Case: Delhi Cloth and General Mills Company Limited Vs. State of Uttar Pradesh and Others

The appellant-assessee (The Delhi Cloth and General Mills Company Ltd., Delhi) is a company registered under the Indian Companies Act and has certain agricultural 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. Agrl. I.T. 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 cl. (a) ; or (b) produce method (subject to deductions) mentioned in cl. (b) and under s. 6(1) 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 r. 5 of the U.P. Agrl. I.T. Rules, 1949, along with his return under s. 15 of the Act. For the assessment year 1954-55, a return of the agricultural income for the relevant previous year ending June 30, 1954 (1361 Fasli), was filed under s. 15(2) of the Act on November 27, 1954, by the appellant-assessee, returning a net income of Rs. 1, 06,Along with 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, 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 furnish within the 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 1954-55, and along with such notice a provisional estimate of the assessees 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 assessee at Rs. 2, 07, 923-9-0It 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 the 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, 1 955, however, another 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 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 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 with this return, which showed the net income of Rs. 1, 79, 543-5-9, 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 under s. 6(2)(a) instead of under s. 6(2)(b) as previously intimatedThe 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 appellants income at Rs. 4, 82, 231.05 on which the tax liability was assessed at Rs. 2, 88, 488.46. 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 relating to change of option which the appellant had claimed it 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 but 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 along with the original return could not change that option subsequently while filing another return or revised return under thea 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 appellants tax liability after computing its agricultural income for the relevant previous year in accordance with s. 6(2)(a) of the Act instead of under s. 6(2)(b) of the Act. The learned single 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 subsequent 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 Division Bench took the view that the assessee had no right to change the optionInitially, 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 the Constitution but at the time of the hearing of that appeal this court accepted the preliminary objection raised by the respondents to the maintainability of the appeal on the ground that the High Court was not competent to grant the certificate under art. 133(1)(a) inasmuch as the issue before the High Court was incapable of valuation and the order appealed against could not come within the scope of the said provision, this court, therefore, revoked the said certificate and sent the case back to the High Court for fresh consideration inasmuch as the appellants prayer for grant of certificate in the High Court was made both under art. 133(1)(a) and 133(1)(c) of the Constitution and directed the High Court to consider the prayer for grant of the certificate under the latter provision. Thereafter, the High Court by its order dated April 18, 1972, granted the certificate under art. 133(1)(c) on the ground that a question of law involved was of substantial importance and also of great public importance and it is on the strength of such certificate that was issued by the High Court that the Civil Appeal No. 1946(NT) of 1972, has been filed by the appellant in this court.

Court's reasoning:
It seems to us clear that s. 6 as originally framed gave an assessee the right to exercise the option, unfettered, only once after the commencement of the Act and if he once selected one method 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 absolute discretion to grant or to refuse such permission. At any rate, that was how the original unamended provisions were authoritatively interpreted by the Allahabad HighIn our view, there is considerable force in this contention for the reason 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 r. 5. That being so, the expression " his return of income " occurring in r. 5 would apply to any of the returns contemplated under 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 s. 15(2) read with r. 21 ; (3) a return filed in pursuance of individual notice served upon an assessee by the assessing authority under s. 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 the 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, r. 5 is obligatory 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 option 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 submitted. In this view of the matter it is not possible to accept the view of the Division Bench of the High Court that if once 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 change his option by filing a fresh return or a revised return before the assessment is made for thatquestion assumes significance because it was along with this return that the assessee had filed a declaration in Form No. A.I.T.-2 indicating a change in the option and praying that the computation of its agricultural income should be made in accordance with s. 6(2) of the Act instead of under s. 6(2)(b) as mentioned in the declarations filed along with two earlier returns dated November 27, 1954, and April 4, 1955. It is obvious that if the return dated November 8, 1958, was filed under s. 15(4) then in order to avail of the change of the option the appellant will have to show that it was really a revised return in the sense that the same had been filed because of a wrong statement discovered in the earlier returns filed by him. The Division Bench of the High Court has rightly taken the view that a wrong statement in the earlier returns does not mean selection of a wrong option by the assessee ; in other words, the assessee does get the right to file a revised return under s. 15(4) merely because he wishes to change theThe hearing of the appeal was, therefore, adjourned to enable both the parties particularly the revenue which will be possessing the records to produce material in that behalf and at the resumed hearing, though no material by way of assessment records or files in the custody of the assessing authority was produced by the revenue, the appellant placed on record a copy of the return dated November 7, 1958 (which was filed on November 8, 1958), together with a copy of the declaration in the Form No. A.I.T.-2 and the forwarding letter. The forwarding letter dated November 7, 1958, clearly shows that the return was filed in response to the notice dated April 7, 1955, served upon the appellant under s. 15(3) of the Act. The said letter in terms referred to the notice dated April 7, 1955, under s. 15(3) as also to the statement of provisional estimate of agricultural income for the relevant previous year 1953-54 (1361 Fasli) prepared under s. 6(2)(a) read with s. 15(3-B) accompanying the notice and further stated that the appellant had decided in order to avoid further prolonged litigation, to accept the provisional estimate of agricultural income under s. 6(2)(a) (subject only to necessary corrections as regards area and classification of soil, etc.) and to suffer agricultural income-tax on that basis and requested the assessing authority to complete the assessment in accordance with s. 6(2)(a) of the Act. It is, therefore, clear that the return filed by the appellant on November 8, 1958, was in response to the notice served upon it by the assessing authority under s. 15(3). Moreover, the said return was rejected by the assessing authority not on the ground that it had been filed beyond time but on the ground that the appellant had no right to change its option which clear suggests that the return was treated by the assessing authority as having been filed within time but the same was rejected on merits holding that the appellant was not entitled to change its option. It is thus clear that the return filed by the assessee on November 8, 1958, was not a revised return under s. 15(4) but a fresh return filed within time in response to notice under s. 15(3) served upon it by the assessing authority and as such the appellant was entitled to change its option and have the computation of its agricultural income made in accordance with s. 6(2)(a) of the Act. The fact that the appellant had produced some evidence in pursuance notice received under s. 16(2) in relation to its earlier returns or inspection of the records of the assessing authority cannot and does not amount to acquiescence or waiver of its right to file a declaration indicating its option afresh along with the return validly filed in response served under s. 15(3) of thet from the aforesaid position there is yet one more aspect to which we would like to refer in relation to the question raised before us in these appeals and that arises in view of the provisions of s. 16(4) of the Act under which the assessing authority makes its best judgment assessment.the instant case, as we have said above, notice under s. 15(3) was served by the assessing authority upon the appellant and as required by s. 15(3B), along with the notice, the assessing authority had sent a statement showing the provisional estimate of the agricultural income which in its opinion accrued to the appellant during the previous year 1953-54, which estimate was prepared in accordance with the provisions of s. 6(2)(a). Admittedly, the change of option sought to be exercised by the appellant was denied to it by the assessing authority and the assessing authority proceeded with the assessment of the agricultural income of the appellant-assessee in accordance with s. 6(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 upon the appellant informing the latter that agricultural income to the tune of Rs. 38, 947 had escaped assessment and invited objection from the appellant whereafter it seems that the assessing authority not being satisfied with the evidence produced by the appellant proceeded to make its best judgment assessment under s. 16(4). Section 16(4) runs16. (4) If the principal officer of any company or other person fails to make a return under sub-section (2) or (3) of section 15, as the 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 section or to produce any evidence required under sub-section (3) the assessing authority shall make the assessment to the best of his judgment with 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 sectionwill appear clear from the aforesaid provision contained in s. 16(4) that whenever the assessing authority proceeds to make the assessment to the best of its judgment the same is required to be made " with due regard to the statement, if any, sent under sub-s. (3B) of s. 15 notwithstanding any option exercised under sub-s. (1) of s. 6 ". It 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 considers appropriate 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 part of agricultural area and the other basis in respect of another part, the only obligation being to have " due regard " to the statement under s. 15(3B). The scheme of s. 16(4) clearly shows that in regard to the best judgment assessment there is nothing sacrosanct about the 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 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 contained in s. 15, the object being to determine his true agricultural income for the relevant previous year, --though so far as the assessing authority is concerned such option, whether original or sub-sequent, would indisputably be binding onn view of the aforesaid discussion, we are clearly of the view that the learned single judge of the Allalhabad High Court was right in his conclusion that the appellant-assessee was entitled to have the computation of its agricutural 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