TMI Blog1997 (9) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of sub-section (3) : . . . (3) No registered firm or unregistered firm treated under section 17(5)(b) as a registered firm shall be entitled to apply for permission to compound under this section but any partner of such firm may apply for permission to compound the agricultural income-tax payable by him on the aggregate of the income derived by him from--- (a) the land held by him individually; and (b) his proportionate share of the land held by the firm." Section 17(5) referred to in section 65(3) read thus prior to April 1, 1992 : "17. Assessment of income.---. . . (5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under sub-section (1), sub-section (3) or sub-section (4), as the case may be--- (a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed, and the sum payable by him on the basis of such assessment shall be determined : Provided that, if such share of any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new provision prescribing procedure for allotment of permanent account number and doing away with registration of firms. In the case of Anandakumar [1992] 196 ITR 219 (Mad), it was held that section 65 is a concessional substitute for the assessment under section 17 providing for commutation of liability, on a graduated scale of payment based on the extent of holding without reference to the income derived therefrom; that the composition is not a mode of assessment; that fulfilment of certain conditions before permitting composition could be insisted upon; that section 65(3) provides for composition only with reference to the total agricultural income assessable in the hands of each partner of the firm as provided in section 17(5)(a); that if the total agricultural income of a partner consisted only of his share income from the lands held by the firm, the prohibition contained in the earlier part of section 65(3) prohibiting the firm from availing of the benefit of composition would be defeated; that the use of the expression "aggregate of the income" in the latter part of section 65(3) does not connote mere aggregation of income without availability of two distinct and separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. Section 16 deals with return of income. Section 16(1) as it stood prior to April 1, 1992, provides that subject to the provisions of section 65 every person who held land in excess of the exempted extent at any time during the previous year, shall, unless he has been permitted to compound the tax under section 65, furnish to the Agricultural Income-tax Officer, so as to reach him before June 1, every year, a return in the prescribed form and verified in the prescribed manner setting forth his total agricultural income during the previous year. Section 17 deals with assessment of income, section 17(5) deals with assessment of income of firms registered, unregistered and those which though unregistered are treated as registered. Section 65 provides for composition of agricultural income-tax. Any person who holds land of the nature and up to the extent set out in section 65(1) may apply to the prescribed officer to compound the agricultural income-tax, payable by him, and pay in lieu thereof a lump sum at the rate or rates specified in Part II of the Schedule to the Act. Section 65(1)(ii) permits compounding of tax only on income from non-plantation crops, by a person holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered are not required to pay tax on their income, as the liability for payment is placed squarely upon the partners in whose total agricultural income their share of the income of the firm is to be included. Partners of registered firms, and of unregistered firms treated as registered, are the persons primarily responsible for the payment of tax on the income earned by the firm, to the extent of their share therein. In so far as unregistered firms not treated as registered are concerned, their "assessment" extends to the determination of the amount of tax payable. The tax so determined is made payable by the firm itself. The income of such partner from the firm is taxed in the hands of the firm and his other income taxed in his hands. Partners of registered firms and of firms treated as registered are thus treated differently from partners of firms which are not registered and not treated as registered. The "assessment" of firms, in the scheme of the Act, does not have the same meaning with respect to all firms. As pointed out by the Privy Council in the case of CIT v. Khemchand Ramdas [1938] 6 ITR 414, the term "assessment" is used in the Income-tax Acts as meaning so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act having regard to the size of their holding. In the case of Commissioner of Agrl. I. T. v. K Subbiah Gounder [1963] 47 ITR 522 (Mad), it was rightly held that in a proceeding under section 65 of the Act, there is no "assessment". We are in agreement with the view expressed in the case of Anandakumar [1992] 196 ITR 219 (Mad) that section 65 provides for a concessional commutation of liability for tax based on the extent of holding of the assessee. It was contended for the Revenue that while interpreting section 65 of the Act, rules of interpretation governing the interpretation of exemption provisions should be applied. Reliance was placed on the decision of the apex court in the case of Novopan India Ltd. v. Collector of Central Excise and Customs [1994] Suppl. 3 SCC 606, wherein the court approved the principles governing the interpretation of exemption provisions set out by a two-judge Bench of the court in the case of Mangalore Chemicals and Fertilizers Ltd. v. Deputy Commissioner of Commercial Taxes [1991] 83 STC 234; [1992] Suppl. 1 SCC 21. The passage so approved, to the extent relevant there, reads as under : (see [1991] 83 STC 245) : "The choice between a strict an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion referred to in section 65(3) does not amount to and cannot be read as laying down as an essential qualification, that the partner must have a source of taxable income in addition to his share of the income from the firm, or that he must hold land individually. The right conferred on the partner to seek composition is only subject to the condition that such composition is sought on his total holding including the share in the land held by the firm. Section 65(3) does not expressly lay down that only a partner who holds land individually may seek composition. Nor does it expressly prohibit partners not holding land individually, from applying for composition. No such pre-condition or prohibition can be read into that provision. As held by the apex court in the cases of CIT v. Vadilal Lallubhai [1972] 86 ITR 2 and CIT v. Ajax Products Ltd. [1965] 55 ITR 741, it is not permissible to construe any provision of a statute much less a taxing provision, by reading into it more words than it contains. Composition under section 65 is of the agricultural income-tax payable by the assessee. Though not an alternate mode of assessment, composition is an alternative to the regular assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts purpose. All the words used in the statute are presumed to have been used with a purpose and that purpose as ascertained from a reading of the words used in the section, the scheme of that section, and the scheme of the Act, must be effectuated. The reference to aggregation, and specification of the possible sources of income to be aggregated, cannot be read to mean that two sources of income must co-exist even when there is no such explicit requirement in the section. The purpose of the provision for composition must be given its full scope and effect, and cannot be truncated by reading into the provision, limitations not found in it. Section 65 overrides other provisions in the Act, opening as it does with a non obstante clause. We, therefore, hold that the decision rendered by the Division Bench in the case of R. Anandakumar v. State of Tamil Nadu [1992] 196 ITR 219 (Mad), is erroneous and we overrule the same. We hold that the absence of individual holding of land by a partner of a registered firm or of an unregistered firm treated as registered, does not disentitle such a partner from applying for composition of agricultural income-tax, under section 65(3) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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