OIL PALM INDIA LIMITED V. ASSISTANT COMMISSIONER OF INCOME TAX

WP(C)/36862/2004

AI Insights

The case involves Oil Palm India Limited, a state-owned company engaged in the cultivation and processing of palm oil, challenging the dual taxation of its income under both agricultural and income tax regimes. The petitioner argued that income from palm oil should be treated entirely as agricultural income, a position historically accepted by the tax authorities until 2004. The Central Income Tax Department, however, began to assess part of this income as business income based on Rule 7 of the Income Tax Rules, 1962. The court examined the applicability of a circular that prevented reopening of assessments for certain agricultural products and extended similar relief to the petitioner, thereby preventing double taxation for the years up to 2004-2005.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 755962 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 03-01-2012
• Assessment Year: misc
• Other Referred Cases: ITA 382/2010 and connected cases
• Laws Referred To: Central Income Tax Rules, 1962, Agricultural Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: P MURALEEDHARAN; P K R MENON; GEORGE K GEORGE; JOHN VARGHESE; JOSE JOSEPH; GEORGE MECHERIL
• Assessee Lawyers: E K NANDAKUMAR; A K JAYASANKAR NAMBIAR; PRIYA MAHESH; PRIYA MANJOORAN
• Keywords: Agricultural income-tax; Business income; Crude palm oil; Double assessment; Income Tax Act; Rule 7
• Section: 147; 263; 7

Judgement Text

" 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. *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 ON 03-01-2012 , THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX WPC.No. 36862 of 2004 PETITIONER'S EXHIBITS: EXT.P1 : TRUE COPY OF THE AGRICULTURAL INCOME TAX ASSESSMENT 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.Y 2001-02 UNDER THE CIT EXT.P3 : TRUE COPY OF THE REVISED ASSESSMENT ORDER YER 1997-98 ISSUED B Y THE 1ST RESPONDENT DT. 31.8.2004 EXT.P4 : TRUE COY OF THE REVISE ASSESSMENT ORDER, YEAR 1998-99 ISSUED BY THE 1ST RESPONDENT DT. 31.8.2004 EXT.P5 : TRUE COY OF THE REVISED ASSESSMENT ORDER, YEAR 1999- 00 ISSUED BY THE 1ST RESPONDENT DT. 31.8.2004 EXT.P6 : TRUE COPY OF THE NOTICE MIS/CIRCLE I , KOTTAYAM, DT. 9.11.2004 ISSUED BY 1ST RESPONDENT TO THE PETITIONER FOR THE A.Y.2002-03 EXT.P7 : TRUE COPY OF THE STAY ORDER D. 20.12.2004 ISSUED BY THIS HON'BLE COURT TO THE PETITIONER EXT.P8 : TRUE COY OF THE APPEAL DT. 9.9.2004 FILED BY THE PETITIONER BEFORE THE 5TH RESPONDENT, FOR THE YEAR 1997-98 EXT.P9 : TRUE COPY OF THE APPEAL DT. 9.9.2004 FILED BY THE PETITIONER BEFORE THE 5TH RESPONDENT FOR THE YEAR 1998-99 EXT.P10 : TRUE COPY OF THE APPEAL DT. 9.9.2004 FILED BY THE PETITIONER BEFORE THE 5TH RESPONDENT FOR THE YEAR 1999-2000 EXT.P11 : TRUE COPY OF THE COMMUNICATION RECEIVED FROM THE AUTHORIZED REPRESENTATIVE DT. 11.11.2004 EXT.P12 : TRUE COPY OF THE ARGUMENT NOTES SUBMITTED BY THE PETITIONER BEFORE THE 5TH RESPONDENT DT. 5.11.2004 EXT.P13 : TRUE COPY OF THE POSTING NOTICE ISSUED BY THE 5TH RESPONDENT TO THE PETITIONER DT. 30.9.2004 EXT.P14 : TRUE COPY OF THE LETTER DT. 18.1.2005 SENT BY THE PETITIONER TO THE 1ST RESPONDENT EXT.P15 : TRUE COPY OF THE CIRCULAR NO. 5 OF 2003 DT.22.5.2003 EXT.P16 : TRUE COPY OF THE LETTER ISSUED TO THE STATE BANK OF TRAVANCORE BY THE DY. COMMISSIONER DT. 2.3.2005 EXT.P17 : TRUE COPY OF THE ORDER DT. 25.2.2005 ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER FOR THE YEAR 2002-03 EXT.P18 : TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2002- 03 DT. 29.12.2004(YEAR ENDING 31.3.2002) ISSUED BY THE SECOND RESPONDENT TO THE PETITIONER EXT.P19 : TRUE COPY OF THE CIT ASSESSMENT ORDER FOR 2001-02 ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DT. 11.12.2006 WPC.No. 36862 of 2004 PETITIONER'S EXHIBITS: EXT.P20 : TRUE COPY OF THE CIT ASSESSMENT ORDER FOR 2004-05 ISSUED BY THE 1 ST RESPONDENT TO THE PETITIONER DT.11.12.2006 EXT.P21 : TRUE COPY OF THE AIT ASSESSMENT ORDER FOR 2001-02 ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER TO THE PETITIONER DT. 10.4.2003 EXT.P22 : TRUE COPY OF THE AIT ASSESSMENT ORDER FOR 2004-05 ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER TO THE PETITIONER DT. 28.11.2006 EXT.P23 : TRUE COPY OF THE ASSESSMENT ORDER FOR 2005-06 ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DT. 24.12.2007 EXT.P24 : TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2006- 07 ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DT. 30.12.2008 EXT.P25 : TRUE COPY OF THE ORDER UNDER THE AGRICULTURAL INCOME TAX ACT FOR 2005-06 ISSUED BY THE INSPECTING ASST.COMMISSIONER OF COMMERCIAL TAXES, TO THE PETITIONER DT. 15.12.2009 EXT.P26 : TRUE COPY OF THE ORDER UNDER THE AGRICULTURAL INCOME TAX ACT FOR 2006-07 ISSUED BY THE INSPECTING ASST. COMMISSIONER OF COMMERCIAL TAXES, TO THE PETITIONER DT. 17.12.2008 EXT.P27 : TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX(APPEALS) FOR THE YEAR 2005-06 TO THE PETITIONER DT. 17.1.2008 EXT.P28 : TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) FOR THE YEAR 2006-07 TO THE PETITIONER DT. 25.5.2009 EXT.P29 : TRUE COPY OF THE COMMON ORDER ISSUED BY THE INCOME TAX APPELLATE TRIBUNAL, FOR THE YEARS 1997-98 TO 2006-07 TO THE PETITIONER DT. 16.6.2010 EXT.P30 : TRUE COPY OF THE ASSESSMENT ORDER DT. 9.1.2007 UNDER THE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 1997- 98ISSUED BY THE ASSISTANT COMMISSIONER (KGST) COMMERCIAL TAXES SPL. CIRCLE, KOTTAYAM EXT.P31 : TRUE COY OF TH ASSESSMENT ORDER DT. 9.1.2007 UNDER THE AGRICULTURAL INCOME TAX AC FOR THE YEARS 1998-99 ISSUED BY THE ASSISTANT COMMISSIONER (KGST) -I, KOTTAYAM EXT.P32 : TRUE COPY OF THE ASSESSMENT ORDER DT. 9.1.2007 UNDER THE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 1999- 2000 ISSUED BY THE ASSISTANT COMMISSIONER(KGST)- KOTTAYAM EXT.P33 : TRUE COPY OF THE ASSESSMENT ORDER DT. 6.1.2007 UNDER THE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 2000- 01 ISSUED BY THE ASSISTANT COMMISSIONER (KGST)-I, KOTTAYAM WPC.No. 36862 of 2004 PETITIONER'S EXHIBITS: EXT.P34 : TRUE COPY OF THE ASSESSMENT ORDER DT. 5.6.2009 UNDER THE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 2001- 02 ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER,COMMERCIAL TAXES, KOTTAYAM EXT.P35 : TRUE COY OF THE ASSESSMENT ORDER DT. 29.12.2004 UNDER THE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 2002- 03 ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER (SPECIAL), COMMERCIAL TAXES, ERNAKULAM EXT.P36 : TRUE COY OF THE ASSESSMENT ORDER DT. 5.6.2009 UNDER THE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 2003- 04 ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, KOTTAYAM. EXT.P37 : TRUE COY OF THE ASSESSMENT ORDER DT. 16.12.2006 UNDER THE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 2004- 05ISSUED BY ASSISTANT COMMISSIONER (KGST)I COMMERCIAL TAXES SPECIAL CIRCLE, KOTTAYAM EXT.P38 : TRUE COPY OF THE ASSESSMENT ORDER DT. 15.12.2009 UNDER THE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 2005- 06 ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER,. COMMERCIAL TAXES, KOTTAYAM. EXT.P39 : TRUE COPY OF THE ASSESSMENT ORDER DT. 17.12.2008 UNDER THE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 2006- 07 ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, KOTTAYAM EXT.P40 : TRUE COPY OF THE ASSESSMENT ORDER DT. 15.12.2009 UNDER THE AGRICULTURAL INCOME TAX ACT FOR THE YEARS 2007- 08 ISSUED BY THE INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, KOTTAYAM. RESPONDENTS' ANNEXURES: NIL //TRUE COPY// P.A. TO JUDGE jma *CR* C.N. RAMACHANDRAN NAIR, & K. VINOD CHANDRAN, JJ ---------------------------------------------------- W.P(C) No. 36862 of 2004 ---------------------------------------------------- Dated this the 3rd day of January, 2012 J U D G M E N T C.N. Ramachandran Nair , J The petitioner is a public limited Company fully under the control of the Kerala Government engaged in cultivation of oil palms and production and sale of crude palm oil. The main operation of the company is the cultivation of oil palm which produces palm fruit with kernel inside. Both the pericarp as well as the kernel contain palm oil which is extracted in the factory by the petitioner in crude form. The activity as a whole is essentially agricultural as well as industrial because production of crude palm oil from pericarp and the kernel is a complicated process done in the factory. Rule 7 of the Central Income Tax Rules, 1962 provides for assessment of income which is partly agricultural and partly business income. Even though, Rule 7 was in force from 1962 onwards, the Income Tax Department until 2004 allowed income from crude palm oil earned by the petitioner to be assessed as 100% W.P(C)36862/2004 : 2 : agricultural income by the Agricultural Income tax authorities of the State of Kerala. For the first time in 2004 the assessing officer under the Income Tax Act proposed to reopen the assessments 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 petitioner following the practice for the 35 years prior to that filed returns under the Agricultural Income Tax Act and remitted tax on income treating the entire income from the sale of palm oil as agricultural income. After reopening of the assessments for the years 1997-98 to 2001-02 the Income Tax Department proceeded to make regular assessments under the Income Tax Act for subsequent years also on that part of the income which is “business income” from palm oil by applying Rule 7 of the Income Tax Rules. The petitioner had to challenge double assessment completed by the tax authorities under Central and State Governments for several years, from 1997- 98 onwards. We have in the batch cases in ITA 382/2010 and connected cases, upheld the central income Tax assessments on 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 clear in that judgment that the petitioner will be free to raise all contentions for redressing grievance against double assessments both for agricultural Income Tax as well as for Income Tax; in the WP(C) pending. Accordingly, petitioner has filed I.A No. 20536/2011 for amendment of the Writ Petition which was allowed by us after hearing the respondent's counsel as well. 2. We heard Senior Counsel Sri. A.K.J Nambiar for the assessee and Senior Counsel Sri. P.K.R. Menon appearing for the Central Income Tax Department and senior Government Pleader appearing for the State. 3. Like palm oil, income from rubber, coffee and tea are also partly agricultural income and partly business income assessed to tax by the concerned tax Authorities of both Central and State Governments. Until 2000 Rule 8 was the only provision which provided for assessment of income from tea in the ratio of 40:60 for the purpose of Central Income Tax as well as Agricultural Income Tax. However, Rules 7A and 7B were introduced to the IT Rules through Income Tax(2nd W.P(C)36862/2004 : 4 : amendment)Rules 2000 providing for assessment of business income from rubber as well as coffee in the ratio provided therein. The department took note of the difficulties faced by several assessees who had paid tax treating the 100% of the income from rubber and coffee as agricultural income, until amendments were introduced to IT Rules. Therefore, circular No.5 of 2003 dated 22.5.2003 was issued by the Central Board of Direct Taxes prohibiting reopening of any assessment under section 147 or section 263 of the Income Tax Act, 1961 for any assessment prior to 2002-03 for bringing to tax “business income” from rubber and coffee if the assessees have paid agricultural Income tax on 100% of the income from rubber and coffee. This is a concession made by the Central Government to save the assessees from paying double tax on income both under the Central as well as the State Act. Senior Counsel appearing for the petitioner relied on this circular produced as Ext.P15 and prayed for granting relief similar to the one granted by this circular because agricultural Income Tax Assessments have become final for the several assessment years. In fact, as a result of the finality achieved W.P(C)36862/2004 : 5 : to AIT assessments, the petitioner has challenged the assessments in the writ petition by filing amendment application. 4. Senior counsel appearing for the Central Income Tax Department contended that circular applies only for income from rubber and coffee and the benefit granted is only against reopening of assessments based on Rules 7A and 7B in respect of income from rubber and coffee. According to him, Rule 7 of the Income Tax Rules is a general provision based on which petitioner's business income from palm oil is computed by the Assessing Officer under the Income Tax Act. However, this contention is opposed by the petitioner's counsel by contending that Rule 7 was in force for the last 5 decades and only in 2004 assessments were proposed to be reopened which gave rude shock to the petitioner-company which is a fully owned State Government undertaking. We find force in this contention and in our view the principle contained in Ext.P15circular, squarely applies herein as well, because petitioner remitted AIT on 100% of the income from the palm oil and Assessing Officer of the Central Income Tax W.P(C)36862/2004 : 6 : Department was accepting the position by completing the assessments up to and including the original assessments for 1997-98 to 2001-02. In fact, only when regular assessment was taken up for 2002-03 in the year 2004, the assessments completed for earlier years above stated were reopened. The counsel for the petitioner submitted that since there is regular assessments under Rule 7 of the Central Income Tax Act on the part of the business income from palm oil from 2005-06 to 2007-08 the petitioner has filed statutory appeals against AIT assessments assessing 100% of the income from palm oil as agricultural income. We have in the judgment in the batch cases referred above, upheld the Central Income tax assessments for the assessment years 1997-98 to 2006-07. 5. Admittedly petitioner remitted agricultural income tax treating 100% income from crude palm oil as agricultural income. This position was admitted by the Central Income Tax Authorities until the year 2004, even though Rule 7 was there from the beginning of the Income Tax Rules prescribed in 1962. By virtue of Circular above referred, the Central Government waived their right to revise Central Income Tax W.P(C)36862/2004 : 7 : assessments to bring to tax business income from intermediary rubber products, if the assessees had paid agricultural income tax on 100% of the income from rubber. The position is same for income from crude palm oil because 100% of the income therefrom was assessed to agricultural income tax in the case of assessee also and only in the year 2004 the Central Income Tax Authorities initiated proceedings for assessment of business income from crude palm oil. We see no reason why the benefit of the Circular cannot be extended for assessees earning income from palm cultivation and production of crude palm oil. We, therefore, allow the W.P.(C) by declaring that for and up to the assessment year 2004-2005 the payment of agricultural income tax on 100% of the income from crude palm oil by the petitioner will stand confirmed and the Assessing Officer under the Central Income Tax Act namely, first respondent, is directed to waive collection of tax on so much of the business income assessed from sale of crude palm oil for and up to the assessment year 2004-2005. 6. In view of our judgment in ITA382/2010 and W.P(C)36862/2004 : 8 : connected cases referred above, agricultural income tax assessments completed from 2005-06 onwards will stand set aside with direction to the second respondent to modify the assessments for all assessment years in line with the assessments completed by the first respondent under Central Income Tax Act and assess only so much of the income attributable to agricultural operations under the AIT Act. Excess tax if any paid under the AIT Act should be refunded to the petitioner. 7. Petitioner will remit tax to the Central Income Tax Department for the assessment years 2005-06 onwards based on the Central Income tax assessments. Writ Petition is allowed as above. Sd/- C.N. RAMACHANDRAN NAIR (Judge) Sd/- K. VINOD CHANDRAN (Judge) jma //true copy// P.A to Judge "