Case: State Of U.P. &amp; Anr Vs. Raza Buland Sugar Co. Ltd., Rampur

This appeal is by the State of U.P. by special leave granted by this court against the judgment and order of the High Court at Allababad in Special Appeal No. 978 of 1962 Two companies, the Raza Sugar Co. Ltd. and the Buland Sugar Co. Ltd., were incorporated under the, Rampur State Companies Act, 1932. Messrs. Govan Brothers (Rampur) Ltd. were the common managing agents of the two companies. On 10th May, 1933, the Raza Ltd. and on 11 th December, 1934, the Buland Ltd. entered into agreements with the erstwhile State of Rampur. The agreements provided that the Rampur State should grant to the companies leases of agricultural land with adequate irrigation facilities suitable for cultivation of sugarcane. The companies were required to pay fair and equitable land revenue which was to be agreed upon by the companies and the Rampur State. On 15th May, 1935, a partnership deed was executed by the Raza Ltd. and the Buland Ltd. constituting a partnership firm of the two companies in equal shares known as the Agricultural Company, Rampur. In the year 1939 the Rampur State leased 2, 000 acres of land and in the year 1946 another 2, 000 acres of land to the Agricultural Company, Rampur. In 1949 the State of Rampur acceded to the Union of India and was merged with the State of Uttar Pradesh with effect from 1st December, 1949. The Rampur State had agreed to exempt the Raza Ltd. and the Buland Ltd. from all taxes for a period of 15 years from the date of commencement of their businessThe U. P. Agricultural Income-tax Act was applied to the areas which formed part of the erstwhile State of Rampur on 1st July, 1950. The assessing authority issued notices under s. 16(4) of the U.P. Agrl. I.T. Act to the Raza Ltd. and the Buland Ltd. for furnishing returns of their agricultural incomes for the years 1357F to 1361F. It may be noted that the notice was not issued to the Agricultural Company, Rampur. The Raza Ltd. and the Buland Ltd. submitted their returns. The assessing authority assessed the two companies to agricultural income-tax for the years concerned. The companies preferred an appeal against the assessment to the Commissioner, Rohilkhand Division, and also filed Writ Petition No. 2385 of 1959 in the High Court of Allahabad challenging the assessment orders. On 17th April, 1961, the writ petition was allowed and the order of assessment was quashed with a direction that fresh assessments may be made. The Commissioner also directed the assessing authority to make fresh assessments in the light of the observations made by the High Court in its judgment dated 17th April, 1961, allowing the Writ Petition No. 2385 of 1959When the assessing authority started fresh hearing in pursuance of the order of the High Court an objection was raised with regard to the assessability of the two companies on the ground that no notice bad been sent to the Agricultural Company, Rampur. The assessing authority negatived the plea and assessed the Raza Ltd. and the Buland Ltd. for the years 1357F to 1361F and also for the years 1362F to 1363F. Against the order of the assessing authority the two companies, which in the meantime became amalgamated as the Raza Buland Sugar Co. Ltd., Rampur, filed a Writ Petition No. 1982 of 1962 in the High Court of judicature at Allahabad and prayed for the quashing of the assessment order dated 29th June, 1962, made by the assessing authority against the Raza Ltd. and the Buland Ltd. for the assessment years 1357F to 1363FThe writ petition was heard by a single judge of the High Court who by his order dated 4th October, 1962, allowed the writ petition on the ground that the assessing authority committed an error of law in assessing the two partners of the Agricultural Company, Rampur, and not assessing the firm as such. Aggrieved by the order, the State filed Special Appeal No. 978 of 1962 before the Division Bench of the High Court at Allahabad. The Division Bench of the High Court by its order dated 6th December, 1965, dismissed the Special Appeal. An application for leave to appeal to the Supreme Court was dismissed by the High Court. The appellants then preferred Special Leave Petition No. 1724 of 1969 to this court and on the leave being granted this appeal is now before us

Reasoning: The submission of the learned counsel for the respondent which was accepted by the High Court was that if the agricultural income-tax authorities wanted to proceed against the individual members of the firm they ought to have taken proceedings under section 18(1) and in the absence of such proceedings the partners, in this case the two companies, could not have been proceeded with. The argument thus presented though looks attractive does not stand scrutiny. There is nothing in the provisions of the Act prohibiting the assessing authority from proceeding against the individuals forming the partnership. Section 18 enables the authorities while proceeding with the assessment of a firm or a company not to determine the tax payable by the firm or the company but proceed to determine the agricultural income of each member of the firm. The provisions do not apply to a case where the returns are submitted by the partners as in this case, and the assessment made on that basis. The section would undoubtedly be applicable if assessment proceeding against the firm is stopped and the share of the individual is to be determined under the provisions of s. 18The principle that is applicable in tax statutes is that the income is subject to tax in the hands of the same person only once. Thus, if an association or a firm is taxed in respect of its income the same income cannot be charged again in the hands of the members individually and vice versa. The trust income cannot be taxed in the hands of the settlor and also in the hands of the trustee or beneficiary or in the hands of both the trustee as well as the beneficiary. These principles are, of course, subject to any special provision enabling double taxation in the statute. In the circumstances, we are unable to share the view of the High Court that without proceeding against the firm the assessing authority was in error in proceeding against the two partners of the firm on the basis of the returns submitted by themThere is yet another objection to the upholding of the plea of the respondents. Apart from submitting the returns their only plea in the earlier writ petition before the High Court was that the lands did not satisfy the requirements of the provisions of the U.P. Agrl. I.T. Act in that they were not assessed to land revenue in the United Provinces nor were they subject to local rate or cess. This plea was accepted and the High Court remanded it for determination whether the land was assessed to land revenue or was subject to local rate or cess. The plea that the assessment proceedings ought to have been taken against the firm was not taken. This plea cannot be allowed to be taken in proceedings after remand. The objection was taken only before the assessing authority after remand. It is true that in the proceedings before the assessing authority the assessment relating to two Fasli years 1362 and 1363 which did not form part of the proceedings before the High Court was also taken up. But here again the returns were submitted by the two companies on the basis of their respective income. In the circumstances, it cannot be said that the tax authorities were in error in assessing tax on the returns submitted by the two companies. The plea, therefore, that the assessment on the two companies, in the absence of proceedings against the firm of which the companies were partners, is not legal cannot be upheldWe do not think it desirable to remit the case to the High Court for the determination of this question as the matter has been long pending. This plea has been elaborately considered by the assessing authority which has pointed out that agreements with the Raza Sugar Co. Ltd. and the Buland Sugar Co. Ltd. show that it was stipulated that the Rampur State shall from time to time grant to the company lease of agricultural land. It was further provided that such fair equitable land revenue as may be agreed between the Rampur State and the company shall be payable in respect of such land and shall be subject to revision by agreement every 15 years. The lease also provided that fair and equitable water rates and cesses shall be payable in respect of the land. In s. 4(7) of the U.P. Land Revenue Act it is mentioned that the word " Mal Guzari " will be applicable where it has been duly assessed or has been determined by means of an auction or by any other means. On a consideration of all the relevant facts the assessing authority came to the conclusion that the agreement in favour of the companies provided for payment of land revenue and the word " rent " used in the leases has to be considered in relation to the original agreements and as such it is seen that the agreement provided for payment of land revenue. The learned counsel appearing for the respondents was unable to challenge the correctness of the finding of the assessing authority. On a consideration of all the facts that were placed before the assessing authority, we do not see any reason for not accepting the conclusion arrived at by the authority. This issue also we find against the assessee