Vildirect: IncomeTax-caselaws-1995-VIL-191-ITAT-JAI

1995-VIL-191-ITAT-JAI

Equivalent Citation: ITD 055, 363, TTJ 054, 560,

Income Tax Appellate Tribunal JAIPUR

Date: 26.06.1995

BALWANT SINGH.

INCOME-TAX OFFICER.

BENCH

Member(s) : M. A. A. KHAN., PRADEEP PARIKH.

JUDGMENT

Per M.A.A. Khan, JM--- This is an appeal from CIT(A)'s order under section 263 of the I.T.Act, 1961 ('the Act') setting aside the assessment, as made by the Assessing Officer (AO) in the case of the assessee for A.Y. 1988-89, on the ground of the same being erroneous and prejudicial to the interests of revenue.

2. The assessee, an individual, derives his income from agricultural activities and interest on bank deposits, FDRs, etc. For the year under consideration the assessee declared his income at Rs. 25,130 and after discussing the matter with him and examining his accounts, the Assessing Officer accepted the returned income. On examining the assessment record, the ld. CIT, however, considered the assessment so made by the Assessing Officer as erroneous and prejudicial to the interests of revenue inasmuch as deduction claimed in respect of investments of Rs. 28,000 under section 80C, Rs. 30,000 under section 80CCA and expenditure of Rs. 11,000 under section 80G did not qualify for deduction under Chapter VI as those were not made out of current income chargeable to tax, the expenditure of Rs. 2,81,477 claimed against agricultural income of Rs. 4,34,929 was not properly enquired into and receipts from nursery at Rs. 5,54,282 were not brought to tax. He, therefore, set aside the assessment to the Assessing Officer to reframe the same aftermaking enquiries into the source of investment made under section 80C and 80CCA and donation made under section 80G, determine the agricultural income after considering all the material and to pass a speaking order giving a fair and reasonable opportunity to the assessee of being heard.

3. Mr. M.R. Varma, CA, the ld. counsel for the assessee vehemently urged that the assessment as made by the Assessing Officer was not at all erroneous and prejudicial to the interests of revenue inasmuch as the same was made after having conducted proper enquiries into various claims of the assessee and examination of the accounts. In this behalf Mr. Varma referred to assessee's letter dated 22-8-1990 mentioned by the Assessing Officer in his order and also referred to Assessing Officer's statement regarding examination of assessee's account books. The ld. counsel explained that the agricultural income of the assessee was fully vouched and the expenditure claimed against such income was also fully accounted for. It was also submitted that income from nursery was also agriculturist income, and as such exempt from charge of income-tax. Mr. Varma further submitted that the assessee was a reputed and respected agriculturist who stands honoured by the Govt. with the title of 'Krishi Pundit' and his dedicated services to the cause of development of agriculture in the State have all along been recognised and appreciated by the authorities concerned. The ld. counsel highlighted the fact that despite his earning income from agriculture, the assessee has always behaved as an honest tax payer by paying taxes on accrued income from interest on savings coming mainly from agricultural activities. Mr. Varma submitted that agricultural income is required to be taken into account for determination of a proper rate of tax to be charged on taxable income and, therefore, even if the payment towards investment under sections 80C, 80CCA and 80G was made by the assessee out of his agricultural income, it could not be said that such investments and donation were made out of income not chargeable to tax. In this behalf, Mr. Varma made reference to Supreme Court decisions in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466, Chandulal Harjiwandas v. CIT [1967] 63 ITR 627, Kerala High Court decision in the case of K.J. Joseph v. ITO [1980] 121 ITR 178, Bombay High Court decision in Manubhai A. Sheth v. N.D. Nirgudkar, 2nd ITO [1981] 128 ITR 87 and Punjab & Haryana High Court decision in Ravi Kumar Mehra v. CIT [1988] 172 ITR 108 and Madan Lal Mehra (HUF) v. CIT [1991] 192 ITR 486. CBDT Circular No. 3-P dated 11-10-1965 requiring the Deptt. not to insist too much upon linking or identifying the payments for savings specially with the funds representing assessee's income chargeable to tax, as referred to at page 2446 of Chaturvedi & Pithisaria's Incometax Act, Vol 2, IVth Edition was also referred to.

4. The ld. D R has not only supported the order under appeal but has further submitted that the order made by the Assessing Officer was quite sketchy and cryptic and therefore the ld. CIT was justified in treating the same as made without conducting proper enquiries and setting aside the same on the ground of being erroneous and prejudicial to the interests of Revenue. The ld. D R further submitted that in order to qualify for deduction under Chapter VI-A the payment of investment under section 80C, 80CCA and the donation under section 80G should be out of current income chargeable to tax.

5. After having given our thoughtful consideration to the arguments advanced by the ld. counsel for the parties and on study of the material placed before us and the law applicable thereto, we are satisfied that the assessment as made by the Assessing Officer in the case of the assessee for this year was not erroneous and prejudicial to the interests of Revenue so as to confer jurisdiction under section 263 upon the ld. CIT to set aside the same for reframing.

6. The ld. D R may be correct in his submission that the Assessing Officer had passed a very short and cryptic order in this case and such order could have given the impression that proper enquiry into various claims of the assessee was not conducted. The necessity of passing speaking orders by the Assessing Officer cannot be minimised. They are expected to pass such orders as are self explanatory on the points which may be or turn out to be subject-matter of dispute by either of the parties. The orders may be brief and precise but such order should give necessary details of the relevant points. But howsoever brief and precise an order may be, it cannot be set aside under section 263 until and unless such order is found to be erroneous inasmuch as it had caused prejudice to the interests of revenue. If the order passed by an Assessing Officer is found valid in law and causes no prejudice to the interests of revenue, it cannot be set aside on the sole ground of its being a non-speaking or cryptic order. The order passed in the instant case is, though brief and precise, yet it gives clear indication that before passing it the Assessing Officer had made enquiries from the assessee on certain material points and the assessee had answered such queries from the Assessing Officer through his letter dated 22-8-1990. Moreover, the order contains the statement of the Assessing officer that he had discussed the case with the assessee and his advocate Sh. M.M. Jain and test checked the books of accounts as produced by the assessee. The assessee has filed the photo copy of cash book of Sh. Gautam Swami for 1-12-1988 to 31-12-1988 as also the bank certificate in respect of income. These documents were placed before the Assessing Officer. In view of the statement of the Assessing Officer, the assessment made cannot be held as having been made without conducting proper enquiries. Therefore, the assessment order cannot be held as erroneous and prejudicial to the interests of revenue on the ground of its being a non-speaking and crypic one. The legality of this order and the alleged prejudice caused to the interests of revenue shall, therefore, have to be judged with reference to the merits of the grounds which found favour with the ld. CIT.

7. The first and foremoste question for consideration is as to what is the logic behind granting deduction in respect of investments made in savings contemplated under Chapter VI of the Act. Obviously the object behind them is to encourage and persuade the tax payers to save a part of their income so that the same may be utilised for the health of the national economy and betterment of our people. To encourage the tax payer to contribute to the national saving, some concession in the form of tax rebate is given to him in the computation of his total income. The stress is on savings which may be utilised for the growth of national economy. Keeping in view such an object the provisions like section 80C, 80CCA and 80G are required to be interpreted. They are required to be so interpreted as not to nullify the object behind such provisions, as was observed by the Supreme Court in Chandulal Harjiwandas. Adopting such an approach to the present case, we shall consider the scope of total income and examine whether the scope of the total income includes agricultural income as well.

8. Section 4 is the charging section. It provides that where any Central Act enacts that Income-tax shall be charged for any assessment year at any rate or rates, income at that rate or those rates shall be charged for that year. It may be noted that the charging section clearly speaks of charge of the income-tax at certain rates which might be in force in a particular year. Section 5 deals with the scope of total income and provides that subject to the provisions of the Act, the total income of any previous year of a person who is a resident, includes all income from whatever source derived, which (a) is received or is deemed to be received in India in such year by or on behalf of such person or (b) accrues or arises or is deemed to accrue or arise to him in India during such year or accrues or arises to him outside India during such year. The scope of total income as given in section 5 is quite wide so as to include all incomes of a person from whatever source. Such income is derived by him. The scope of section 5 thus clearly admits that agricultural income too falls within the scope of total income as defined in section 5 of the Act. It is thus clear that agricultural income may have some relation to the income chargeable to tax as used in the language of section 80C(2) of the Act. Without dispute, agricultural income is exempt from the rigours of income-tax and thus it may not form part of taxable income of a person. But at the same time, agricultural income is required to be taken into account for the rate purposes. That clearly suggests that the inclusion of agricultural income in the computation of income for the limited purpose of determining a proper rate at which Income-tax should be charged from a person in respect of his income other than agricultural income brings agricultural income, though for a collateral purpose into the net of taxation. The inclusion of agricultural income for the purpose of determining a proper rate at which income-tax should be charged on the income may enhance the tax liability of a person. If such income may be used for the purpose of enhancing the tax liability, then such income should be deemed to be included in the expression of ' income chargeable to tax ' for deduction under section 80C, 80CCA and 80G of the Act. The widening of the scope of meaning of the expression ' income chargeable to tax ' is required to be made in the light of the CBDT Circular, referred to above, as also the trend of judicial pronouncements.

9. CBDT Circular No. P-5 authorises the Officers of the Deptt. not to insist upon to link or identify the payments especially with the funds representing his income chargeable to tax. If such income is found to be having some link or connection with the assesse's income chargeable to tax, then too much stress should not be laid upon finding that the savings have been effected out of assessee's current income chargeable to tax. This approach seems to have been endorsed by several High Courts and the Supreme Court in a number of cases.

10. In the case of S. Inder Singh Goil the Bombay High Court held that though sums exempted from tax under section 15(1) of the Act of 1922 need not necessarily be part of assessable income but in order to claim exemption under section 15(1), the assessee must at least establish that the sum in respect of which he claims exemption under section 15(1) have the quality of entering the field of taxation.

11. Expressing a similar view in the case of K.J. Joseph, the Karnataka High Court held that the inclusion of agricultural income in the computation of total income for purposes of determining the rate at which non-agricultural income is to be taxed, is not unconnected with the object of the taxing statute. This decision too suggests that the agricultural income may have a bearing upon the determining of the tax liability of a person having non-agricultural income chargeable to tax.

12. In case of Ravi Kumar Mehra, the Punjab and Haryana High Court held that the Life insurance premia paid out of the amount lying to the credit of assessee in a company qualified for deduction under section 80C. Their Lordships observed that an assessee may make payments towards LIP out of the funds in SB a/c where his balance towards him is available before the commencing of the a/c year. The payment of premia so made is deductible out of the total income of the assessee in the relevant accounting year and the corresponding assessment year under section 80C(2)(b)(i)(1) of the Act. Following the decision of the Supreme Court in Chandulal Harjiwandas their Lordships of the Punjab & Haryana High Court observed that there is no room for doubt that the premia must come out of the income chargeable to tax.

13. The above discussion, we think, is sufficient to tell the judicial trend on the subject, and the approach of the CBDT too. Since agricultural income of a person may have a bearing upon his tax liability in respect of his non-agricultural income, which is chargeable to tax, the agricultural income cannot be claimed to be having no link or connection with the funds representing assessee's income chargeable to tax. If the agricultural income may be utilised for increasing the tax liability of a person, it may equally be utilised for the purposes of grant of some relief to him in accordance with the object behind the beneficial provisions under the Act. Giving such relief to an assessee does not harm the interests of revenue and instead promotes the achievement of the objectives behind the provisions of section 80C, 80CCA etc.

14. In the instant case, the assessee had declared his income from interest etc. to the tune of Rs. 86,053 on accrual basis. He, however, paid Rs. 30,000 for investment under section 80CCA and Rs. 28,000 under section 80C and also paid a donation of Rs. 11,000 under section 80G. The photocopy of the bank certificate as placed before us suggests that during the year under consideration the assessee had received an amount of Rs. 2,25,960 on account of the maturity of his deposits with interest. He was thus in a position to make the aforementioned investments and expenditure out of his income chargeable to tax. If he had saved the past savings which came to him in the current year and choose to invest from his agricultural income then he in our opinion, did not violate the spirit behind section 80C and 80CCA. It would have been too technical a compliance of those provisions that the assessee should have saved agricultural income and invested the interest on past savings in fresh investments in this year. The intention of Legislature behind the said provision does not seem to be that highly technical. Viewed thus, it is established that the assessee was not only in a position to make payments for the above-mentioned investments and expenditure from out of his income chargeable to tax, but also from such of his income which was taken into consideration for the determination of a proper rate of taxation for the income chargeable to tax in his case. The investments made under section 80C, 80CCA & 80G were thus having a link with assessee's income chargeable to tax. In view of these facts,the Assessing Officer cannot be said to have taken a wrong view of either facts or of law in allowing deduction under section 80C, 80CCA and 80G of the Act. His order on that aspect of the matter was not revisable under section 263 of the Act.

15. The other ground which weighed with thl ld. Commissioner for revising the order of the Assessing Officer was that the income from Nursery at Rs. 5,54,282 was not subjected to income-tax as was held in 64 ITR 364 (All). We could not find out the decision referred to by the ld. Commissioner in his order. In our opinion, the income from Nursery was required to be considered as agricultural income, which, admittedly, was exempt from the rigours of income-tax.

16. In the case of Raja Benoy Kumar Sahas Roy , the Supreme Court held that :

" Agriculture comprises within its scope the basic as well as the subsequent operations described above regardless of the nature of the products raised on the land. These products may be grain or vegetable or fruits which are necessary for the substenance of human beings, including plantations and groves, or grass or pasture for the consumption of beasts or articles of luxury, such as betel, coffee, tea, spices, tobacco or commercial crops like cotton, flax, jute, hemp, indigo. All these are products raised from the land but the term agriculture cannot be confined merely to the production of grain and food products for human beings and beasts; it must be understood as comprising all the products of the land which have some utility either for consumption or for trade and commerce and would also include forest products such as timber and sal and piyasal trees, casuarina plantations, tendu leaves and horra nuts. "

The above observations of the Apex Court leave no room for doubt that income from Nursery would be considered as agricultural income. This product of the agricultural land has utility for trade and commerce and is thus associated with agricultural income. Agriculture in its primary sense denotes cultivation of the fields and is restricted to cultivation of the land in the strict sense of the term, meaning thereby tilling of the land, sowing seeds etc. Plantation on agricultural land for the purpose of earning income would involve these activities. All these operations would result in bringing agricultural income to a person, which, admittedly, is exempt from levy of income-tax. The utilisation of land, which would necessarily be agricultural land subject to payment of land revenue would be quite different from utilising non-agricultural land for the purposes of merely plantation.

17. To sum up, we hold that though the order made by the Assessing Officer was very short and brief, yet since that had been made after conducting proper enquiry regarding the computation of the total income of the assessee, and no provisions of law was violated in the making of such order, the ld. CIT was not justified in invoking his jurisdiction under section 263 of the Act and in setting aside the order of the Assessing Officer. We, accordingly, find it difficult to sustain the order under appeal and, therefore, cancel the same.

18. In the result the appeal is allowed.

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