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K.K Karunakaran Nair v. The Tahsildar, Changanacherry And Others
Structured Summary of the Opinion
Factual and Procedural Background
The petitioner constructed a community hall of 415.25 sq. metres at Nedumkunnam; construction was completed in 1994 according to a certificate issued by the Executive Officer, Nedumkunnam Panchayat (Special Grade). The petitioner did not file a return under the Kerala Building Tax Act, 1975 ("the Act"). The assessing authority made an assessment and served a demand notice (Ext. P2) dated 30-9-1996, after which the petitioner paid the assessed tax. Subsequently the assessing authority issued Ext. P3 under Section 15(3) of the Act stating that the earlier demand required revision and directing payment of tax as per a revised assessment (Ext. P3 also stated a last date for payment). The assessing authority asserted that the assessment in Ext. P2 used the rate in force on the date of the taxable event, whereas after a Government revision of rates the rate applicable at the time of assessment should have been applied; this contention was set out in the respondent's counter affidavit. The petitioner challenged Ext. P3 in the original petition. The Court set aside Ext. P3 (and related confirmations Exts. P5 and P8) and allowed the petition.
Legal Issues Presented
- Whether, under Section 5(1) of the Kerala Building Tax Act, 1975, the building tax for a building completed on or after the appointed day is to be charged at the rate specified in the schedule as existing on the date of the taxable event (completion), or at the rate in force on the date of assessment.
- Whether the assessing authority could invoke Section 15 (rectification) to revise Ext. P2 on the ground that an error apparent on the face of the record existed, and specifically whether application of a different rate of tax constitutes such an error apparent on the face of the record.
- Whether the mandatory procedural requirement in the proviso to Section 15(1) — that no rectification enhancing an assessment be made unless the assessee has been given a reasonable opportunity of being heard — was complied with before issuing Ext. P3 under Section 15(3).
Arguments of the Parties
Petitioner
- The petitioner allowed Ext. P2 assessment to be paid and challenged the later rectification notice Ext. P3; the petition sought relief against Ext. P3 and its confirmations (Exts. P5 and P8).
Respondent / Assessing Authority (as set out in the counter affidavit)
- Contended that Government revised the schedule rates with effect from 29-7-1996 and that Ext. P2 assessment was made on 20-11-1997 — i.e., after the revision — therefore there was an error apparent on the face of the record in Ext. P2 because the rate applied in Ext. P2 was the rate as on the date of the taxable event rather than the rate as on the date of assessment.
- Maintained that rectification under Section 15 was valid and that the schedule applicable for assessment should be the one existing on the date of assessment (as interpreted by the assessing authorities).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Umerkutty v. State of Kerala (1994) 1 Ker LT 781 | Holds that the taxable event for charging building tax under the Act is the completion of construction of the building. | Relied upon to support the proposition that the taxable event is completion and hence the rate applicable is the schedule rate as on that date. |
| Mathuram Agrawal v. State Of Madhya Pradesh (1999) 8 SCC 667 : AIR 2000 SC 109 | Principle that a taxing statute must be strictly construed and tax cannot be imposed by inference; no additional tax can be demanded by implication in absence of specific statutory words. | Used to support strict interpretation of Section 5(1) and rejection of the argument that rates as at assessment date can be inferred into the provision. |
| Mysore Minerals Ltd. v. CIT, Karnataka (1999) 6 JT (SC) 444 : AIR 1999 SC 3185 | Reinforces the requirement that taxation provisions cannot be extended by inference; the absence of explicit statutory language prevents imposing additional tax. | Applied to underline that Section 5(1) should not be read to include rates as at assessment date when not explicitly provided. |
| Kapil Mohan v. Commissioner Of Income Tax, Delhi (1999) 235 ITR 276 : AIR 1999 SC 573 | Observation that "tax and equity are strangers" — equity cannot be invoked to justify increasing tax liability where statute does not provide. | Invoked to reject equitable arguments advanced by Revenue and to stress statutory interpretation limits. |
| Kurian George v. Tahsildar (1995) 2 Ker LT 457 : 1995 AIHC 6198 (Division Bench) | Explains the scope and ambit of Section 15 of the Act and holds that the assessing authority cannot revise an assessment by treating it as an error apparent on the record; rectification power is limited to patent errors. | Followed to hold that rectification under Section 15 cannot be used to reassess or revise matters which are not patent errors. |
| Aboobacker Kunju v. State of Kerala (Writ Appeal No. 1613/98) (Division Bench) | Holds that where the question (choice of rate) is debatable, rectification under Section 15 could not be resorted to and is not appropriate. | Relied upon to conclude that even if Ext. P2 were erroneous, it was not an error apparent on the record and thus not amenable to rectification under Section 15. |
| Ridge v. Baldwin, 1964 AC 40 (House of Lords) | Sets out the scope where principles of natural justice apply and that statutory authorities must follow procedural safeguards depending on the nature of jurisdiction and statutory powers. | Quoted to support the requirement that procedural safeguards must be observed before imposing additional burdens. |
| Wiseman v. Borneman, 1971 AC 297 | Affirms that where a statute confers decision-making power, procedural safeguards in the statute must be followed. | Used to stress that the proviso to Section 15(1) is mandatory and its procedural requirement must be observed. |
| General Medical Council v. Spackman, 1943 AC 627 | If principles of natural justice are violated, the decision is a nullity even if same result might have been reached on merits. | Applied to underscore that lack of required hearing/notice invalidates the assessment/rectification action. |
| Hira Nath Mishra v. Principal, Rajendra Medical College, Ranchi, AIR 1973 SC 1260 | When statute prescribes a particular mode for natural justice, that mode must be followed. | Invoked to show that proviso to Section 15(1) (mandatory notice/hearing) must be complied with. |
| Swadeshi Cotton Mills v. Union Of India, AIR 1981 SC 818 | Similar principle that statutory procedures for natural justice must be observed. | Applied to support the mandatory nature of the proviso to Section 15(1). |
| M. Chockalingam & M. Meyyappan v. Commissioner of Income-tax, Madras (1963) 48 ITR 34 : AIR 1963 SC 1456 | Authority must act judicially and give a fair hearing before deciding against a person; failure to give notice where statute requires it is breach of natural justice. | Relied upon to analogize Section 15(1) rectification procedure to Income-tax rectification provisions and emphasize the necessity of notice/hearing. |
| Commissioners of Inland Revenue v. Hood Barrs (1961) 39 Tax Cas 683 | Quasi-judicial proceedings that require notice where statute prescribes it; absence of such notice is breach of natural justice. | Quoted to reinforce that rectification or reassessment without prescribed notice is invalid. |
| Sinha Govindji v. Deputy Chief Controller of Imports and Exports (1962) 1 SCR 540 | Supports the requirement of fair procedure/notice in statutory decision-making contexts. | Used as further authority that statutory procedural safeguards must be respected. |
Court's Reasoning and Analysis
The Court's analysis proceeds in a sequence of legal steps drawn from the Act and judicial authorities:
- Statutory interpretation of Section 5(1): The Court examined Section 5(1) which provides that building tax "shall be charged ... based on the plinth area at the rate specified in the schedule on every building the construction of which is completed on or after the appointed day." The associated Explanation deems construction complete when ready for occupation or actually occupied, whichever is earlier. From this language the Court concluded that the taxable event is the completion of construction.
- Applicability of Section 5(2): The Court noted (referring to its earlier decision in O.P No. 1631 of 1999) that Section 5(2) applies only to buildings constructed before the appointed day but assessed after the appointed day; since the subject building was completed after the appointed day, Section 5(2) did not apply here and there was no change in assessment method under that provision.
- Choice of rate — date of completion vs date of assessment: Relying on Umerkutty and the principle that taxing statutes must be strictly construed (as explained in Mathuram Agrawal and Mysore Minerals), the Court held that the rate to be applied is the one in the schedule on the date of the taxable event (completion). The Court rejected the contention (advanced by the Government Pleader) that the phrase "at the rate specified in the schedule" should be read to mean the schedule as existing on the date of final assessment, observing that adding such words by inference would be improper and lead to uncertainty and injustice.
- On rectification under Section 15: The Court analysed Section 15 and concluded that rectification is available only for mistakes apparent on the face of the record. It referred to the Division Bench in Kurian George which explains that assessing authorities cannot convert an assessment exercise into a reassessment under the guise of rectification. The Court emphasized that rectification is not review, appeal or revision and cannot be used to change an assessment on a debatable question of law or fact.
- On whether Ext. P2 contained an error apparent on the face: The Court relied on Aboobacker Kunju (Division Bench) to hold that where the issue (choice of rate to be applied) is debatable, Section 15 rectification is not appropriate. Therefore, even assuming Ext. P2 were wrong, it did not present an error apparent on the face of the record that Section 15 could cure.
- On mandatory procedural requirement (proviso to Section 15(1)): The Court held that Section 15(3) notice can be issued only after rectification under Section 15(1) and that the proviso to Section 15(1) makes issuance of notice and giving a reasonable opportunity of hearing compulsory before any rectification which enhances assessment. Because no such notice or opportunity was given prior to issuing Ext. P3, the rectification process (and Ext. P3 itself) was procedurally defective.
- Support from principles of natural justice and precedent: The Court invoked authorities such as Ridge v. Baldwin, Wiseman v. Borneman, General Medical Council v. Spackman, and several Supreme Court decisions concerning statutory rectification (including decisions on Income-tax Act rectification practice) to underline that failure to follow the statute-prescribed procedure for notice and hearing is a breach of natural justice and renders the decision invalid.
- Consequence: Combining the substantive interpretation (rate as on date of completion) with the procedural defect (no mandatory notice/hearing), the Court concluded that Ext. P2 was correct and that Ext. P3 (and its confirmations Exts. P5 and P8) were invalid and liable to be set aside.
Holding and Implications
Holding:
The Court set aside Ext. P3 (the notice of revised demand issued under Section 15(3)) and its confirmations (Exts. P5 and P8) and allowed the original petition.
Implications:
- Direct effect on the parties: The petitioner is relieved of the revised demand made by Ext. P3 and its confirmations (Exts. P5 and P8); the original assessment in Ext. P2, which applied the rate in force on the date of completion (the taxable event), stands.
- On legal principles: The decision applies and reiterates existing principles — that under Section 5(1) the schedule rate applicable is that which existed on the date of completion (taxable event); that rectification under Section 15 is limited to mistakes apparent on the face of the record and cannot be used to reassess on debatable points; and that the proviso to Section 15(1) creates a mandatory right to notice and hearing before rectification that enhances assessment.
- Broader precedent: The opinion relies on and applies existing authorities for statutory interpretation and procedural fairness. The text of the opinion does not state that it is establishing a new precedent beyond applying those principles; the direct effect is the quashing of Ext. P3 and its confirmations in this case.
Petition allowed.
JUDGMENT
Petitioner has constructed a community hall having a plinth area of 415.25 sq. metres at Nedumkunnam. Construction of the same was completed in the year 1994 as can be seen from the certificate issued by the Executive Officer, Nedumkunnam Panchayat (Special Grade). Petitioner did not file a return as required under the Kerala Building Tax Act, 1975 (hereinafter referred to as ‘the Act’). However, the assessing authority assessed the building and demanded tax by Ext. P2 demand notice dated 30-9-1996. Since the building was completed and taxable event for charging building tax as per Section 5(1) of the Act was after 10-2-1992 assessment was made on the basis of plinth area at the rate mentioned in the schedule existing on the date of taxable event, that is completion of the construction of the building. He paid the same. Later, Ext. P3 was issued under Section 15(3) of the Act, Ext. P3 reads as follows:
“Whereas it is found that the demand already made to you on 30-9-1997 as per this office order No. E4-9021/96 under Section 10 requires revision on the basis of Government Order No. 10322.A2/96 Law dated 22-11-1994.
It is hereby ordered that you shall pay building tax as per the revised assessment and demand as detailed below.”
It is also mentioned in the notice that balance amount should be remitted on or before 15-12-1992. By Ext. P3, Ext. P2 was sought to be rectified under Section 15 of the Act. Petitioner was assessed to tax at the rate mentioned in the schedule as existing on the date of assessment.
2. In the counter affidavit it is stated that Government has revised the rate of tax in the schedule with effect from 29-7-1996. But, Ext. P2 assessment was made only on 20-11-1997 after the revision of the schedule and, therefore, there is an error apparent on the face of the record of Ext. P2 as in Ext. P2 assessment, rate of tax applied is the rate existing on the date of taxable event but it should have been based on the rate existing on the date of assessment. Therefore, Ext. P3 rectifying the error is valid. It is also contended in the counter affidavit that under Section 5(1) of the Act the building which is completed on or after the appointed day should be charged for tax on the basis of plinth area at the rate specified in the schedule. It was interpreted by the assessing authorities that the schedule that is applicable is the one existing on the date of assessment and not on the date of taxable event.
3. I have already held in O.P No. 1631 of 1999 that Section 5(2) is applicable only for the building constructed before the appointed day, but, assessment on such building was not completed and pending after the appointed day, that is, 10-2-1992 by any reason including the reason of pendency of appeal or revision. In this case, the building was admittedly completed after 10-2-1992, the appointed day and, therefore, there is no change in the method of assessment. Hence, Section 5(2) is not applicable in this case.
4. Assessment of the building was correctly made by Ext. P2 under Section 5(1) of the Act. I have also held in O.P No. 1631 of 1999 that in such buildings which are constructed after the appointed day, building tax should be assessed on the basis of the schedule existing on the date of taxable event, that is, the date of completion of the building. I also refer to the decision reported in Umerkutty v. State of Kerala (1994) 1 Ker LT 781 where it was clearly held that taxable event for charging tax under the Act is the completion of the construction of the building. There is no provision in the Act that assessment will be based on the date existing on the date of final assessment and such an interpretation in the absence of specific provision will create uncertainty and unjust result. Being a taxing provision, strict interpretation of Section 5(1) is necessary. One cannot add the words “as existing on the date of final assessment” after the word “schedule” in Section 5(1) for taxing a citizen by inference without clear words in the Statute. (See Mathuram Agrawal v. State Of Madhya Pradesh (1999) 8 SCC 667 : (AIR 2000 SC 109) and Mysore Minerals Ltd. v. CIT, Kamataka (1999) 6 JT (SC) 444 (para 4): (AIR 1999 SC 3185). The contention of the learned Government Pleader that the word in Section 56(1) “at the rate specified in schedule” means rate as per the schedule as existing on the date of actual assessment cannot be accepted at all on general principle of inference also. In Kapil Mohan v. Commissioner Of Income Tax, Delhi (1999) 235 ITR 276: (AIR 1999 SC 573), the Supreme Court observed as follows:
“As to the argument based on equity, it has long been recognised that tax and equity are strangers. Just as reliance upon equity does not avail an assessee, so it does not avail the Revenue.”
The Supreme Court clearly held in that case that so long as the Act did not provide specifically, whether advisedly or otherwise, no tax can be imposed by inference. In the absence of specific words, more tax cannot be demanded than that was existing on the date of “taxable event”, here, the completion of the building. A careful reading of Section 5(1), as a whole, together with explanation makes the above intention of the Legislature clear. The above are extracted below:
“5. Charge of building tax:— (1) Subject to the other provisions contained in this Act, there shall be charged a tax hereinafter referred to as “building tax” based on the plinth area at the rate specified in the schedule on every building the construction of which is completed on or after the appointed day.”
“Explanation:— For the purposes of this Act, the construction of the building shall be deemed to have been completed when it is ready for occupation or has been actually occupied, whichever is earlier.”
Therefore, Ext. P2 assessment was correct and as the building in question was assessed on the rate as applicable on the date of completion of the construction of the building, the taxable event. There was nothing to be rectified in Ext. P2 order. Hence Ext. P3 is liable to be set aside on merit.
5. Even otherwise Ext. P3 is not tenable in law because rectification under Section 15 is possible only when there is a mistake apparent on the face of the record. A Division Bench of this Court in Kurian George v. Tahsildar (1995) 2 Ker LT 457: (1995 AIHC 6198) has explained the scope and ambit of Section 15 of the Act and held that the assessing authority cannot revise the order of assessment treating it as an error apparent on the record. Since the Division Bench has given detailed directions. I am not repeating the same herein. It is settled law that by using the power of rectification, one cannot make a reassessment. Power of an authority under Section 15 is to rectify patent errors committed by them. Power of rectification is not a review or appeal or revision. Assessing Officer cannot use the powers, of the appellate authority or revisional authority and appellate powers and review powers are different from rectification. Only an error apparent on the face of the record can be rectified under Section 15 of the Act. Section 15 of the Act is as follows:
“15. Rectification of mistake:— (1) The appellate authority or the revisional power authority may, at any time within three years from the date of an order passed by it on appeal or revision, as the case may be, and the assessing authority may, at any time within three years from the date of any assessment or order passed by it, of its own motion, rectify any mistake apparent from the record of the appeal, revision, assessment or order as the case may be, and shall, within the like period, rectify any such mistake which has been brought to its notice by an assessee:
Provided that no such rectification shall be made which has the effect of enhancing an assessment or reducing a refund unless the assessee has been given a reasonable opportunity of being heard in the matter.
(2) Whether any such rectification has the effect of reducing the assessment, the assessing authority shall make any refund which may be due to such assessee.
(3) Where any such rectification has the effect of enhancing the assessment or reducing a refund, the assessing authority shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable; and such notice of demand shall be deemed to be issued under Section 10 and the provisions of this Act shall apply accordingly.”
6. Whether the assessing authority has applied the rate of tax correctly or not can be examined only in a proceeding in appeal or revision and it cannot be treated as a mistake apparent on the face of the record. A Division Bench of this Court in Writ Appeal No. 1613/98 (Aboobacker Kunju v. State of Kerala) held as follows:
“5. The question for consideration is whether rectification could have been resorted to on the facts and in the circumstances of the case. Whether the assessment was to be made on the basis of the rate of tax prevailing at the time of completion of the building — taxable event or on the rate prevailing at the time of assessment — this question is not free from doubt and, we are, therefore, of the view that, at least, the provisions relating to rectification could not be resorted to on the facts of the case.”
Again, the Division Bench held as follows:
“7. Completion of the building being the taxable event, learned counsel for the appellant urged that the rate prevailing on the date of completion of the building was relevant. We do not propose to go into the merits as to at what rate — whether the rate prevailing at the time of completion of the building or the rate prevailing at the time of making the assessment the assessment was to be made. The question as to which rate was to be chosen by the authority to complete the assessment was a highly debatable issue and, therefore, in any case. Section 15 of the Act could not have been resorted to by the assessing authority.”
In view of the above decision even if Ext. P2 assessment is wrong, it is not an error apparent on the face of the record attracting Section 15. On that ground also Ext. P3 is liable to be set aside.
7. Section 15(3) notice can be issued only after rectification under Section 15(1). For rectification a notice is necessary as per the mandatory provision of Section 15(1). Proviso to Section 15(1) clearly states that no rectification shall be made which has the effect of enhancing an assessment unless the assessee has been given a reasonable opportunity of being heard in the matter. Here, admittedly, no notice or opportunity of being heard in the matter was given to the assessee before issuing Ext. P3 notice under Section 15(3). Ext. P3 notice was issued under Section 15(3) without giving any opportunity for the petitioner assessee to file objections or for hearing.
8. It is settled law that no decision can be taken against any person imposing him more burden by quasi-judicial authority or assessing authority without giving him some opportunity to put forward his case. In Ridge v. Baldwin, 1964 AC 40 House of Lords pointed out the extent of the area where the principles of natural justice have to be followed and judicial approach has to be adopted must depend, principally on the nature of the jurisdiction and the power conferred on the authority or body by statutory questions to deal with the question affecting the rights of citizens. Unlike general principles of natural justice, when principles of natural justice are enshrined in a statutory provision the statutory authorities are bound to obey the rule strictly. As held in Wiseman v. Borneman, 1971 AC 297 it is well established that when a statute has conferred on anybody the power to make any decisions affecting individuals, court will ensure that the procedural safeguards as mentioned in the rules are followed. It is true that procedural objections are often raised by unmeritorious parties. Judges may then be tempted to refuse relief on the ground that a fair hearing could have made on differences to the result. But, in principle, it is vital that the procedure specifically prescribed by the Statute and the merits should be kept strictly apart, since otherwise the merits may be prejudiced unfairly. In General Medical Council v. Spackman, 1943 AC 627 it was held by Lord Wright as follows:
“If the principles of natural justice are violated in respect of any decision it is, indeed, immaterial whether the same decision would have been arrived at in the absence of the departure from the essential principles of justice. The decision must be declared to be no decision.”
9. In Hira Nath Mishra v. Principal, Rajendra Medical College, Ranchi, AIR 1973 SC 1260 and Swadeshi Cotton Mills v. Union Of India, AIR 1981 SC 818 the Supreme Court held that when the Statute under which the authority functions provides for the observance of the principles of natural justice in a particular manner, natural justice will have to be observed in that manner. Here, notice under the proviso to Section 15(1) is compulsory before additional tax is imposed by way of rectification. Admittedly, such a notice was not issued.
10. Assessees are entitled to similar notice under Section 154 of the Income-tax Act for rectification. (Section 35 of the previous Act). Explaining the above power of rectification in M. Chockalingam and M. Meyyappan v. Commissioner of Income-tax, Madras (1963) 48 ITR 34: (AIR 1963 SC 1456) the Supreme Court held as follows:
“….. The authorities acting under the Indian Income-tax Act have to act judicially and one of the requirements of judicial action is to give a fair hearing to a person before deciding against him. In a recent case of the House of Lords, Commissioners of Inland Revenue v. Hood Barrs, (1961) 39 Tax Cas 683 it was held that such proceedings were quasi-judicial and if the section required a notice and notice was not given there was a breach of the principles of natural justice and certiorari lay to quash the order made. Lord Reid at page 706 observed:
“I do not think it necessary in this case to decide what degree of formality, if any, is required in proceedings before General Commissioners, for this at least is clear; no tribunal, however informal, can be entitled to reach a decision against any person without giving to him some proper opportunity to put forward his case. It may well be that these Commissioners acted in good faith and with the best intentions, but that is not enough.”
A similar view was also expressed by this Court in Sinha Govindji v. Deputy Chief Controller of Imports and Exports (1962) 1 SCR 540. It is more so in this case where the proviso to Section 35 itself makes it incumbent upon the Income-tax Officer to give notice and a hearing to an assessee when the effect of the rectification would be the enhancement of the assessment.”
11. It is mandatory on the part of the assessing authority to issue a notice under the proviso to Section 15(1) before rectifying the matter imposing more burden on the assessee. Admittedly, notice was not given before Ext. P3 notice under Section 15(3) was issued. On that ground also Ext. P3 is liable to be set aside.
12. Therefore, Ext. P3 demand of rectification under Section 12 of the Act as confirmed in Exts. P5 and P8, is invalid for each of the reasons mentioned above and is set aside.
The original petition is allowed.
Petition allowed.
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