TMI Blog2002 (7) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... nt) Act, 1997 (Act No. 18 of 1997), falls for determination. The provisions of section 26(4) and the Explanation thereto of the Karnataka Agricultural Income-tax Act, 1957, as amended by Act 18 of 1997 (hereinafter referred to as the Act), read as follows: "26. (4) Where any business through which agricultural income is received by a company, firm or association of persons is discontinued or any such firm or association is dissolved in any year, any sum received after the discontinuance or dissolution shall be deemed to be income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance or dissolution. Explanation.--For the removal of doubts, it is hereby declared that where before the discontinuance of such business or dissolution of a firm or association hitherto assessed as a firm or association, or, as the case may be, on the company, the crop is harvested and disposed of, but full payment has not been received for such crop, or the crop is harvested and not disposed of, the income from such crop shall, notw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a member of such firm at the time of the discontinuance or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 18 and the provisions of the Act shall, so far as may be, apply accordingly, as if the notice were a notice issued under that sub-section." It is common ground that after the Coffee Board came into existence auction was conducted for the coffee seeds produced by the planters. The income in respect of any coffee delivered to the Coffee Board was rarely received in one year and may have been received over a period of three to four years. The actual income was liable to be computed in accordance with the method of accounting regularly employed by an assessee. It was open to the assessee to keep accounts on the cash system. There was a glaring gap with respect to post-dissolution and that escaped tax. There was no provision for income received subsequently after say two or three years from the Coffee Board with respect to post-dissolution period during the relevant accounting year. This had to be remedied. The remedy was by an amendment to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether this provision creates any legal fiction regarding the continuance of the firm notwithstanding its dissolution for purposes of assessing an income received after the dissolution. All that this provision lays down is that, any sum received after the discontinuance of business shall be deemed to be the income of the 'recipient' and charged to tax in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance. Explaining this provision the Division Bench of this court in E.M.V. Muthappan's case [1990] 184 ITR 161, has pointed out that since the sale proceeds received is income relating to agricultural activity carried on during the earlier years, it must be deemed to be the income of the recipient, as the original assessee is no longer continuing the business and, therefore, is liable to tax in the year of receipt in the hands of the recipient. It is, therefore, clear that this provision applies to a case where the person carrying on the business discontinues it and the income due to him, he being the original assessee, is received by another after the discont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich remains unchanged even to this day stipulates that the firm is deemed to have been in existence till it was actually dissolved and the income received subsequent to the period when the firm was in existence shall be relatable to the firm till the date of its dissolution even though when the income was received the firm was not in existence. If an assessee is not in existence, there should be an enabling provision to assess the said income which is liable to be taxed. The section permits assessment to be made in respect of a firm as if it was not dissolved for the purpose of assessment. Section 27 of the Act reads as follows: "27. Liability in case of discontinued firm or association.--(1) Where the business of a firm or association of persons is discontinued or such firm or association is dissolved, the Assistant Commissioner of Agricultural Income-tax shall make the assessment of the agricultural income of the firm or association of persons as if no such discontinuance or dissolution has taken place and all the provisions relating to the levy of penalty or any other sum chargeable under any provisions of this Act shall apply, so far as may be, to such assessment. (2) Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivided family in respect of coffee delivered earlier but received subsequent to disruption or dissolution of the joint family. A deeming provision was introduced to hold that such income in the hands of the Hindu undivided family by deeming Hindu undivided family to be in existence and by deeming that the deemed Hindu undivided family to be in receipt of such income. With respect to firms no such simultaneous amendment was brought by the Legislature. In fact the Division Bench of this court in Cardoza's case [1997] 227 ITR 421 had specifically held that there was no ambiguity in the interpretation of section 26(4) of the Act. The Division Bench in Cardoza's case [1997] 227 ITR 421 (Karn), further held that the Agricultural Income-tax Officer shall refund the amount that might have been collected in pursuance of the proceedings contrary to section 26(4). It is thereafter by the Karnataka Taxation Laws (Second Amendment) Act, 1997, the whole of section 26 has been amended which is impugned in the writ petitions. Section 26(4) has been extracted earlier. Since the grievance of the appellants is only with regard to the Explanation to section 26(4), we shall extract the Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. A validating Act seeks to validate the earlier Acts declared illegal and unconstitutional by courts by removing the defect or lacuna which led to the invalidation of the law. In other words with the removal of the defect or lacuna resulting in the validation of any Act held to be invalid by a competent court, the Act may become valid, if the validating Act is lawfully enacted. The statement of law is best reflected in the poignant words of the Supreme Court at paragraphs 15 and 16 of the judgment of Cawasji's case [1984] 150 ITR 648; AIR 1984 SC 1780. Paragraphs 15 and 16 read as follows: "15. In view of the aforesaid judgment and order passed by the High Court, amounts collected by the State by way of sales tax on items of excise, health cess and education cess on arrack or special liquor from the appellant became refundable to the appellant. The impugned amendment has been passed, as the Statement of Objects and Reasons which we have earlier set out clearly indicates, to override the judgment of the High Court and to enable the State to hold on to the amount collected as sales tax on excise duty, health cess and education cess, if any, on arrack or special liquor. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and health cess to be bad become conclusive and is binding on the parties. It may or may not have been competent for the State Legislature to validly remove the lacuna and remedy the defect in the earlier levy by seeking to impose sales tax through any amendment on excise duty, education cess and health cess; but, in any event, the State Government has not purported to do so through the Amending Act. As a result of the judgment of the High Court declaring such levy illegal, the State became obliged to refund the excess amount wrongfully and illegally collected by virtue of the specific direction to that effect in the earlier judgment. It appears that the only object of enacting the amended provision is to nullify the effect of the judgment which became conclusive and binding on the parties to enable the State Government to retain the amount wrong fully and illegally collected as sales tax and this object has been sought to be achieved by the impugned amendment which does not even purport or seek to remedy or remove the defect and lacuna but merely raises the rate of duty from 6 1/2 per cent. to 45 per cent. and further proceeds to nullify the judgment and order of the High Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the High Court of Karnataka in 2397 of 1988 and other connected matters, it has become necessary to amend the Karnataka Agricultural Income-tax Act, 1957, retrospectively with effect from April 1, 1975, to facilitate assessment of income received after dissolution of a firm even though at the time of such assessment the firm stood dissolved." A reading of the Objects and Reasons indicate that the effect of the amendment was to nullify the Division Bench judgment of this court in W.P. No. 2397 of 1988 (L.P. Cardoza's case [1997] 227 ITR 421) and other connected matters. The reference to W.P. No. 2397 of 1988 and other connected matters in the Reasons and Objects of the impugned amendment is the judgment rendered by the Division Bench reported in L.P. Cardoza's case [1997] 227 ITR 421. In other words in L.P. Cardoza's case [1997] 227 ITR 421 the Division Bench of this court directed refund of the amount to the assessees by the Agricultural Income-tax Officer since the proceedings were quashed. It is exactly to overcome the judgment in L.P. Cardoza's case [1997] 227 ITR 421 (Karn), the Amending Act was introduced retrospectively. This finds a place in the Objects ..... X X X X Extracts X X X X X X X X Extracts X X X X
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