Commissioner of Sales Tax vs Brihan Maharashtra Sugar Syndicate Ltd.

Sujata V. Manohar, J.—Both these references are in respect of the same assessee but they relate to different asst. yrs. Sales Tax Ref. No. 9 of 1980 is in respect of the asst. yr. 1962-63 while Sales Tax Ref. No. 10 of 1980 is in respect of the asst. yr. 1963-64. The respondents, Brihan Maharashtra Sugar Syndicate Ltd., at the relevant time, carried on the activity of growing sugarcane and manufacturing sugar. After the coming into operation of the Maharashtra Agricultural IT Act, 1962, w.e.f. 1-4-1962, the respondents became liable for payment of agricultural Income Tax under the said Act. The respondents were assessed for the said years by the Agrl. ITO as also by the ITO under the Indian IT Act. For the purposes of Income Tax, the relevant accounting year of the assessees ended on 30th June and the books of account of the assessees were maintained as from 1st of July to 30th June of the following year (hereinafter referred to as the "co-operative year"). The assessees, however, filed their returns under the Agrl. IT Act on the basis of their previous year being the financial year, that is to say, on the basis of the accounting year being from 1st April to 31st March of the next year. The Agrl. ITO, however, assessed the assessee on the basis of their previous year being the co-operative year.

In the course of Income Tax proceedings pertaining to the relevant period, the ITO had disallowed expenseseses of Rs. 3,000 in each year out of the expenseseses incurred for the purposes of maintaining trucks, motor cars and guest house. The ITO had disallowed this amount on the basis that these expenseseses were attributable to the personal use of these facilities. After disallowing these expenseseses, the ITO held that the remaining expenseseses were common expenseses for earning income from business (taxable under the Indian IT Act) as also for deriving agricultural income (taxable under the Maharashtra Agrl. IT Act). The ITO allowed 2/3rd of such expenseses for arriving at income liable to tax under the IT Act. The remaining 1/3rd expenseses were disallowed, being expenseses incurred for deriving agricultural income. The Agrl. ITO allowed these 1/3rd expenseses as apportioned by the ITO while ascertaining agricultural income. The assessee had contended that all the expenseses which were disallowed in this connection by the ITO should be allowed in the assessment under the Maharashtra Agrl. IT Act. This was negatived by the Agrl. ITO.

There was also a dispute in relation to depreciation allowable in respect of agricultural implements. There were certain other contentions with which we are not concerned in the present reference. Ultimately, the matters went before the Sales Tax Tribunal. The Tribunal held that in respect of the expenseses on motor cars, trucks and guest house, whatever expenseses were disallowed by the ITO should be allowed in the assessment of agricultural Income Tax under the provisions of s. 9 of the said Act. The Tribunal also held that depreciation should be allowed on the actual cost even though the assets were purchased in the years prior to the relevant previous year. The Tribunal also upheld the contention of the assessees that the previous year should be the financial year and it directed the Agrl. ITO to pass fresh assessment orders on that basis.

From the decision of the Tribunal, the following three questions have been referred to us for decision under s. 39 of the Maharashtra Agrl. IT Act, 1962 :

"Question No. 1 : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that in respect of agricultural implements, the opponents were entitled to claim depreciation within the meaning of sub-s. (6) of s. 8 r/w cl. (b) of sub-s. (16) of s. 2 of the Act and r. 3 of the Maharashtra Agrl. IT Rules, 1962, on the costs price of their assets and not on the basis of the cost price less depreciation allowable under the Act ?

Question No. 2 : Whether, on the facts and in the circumstances of these cases, the Tribunal was correct in law in holding that the expenseses on guest houses, trucks and cars to the extent disallowed by the ITO before fixing the common charge were admissible deductions under cl. (b) of the proviso to s. 9(1) of the Act ?

Question No. 3 : Whether, on the facts and in the circumstances of these cases, the Tribunal was correct in law in holding that for the purpose of assessments of the opponent, the previous years would be the years ending on 31st March and not the relevant accounting years of the opponent ending on 30th June ?"

It is agreed between the parties that in view of the decision of this court in the case of Commissioner of Agricultural Income Tax Vs. Phalton Sugar Works Ltd., question No. 1 must be answered in the affirmative and infavour of the assessee.

As far as question No. 2 is concerned there were certain expenseses which were disallowed by the ITO in the Income Tax assessment on the ground that the expenseses were personal expenseses. It is agreed between the parties that expenseses which have been so held as personal expenseses by the ITO cannot be allowed as deductions for the purpose of computing income under the Maharashtra Agrl. IT Act, 1962.

Under s. 9(1)(b) of the Maharashtra Agrl. IT Act, 1962, where there is any common charge on both agricultural income assessable under this Act and income chargeable under the IT Act, and such charge is an allowance permissible both under this Act and the IT Act, then, if for the purpose of the IT Act, a part of such charge which is to be deemed to be the allowance permissible under that Act has been determined under that Act, the remaining part of such charge shall be deemed to be the allowance to which agricultural income assessable under this Act is subject. It is common ground that in view of this provision, question No. 2 must be answered in the affirmative, save and except that the expenseses which were considered as personal expenseses by the ITO cannot be allowed under the Maharashtra Agrl. IT Act, 1962.

The third question pertains to the determination of the previous year in respect of the asst. yrs. 1962-63 and 1963-64. Under s. 3 of the Maharashtra Agrl. IT Act, 1962, sub-s. (1), it is provided as follows :

"3. (1) For the purpose of this Act ''previous year'' means -

(a) the financial year immediately preceding the year of assessment; or

(b) if the accounts of the assessee have been made up to a date within the said financial year then, at the option of the assessee, the twelve months ending on such date; or ....

Where in respect of a particular source of agricultural income or in respect of a business newly set up, an assessee has once exercised the option under cl. (b), or sub-s. (ii) of cl. (d), or sub-cl. (i) of cl. (e), or sub-s. (1) or has once been assessed then, he shall not, in respect of that source or, as the case may be, business, be entitled to vary the meaning of the expression "previous year" as then applicable to him, except with the consent of the Agricultural Income Tax Officer and upon such conditions as the Agricultural Income Tax Officer may think fit to impose."

The financial year has not been defined in this Act. Under s. 21 of the General Clauses Act, however, financial year means the year commencing on the 1st day of April. Under s. 3, therefore, ordinarily previous year for the purposes of this Act means the financial year commencing from 1st of April. If, however, the accounts of the assessee are made up to a date other than the end of the financial year, then the assessee has the option of filing his returns on the basis of his previous year consisting of 12 months ending on such date.

In the present case, for the asst. yr. 1962-63, the account books of the assessees were made up as on 30-6-1961. The assessee, therefore, had the option of treating the year 1-7-1960, to 30-6-1961, as his previous year for the asst. yr. 1962-63 and, similarly, the period from 1-7-1961 to 30-6-1962, as his previous year for the asst. yr. 1963-64. It is the case of the applicants, that is to say, the Commr. of Agrl. IT, that the assessee had in fact exercised the option in favour of their previous year being considered as from the beginning of July till the end of June.

Mr. Jetly, ld. counsel for the applicants, in this connection drew our attention to the challans of advance tax for these years. It seems that there was a delay on the part of the assessee in filing their returns. They had, however, paid advance tax within the prescribed time. They, however, filed their returns as required under s. 22 of the said Act much later. Since the Agrl. IT Act came into operation from 1-4-1962, asst. yr. 1962-63 was the first year in which the assessee became liable to pay agricultural Income Tax.

The form of the challan is prescribed under r. 11 of the Maharashtra Agrl. IT Rules, 1962. This form is set out as Form No. 5 to the said rules. The challan requires the assessee to fill in the following : "Challan of tax, penalty and composition money paid to the ....... for the year commencing on ........". As against this, the assessee have filed in the year as 1-7-1960 to 30-6-1961. The assessee also filed with the Agrl. ITO provisional statements pertaining to their income for the purpose of calculation and payment of advance tax under the said Act. These show the year as from 1st July to 30th June. The statements were filed because the assessee had applied for extension of time for filing their returns. According to Mr. Jetly, these acts amount to exercise of option by the assessee to treat the co-operative year as their previous year. He has also relied upon the fact that the books of account of the assessee are maintained on the basis of the co-operative year and the Income Tax returns are also filed on the basis of the co-operative year being the previous year. As against this, Mr. B. C. Joshi, ld. counsel for the assessee/respondents, has pointed out that the assessee filed their returns for the said two assessment years on 3-3-1967. These returns are on the basis of the relevant previous year being the financial year. Prior to the filing of these returns, the assessees have addressed a letter dt. 7-2-1967, to the Agrl. ITO in which they have stated that the financial year is being adopted by the company as the previous year for the purpose of assessment of agricultural income. After considering this material the Tribunal has rejected the contention of the department that the assessees had opted for the co-operative year as their previous year.

Under s. 3 of the said Act, the previous year means the financial year immediately preceding the year of assessment. In case assessee want some other period to be considered as previous year, they have to exercise an option to that effect. The condition precedent to exercising an option is that the accounts of the assessees, should be made up to such other date. The assessees, in the present case, maintained their books of account as per the co-operative year. Therefore, they were entitled to exercise the option if they so desired. Maintenance of books of account on the basis of co-operative year, therefore, cannot be considered as equivalent to exercise of an option in favour of the co-operative year. It is a condition precedent or the exercise of the option.

Secondly, exercising an option involves a positive act on the part of the assessee who must be aware of his right. He must then consciously opt for the other previous year. Merely mentioning the year as commencing from 1st of July on the challan for the payment of advance tax cannot be treated as an exercise of such an option. The statements which were filed for the purpose of payment of advance tax also cannot be treated as an act of the assessee exercising option in favour of a different previous year. The statements which were filed were based on the Income Tax returns of the assessee. Since for the purpose of Income Tax, the assessee have adopted the co-operative year as the previous year, the statements show the co-operative year as the previous year. Filing of such provisional statements cannot be considered as an exercise of option by the assessee.

The assessment proceedings for agricultural Income Tax commence with the filing of the returns by the assessee. Before such returns were filed, the assessee had unequivocally stated that they had adopted the financial year as their previous year by addressing a letter to that effect to the Agrl. ITO. They had also filed their returns on the basis of the financial year being their previous year. In fact, no option is required to be exercised for adopting financial year as the previous year. Option is required to be exercised only if the assessee want to adopt some period other than the financial year as their previous year. There is no such option exercised in the present case.

The Madhya Pradesh High Court, in the case of Binodiram Balchand Vs. Commissioner of Income Tax, was concerned with the exercise of such an option under s. 2(11)(i)(a) of the Indian IT Act, 1922. It observed : "for the validity of an option, it is essential that the party opting should be cognisant of his rights. The party must have the knowledge of his or her right to opt and of those circumstances which would influence the exercise of an option." It also observed that the exercise of option must be demonstrably plain either by express or implied act involving the utter improbability of the party adopting the other choice open to it.

In the present case, had the assessees accepted the co-operative year as their previous year, the assessees would have become liable to pay tax in the first year on the income of 9 months starting from 1-7-1960, to 31-3-1961, plus 3 months of April to June, 1961. By adopting the financial year as their previous year, the assessees would be liable to pay tax only for the period starting from 1-4-1961. For the first year of assessment under the Agrl. IT Act, therefore, by adopting the financial year as previous year, an assessee would save tax for 9 months. In these circumstances it would be highly improbable for an assessee to select the co-operative year as the previous year. And such selection cannot be implied from a reference to the co-operative year in the challan for payment of advance tax or from ad hoc statements filed prior to the submission of proper returns. The Tribunal, in our view, has therefore rightly concluded that the assessee had not opted for the co-operative year as their previous year. Question No. 3 is, therefore, answered in the affirmative and in favour of the assessees.

The applicants will pay to the respondents costs of the reference in one set.