No. 89 of 1121, in the District Court, Nagercoil, against her leasee, one Paliah Nadar for arrears of rent as well as for eviction. During the pendency of the suit, she died and the assessee was impleaded as her legal representative. An amount of Rs. 3,982.62 was realised as arrears of rent for the year 1957-58 and Rs. 857.86 for the year 1958-59. The arrears realised during the assessment years 1957-58 and 1958-59 were arrears of rent due for the years 1945-49 and the suit for the realisation of the amounts was instituted four years before the death of Lakshmi Ammal. The Travancore-Cochin Agricultural Income-tax Act, 1950, came into force on April 1, 1951.
3. The Agricultural Income-tax Officer assessed the two amounts, Rs. 3,982-10-9 and Rs. 857.86, which were realised by the assessee during the assessment years 1957-58 and 1958-59 as exigible to tax. He rejected the contention of the assessee that the amounts were barred by limitation as they related to the period 1945-49. He also did not agree with the contention of the assessee that the amounts were not assessable under sections 24 and 34 of the Travancore-Cochin Agricultural Income-tax Act. He held that the income received by the assessee during the year towards the rent due to Lakshmi Ammal, realised by the assessee after her death, was taxable. He included the amount in the assessment. On appeal, the Assistant Commissioner of Agricultural Income-tax, Tirunelveli, took the view that the legal representative of the deceased person was liable to pay income-tax, which would have been payable by the deceased under the Act.
4. Holding that the action of the Agricultural Income-tax Officer in assessing the appellant for both the income of his deceased wife which accrued during her lifetime and his own income together was not sustainable under section 24(2) of the Act, the Assistant Commissioner directed the assessment of the income of Rs. 3,982-10-9 for the year 1957-58 and Rs. 857.86 for the year 1958-59 separately through her legal representative. The Agricultural Income-tax Officer was directed to follow the procedure prescribed under section 24(2) or section 24(3) of the Travancore-Cochin Agricultural Income-tax Act, 1950, as the case may be, before passing the orders of assessment. The Commissioner of Agricultural Income-tax Acting suo motu, under section 34 of the Travancore-Cochin Agricultural Income-tax Act, 1950, gave notice to the assessee as to why he should not be assessed to tax regarding the two amounts. The assessee pleaded that the Commissioner did not have jurisdiction under section 34 of the Act to revise the order of the Assistant Commissioner when no appeal had been preferred against his order. The Commissioner rejected the objection of the assessee regarding his jurisdiction under section 34 of the Act. The Commissioner was of the view that the moment Lakshmi Ammal died, the assessee stepped into her shoes and became the full owner in his own right and as such the agricultural income due to her was available to him in his own right, and that, as the petitioner received the amounts during the periods in question, he is liable to be taxed with reference to the two amounts for the respective two years along with the other items of income for those periods.
5. In this reference, learned counsel for the assessee contended that under section 34 of the Act no jurisdiction is conferred on the Commissioner to revise the order of the Assistant Commissioner when the revenue had not filed an appeal against the order of the Assistant Commissioner. The second contention raised by him was that the receipt of the amounts by the assessee, which were due to Lakshmi Ammal during her lifetime, could not be clubbed with the income from the properties inherited by her husband. It was also contended that, as the rent related to 1945-49, the period prior to the coming into force of the Act on April 1, 1951, the amounts are not liable to tax.
6. The Agricultural Income-tax Officer is the person empowered to assess the total agricultural income of the assessee and determine the sum payable by him under section 18 of the Act. An appeal is provided against such assessment by the Agricultural Income-tax Officer to the Assistant Commissioner. The Assistant Commissioner under section 31 of the Act is empowered to confirm, reduce, enhance or annul the assessment, to set aside the assessment and direct the Agricultural Income-tax Officer to make a fresh assessment after such further enquiry as may be directed, or in the case of any other order, to confirm, cancel or vary such order. Section 32 provides an appeal from the order of the Assistant Commissioner to the Appellate Tribunal. This right of appeal is given both to the assessee and to the Commissioner. The Commissioner may direct the Agricultural Income-tax Officer to appeal to the Appellate Tribunal against the order of the Assistant Commissioner. The time provided for the appeal is sixty days, but the Appellate Tribunal may at its discretion admit the appeal after the expiry of sixty days. Section 34 of the Act confers on the Commissioner a right of revision. Section 34 is as follows:
“34. Revision.—(1) The Commissioner may, of his own motion or on application by an assessee, call for the record of any proceeding under this Act which has been taken by any authority subordinate to him and may make such enquiry or cause such enquiry to be made and, subject to the provisions of this Act; may pass such orders thereon as he thinks fit:
Provided that he shall not pass any order prejudicial to an assessee without hearing him or giving him a reasonable opportunity of being heard:
Provided further that an order passed declining to interfere shall not be deemed to be an order prejudicial to the assessee.
(2) Any order passed under sub-section (1) shall be final subject to any reference that may be made to the High Court under section 60.”
7. The Commissioner may suo motu or on the application of the assessee call for the record of any proceeding under the Act, which had been taken by an authority subordinate to him and after making such enquiry may pass such orders as he thinks fit. Thus, it will be seen that the Commissioner is empowered to act by himself or at the instance of the assessee, and he may pass such orders thereon revising the proceedings taken by any authority subordinate to him. This power of revision is “subject to the provisions of this Act”. It may also be noted that any order passed by the Appellate Tribunal in an appeal under section 32 and any order passed on revision by the Commissioner are subject to the provisions of section 60 of the Act. Under the corresponding section of the Madras Agricultural Income-tax Act, section 34, the power of revision by the Commissioner shall not be exercised if, (a) where an appeal against an order lies to the Appellate Tribunal, the time within which such appeal may be made has not expired, or (b) where an appeal against the order has been made to the Appellate Tribunal, the appeal is pending before it, or (c) the order has been made more than three years previously. Thus, while there is no restriction on the power of revision by the Commissioner under section 34 of the Travancore-Cochin Agricultural Income-tax Act, the Madras Agricultural Income-tax Act bars the exercise of the revisional powers before the expiry of the time for an appeal to the Appellate Tribunal and during the time when the appeal is pending before the Appellate Tribunal. The question whether the Commissioner under the Travancore-Cochin Agricultural Income-tax Act can exercise his powers of revision before the expiry of the time for an appeal or pending appeal before the Appellate Tribunal does not arise for consideration in this case. As the power of revision under section 34 is subject to the exercise of the power of the Appellate Tribunal under section 32, the power of revision cannot be exercised in any way to affect the appellate powers. It is unnecessary to pursue this discussion further. Suffice it to say that there is no restriction whatsoever for the Commissioner exercising his power under section 34 of the Act, when no appeal had been preferred to the Appellate Tribunal under section 32. The contention of the learned counsel for the assessee is that as a right of appeal has been provided against the order of the Commissioner, if the Commissioner is aggrieved, he can only direct the Income-tax Officer to file an appeal under section 32 and cannot invoke the revisional jurisdiction under section 34. We are unable to find any such restriction imposed on his powers under section 34. The learned counsel for the assessee relied on a decision in Anantha Mallan v. Commissioner Of Agricultural Income-Tax. [1963] 47 I.T.R 93., where it was held that the jurisdiction under section 34 becomes exercisable only where the Commissioner has not already formed an objection in favour of the department. The court was of the view that section 32(2) had been framed in partial recognition of the rule that minds biased must not decide and therefore a provision for appeal is provided under section 32 of the Act. We are unable to accept the reasoning in the decision. The scheme of the Act is that the assessment should be made by the Agricultural Income-tax Officer. An appeal is provided to the Assistant Commissioner of Agricultural Income-tax. Against the decision of the Assistant Commissioner an appeal is provided to the Appellate Tribunal and a revision to the Commissioner. The order of the Appellate Tribunal and the order of the Commissioner are subject to the powers of the High Court for interference under section 60. The Agricultural Income-tax Officer, the Assistant Commissioner and the Commissioner are departmental officers, and, if the contention that persons having a departmental bias should not be allowed to adjudicate is to be accepted, the conferment of powers of assessment on any of these officers cannot be sustained. The Act provides for the assessment by the Agricultural Income-tax Officer with a right of appeal to the Assistant Commissioner. From the order of the Assistant Commissioner an appeal to the Appellate Tribunal and a revision to the Commissioner are provided. All these authorities are exercising jurisdiction under the Act, enjoined to act in a judicial manner, and no question of any departmental bias arises. For these reasons, we are unable to agree with the decision cited above. It is no doubt true that the functions of the Agricultural Income-tax Officers are not sometimes properly appreciated and that gives room for the complaint of departmental bias. The attitude of the Commissioner in this case is not one which can be said to be free from complaint. In his order the Commissioner has stated as follows:
“Whatever may be said of this binding nature of the decisions of the High Courts on the subordinate judiciary, members of the public, Government and their officers are at liberty to take a different view on subsequent occasions in order that the matter might be taken up to still higher legal tribunals, as the questions involved are legal ones and there is no estoppel or res judicata governing them.”
8. It is unfortunate that the Commissioner is not aware of the fact that the decisions of the High Court are binding on all the Tribunals exercising judicial functions. The officers are certainly not at liberty to take different views from those laid down by the High Court, for the purpose of forcing the assessee to take the matter up to the higher Tribunals.
9. The next question that was argued relates to the taxability of the two incomes received by the assessee. There can be no doubt that section 24 of the Travancore-Cochin Agricultural Income-tax Act can have no application to the facts of this case. section 24 of the Travancore-Cochin Agricultural Income-tax Act corresponds to section 24B of the Indian Income-tax Act. Sub-sections (1), (2) and (3) of section 24 of the Travancore-Cochin Agricultural Income-tax Act are the same as subsections (1), (2) and (3) of section 24B of the Indian Income-tax Act. Construing the three sub-sections of section 24B of the Indian Income-tax Act, the Supreme Court held in Commissioner of Income-tax v. Amarchand N. Shroff that under section 24B the legal personality of a deceased assesses was extended for the duration of the entire previous year in the course of which he died and, therefore, the income received by him before his death and that received by his heirs and legal representatives after his death but in that previous year became assessable to income-tax in the relevant assessment year. Sub-section (2) provides that if a person dies before the publication of the public notice under section 22(1) or before a notice is served on him under sub-section (2) of section 22 or section 34, then the Income-tax Officer may proceed to compute or assess the total income of the deceased person as if the heirs and legal representatives were the assessees. Sub-section (3) provides that when a person dies before a return is furnished by him under the provisions of section 22 or dies after having furnished the return, which the Income-tax Officer finds incorrect or incomplete, then the Income-tax Officer can make assessment on the total income of the deceased person. The effect of sub-sections (1), (2) and (3) of section 24B is that the heirs and legal representatives of a deceased person are liable to pay income-tax of his estate where assessment had already been made and where he died before the assessment but the income was received before his death or by his heirs and legal representatives after his death which occurs during the previous year. Section 24B does not authorise levy of tax on receipts by the legal representatives of a deceased person in the years of assessment succeeding the years of account being the previous year in which such person died. The Supreme Court, in the case cited, rejected the contention of the revenue that if the income is received by the legal representatives of a deceased person, the legal representatives are liable for payment of the tax, just as the deceased would have been liable when the income was received had he been living. The revenue, therefore, cannot invoke the aid of section 24 for taxing the assessee. The assessee cannot be taxed for the amounts received by him, for the amounts did not accrue to the assessee during the assessment years, for which tax is sought to be levied. The Supreme Court held that the income received by the legal representative after the death of the assessee subsequent to the year of assessment cannot be deemed by fiction to have been received by the dead person and that the amount cannot be taxed as the income of the legal representative, as the legal representative cannot be deemed to be the assessee for the purpose of assessment in regard to those years.
10. Apart from the objections raised by the assessee regarding the taxability of his income of these two items, the revenue has to contend itself against another objection. It is common ground that the rent for which tax is sought to be levied relates to the period 1945-49, that is, before the Act came into force on April 1, 1951. The income is not taxable under the Act. In a recent decision of this court in Ramakrishnan v. Agricultural Income-tax Officer, it was held that the Act cannot have retrospective operation so as to take into account an amount which a lessee had become indebted to pay by way of rent to the landlord, on a date long anterior to the coming into force of the Act. It cannot bring in for the purpose of levy the realisation of a claim for arrears of rent which arose long before the Act came into force. The two sums, therefore, are not liable to be taxed.
11. In the result, we answer the first question referred to us in favour of the revenue and the second question in favour of the assessee. The revenue will pay the assessee's costs. Counsel's fee of assessee Rs. 250.
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