Wp(C)/36862/2004 Of Oil Palm India Limited v. Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN TUESDAY, THE 3RD DAY OF JANUARY 2012/13TH POUSHA 1933 WPC.No. 36862 of 2004 (L) ----------------------------------- PETITIONER ---------------------- OIL PALM INDIA LIMITED,KOTTAYAM REPRESENTED BY ITS MANAGING DIRECTOR MR.JOY O.V. BY ADV SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SMT.PRIYA MAHESH SMT.PRIYA MANJOORAN RESPONDENTS ---------------------- 1 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE I, KOTTAYAM. 2 INSPECTING ASSISTANT COMMISSIONER(SPECIAL) DEPARTMENT OF COMMERCIAL TAXES ERNAKULAM. 3 UNION OF INDIA, REPRESENTED BY ITS REVENUE SECRETARY MINISTRY OF FINANCE, NEW DELHI-4. 4 STATE OF KERALA, REPRESENTED BY ITS CHIEF SECRETARY SECRETARIAT THIRUVANANTHAPURAM. 5 COMMISSIONER OF INCOME TAX (APPEALS), CENTRAL REVENUE BUILDING I.S.PRESS ROAD, ERNAKULAM-682 018. CENTRAL REVENUE BUILDING I.S.PRESS ROAD, ERNAKULAM-682 018. *ADDL.6 THE ASSISTANT COMMISSIONER(KGST) COMMERCIAL TAXES, (SPECIAL CIRCLE), KOTTAYAM (* IMPLEADED AS PER ORDER DATED 3.1.2012) BY ADV. SRI.P.MURALEEDHARAN, CGC SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT SRI.JOHN VARGHESE, ASSISTANT SG SRI.JOSE JOSEPH, SC, FOR INCOME TAX GOVERNMENT PLEADER SRI GEORGE MECHERIL THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON03-01-2012 , THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC.No. 36862 of 2004 PETITIONER'S EXHIBITS: EXT.P1: TRUE COPY OF THE AGRICULTURAL INCOME TAXASSESSMENT ORDER BY THE 2ND RESPONDENT DT. 10.4.2003,A.Y 2001-2002ASSESSMENT ORDER BY THE 2ND RESPONDENT DT. 10.4.2003,A.Y 2001-2002 EXT.P2: TRUE COPY OF THE ASSESSMENT ORDER DT. 29.7.2002 A.Y2001-02 UNDER THE CIT2001-02 UNDER THE CITEXT.P3: TRUE COPY OF THE REVISED ASSESSMENT ORDER YER 1997-98ISSUED B Y THE 1ST RESPONDENT DT. 31.8.2004ISSUED B Y THE 1ST RESPONDENT DT. 31.8.2004 EXT.P4: TRUE COY OF THE REVISE ASSESSMENT ORDER, YEAR 1998-99ISSUED BY THE 1ST RESPONDENT DT. 31.8.2004ISSUED BY THE 1ST RESPONDENT DT. 31.8.2004EXT.P5: TRUE COY OF THE REVISED ASSESSMENT ORDER, YEAR 1999-00 ISSUED BY THE 1ST RESPONDENT DT. 31.8.200400 ISSUED BY THE 1ST RESPONDENT DT. 31.8.2004EXT.P6: TRUE COPY OF THE NOTICE MIS/CIRCLE I , KOTTAYAM, DT.9.11.2004 ISSUED BY 1ST RESPONDENT TO THE PETITIONER FORTHE A.Y.2002-039.11.2004 ISSUED BY 1ST RESPONDENT TO THE PETITIONER FORTHE A.Y.2002-03 EXT.P7: TRUE COPY OF THE STAY ORDER D. 20.12.2004 ISSUED BY THISHON'BLE COURT TO THE PETITIONERHON'BLE COURT TO THE PETITIONEREXT.P8: TRUE COY OF THE APPEAL DT. 9.9.2004 FILED BY THEPETITIONER BEFORE THE 5TH RESPONDENT, FOR THE YEAR1997-98PETITIONER BEFORE THE 5TH RESPONDENT, FOR THE YEAR1997-98EXT.P9: TRUE COPY OF THE APPEAL DT. 9.9.2004 FILED BY THEPETITIONER BEFORE THE 5TH RESPONDENT FOR THE YEAR1998-99PETITIONER BEFORE THE 5TH RESPONDENT FOR THE YEAR1998-99EXT.P10: TRUE COPY OF THE APPEAL DT. 9.9.2004 FILED BY THEPETITIONER BEFORE THE 5TH RESPONDENT FOR THE YEAR1999-2000PETITIONER BEFORE THE 5TH RESPONDENT FOR THE YEAR1999-2000EXT.P11: TRUE COPY OF THE COMMUNICATION RECEIVED FROM THEAUTHORIZED REPRESENTATIVE DT. 11.11.2004AUTHORIZED REPRESENTATIVE DT. 11.11.2004EXT.P12: TRUE COPY OF THE ARGUMENT NOTES SUBMITTED BY THEPETITIONER BEFORE THE 5TH RESPONDENT DT. 5.11.2004PETITIONER BEFORE THE 5TH RESPONDENT DT. 5.11.2004EXT.P13:TRUE COPY OF THE POSTING NOTICE ISSUED BY THE 5THRESPONDENT TO THE PETITIONER DT. 30.9.2004RESPONDENT TO THE PETITIONER DT. 30.9.2004EXT.P14:TRUE COPY OF THE LETTER DT. 18.1.2005 SENT BY THEPETITIONER TO THE 1ST RESPONDENTPETITIONER TO THE 1ST RESPONDENTEXT.P15:TRUE COPY OF THE CIRCULAR NO. 5 OF 2003 DT.22.5.2003EXT.P16:TRUE COPY OF THE LETTER ISSUED TO THE STATE BANK OFTRAVANCORE BY THE DY. COMMISSIONER DT. 2.3.2005EXT.P16:TRUE COPY OF THE LETTER ISSUED TO THE STATE BANK OFTRAVANCORE BY THE DY. COMMISSIONER DT. 2.3.2005 EXT.P17:TRUE COPY OF THE ORDER DT. 25.2.2005 ISSUED BY THE 1STRESPONDENT TO THE PETITIONER FOR THE YEAR 2002-03RESPONDENT TO THE PETITIONER FOR THE YEAR 2002-03EXT.P18:TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2002-03 DT. 29.12.2004(YEAR ENDING 31.3.2002) ISSUED BY THESECOND RESPONDENT TO THE PETITIONER03 DT. 29.12.2004(YEAR ENDING 31.3.2002) ISSUED BY THESECOND RESPONDENT TO THE PETITIONER EXT.P19:TRUE COPY OF THE CIT ASSESSMENT ORDER FOR 2001-02ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DT.11.12.2006ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DT.11.12.2006 PETITIONER'S EXHIBITS: EXT.P19:TRUE COPY OF THE CIT ASSESSMENT ORDER FOR 2001-02ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DT.11.12.2006ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DT.11.12.2006 PETITIONER'S EXHIBITS: EXT.P20: TRUE COPY OF THE CIT ASSESSMENT ORDER FOR 2004-05ISSUED BY THE 1 ST RESPONDENT TO THE PETITIONERDT.11.12.2006ISSUED BY THE 1 ST RESPONDENT TO THE PETITIONERDT.11.12.2006EXT.P21:TRUE COPY OF THE AIT ASSESSMENT ORDER FOR 2001-02ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER TOTHE PETITIONER DT. 10.4.2003ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER TOTHE PETITIONER DT. 10.4.2003EXT.P22:TRUE COPY OF THE AIT ASSESSMENT ORDER FOR 2004-05ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER TOTHE PETITIONER DT. 28.11.2006ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER TOTHE PETITIONER DT. 28.11.2006EXT.P23:TRUE COPY OF THE ASSESSMENT ORDER FOR 2005-06 ISSUEDBY THE 1ST RESPONDENT TO THE PETITIONER DT. 24.12.2007BY THE 1ST RESPONDENT TO THE PETITIONER DT. 24.12.2007EXT.P24:TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2006-07 ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DT.30.12.200807 ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DT.30.12.2008EXT.P25:TRUE COPY OF THE ORDER UNDER THE AGRICULTURALINCOME TAX ACT FOR 2005-06 ISSUED BY THE INSPECTINGASST.COMMISSIONER OF COMMERCIAL TAXES, TO THEPETITIONER DT. 15.12.2009INCOME TAX ACT FOR 2005-06 ISSUED BY THE INSPECTINGASST.COMMISSIONER OF COMMERCIAL TAXES, TO THEPETITIONER DT. 15.12.2009EXT.P26:TRUE COPY OF THE ORDER UNDER THE AGRICULTURALINCOME TAX ACT FOR 2006-07 ISSUED BY THE INSPECTINGASST. COMMISSIONER OF COMMERCIAL TAXES, TO THEPETITIONER DT. 17.12.2008INCOME TAX ACT FOR 2006-07 ISSUED BY THE INSPECTINGASST. COMMISSIONER OF COMMERCIAL TAXES, TO THEPETITIONER DT. 17.12.2008EXT.P27:TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONEROF INCOME TAX(APPEALS) FOR THE YEAR 2005-06 TO THEPETITIONER DT. 17.1.2008OF INCOME TAX(APPEALS) FOR THE YEAR 2005-06 TO THEPETITIONER DT. 17.1.2008EXT.P28:TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONEROF INCOME TAX (APPEALS) FOR THE YEAR 2006-07 TO THEPETITIONER DT. 25.5.2009OF INCOME TAX (APPEALS) FOR THE YEAR 2006-07 TO THEPETITIONER DT. 25.5.2009EXT.P29:TRUE COPY OF THE COMMON ORDER ISSUED BY THE INCOMETAX APPELLATE TRIBUNAL, FOR THE YEARS 1997-98 TO 2006-07TO THE PETITIONER DT. 16.6.2010TAX APPELLATE TRIBUNAL, FOR THE YEARS 1997-98 TO 2006-07TO THE PETITIONER DT. 16.6.2010EXT.P30:TRUE COPY OF THE ASSESSMENT ORDER DT. 9.1.2007 UNDERTHE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 1997-98ISSUED BY THE ASSISTANT COMMISSIONER (KGST)COMMERCIAL TAXES SPL. CIRCLE, KOTTAYAMTHE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 1997-98ISSUED BY THE ASSISTANT COMMISSIONER (KGST)COMMERCIAL TAXES SPL. CIRCLE, KOTTAYAMEXT.P31:TRUE COY OF TH ASSESSMENT ORDER DT. 9.1.2007 UNDER THEAGRICULTURAL INCOME TAX AC FOR THE YEARS 1998-99ISSUED BY THE ASSISTANT COMMISSIONER (KGST) -I,KOTTAYAMAGRICULTURAL INCOME TAX AC FOR THE YEARS 1998-99ISSUED BY THE ASSISTANT COMMISSIONER (KGST) -I,KOTTAYAMEXT.P32:TRUE COPY OF THE ASSESSMENT ORDER DT. 9.1.2007 UNDERTHE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 1999-2000 ISSUED BY THE ASSISTANT COMMISSIONER(KGST)-KOTTAYAMTHE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 1999-2000 ISSUED BY THE ASSISTANT COMMISSIONER(KGST)-KOTTAYAMEXT.P33:TRUE COPY OF THE ASSESSMENT ORDER DT. 6.1.2007 UNDERTHE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 2000-01 ISSUED BY THE ASSISTANT COMMISSIONER (KGST)-I,KOTTAYAMTHE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 2000-01 ISSUED BY THE ASSISTANT COMMISSIONER (KGST)-I,KOTTAYAM PETITIONER'S EXHIBITS: RESPONDENTS' ANNEXURES: NIL //TRUE COPY// jma P.A. TO JUDGE C.N. RAMACHANDRAN NAIR, &K. VINOD CHANDRAN, JJ ---------------------------------------------------- W.P(C) No. 36862 of 2004 ---------------------------------------------------- Dated this the 3[rd] day of January, 2012 *CR* PETITIONER'S EXHIBITS: RESPONDENTS' ANNEXURES: NIL //TRUE COPY// jma P.A. TO JUDGE C.N. RAMACHANDRAN NAIR, &K. VINOD CHANDRAN, JJ ---------------------------------------------------- W.P(C) No. 36862 of 2004 ---------------------------------------------------- Dated this the 3[rd] day of January, 2012 *CR* J U D G M E N T C.N. Ramachandran Nair, J The petitioner is a public limited Company fully underthe control of the Kerala Government engaged in cultivation ofoil palms and production and sale of crude palm oil. The mainoperation of the company is the cultivation of oil palm whichproduces palm fruit with kernel inside. Both the pericarp aswell as the kernel contain palm oil which is extracted in thefactory by the petitioner in crude form. The activity as awhole is essentially agricultural as well as industrial becauseproduction of crude palm oil from pericarp and the kernel is acomplicated process done in the factory. Rule 7 of the CentralIncome Tax Rules, 1962 provides for assessment of incomewhich is partly agricultural and partly business income. Eventhough, Rule 7 was in force from 1962 onwards, the IncomeTax Department until 2004 allowed income from crude palmoil earned by the petitioner to be assessed as 100% W.P(C)36862/2004 agricultural income by the Agricultural Income tax authoritiesof the State of Kerala. For the first time in 2004 the assessingofficer under the Income Tax Act proposed to reopen theassessments completed under the Act for bringing to tax,business income from palm oil for the assessment years 1997-98 to 2001-02. However for these years also the petitionerfollowing the practice for the 35 years prior to that filedreturns under the Agricultural Income Tax Act and remittedtax on income treating the entire income from the sale of palmoil as agricultural income. After reopening of the assessmentsfor the years 1997-98 to 2001-02 the Income Tax Departmentproceeded to make regular assessments under the IncomeTax Act for subsequent years also on that part of the incomewhich is “business income” from palm oil by applying Rule 7of the Income Tax Rules. The petitioner had to challengedouble assessment completed by the tax authorities underCentral and State Governments for several years, from 1997-98 onwards. We have in the batch cases in ITA 382/2010 andconnected cases, upheld the central income Tax assessmentson the part of income from palm oil determined as “business W.P(C)36862/2004 : 3 : income” under Rule 7. However, it is specifically made clearin that judgment that the petitioner will be free to raise allcontentions for redressing grievance against doubleassessments both for agricultural Income Tax as well as forIncome Tax; in the WP(C) pending. Accordingly, petitionerhas filed I.A No. 20536/2011 for amendment of the WritPetition which was allowed by us after hearing therespondent's counsel as well. 2. We heard Senior Counsel Sri. A.K.J Nambiar for theassessee and Senior Counsel Sri. P.K.R. Menon appearing forthe Central Income Tax Department and senior GovernmentPleader appearing for the State. 3. Like palm oil, income from rubber, coffee and tea are also partly agricultural income and partly business incomeassessed to tax by the concerned tax Authorities of bothCentral and State Governments. Until 2000 Rule 8 was theonly provision which provided for assessment of income fromtea in the ratio of 40:60 for the purpose of Central Income Taxas well as Agricultural Income Tax. However, Rules 7A and7B were introduced to the IT Rules through Income Tax(2[nd] W.P(C)36862/2004 2. We heard Senior Counsel Sri. A.K.J Nambiar for theassessee and Senior Counsel Sri. P.K.R. Menon appearing forthe Central Income Tax Department and senior GovernmentPleader appearing for the State. 3. Like palm oil, income from rubber, coffee and tea are also partly agricultural income and partly business incomeassessed to tax by the concerned tax Authorities of bothCentral and State Governments. Until 2000 Rule 8 was theonly provision which provided for assessment of income fromtea in the ratio of 40:60 for the purpose of Central Income Taxas well as Agricultural Income Tax. However, Rules 7A and7B were introduced to the IT Rules through Income Tax(2[nd] W.P(C)36862/2004 amendment)Rules 2000 providing for assessment of businessincome from rubber as well as coffee in the ratio providedtherein. The department took note of the difficulties faced byseveral assessees who had paid tax treating the 100% of theincome from rubber and coffee as agricultural income, untilamendments were introduced to IT Rules. Therefore, circularNo.5 of 2003 dated 22.5.2003 was issued by the Central Boardof Direct Taxes prohibiting reopening of any assessment undersection 147 or section 263 of the Income Tax Act, 1961 for anyassessment prior to 2002-03 for bringing to tax “businessincome” from rubber and coffee if the assessees have paidagricultural Income tax on 100% of the income from rubberand coffee. This is a concession made by the CentralGovernment to save the assessees from paying double tax onincome both under the Central as well as the State Act.Senior Counsel appearing for the petitioner relied on thiscircular produced as Ext.P15 and prayed for granting reliefsimilar to the one granted by this circular because agriculturalIncome Tax Assessments have become final for the severalassessment years. In fact, as a result of the finality achieved W.P(C)36862/2004 to AIT assessments, the petitioner has challenged theassessments in the writ petition by filing amendmentapplication. 4. Senior counsel appearing for the Central Income TaxDepartment contended that circular applies only for incomefrom rubber and coffee and the benefit granted is only againstreopening of assessments based on Rules 7A and 7B in respectof income from rubber and coffee. According to him, Rule 7 ofthe Income Tax Rules is a general provision based on whichpetitioner's business income from palm oil is computed by theAssessing Officer under the Income Tax Act. However, thiscontention is opposed by the petitioner's counsel bycontending that Rule 7 was in force for the last 5 decades andonly in 2004 assessments were proposed to be reopenedwhich gave rude shock to the petitioner-company which is afully owned State Government undertaking. We find force inthis contention and in our view the principle contained inExt.P15circular, squarely applies herein as well, becausepetitioner remitted AIT on 100% of the income from the palmoil and Assessing Officer of the Central Income Tax W.P(C)36862/2004 Department was accepting the position by completing theassessments up to and including the original assessments for1997-98 to 2001-02. In fact, only when regular assessmentwas taken up for 2002-03 in the year 2004, the assessmentscompleted for earlier years above stated were reopened. Thecounsel for the petitioner submitted that since there is regularassessments under Rule 7 of the Central Income Tax Act onthe part of the business income from palm oil from 2005-06 to2007-08 the petitioner has filed statutory appeals against AITassessments assessing 100% of the income from palm oil asagricultural income. We have in the judgment in the batchcases referred above, upheld the Central Income taxassessments for the assessment years 1997-98 to 2006-07. W.P(C)36862/2004 Department was accepting the position by completing theassessments up to and including the original assessments for1997-98 to 2001-02. In fact, only when regular assessmentwas taken up for 2002-03 in the year 2004, the assessmentscompleted for earlier years above stated were reopened. Thecounsel for the petitioner submitted that since there is regularassessments under Rule 7 of the Central Income Tax Act onthe part of the business income from palm oil from 2005-06 to2007-08 the petitioner has filed statutory appeals against AITassessments assessing 100% of the income from palm oil asagricultural income. We have in the judgment in the batchcases referred above, upheld the Central Income taxassessments for the assessment years 1997-98 to 2006-07. 5. Admittedly petitioner remitted agricultural incometax treating 100% income from crude palm oil as agriculturalincome. This position was admitted by the Central Income TaxAuthorities until the year 2004, even though Rule 7 was therefrom the beginning of the Income Tax Rules prescribed in1962. By virtue of Circular above referred, the CentralGovernment waived their right to revise Central Income Tax W.P(C)36862/2004 : 7 : assessments to bring to tax business income fromintermediary rubber products, if the assessees had paidagricultural income tax on 100% of the income from rubber.The position is same for income from crude palm oil because100% of the income therefrom was assessed to agriculturalincome tax in the case of assessee also and only in the year2004 the Central Income Tax Authorities initiated proceedingsfor assessment of business income from crude palm oil. Wesee no reason why the benefit of the Circular cannot beextended for assessees earning income from palm cultivationand production of crude palm oil. We, therefore, allow theW.P.(C) by declaring that for and up to the assessment year2004-2005 the payment of agricultural income tax on 100% ofthe income from crude palm oil by the petitioner will standconfirmed and the Assessing Officer under the Central IncomeTax Act namely, first respondent, is directed to waivecollection of tax on so much of the business income assessedfrom sale of crude palm oil for and up to the assessment year2004-2005. 6. In view of our judgment in ITA382/2010 and W.P(C)36862/2004 connected cases referred above, agricultural income taxassessments completed from 2005-06 onwards will stand setaside with direction to the second respondent to modify theassessments for all assessment years in line with theassessments completed by the first respondent under CentralIncome Tax Act and assess only so much of the incomeattributable to agricultural operations under the AIT Act.Excess tax if any paid under the AIT Act should be refunded tothe petitioner. 7. Petitioner will remit tax to the Central Income TaxDepartment for the assessment years 2005-06 onwards basedon the Central Income tax assessments. Writ Petition is allowed as above. Sd/-C.N. RAMACHANDRAN NAIR(Judge) jma Sd/- K. VINOD CHANDRAN (Judge) //true copy// P.A to Judge