Thayyil Plantations vs Agricultural Income Tax Officer and Others

G.H. Guttal, J.—Is it permissible for the Agricultural Income Tax Officer exercising his power to rectify mistakes u/s 36 of the Agricultural Income Tax Act, to alter the status of a registered firm to that of unregistered firm? This is the principal question raised in this petition under Article 226 of the Constitution of India.

M/s Thayyil Plantations, a firm registered as an Assessee under the Agricultural Income Tax Act, impugns the validity of the orders dated 19th December 1987 (Ext. P-5 to this petition) made by the Agricultural Income Tax Officer and the Revisional order of the Commissioner of Agricultural Income Tax, dated 6th June 1989 (Ext. P-13); the Respondent Nos. 1 and 3 respectively, whereby the status of the Petitioner''s assessment as "registered firm" was altered to that of "unregistered firm". The orders were made u/s 36 of the Agricultural Income Tax Act, 1950 (Act XXII of Kerala), hereinafter referred to as "the Act".

The firm came into existence on 1st April 1981 with 15 partners. The assessments for agricultural income tax for the years 1982-83 to 1986-87 were made on the basis that the Petitioner is a registered firm. The assessment order for the year 1986-87 (Ext. P-2) expressly records that the Petitioner is a partnership firm registered u/s 27 of the Act and that it was assessed on that basis. The Respondent No. 1 discovered that one of the 15 partners, Dr. Sara Mammen, who was then out of India, had not signed the application for renewal of registration of the firm personally but was signed by her constituted attorney. Therefore on 3rd August 1987 he issued a notice No. T-25/86-87 (Ext. P-3) in which the Respondent No. 1 stated that a mistake had crept into the order of assessment dated 3rd November 1986 (Ext. P-2). The mistake was in the "status assigned" to the Petitioner as registered firm. In his opinion the application was not signed "by all the partners personally". The Respondent No. 1 by his order dated 19th December 1987 (Ext. P-5) held that the application for renewal of the registration "is invalid and so the status assigned namely, registered firm is incorrect". He therefore rectified the mistake u/s 36 of the Act and assigned to the Petitioner the status as an unregistered firm, and reassessed the tax on that basis.

A notice of demand dated 1st January 1988 (Ext. P-6) was received by the Petitioner. It is thereafter that the Petitioner filed an appeal to the Respondent No. 2 (Ext. P-7). The Petitioner apprehended that the Respondent No. 1 may urge in the appeal that the order of assessment is an order u/s 36 and therefore, out of abundant caution they also filed a revision petition before the Respondent No. 3 (Ext. P-8). On 21st January 1988 the Petitioner filed an application (Ext. P-9) before the Respondent No. 1 urging that they should not be treated as defaulters until the appeal is disposed off. The application dated 21st January 1988 (Ext. P-9) was pending when this petition was filed. The Petitioner filed O.P. No. 880/88-D before this Court seeking a writ of mandamus directing the Respondents 2 and 3 to consider and dispose off their application dated 21st January 1988 (Ext. P-9). The Original Petition was disposed off on 3rd February 1988 with a direction that the Respondent No. 2 shall dispose off the Petitioner''s appeal (Ext. P-7) expeditiously. This Court directed that pending disposal of the appeal (Ext. P-7) the reassessed tax shall not be recovered. The Petitioner''s revision petition (Ext. P-8) was dismissed on 6th June 1989 (Ext. P-13).

learned Counsel for the Petitioner urged the following points:

(i) The application for renewal of registration u/s 27 read with Rules 2, 3 and 4 signed, not by the partner himself but by his constituted attorney is valid.

(ii) The discovery of the fact that the application for renewal of registration was not signed personally by one of the partners is not a mistake "apparent from the record of the... assessment."

(iii) Section 36 of the Act empowers the Respondent No. 1 to rectify mistakes apparent from the record of the assessment. It does not authorise change of status of a registered firm to that of unregistered firm. Therefore, the impugned orders are beyond the power granted by Section 36 of the Act.

(iv) The change of the status of the Petitioner''s firm from ''registered firm'' constitutes cancellation of the registration, which can be done under Rule 8 and not u/s 36. The facts necessary to attract Rule 8 are absent. Therefore cancellation of registration is invalid.

Rules 2 and 6 which provide for registration of a firm and renewal of registration, require that the application for registration and renewal of registration, "shall be signed by all the partners (not being minors) personally". The Petitioner''s argument that application for renewal of registration signed not by a partner, but by his constituted attorney valid, has been authoritatively negatived by the Supreme Court in Dulichand Lakshminarayan Vs. The Commissioner of Income Tax, Nagpur, and Ravula Subba Rao and Another Vs. The Commissioner of Income Tax, Madras, and by this Court in Matha Plantations v. Deputy Commissioner of Agricultural Income Tax 1983 KLT 848. In view of these judgments, I see no substance in the Petitioner''s submission, set out at (i) in paragraph 4 above.

The questions set out at (ii) and (iii) in paragraph 4 above are considered in paragraph 7 to 13 below.

It is urged by learned Counsel for the Petitioner that the judgment in Matha Plantations has no application to the facts of this case. The thrust of the argument is that even if Matha Plantations'' case 1983 KLT 848 correctly held that signature by a constituted attorney is not valid, it does not lay down, that (i) discovery of the fact that the application was not signed personally is an error apparent from the record and that (ii) the power to rectify mistakes u/s 36 extends to alteration of the status of the Assessee.

learned Counsel for the Petitioner is right that Matha Plantations merely decided that the application u/s 27 read with Rule 2 signed by a constituted attorney is invalid. The two questions set out in paragraph 7 above did not arise for consideration. I will therefore consider them.

Section 36 empowers the Respondent No. 1 to "rectify any mistake apparent from the record of the... assessment". To rectify, means to adjust or make right. Making the assessment right is what rectification is all about. What can be rectified u/s 36 is a mistake. The mistake should be "apparent from the record of the... assessment". The... application for renewal of registration is a part of the record of assessment of agricultural income tax. The fact that the application was not signed personally is discernible from a bare look at the application form, the signature and the name of the signatory. The Respondent No. 1 had clearly overlooked the fact that Dr. Sara Mammen had not signed the application form personally. No investigation, elaborate reasoning, debate or extraneous evidence is necessary to perceive that one of the partners has not personally signed the application for renewal of registration of the firm. This fact is so glaring and obvious that a superficial examination of the record leads one to conclude "hers, this is a mistake". I have no doubt that it is a mistake apparent from the record of the assessment order. Since the mistake of assessing the firm, one of whose partners had not signed the application personally was apparent from the record, the Respondent No. 1 was within his authority in proceeding to rectify it.

The impugned orders are right in so far as they proceeded on the basis that the signature by a constituted attorney is a mistake apparent from the record. But then the real question which demands an answer is about the extend of the power to rectify mistakes. The question then is: Does this power to rectify mistakes take in its sweep the authority to change the status "registered firm" to that of "unregistered firm"? This raises the incidental question whether "registered firm" is a status recognised by the Act.

Generally, rectification arises where something is overlooked or misconceived. The obvious case of errors which fall u/s 36 are, erroneous application of statute, the order being inconsistent with specific provisions of law, erroneous calculation and so on. These errors are errors in the assessment of tax. The mistakes which do not relate to the assessment do not fall within Section 36 of the Act. Section 36 conceives rectification of mistake in the assesment. The power to rectify is limited to the elimination of the mistake in the assesment. The question always is this. Does the rectification seek to eliminate or set right the mistake in the assesment? If the answer in the affirmative, the act of the Agricultural Income Tax Officer is within his authority. If on the other hand, what is done by resorting the Section 36 goes beyond elimination of mistake in the assessment, the act is outside Section 36.

With this background, I will consider whether the character of the Assessee as a registered firm is a matter of his Assessee-status. Assessee is a person by whom agricultural income tax is payable. "Person" means any (a) individual or (b) association of individuals owning property in any capacity recognised by law and include (c) a Hindu Undivided Family (d) a firm (e) a company (f) an association of individuals whether incorporated or not and (g) any institution capable of holding property [Section 2(m) of the Act].

Like the individual, company or other entities, a firm, is a distinct unit recognised as an Assessee. When registered u/s 27 it becomes a Registered Firm [Section 2 (q) of the Act].

Assessment of the income of a firm is dealt with in Section 18 of the Act. When the Assessee is a registered firm, the mode of assessment is as in Section 18(5)(a). In the case of an unregistered firm the method laid down in Section 18(5)(b) has to be followed. It is clear, therefore, that the Act recognises "registered firm" as a positive unit, subject to a manifestly different mode of assessment from that of an "unregistered firm". Likewise, an unregistered firm is a distinct class or unit of assessment subject to a different mode of assessment. The different modes of assessment, are legislative affirmation of the fact that a "registered firm" and an "unregistered firm" possess distinct character, position or mark as an Assessee. Possession of such distinct character accords a status to the firm. These different units of Assessees, like Hindu Undivided Family, Company, and association of individuals, possess distinct identities for the purpose of assessment of agricultural income tax. This position of the Assessee in relation to other Assessees marks its status. Therefore, "registered firm" and "unregistered firm" are status of the Assessee.

Having held that "registered firm" and "unregistered firm" are status of a firm, I will now consider whether Section 36 of the Act, empowers the Agricultural Income Tax Officer to change such status.

As I have pointed out in paragraph 11 above, the power to rectify is Limited to elimination of the mistake. It follows that an act which exceeds, this limit is not authorised by Section 36 of the Act.

The correction or rectification of mistake, in order to fall within Section 36 of the Act, must be a mistake in the assessment of the tax. That is why Section 36 stipulates that the power under that section may be exercised within three years from the date of "any assessment". It follows that rectification of errors which does not relate to assessment, is beyond the authority granted by Section 36 of the Act. The Agricultural Income Tax Officer who alters the status of an Assessee from "registered firm" to "unregistered firm" does not rectify a mistake in the assessment. He changes the identity of the Assessee.

Cases where the authorities, in purported excercise of the power of rectification of mistakes, changed the status of the Assessee, are not frequent. In Addl. Commissioner of Income Tax, Delhi-I Vs. Motors and General Finance Ltd., the Delhi High Court, held that status of "a private limited company" could not be changed to "a public limited company in which public was not substantially interested". The Allahabad High Court [ Commissioner of Income Tax Vs. Bhawani Prasad Girdhari Lal and Co., ] held that the power to rectify mistakes does not permit change of the status of the Assessee from "registered firm" to "an association of persons". In B.B. Biddappa Vs. Deputy Commissioner of Agricultural Income Tax, Mysore and Another, , the Karnataka High Court held that the power to rectify mistakes, cannot be used to change the status of the Assessee from "association of individuals" to "Hindu Undivided Family".

The true construction of the language of Section 36 of the Act, the scope of the power of rectification of mistakes and the judicial opinions cited above lead to only one conclusion: The Agricultural Income Tax Officer exercising the authority to rectify mistakes u/s 36 of the Act, has no jurisdiction to alter the status of the Assessee from "registered firm" to that of "unregistered firm".

The impugned order dated 19th December 1987 (Ext.P-5) says "the registration already granted is therefore cancelled". The question of validity of the cancellation arises because, according to the Petitioner, the facts necessary to attract Rule 8 are absent in this case. I have upheld the Petitioner''s submission that the impugned orders transgress the authority to rectify mistakes granted by Section 36 of the Act. It is therefore unnecessary to decide whether cancellation of registration of the Petitioner''s firm u/s 27 of the Act, is invalid.

For the reasons stated in paragraphs 10 to 13 above I hold that the order of the Agricultural Income Tax Officer dated 19th December 1987 (Ext.P-5) and of the Commissioner of Agricultural Income Tax dated 6th June 1989 (Ext. P-13) are invalid. I hereby quash them and direct that the Respondents shall not give effect to them.

The Original Petition is allowed. No costs. 13th August, 1993.