# DELffi CLOTH & GENERAL MILLS CO. LID v. STATE OF U.P. & ORS

- **Citation:** [1979] 2 S.C.R. 109
- **Court:** Supreme Court of India
- **Decided:** 1978-10-18
- **Case number:** Civil Appeal Nos. 1249 of 1968
- **Bench:** P.'N. Bhagwati, V. D. TuLZAPURKAR, R. S. Pathak
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/delffi-cloth-general-mills-co-lid-v-state-of-u-p-ors-7469
- **Pages:** 17

## Headnote

U.P. Ag[icultural Income tax Act, 1948-S. 6(1) scope of-Assessee given
option to select one of the two alternative methods of computarion of agricultural income-Option exercised with the return changed when
filing revised
return-If permissible.
A
B
Section 6(1) of the U.P. Agricultural Income tax Act, 1948 gives an option
C
to an assessee to select one of the two alternative methods of computation of
agricultural income as provided ins. 6(2), whichever is more advantageous
to him. Such option is required to be indicated along with his return submitted
under s. 15 of the Act.
While submitting its return for the assessment year 1954-55 the assessee
chose the option to be assessed under s. 6(2)(b) of the Act. It later subD
mitted a revised return under s. 15(4) but stuck to the option to be assessed
under s. 6(2)(b). The assessing authority, notwithstanding the filing of these
two returns by the assessee, cailled upon it to file a return of the income computed under s. 6(2) (a). Thereafter the assessing authority served a notice on
the assessee requiring it to produce evidence in support of it rsetum. After
the assessee produced the required evidence, the assessing authority issued a
notice to tho effect that certain income escaped assessment and called for its
E
objections, if any. The assessee asked for inspection of records; but it was
refused. At the ins1ance of the assessee the Revision Board dtrected the assessing authority to permit inspection of the record. After inspection of the record
the assessee filed a fresh (third) return.
At this stage the assessee preferred
the method of computation of income provided under s. 6(2) (a) instead of
s. 6 (2 J (b) which it chose earlier.
Without deciding the question as to whether the assessee was entitled to
change the option, the oosessing authority made a best judgment assessment
under s. 6(2)(b). On appeal the Commissioner directed the assessing authority
to first decide the question rel21ting to change of option whereupon the assessing
authority held that the assessee had no right to change its earlier option. On
further appeal the Revision Board upheld the order of the assessing authority.
In the assessee's writ petition challenging the order of the assessing authority
a single Judge of the High Court held that it was open to the assessee to
change its option at the time of filing a subsequent or fresh return. But the
Division Bench was of the view that the assessee had no right to change its
option.
In its appeal the assessee contended before this Court that (I) it is open
to the assessee to change its oplion not merely every year but during the year
by filing a fresh return or a revised return provided it is done before the
assessment is completed (2) although the assessee filed its fit>! return and the
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[1979] 2 S.C.R.
revised return, the assessing authority issued a notice under s. 15(3) along with
a statement of provisional estimate computed in accordance with s.
6(2)(~)
pursuant to which the assessee filed the t'hird return exercising the option for
computation in accordance withs. 6(2) (a) and, therefore, the assessing authority
had to make the assessment in accordance with s. 6 (2 )(a) and ( 3) in any
event since the assessing authority had proceeded to make a best judgment
assessment under s. 16(4) it had no option but to make the assesstne!lt with
due regard to the provisional estimate served under s. 15(3B) not\VithstanOirig
any option exercised under s. 6(1) of the Act.
Allowing the appeals,
HELD : The Division Bench of the High Court was wrong in holding that
when once the option is exercised by an assessee by filing the ~equisite declaration
he will have no right to change the option by filing a fresh return or revised
return before the assessment is made for that year.
[121 C]
1. V\.'hatever restrictions had been imposed on the change of option by the
original proviso to s. 6(1) had been removed arul the concept of

## Text

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109
DELffi CLOTH & GENERAL MILLS CO. LID.
v.
STATE OF U.P. & ORS.
October 18, 1978
[P.'N. BHAGWATI, V. D. TuLZAPURKAR AND R. S. PATHAK, JJ.]
U.P. Ag[icultural Income tax Act, 1948-S. 6(1) scope of-Assessee given
option to select one of the two alternative methods of computarion of agricultural income-Option exercised with the return changed when
filing revised
return-If permissible.
A
B
Section 6(1) of the U.P. Agricultural Income tax Act, 1948 gives an option
C
to an assessee to select one of the two alternative methods of computation of
agricultural income as provided ins. 6(2), whichever is more advantageous
to him. Such option is required to be indicated along with his return submitted
under s. 15 of the Act.
While submitting its return for the assessment year 1954-55 the assessee
chose the option to be assessed under s. 6(2)(b) of the Act. It later subD
mitted a revised return under s. 15(4) but stuck to the option to be assessed
under s. 6(2)(b). The assessing authority, notwithstanding the filing of these
two returns by the assessee, cailled upon it to file a return of the income computed under s. 6(2) (a). Thereafter the assessing authority served a notice on
the assessee requiring it to produce evidence in support of it rsetum. After
the assessee produced the required evidence, the assessing authority issued a
notice to tho effect that certain income escaped assessment and called for its
E
objections, if any. The assessee asked for inspection of records; but it was
refused. At the ins1ance of the assessee the Revision Board dtrected the assessing authority to permit inspection of the record. After inspection of the record
the assessee filed a fresh (third) return.
At this stage the assessee preferred
the method of computation of income provided under s. 6(2) (a) instead of
s. 6 (2 J (b) which it chose earlier.
Without deciding the question as to whether the assessee was entitled to
change the option, the oosessing authority made a best judgment assessment
under s. 6(2)(b). On appeal the Commissioner directed the assessing authority
to first decide the question rel21ting to change of option whereupon the assessing
authority held that the assessee had no right to change its earlier option. On
further appeal the Revision Board upheld the order of the assessing authority.
In the assessee's writ petition challenging the order of the assessing authority
a single Judge of the High Court held that it was open to the assessee to
change its option at the time of filing a subsequent or fresh return. But the
Division Bench was of the view that the assessee had no right to change its
option.
In its appeal the assessee contended before this Court that (I) it is open
to the assessee to change its oplion not merely every year but during the year
by filing a fresh return or a revised return provided it is done before the
assessment is completed (2) although the assessee filed its fit>! return and the
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[1979] 2 S.C.R.
revised return, the assessing authority issued a notice under s. 15(3) along with
a statement of provisional estimate computed in accordance with s.
6(2)(~)
pursuant to which the assessee filed the t'hird return exercising the option for
computation in accordance withs. 6(2) (a) and, therefore, the assessing authority
had to make the assessment in accordance with s. 6 (2 )(a) and ( 3) in any
event since the assessing authority had proceeded to make a best judgment
assessment under s. 16(4) it had no option but to make the assesstne!lt with
due regard to the provisional estimate served under s. 15(3B) not\VithstanOirig
any option exercised under s. 6(1) of the Act.
Allowing the appeals,
HELD : The Division Bench of the High Court was wrong in holding that
when once the option is exercised by an assessee by filing the ~equisite declaration
he will have no right to change the option by filing a fresh return or revised
return before the assessment is made for that year.
[121 C]
1. V\.'hatever restrictions had been imposed on the change of option by the
original proviso to s. 6(1) had been removed arul the concept of "fi~st return"
was deleted from r. 5. That being so, the expression "his return of income"
cccurring in r. 5 would app)y to any of returns contemplated under s. 15,
In fact r. 5 is obligatory and makes it incumbent upon an assessce to file, along
with his return, ai declaration indicating his option under s. 6(1 ). The exercise
of such optio:i. including a change of option indicated in the declaration filed
along with a subsequent return or a fresh return or a revised retu1n, will be
valid provided the return itself is validly submitted.
(120 G-H]
2. 1f the return was filed under s. 15 ( 4), then in order to avail of the
change of the option the assessee will have to show that it was real!y a revised
re1urn in the sense that the same had been filed because vf a v1rong statement
discovered in the earlier returns. Clearly the third return was filed in response
tq the notice issued by the assessing authority under s. 15(3). This return
was rejected by the assessing authority not on the ground that it had been
filed beyond time but on the ground that the assessee had no right to change
its option ~·hich suggests that the return was treated by the atisessing authority
as having been filed within time but was rejected on merits holding that the
assessce \Vas not entitled to change its option. Therefore the third return V:.'as
not a revised return under s. 15 ( 4) but a fresh return filed \Vithin time in
response to the notice under s. 15(3) and as such the assessee was entitled
to change its option and haive the computation made in accordance \Vith
s. 6(2) (a). The fact that the assessee had produced some t:vidence in pursuance to the notice in relation to its earlier returns or that it took inspection
of the records cannot and does not amount to acquiescence or waiver of its
right to file a declaration indicating its option afresh along with the return
validly filed in response to the notice under •· 15(3) of the Act. (121 F-0;
122D; G-H]
3. Moreover, irrespective of whatever option might ha.ve been exercised by
the assessee the best judgment assessment has to be made by the assessing
authority by having due regard to the statement of pr:ovisional estimate of
agricultural income made in accordance with s. 6(2)(a). TJnder
~· 16(4)
whenever the assessing authority proceeds to make the assessment the same is
required to be made "with due regard to the statement, if any, sent under
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DELHI CLOTH MILLS v. u. P. STATE (Tulzapurkar, J.)
111
s. 151)-B) notwithstanding any option exercised under s. 6(1)." The scheme
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.of s. 16(4) clearly shows that in regard to the best judgment as:;essment there
is nothing sacrosanct about the option exercised by the assessee under s. 6(1);
equally it can be said that in regard to the assessments other thari. best judgment
assessments under the scheme of s. 15 there is nothing sacrosari.ct about tho
particular option previously exercised by the assessee and he need not be held
bound by it provided he changes the option by filing a subsequent or a fresh
or a revised return in accordance with the applicable provisions in s. 15.
SO
B '
far
a~ the assessing authority is concerned such option, whether original or
·subsequent, would be binding on it.
(124 F; H]
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1249 of 1968
and 1946 of 1972.
From th~ Judgment and Order dated 27-9-1965 of the Allahabad c
High Court in Special Appeal No. 95/62.
V. S. Desai and Rameshwar Nath for the Appellant (In CA 1946/
72).
G. N. Dikshit and 0. P. Rana for the Respondent in C.A. 1946/
72.
The Judgment of the Court was delivered by
TuLzAPURKAR, J.-These appeals by certificate under Art. 133'(1).
·of the Constitution raise an important question whether an assessee
having onc0 exercised the option regarding the method of computaD
tion of his agricultural income by filing the requisite declaration alongE
with his return is entitled to change the option under the U.P. Agricultural Incom" Tax Act, 1948 ?
The appellant-assessee (The Delhi Cloth and General Mills Company Limited, Delhi) is a company registered under the Indian Companies Act and has certain a!Vicultural farms at Daurala in Meerut
District from which it derives agricultural income chargeable to levy
·Of agricultural income-tax and super tax under s. 3 of the U.P. Agri-
•Cultural Income-Tax Act, 1948 (hereinafter called 'the Act').
Section 6(2) of the Act provides two alternative methods of computation
of agricultural income,
(a) Rental method
(multiple of
Annual Rental income) mentioned in clause (a) or (b); Produce
·method (subject to deductions) mentioned in clause (b)
and under
s. 6(il) an option is given to the assessee to select one or the other
method whichever may be advantageous to him. Such option is required
to be indicated in a Declaration in the prescribed Form No. A.I.T.-2 to
'be submitted under Rule 5 of the U.P. Agricultural Income-tax Rules,
1949 alongwith his return under s. 15 of the Act.
Fo.r the assessment year 1954-55 a return of the agricultural income for the relevant
;previous year ending June 30, 1954 (1361 Fasli)
was filed undoc
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s. 15(2) of the Act on November 27, 1954 by the appellant-assessee,
returning a net income of Rs. 1,06,664. Alongwith the return a declaration in Form No. A.I.T.-2 was also filed indicating the option to
be assessed in accordance with s. 6(2) (b) of the Act. On April 4,
1955 the appellant-assessee discovering some mistake in the said return filed a revised return under s. 15 ( 4) of the Act showing the net
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income at Rs. 98,854 and explaining that the difference was due to
certain further deductions that were claimed on account of expenses,
and while filing such revised return the option under s.6(2) (b) was
adhered to.
However, notwithstanding the filing of the aforesaid two
returns, one on November 27, 1954 and the revised return on April
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4, 1955, on April 7, 1955 the Assessing Authority served upon the
appellant-assessee a notice under s.15(3) requiring the latter to furnish within period specified in the notice a return in the prescribed form
and verified in the prescribed manner setting forth its total agricultural income in the previous year relevant to the assessment year 19 5 455 and alongwith such notice a provisional estimate of the assessee's
agricultural income for the previous year (i.e. 1361 Fasli) computed
under s.6(2)(a) was also furnished as required by s. 15 (3-B) of the
Act; the provisional estimate made in accordance with s.6(2) (a) of
the Act showed the income of the assessce at Rs. 2,07,923/9/-.
It appears that neither the original return filed on November 27,
1954 nor the revised return filed on April 4, 1955 was found to be
correct or complete by the Assessing Authority and, therefore, on
April 14, 1955 the Assessing Authority served a notice under s.16(2)
of the Act on tl1e appellant-assessee requiring it to produce evidence
in support of its return; in reply the assessee produced some evidence
in the form of accounts and vouchers and details of the various expenses were also supplied.
On September 29, 1955, however, another notice was given to the appellant-assessee stating that its income
had escaped assessment to the tune of Rs. 38,947 /- and
objections
were invited.
Thereupon, the appellant-assessee applied for inspection of the record before the Assessing Authority, but the application
was rejected on October 18, 1955 against which a revision was filed
by the appellant before the Revision Board and on April 29, 1958 the
Board allowed the revision application and the Assessing Authority
was directed to permit the inspection of the record. Thereupon the
appellant took inspection of the record, but on November 8, 1958,
being the date fixed for the hearing of the objections, the appellant
filed a fresh return (third return) in respect of its agricultural income
for the self-same previous year (1361 Fasli) and this was done in
response to the notice dated April 7, 1955 that had been served upon
it by the Assessing Authority under s. 15(3-B) of the Act and alongI
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DELHI CLOTH MILLS v. u. P. STATE (Tulzapurkar, J.)
113
with this return, which showed the net income of Rs. 1,79,543/519, a
declaration in the prescribed Form No. A.I.T.-2 selecting the method
of computation of agricultural income under s.6(2) (a) was also filed
and the appellant prayed that it should be allowed to change the option
and have its income computed undec s.6(2) (a}
instead of under
s. 6(2) (b) as previously intimated.
The Assessing Authority, without
first deciding the question
whether the appellant was entitled to change the option as sought, by
its order dated March 27, 1959 made a best judgment assessment in
accordance with the method under s.6(2) (b) of the Act and assessed
the appellant's income at Rs. 4,82,231.05 nP on which the tax liability was assessed at Rs. 2,88,488.46 nP. The appellant challenged the
assessment order in an appeal to the Commissioner who by his order
dated July, 1, 1959 allowed the appeal, set aside the assessment and
remanded the case back to the Assessing Authority with a direction
that he should first dispose of the question celating to change of option
which the appellant had claimed he was entitled to have and then
make the assessment in accordance with law after allowing the appellant an opportunity to lead evidence in support of its return. The
Assessing Authority thereupon went into the question of change of
option and by its order dated November 17, 1959 held that the appellant had no right to change its option and that the assessment had to
be made in accordance with s.6(2) (b) of the Act. The appellant
went in revision before the Agricultural Income-Tax Revision Board
challenging the said order of the Assessing Authority bnt the Revision
Board by its order dated January 27, 1960 upheld the decision of
the Assessing Authority.
The Board took the view that an assessee
having exercised the option once in Form No. A.I.T.-2 filed alongwith
the original return could not change that option subsequently while
filing anothec return or revised return under the Act.
By a Writ Petition, being Civil Misc. Writ No. 1382 of 1960 filed
in the Allahabad High Court the appellant challenged the validity of
the two orders, one of the Assessing Authority and the other of the
Revision Board and sought a mandamus directing the Assessing
Authority to assess the appellant's tax liability after computing its
agricultural income for the relevant previous year in accordance with
s.6(2) (a) of the Act instead of undec s.6(2) (b) of the Act.
The
learned Siugle Judge who heard the writ petition by his judgment and
order dated October 13, 1961 accepted the contention of the appellant that it was open to it to change its option with the filing of a
sub£equent or fresh return with the result that the impugned orders
were quashed and he issued a direction to the Assessing Authority
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that it shall proceed to assess the appellant-assessee in accordance
with the option expressed by it on November 8, 1958.
The respondents preferred an appeal to the Division Bench of the High Court
being Special Appeal No. 95 of 1962 and the Division Bench allowed
the appeal, set aside the decision of the learned Single Judge and restored the orders passed by the Assessing Authority and the Revision
Board.
In its judgment dated September 27, 1965,
the Divisicin
Bench took the view that the assessee had no right to change the
option.
Initially the appellant preferred an appeal to this Court being
Civil Appeal No.1249(NT) of 1968 on the strength of a certificate
issued by the Allahabad High Court under Art. 133(1)(a) of t<he
Constitution but at the time of the hearing of that appeal this Court
accepted the preliminary objection raised by the respondents to
the
maintainability of the appeal on the ground that the High Court was
not competent to grant the certificate under Art.133(1) (a) in as much
as the issue before the High Court was incapable of valuation and the
order appealed against could not come within the scope of the said
provision; this Court, therefore, revoked the said certificate and sent
the case back to the High Court for fresh
consideration inasmuch
as the appellant's prayer for grant of certificate in the High Court was
made both under Arts. 133(l)(a) and 133(l)(e) of the Constitution and directed the High Court to consider the prayer for grant of
the certificate under the latter provision.
Thereafter the High Cour-t
by its order dated April 18, 1972 granted the certificate under Art.
133(1) (c) on the ground that the question of law involved was of
substantial importance and also of great public importance and it is
on the strength of such certificate that was issuea by the High Court
that the Civil Appeal No.1946 (NT) of 1972 has been filed by the
ftppellant in this Court.
However, in both the appeals the principal
question raised is whether an assessee who has once exercised
his
option in regard to the method of computation of his agricultural income by filing the requisite declaration in the prescribed Form No.
A.I.T.-2 alongwith his first or initial return can change the eption
under the Act?
In may be stated at outset that after the judgment was delivered
by the learned single Judge of the Allahabad i-Itgh Court on October
13, 1961 answering the point in favour of Inc a5'cssee, the Assessing
Auth0rily, since no stay was obtained during the pendcncy of Special
Appeal No. 95 of 1962, proceeded with the assessment of the appellant
on the basis of that
judgment and completed the assessment
on
December 19, 1962, in accordance with s. 6(2)ia) of the Act and
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DELHI CLOTH MILLS.v. u. P. STATE (Tulzapurkar, l.)
115
we are informed at the Bar that the appellant has paid the tax
according to that assessment order. But alter the reversal of the
judgment of the learned Single Judge by the Division Bench that
assessment order became ineffective and a fresh assessment order was
!Ilade on July 30, 1969 in accordance with the judgment of the Division Bench by adopting the method of computation indicated in s.6 (2)
(b).
Against that assessment order dated July 30, 1969 the appellant
preferred an a_ppeal but the same was dismissed on June 23, 1970 and
n revision against the dismissal of that appeal is pending before the
U.P. Agricultural Income-tax Board. The position, therefore, would
be that if the appellant succeeds in these appeals the assessment order
made against it on July 30, 1969 and which has been confirmed in
appeal on June 23, 1970 and which is the 'abject-matter of revision
before the Board will be rendered ineffective and the assessment ordet"
made against it on December 19, 1962 will revive and hold the field
and the appellant shall be taken to have complied with the demand
under that order but in case the appellant fails in these appeals the
appellate order dated June 23, 1970 subject to the result of the revision will become operative.
Counsel for the appellant raised two or three contentions before
us in support of the appeals.
In the first place he contended that
'Under s. 6 ( 1) of the Act an option :to choose one or the other method
of computation of agricultura_l income has been given to the assessee
so that he could choose whichever method was advantageous to him and
the assessee would be entitl<:d to exercise such option every time he
files a return, be it the initial or first return or a subsequent return or
.a revised return, in regard to his agricultural income of any particular
previous year, especially, as Rule 5 of the U.P. Agricultural Incometax Rules, 1949 makes it incumbent upon the assessee to file a declaration in Form A.l.T.-2 indicating his option alongwith "his return
of income".
He urged that this position becomes all the more clear
if the provisions of the present s.6 and Rule 5 are considered vis-a-vis
the said provisions before they were amended.
Secondly, he urged
that in the instant case in spite of the appellant having filed its first
return of November 27, 1954 and its revised return of April 4, 1955,
the Assessing Authority had served upon it a notice under s.15(3)
alongwith a statement showing provisional estimate of the agricultural
income of the appellant at Rs.2,07,923-9 annas in accordance with
s.6(2) (a) for the relevant previous year ending June 30, 1954 (1361
Fasli), pursuant to which the appellant filed a fresh return on November 8, 195& for the said previous year indicating in the accompanying
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[1979] 2 S.C.R.
declaration in Form No. A.I.T.-2 the option for computation in accordance with s.6(2) (a) of the Act and, therefore, the Assessing Authority h;id to make the assessment in accordance with s.6(2)(a) of the
Act.
Thirdly, he contended that in any event since the
Assessing
Authority after the issuance of the notice under s. 16(2) had proceeded to make a best judgment assessment under s.16 ( 4) it had no option
but to make the assessment with due regard to the statement of provisional estimate served under s.15(3-B) uowithstanding any option
exercised .under s.6(1) of the Act.
On the other hand, counsel for the respondents supported the view
taken by the Division Bench of the High Court by contending that
the option conferred upon an assessee by s. 6 is to be exercised in
accordance with the provisions of the Act and the Rules and the only
provision is that contaiged in Rule 5 which speaks of a declaration
indicating the option being filed alongwith "his return of income"
which could only be when the assessee filed his first or initial return
and there is no provision for filing such a declaration alongwith any
subsequent return or revised return.
He urged tha~ only
s.15(4)
speaks of filing a revised return which could be done only if the
asie11ee discovered any wrong statement in the return previously filed
by him under iub-i. 1 or 2 or 3 of s. 15 but a statement made in such
previously filed return does not become wrong merely because the
asses see had selected the wrong option; in other words, the assessee
does not get the right to file a revised return under s.15 ( 4) merely
because he wishes to change the option.
He, therefore, urged that
in the absence of any positive provision being contained in the Act or
the Rules conferring upon the assessee the right to change the option,
the rigl1t of the optio11 once exercised must be held to have become
final.
He, further urged that the aspect whether '111 assessee will have
a righ~ to change the option by filing a fresh declaration along with
a return ftled in response to the notice served under s. 15 (3) of the
Act, notwithstanding his having filed a return under s. 15(1)
or
s. 15(2) and having exercised his option at that time, was
not raised before the High Court by the appellant and as
such the appellant should not be permitted to raise it now
inasmuch as there is no material on record to show that
the return filed
by the
appellant
on
November 8,
1958
was in r~e to that notice or was within time specified in
that notice. In any event, he urged that sub-ss. (1), (2) and (3) of
s. 15 are independent provisions and the notice under s.15(3) does
not give an assesse~ any right to change the option. He further urged
that in the instant case the assessee could be said to have acquiesced
in the proceedings that were taken by the Assessing Autrority on the
,
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DELHI CLOTH MILLS v. u. P. STATE (Tulzapurkar, J.)
117
two earlier returns which were filed by him based on ~.6(2)(b) and
as such the appellant could not be allowed to change the option initially exercised by it.
In order to decide the main que•tion that has been raised in these
appeals it will be necessary to refer to the provisions of s.6 and Rules
5. 6 and 7, as they stood originally and as they st~nd now after the
amendments.
Originally s.6, which dealt with computation of agricultural income and conferred an option on the assessee to select one
or the other of the two methods of computation mentioned therein
ran thus :
"6. Computation of agricultural income.-(1) The agricultural income mentioned in sub-clauses (i), (ii) and (iii)
of clause (b) of sub-section ( 1) ot section 2 shall, at the
option of the assessee, be computed m accordance with
clause (a) or clause (b) of sub-section (2):
Provided that an asseseee who has once exercised his
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opcion shall not be eniitled to vary the method of computaD
tion except with the permission of the Board of Revenue.
12) (a) Subject to such deduction in respect of agricultural calamities as may be prescribed, the income shall be
deemed to be such multiple,
not exceeding 7t per cent,
of the rent of the land calculated at (he latest sanctioned
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rent-rates applicable to hereditary tenants of similar class of
soil, as the Board of Revenue :may fix for each district or
portion thereof:
Provided that the Board of Revenue may direct that the
multiple for calculating income from land newly
brought
under cultivation shall for the specified number of years be
such lower figure as may be specified, or
(b) the income shall be the gross proceeds of sale of all
the produce of the land subject to the following deductions:
(Here followed sub-clauses (i) to (xiii) specifying the
deduction).
(3) If the assessing authority is satisfied that the proceeds of sale have not been correctly shown by the assessee
or that any portion of the produce has not actual!y been sold,
be may assess the value of the produce for purposes of
clause (b) of sub-section ( 1) of section 2 by determining,
to tbe best of his judgment, the amount of produce and the
market value thereof."
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SUPREME COURT REPORTS
[1979) 2 S.C.R.
Original Rules 5. 6 and 7 of the U.P. A!lficultural Income Tax Rule.t,
1949, framed under ~.44 of the Act ran. thus:
"5. An assessee shall, along with his first retun1 of income, file a declaration in Form No.A.I.T.-2 indicating his
option under sub-section ( 1) of section 6.
6. The declaration filed by an assessee under rule 5
shall be preserved by the asse~sing authority in a separate
guard file.
'7. Where an assessee desires to vary the method of computation indicated under rule 5, he shall, before the first day
of August of the year in respect of which assessment is to
be made. present an application for permi.ssion in that behalf
to the assessing authority addressed to the Board of Revenue
and the fonner shall without unnecessary delay forward the
same together with such remarks as it may consider proper
1 o the Board of Revenue for necessary orders."
lt may be stated that the aforesaid provisions came up for consideration before Division Bench of the Allahabad High Court in
Kr. Jyoti Sarup v. Board of Revenue, U.P. (Lucknow) and Anr. (')
and Justice Mukherji took the view that "this proviso (meaning the
proviso to sub-s. (I) of s. 6) means that once and only once during
the course of an assessee's "assessable life", can he, unfettered, exercise the option given to him under s.6(1) of the Act and that if once
he has exercised his option, he cannot, without the permission of the
Board, take the other alternative."
Justice Bind Basni Prasad, the
other Member of the Bench, observed that "My interpretation of s.6
(1) is that after the COl!llllencement of the U.P. Agricultural Income
Tax Act, an asscssee has once selected one method of computation
of agricultural income he cannot vary it subsequently in any year
without the permission of the Board of Revenue.
The proviso is
not limited in its application to variation of such method in the
course of a year".
Thereafter, the Legislature thought of amending these provisions.
By tbe Amending Act XVIII of 1954 the aforesaid proviso to s.6(1)
was deleted with effect from July l, 1954 and an altogether different
proviso unconnected with the option was substituted. By a Notification No. 2590/I-C289-C-53 dated August 29, 1953 the word "first"
occurring between the words "his" and "return" was deleted from
(I) (1952) 50 Allahabad Law Journal 557.
DLLH! CLOTH MILLS v. u. P. STATE (Tulzapurkar, J.)
119
Rule 5 with effect from the date of the N otificatic>n.
Rules 6 and 7
A
were totally deleted. The amended s. 6 as it stands today runs thus :
"6. Computation of agricultural income.-(!) The agricultural income mentioned in sub-clause (i), (ii) and (iii)
of clause (b) of sub-section ( 1) of Section 2 shall, at the
option of the assessee,
be computed in accordance
with
clause (a) or clause (b) of sub-section (2),
Provided that the agricultural income as aforsesaid for
lea gardens shall be computed in accordance with clause (b)
of sub-section (2).
(2) (a) Subject to such deductions in respect of agricult:iral calamities as may be prrscribed, the income from the
land shall be deemed t(} be an amount equal to its rent multiplied by such multiple not exceeding 12t as the Land
Reforms Commissioner may fix, and different multiples may
be fi>.ed for different districts or portion' of district and for
different classes of groves and orchards:
Provided that the Land Reforms
Commissioner may
direct that the multiple for
calculating income from land
newly brought under cultivation shall for a specified number
B
c
D
of years be such lower figure as may be prescribed.
E
Explanation.-In this section rent shall be
de!'!med to
be an amount calculated at the latest sanctioned rent rates
applicable to hereditary tenants of the highest class of soil
in the village in the case of orchards and groves and of
simibr class of soil in other cases.
( b) the income shall be the gross proceeds of sale of all
the produce of the land subject to the following deductions:
(Here followed sub-clauses (i) to (xiii) specifying the
deductions).
( 3) If the assessing authority is satisfied that the proceeds of sale have not been correctly shown by the assessee
or that any portion of the produce has not actually been
sold, he may assess the value of the produce for purposes of
clause (b) of sub-section ( 1) of Section 2 by determining.
tu the best of his judgment, the amount of produce and the
market value thereof."
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120
SUPREME COURT REPORTS
[1979] 2 s.c.R.
The amended Rule 5 as it now stands runs thus :
"5. An assessee shall, along with his return of income,
file a declaratioJ! in Form A.I.T.-2 indicating his option
under sub-section ( 1) of Section 6."
The Form No. A.l.T.-2 of declaration of the option for computation
of income under s.6 reads thus:
"In pursuance of Section 6 (1), I, ............ do hereby declare that I have elected the method of computation of
a~i:icultural income provided by Section 6(2)(a) /6(2.)(b)
and have computed my income accordingly."
It seems to us clear that s. 6 as originally framed gave an asses~ee
the right to exercise the option, unfettered, only once after the commencement of the Act if he once sel!'c_\ed one 1J1ethod of computation of agricultural income he could not vary it subsequently in any
year without the permission of the Board of Revenue which was given
l!bsolute discretion to grant or to refuse such permission. At any
rat~, that was how the original unamended provisions were authoritatively interpreted by the Allahabad High Court.
Relying upon the
deletion of the original proviso to s.6(1) of the Act by the Amending
Act XVIll of
1954 and the deletion of the word "first"
which
occurred originally in Rule 5 as also the deletion of Rules 6 and 7,
counsel for jhe appellant contended that whatever may have been the
position under the original s. 6 and original Rules 5, 6 and 7, under
the amended s.6 read with the amended Rule 5 it would be clear that
there is no restriction on the assessee's right to change the option
and it would be open to an assessee not merely to change his option
every year but eV@..J! to change his option during the year by filing a
fresh return or a revised return for the same year indicating the change
in the declaration accompanying such fresh return or revised re.turn
provided, of course, it is do11e before the assessment is completed by
the Assessing Authority. In our view, there is considerable force in
this contention for the rea~on that whatever restrictions had been
imposed on the change of option by the original proviso to s.6(1)
have been removed and the concept of "first return" is deleted from
Rule 5. That being so, the expression "his return of income"
occurring in Rule 5 would
apply to any of rcturr.s
contemplated
U.'lder s.15 of the Act, namely, (1) a return filed in pursuance of the
general notice issued and published by the Collector under s.15 (1);
(2) a return filed by the Principal Officer of a Company under section 15(2) read withs. 21; (3) a return filed in pursuance of individual notice served upon an assessee by the Assessing Authority under
'
" ,.
..,
1
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..
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DELHI CLOTH MILLS v. u. P.
STATE (Tulzapurkar, !.)
121
~.15(3) and (4) a return or a revised return filed by an assessee
under s. 15 ( 4), provided that in the first three cases the return is filed
within time specified in the notice or the rule or within the extended
time granted by the Assessing Authority and in the last case the revised return is filed on account of discovery of a wrong statement in
the previous return and is filed before the assessment is complete. In
fact, Rule 5 is obliga!_ory and makes it incumbent upon an assessee
to file along with his return of income a declaration in Form No. A.I.T.-
2 indicating his option under s. 6(1) of the Act and as such the exercise of such oJl_tion including a change of the option indicated in the
declaration filed along with a subsequent return or a fresh return or a
revised return will be valid provided the return itself is validly sublllitted.
In this view of the matter it is not possible to accept the
view of the Division Bench of the High Court th!it if 011ce option is
exercised by an assessee by filing the requisite declaration along with
his return for a particular year_ he will have no right to chauge his
optio11 by filing a fresh return or a revised return before the assessment is made for that year.
Turning to the factual aspects in the case the main question that
arises is whether the return filed by the appellant on November 8,
1958 was in pursuance of the notice served by the Assessing Authority
upon the appellant under s.15(3) of the Act or whether it was a revised return filed under s.15 ( 4) of the Act and this question assumes
significance because it was along with ibis return that the assessee
bad filed a declar<ttion in Form No.A.I.T.-2 indicating a change in
the option and praying that the computation of its agricultural income
should be made in accordance with s. 6 (2) of the Act instead of under
s.6f2) (b) as mentioned in the declarations filed alongwith two earlier
returns dated November 27, 1954 and April 4. 1955. !t is obvious
that if the return dated November 8, 1958 was filed under s. 15(4)
then in order to avail of the change of the option the appellant will
have to show that it was really a revised return in the sense that the
same had been filed because of a wrong statement discovered in the
earlier returns filed by him.
The Division Bench of the High Court
has rightly taken the view that a wrong statement in the earlier returns
does not mean selection of a wrong option by the assessee; in other
words, the assessee does get the right to file a revised return under
s. 15 ( 4) merely becanse he wishes to change the option.
Counsel
for the appellant, however, contended that the fresh return filed by the
appellant on November 8, 1958 was not a revised return under s.15
{ 4) at all but was a return filed in response to the notice that was
served upon it by the Assessing Authority on April 7, 1955 under
9-817SCI79
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122
SUPREME COURT REPORTS
[1979] 2 S.C.R.
s.15(3) of the Act. In this behalf counsel for the respondent did
make a grievance before us that there was no material on record to
show whether, in fact, the return filed on November 8, 1958 was in
response to the notice served under s.15 (3) and if so, whether the
same was filed within time or the extended time, if nny, granted by
the Assessing Authority.
The hearing of the appeal was, therefore,
adjourned to enable both the parties particularly the Revenue which
will be possessing the records to produce material in that behalf and
'at the resumed bearing thouih no material by way of assessment records of files in the custody of th,e Assessing Authority was produced
by the Revenue, the appeJ!.ant Qlaced on record a copy of the return
dated November 7, 1958 (which was filed on November 8,
1958)
together with a copy of the declaration in the Form No.A.I.T.-2 and
the forwarding letter. The forwarding letter dated November 7, 1958
clearly shows !hat the return was filed in response to the notice dated
April 7, 1955 served upon the appellant under s.15(3) of the Act.
The sait1 letter in terms referred to the notice dated April 7, 1955
under s.15 (3) as also to the statement of provisional estimate of agricultural income for the relevant previous year 1953-54 (1361 Fasli)
prepared under s. 6(2) (a) read with s. 15(3-B) accompanying the
notice and further stated that the appellant had decided, in order to
avoid further prolonged litigation, to accept the provisional estimate
of agricultural income under s. 6 (2) (a) (subject only to necessary
corrections ,is regards area and classification of soil etc.) and to suffer
agricultural income tax on that basis and requested the
Assessing
Authority to complete the assessment in accordance with s. 6(2) (a) of
the Act. It is, therefore, clelll" that the return filed by the appellant
on November 8, 1958 was in response to the notice served upon it by
the Assessing Authority under s.15(3). Moreover, the said return
was rejected by the Assessing Authority not on the gronnd that it had
been filed beyond time but on the ground that the appellant had no
right to change its option which clearly suggests that the return was
treated by the Assessing Authority as having been filed within time
but the same was rejected on merits holding th"t the appellant was not
en!itled to change its option. It is thus clear that the return filed by
the assessee on November 8, 1958 was not a revised return under
s.15 ( 4) but a fresh return filed within time in response to notice under
s.15(3) served upon it by the Assessing Authority and as such the
appellant was entitled to change its option and have computation of
its agricultural income made in accordance with s.6(2)(a) of the Act
The fact that the appellant had produced wme evidence in pursuance
of notice received under s.16 (2) in relation to its earlier returns or
that it took inspection of the records of the Assessing Authority can-
~-
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DELHI CLOTH MILLS v. u. P. STATE (Tulzapurkar, J.)
123
not and does not amount to acquisance or waiver of its right to file a
A
• ·
declaration indicating its option a fresh long with the return validity
filed in response to the notice served under s. 15(3) of the Acl.
Apart from the aforesaid position there is yet one more aspect to
which we would like to refer in relation to the question rais~d before
us in these appeals and that arises in view of the provisions of s.16(4)
B
of the Act under which the Assessing Authority makes its best judgment assessment.