Nelliampathy Tea and Produce Co. Ltd. vs Commissioner of Agricultural Income Tax

Paripoornan, J.—At the request of an assessee to agricultural income tax, the Commissioner of Agricultural income tax, Trivandrum (''the CAIT'') has, by order dated 25-4-1986, referred the following question of law for the decision of this Court:

Whether, on the facts and in the circumstances of the case, the proceedings of the Commissioner of Agricultural income tax, Trivandrum u/s 34 of the Agricultural income tax Act, by his order dated 28-2-1982, in respect of assessment year 1969-70, after the lapse of about ten years, is barred by limitation of time and whether the Commissioner of Agricultural income tax has power u/s 34, after the lapse of about ten years, to direct assessing authority to make a revision of assessment originally completed on 25-4-1972 ?

The applicant is an assessee to agricultural income tax. It is a public limited company. The respondent is the revenue. We are concerned with the assessment year 1969-70, for which, the accounting period ended on 30-6-1968. The original assessment for the year 1968-69 was completed on 26-3-1969 and for the year 1969-70 it was completed on 25-1972. An amount of Rs. 57,419 which was received by the company during the year 1969-70 towards the value of coffee pooled during the years previous to this year, was excluded from the assessment for 1970-71, treating the amount as income related to the accounting year relevant to the assessment year 1969-70. It was not assessed for any previous year. Out of the sum of Rs. 57,419, a sum of Rs. 10,679 related to the assessment year 1968-69 and Rs. 26,188 related to the assessment year 1969-70. In view of the decision of the Supreme Court in State of Kerala and Others Vs. Bhavani Tea Produce Co. Ltd., , a decision rendered as early as 7-10-1965, the above amounts should have been assessed for the years 1968-69 and 1969-70. It was not done though the assessments were made for the year 1968-69 on 26-3-1969 and, for the year 1969-70 on 25-4-1972. By notice dated 13-2-1979 the CAIT issued a notice proposing toKE900661.htmthe assessments for the years 1968-69 and 1969-70 u/s 34 of the Agricultural income tax Act. The assessee filed his objections thereto on 8-3-1979. It was contended that the original assessments were made for these years as late as 26-3-1969 and 25-4-1972, when the decision of the Supreme Court in Bhavani Tea Produce Co. Ltd.''s case (supra) was available, that the action initiated u/s 34 to include certain income based on the decision of the Supreme Court aforesaid after a period of 12 years is illegal, that proceedings u/s 34 were not initiated within a reasonable time and so it is barred, and if at all, the original assessments could be revised only u/s 35or section 36 of the Act, and not in proceedings u/s 34, suo motu revision proceedings, initiated by the CAIT. It was submitted that even if it is assumed that there is under-assessment for both the years, it is not a case of escaped assessment and so proceedings u/s 34 of the Act are patently barred. Notwithstanding the objections raised by the assessee, the CAIT by order dated 28-2-1982 revised the assessments for the years 1968-69 and 1969-70 and remitted the proceedings to the assessing authority for a fresh disposal according to law, in the light of the observations contained in the aforesaid revisional order. The revisional order was served on the assessee on 10-7-1982. The assessee-company filed two reference applications before the CAIT stating that in passing the revisional orders dated 28-2-1982, the revisional authority has acted unreasonably and the assessments were barred by limitation, and prayed for referring certain questions of law, which arose out of the order passed by the CAIT dated 28-2-1982 for the decision of this Court u/s 60(2) of the Agricultural income tax Act. It is thereafter, and as directed by this Court in O.P. No. 3550 of 1983, the CAIT has referred the question of law, formulated hereinabove, insofar as it relates to the assessment year 1969-70.

We heard the counsel for the applicant (assessee) as also the counsel for the respondent (revenue) Senior Government Pleader. The counsel for the assessee referred to the decisions in Bhavani Tea & Produce Co. v. CAIT 1972 Tax LR 2413 (Ker.) , Dy. CAIT v. P.S.B. Paul Pandian [1981] 128 ITR 809 (Ker.) and KRISHNA BHATTA Vs. AGRL. Income Tax OFFICER AND OTHERS., and contended that the CAIT invoked the jurisdiction vested in him u/s 34 after inordinate delay, that the said jurisdiction had not been invoked within a reasonable period and so the power vested in the CAIT has been exercised arbitrarily and capriciously. It was stated that in these circumstances, in view of the lapse of 10 years, the CAIT has no power u/s 34 to direct the assessing authority to make a revision of the assessment for the year 1969-70, originally completed on 25-4-1972, and the matter is barred by limitation. On the other hand, the counsel for the revenue submitted that the power of revision is vested in the CAIT to set aside any erroneous assessment, that the statute has not fixed a time limit within which the power should be exercised and regard being had to the facts of this case, it cannot be said that the power vested in the CAIT had been exercised unreasonably or in an arbitrary or capricious manner.

We are afraid that both sides have pitched their case very high. According to the assessee-applicant, the revisional order passed after 10 years is barred by limitation and the assessee contends for adopting an extreme rigid view. The counsel for the revenue contends that there is no bar of limitation at all since section 34 permits the power to be exercised at any time. No letter is imposed therein. The revenue is canvassing an extreme liberal view of the section. The real question, that arises for consideration, was not properly brought out neither in the question referred to this Court, nor considered by the CAIT when he passed the suo motu revisional order, dated 28-2-1982. It should be stated that in the objections filed by the assessee dated 8-3-1979, the assessee has pointedly stated, that though section 34 does not refer to any time limit for revision of assessment, still it should be done within a ''reasonable'' time and since it is not so, the proceedings are illegal, unauthorised and without jurisdiction. This aspect, as such, was not clearly adverted to in the revisional order. The revisional order proceeds to say that section 34 had been invoked to set aside the mistake or irregularity committed by the assessing" authority in not including the amount of Rs. 26,188 relating to this year in the assessment and since no period of limitation is prescribed for revising the assessment u/s 34, no question of limitation arises. We are afraid that the CAIT failed to understand the objections raised by the petitioner from a proper angle and perspective to the effect that the proceedings u/s 34 if at all, be initiated only within a reasonable time.

Section 34 provides as follows :

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.

Provided also that no application for revision shall be entertained under this section unless it is accompanied by satisfactory proof of the payment of the tax admitted by the petitioner to be due.

(2) Any order passed under sub-section (1) shall be final subject to any reference that may be made to the High Court u/s 60.

We may also refer to sections 35(1) and 36(1) which deal with the provisions to assess income escaping assessment and the power to rectify mistake in any assessment order. Section 35(1) reads as follows :

Income escaping assessment. -(1) If for any reason agricultural income chargeable to tax under this Act has escaped assessment in any financial year or has been assessed at too low a rate, the Agricultural Income- tax Officer may, at any time within five years of the end of that year, serve on the person liable to pay the tax or in the case of a company on the principal officer thereof a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 17 and may proceed to assess or re-assess such income and the provisions of this Act shall so far as may be, apply accordingly, as if the notice were a notice issued under that sub-section :

Provided that the tax shall be charged at the rate at which it would have been charged if such income had not escaped assessment or full assessment, as the case may be:

Provided further that the Agricultural income tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so.

Section 36(1) reads as follows :

Rectification of mistake. - (1) The authority which passed an order on appeal or revision may at any time within three years from the date of such order passed by him on appeal or in revision, and the Agricultural income tax Officer may at any time within three years from the date of any assessment or refund order passed by him, of his own motion, rectify any mistake apparent from the record of the appeal, revision, assessment or refund, as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee :

Provided that no such rectification shall be made having the effect of enhancing an assessment or reducing a refund unless the appellate or revisional authority or the Agricultural income tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard.

Under the Act, once an assessment made for a year becomes final (after the appeal or revision or reference, as the case may be) , it cannot normally respond except as provided in sections 35 and 36 and within the time specified in those sections. It is true that section 34 contains a general power to revise without limitation of time. The statute has not imposed any time limit, within which, proceedings could be initiated by the Commissioner u/s 34 to revise an order passed by the subordinate authority. Prima facie the proceedings u/s 34 can be initiated at any time. The outer time limit or the frontier specified, in section 35 (five years from the end of the assessment year) or in section 36 of the Act (three years from the date of the assessment order) are not prima facie applicable to proceedings in revision initiated u/s 34, to scrutinise the legality of an order, passed by an assessing authority. Even so, the question arises as to whether the powers u/s 34 can be exercised at any time to reopen an assessment, which has become final, even beyond the time limit specified in sections 35 and 36.

In Bhavani Tea & Produce Co.''s case (supra) the Court took the view that it may be permissible to exercise the jurisdiction u/s 34 to the benefit of the assessee at any time but there should be some reasonableness regarding the time limit, in case proceedings are taken suo motu, when the exercise of jurisdiction would affect the assessee adversely, at variance with an assessment already effected, and in that case nine years after the assessments became final was held to be an unreasonable period for the exercise of the suo motu revisional power. Similarly, in P.S.B. Paul Pandian''s case (supra) a Bench of this Court held that a delay of about 11 years in one case and about 10 years in the other, to revise the assessments already completed would be barred by limitation on account of long and unjustifiable delay. In Krishna Bhand'' ''s case (supra) an order levying penalty after 16 years was held to be bad. It is based on these decisions, that the counsel for the assessee contends that the order of revision passed in this case for the year 1969-70 proposing to revise the assessment order dated 25-4-1972, is patently barred by limitation.

We should say that no question of bar of limitation arises in suo motu revision proceedings, initiated u/s 34. The Act does not provide any time limit within which the proceeding should be initiated. The power is vested in very wide terms. It is trite law that such statutory power must be exercised bona fide, reasonably, without negligence and for the purpose for which it is conferred. While it is true that no period of limitation is prescribed for initiating proceedings u/s 34, action, if any, must be taken within a reasonable period. As stated, by the Supreme Court in Government of India Vs. Citedal Fine Pharmaceuticals, Madras and Others, :

In the absence of any period of limitation it is settled that every authority is to exercise the power within a reasonable period. What would be reasonable period would depend upon the facts of each case. Whenever a question regarding the inordinate delay in issuance of notice of demand is raised, it would be open to the assessee to contend that it is bad on the ground of delay and it will be for the relevant officer to consider the question whether in the facts and circumstances of the case notice of demand for recovery was made within reasonable period. No hard and fast rule can be laid down in this regard as the determination of the question will depend upon the facts of each case.

So the question that arises in this case is whether the CAIT exercised the suo motu power of revision vested in him u/s 34 within a reasonable period. The order of assessment for the year 1969-70, passed on 25-4-1972, had become final. Notice to revise the said assessment was issued to the assessee on 13-2-1979. The assessee filed his objections thereto on 8-3-1979. By order dated 28-2-1982, passed u/s 34, the CAIT set aside the assessment order for the year 1969-70 and ordered a remit, for fresh disposal in accordance with law. Admittedly, the suo motu revision proceedings were initiated nearly 7 years after the final assessment and the revisional order was passed nearly 10 years after the said assessment was rendered. Is it possible to say that in all the circumstances of the case, the power u/s 34 has been exercised by the CAIT within a reasonable time ? The normal period, within which, an assess-ment, once made, can be reopened u/s 35, is 5 years from the end of the assessment year. u/s 36, a mistake could be rectified within three years from the date of the assessment order. Once a final assessment is rendered (after the appeal or revision or reference, as the case may be) , the finality attached to the order, can be out in peril and the assessment can be reopened normally only in proceedings u/s 35 or 36. To reopen the final assessment after the said periods, in exercise of the powers u/s 34, demands cogent and sufficient reasons. The power vested in the CAIT should be exercised bona fide and within a reasonable period. The revenue should be able to demonstrate that there were circumstances beyond control or other supervening events or insurmountable difficulties, for not setting in motion the proceedings u/s 34 within the normal period provided in sections 35 and 36. Whether there were exceptional or extenuating circumstances, explaining the reason for not setting in motion the proceedings u/s 34 within the normal period, to revise or reopen an assessment, which will affect the assessee adversely, would depend upon the facts and circumstances of each case. It should be remembered that the statutory power conferred for public purposes is conferred as it were upon trust, not absolutely, and it can validly be used only in the right and proper way, which the Legislature when conferring it, is presumed to have intended. In a system based on the rule of law, there is no unfettered or untrammeled discretion in any statutory or public authority - See H.W.R. Wade''s Administrative Law, 5th Edn., page 355. It is settled law that an action of a statutory or administrative authority can be attacked as ''irrational'' or ''unreasonable''. The principles relating thereto have been laid down in Associated Provincial Picture House Ltd. v. Wednesbury Corpn. [1947] 2 All ER 680 (CA) and explained in later decisions of the House of Lords - See Council of Civil Service Unions v. Minister for the Civil Service [1984] 3 All ER 935 and Wheeler v. Leicester City Council [1985] 2 All ER 1106, etc. The word ''irrational'' or ''unreasonable'' is used in a comprehensive sense. It is used as a general pointer or description of the things that must not be done. It covers a multitude of sins. It is a generalised rubrics, which takes within its fold decisions, which are tainted by perversity, arbitrariness, caprice or absurdity. Though the repository of jurisdiction under the statute acts within the four corners of the legislative mandate, it is said that he has arrived at the decision which is repugnant to ''reason''. The decision is ''irrational'' and so unfair and illegal. Viewed in the above perspective, can it be said that the order of suomotu revision passed by the CAIT, dated 28-2-1982, reopening the assessment order for the year 1969-70, dated 25-4-1972, is rational, or reasonable ? Is it fair and legal ? That is the sole question to be decided on the facts and circumstances of the case. That is the very point made out by the assessee in his objections dated 8-3-1970. But unfortunately the attention of CAIT was not focussed on the said crucial question: nor has he decided the said question when he passed the revisional order dated 28-2-1982. Since the question as to whether the power has been exercised within a reasonable period, depends upon the facts of each case, it is initially for the statutory authority, before which such objection is raised, to advert to all the facts and circumstances and then came to a decision on the said question. That has not been done in this case. The question referred to this Court has not clearly brought out the above aspect. Moreover, in the statement of the case evidenced by order dated 25-4-1989, theCAIT has slated that there was''escape'' of income for the assessments completed for the years 1968-69 and 1969-70. (paper book, page 1, line 40) . If it be so, can the power u/s 34 (revisional jurisdiction) be invoked at all ? The decision of the Supreme Court in Commissioner of Agricultural Income Tax, Trivandrum Vs. Lucy Kochuvareed, is a pointer in this regard. That aspect has not been borne in mind at all. It seems that the Commissioner of Agricultural income tax was not definite or clear about his jurisdiction or power to pass the ''revisional'' Order. Therefore we decline to answer the question referred to this Court but at the same time direct the CAIT, Trivandrum, to restore the revisional proceedings to file for the year 1969-70 and dispose of the matter in accordance with law and in the light of the observations contained hereinabove.