S. Muthayya Odayar Annavasal vs The Government of Madras

Srinivasan, J.—The Petitioner holds agricultural lands part of which had been taken on lease from a mutt and temple. For the year of

assessment, 1958-59 he submitted return in From 11. As the quantum of produce indicated in his return appeared to be too low the agricultural

income tax Officer called for accounts. The Petitioner produced none stating that he did not maintain proper accounts and that the particulars

furnished in his return were based upon a memorandum maintained by him. Thereupon the Agricultural income tax Officer inspected the Villages in

question, examined the karnams of the villages and after local enquiries estimated the income from the lands. The result was that on the net income

of the Assessee which was fixed at Rs. 29,659-87 nP., a tax liability of Rs. 6,666-94 nP., accrued. On appeal to the Assistant Commissioner of

the Agricultural income tax, certain allowances were enhanced and the tax liability was reduced to Rs. 5,972-73 nP. On a further appeal to the

Tribunal, the Petitioner contended that in respect of the lands which he had taken on lease from the mutt and temple there should be no tax liability

whatsoever. He also claimed that in so far as the quantum of rent which he paid to his land-lord is concerned, credit should have been given to the

entirety of the stipulated lease amounts though admittedly he had paid only a part thereof. Both these contentions were found against by the

Appellate Tribunal and it is this order of the Appellate Tribunal that is canvassed in this revision petition.

Of the two points that were urged before the Tribunal, only one has been put forward before this Court. The plea that since the lands belonged

to the temple and mutt the income there from should be exempted from tax has not rightly been pressed by Sri. M.S. Venkatarama Iyer, learned

Counsel. The only point urged by him is that credit should have been given for the value of 3,100 kalams of paddy which the Petitioner has to pay

to the lessor. It was admitted, however, that only 1,700 kalams of paddy had in fact been paid to the lessor. It is also admitted that credit for this

amount has been given by the taxing authority. But the contention is that since the Petitioner is under a legal liability to pay the balance as well,

credit should have been given for this amount of 1,400 kalams not paid but still due The short question is whether that is allowable.

u/s 5(b) of the Madras Agricultural income tax Act deduction is allowable in respect of any rent paid in the previous year to the landlord or

superior landlord, as the case may be, in respect of the land from which the agricultural income is derived. The explanation to this Section states:

Paid means actually paid or incurred according to the method of accounting upon the basis of which agricultural income is computed under this

section.

It is the argument of the learned Counsel that u/s 7 read with Rule 10 of the Rules framed under the Act, the Assessee is entitled to the

deduction of the entirety of the lease amount payable by him whether it has been paid or not. We are unable to accept this contention. Section 7 of

the Act provides for the computation of agricultural income in accordance with the method of accounting regularly employed by the Assessee. The

proviso to this section states:

If no method of accounting has been regularly employed by the assesses or if the method employed is such that in the opinion of the Agricultural

income tax Officer, the agricultural income cannot properly be deduced there from, the computation shall be made upon such basis and in such

manner as may be prescribed.

The relevant rule in this regard is Rule 10 which states:

Where no method of accounting has been regularly employed by the Assessee or where the method employed is such that, in the opinion of the

Agricultural income tax Officer, the agricultural income cannot properly be deduced there from, the Agricultural income tax Officer shall after

making such enquiry as he considers necessary, compute, the agricultural income of the Assessee to the best of his judgment.

In the instant case, it is admitted that no accounts were at all maintained by the Assessee. It is not a case where some method of accounting was

followed which was not in the opinion of the officer such as to facilitate a correct appraisal of the income. Rule 10 deals with the manner in which

the income shall be computed where no system of accounting has been adopted. Where no accounts have at all been maintained, equally the

income tax Officer has a duty to make such enquiry as may be necessary and arrive at the income. Neither Section 7 nor Rule 10 of the Rules

framed under the Act deals with the question of deductions, such as has been claimed by, the Assessee in this case. Even the explanation to

Section 5 only states paid means actually paid or incurred according to the method of accounting. It is well-known that it is open to the Assessees

to maintain their accounts on cash basis in which event actual receipts are alone taken as income and all liabilities incurred are treated as

expenditure if actually spent. Under the mercantile system of accounting, however, where a right so receive a particular amount as income arises

that is regarded as accrued income and equally under that system of accounting a liability that has been incurred is eligible to be deducted though

the expenditure may not actually have been incurred. There is thus a clear distinction between the two systems of accounting. The only

interpretation which we can place upon the fact that the Assessee has maintained no accounts, at best, can be regarded as the cash basis of

accounting. If that is so, it is not open to the Assessee to demand that the rent due but unpaid should also be regarded as deductible within the

meaning of Section 5(b) of the Act. The petition fails and is dismissed with costs.