1972 (1) TMI 33 - HC - Income Tax

Court upholds retrospective amendments to agricultural income definition, dismisses challenge.

KC. Thomas Versus Agricultural Income-Tax Officer And Others.

The court dismissed the original petition, upholding the validity of the retrospective amendments to the definition of 'agricultural income' and the ... Definition of 'Agricultural Income' – provisions of state Agricultural Income-tax Act were amended in 1964 to bring it on par with the definition in Income-tax Act - Whether the amendment with retrospective effect was valid - whether the proviso in the amending act validated assessments on the basis of original definition was valid Issues Involved:1. Legality of assessing income from unleased governmental land as agricultural income.2. Validity of retrospective amendments to the definition of 'agricultural income' under Kerala Act 12 of 1971.3. Competence of the State Legislature to amend the definition of 'agricultural income.'4. Impact of retrospective amendments on the rights of assessees.5. Validity of validation provisions in taxing statutes.6. Alleged arbitrariness in the assessment order.Issue-wise Detailed Analysis:1. Legality of Assessing Income from Unleased Governmental Land as Agricultural Income:The petitioner claimed possession of 15 acres of governmental land, cultivating cardamom without an official lease from the government. The petitioner argued that income from such land should not be classified as 'agricultural income' under the Income-tax Act, 1961, or the Kerala Agricultural Income-tax Act, 1950, as the land was not assessed to land revenue or subjected to any local rate assessed and collected by government officers. Despite this, the petitioner was assessed for agricultural income tax for the years 1966-67, 1967-68, and 1968-69, with the income being estimated rather than based on returns filed by the petitioner.2. Validity of Retrospective Amendments to the Definition of 'Agricultural Income' under Kerala Act 12 of 1971:The definition of 'agricultural income' was amended multiple times to align with the definition in the Income-tax Act, 1961. The Kerala Act 12 of 1971 made the definition retrospective from April 1, 1962, validating all prior assessments. The petitioner challenged this retrospective operation, arguing it was beyond the powers of the State Legislature and imposed an unreasonable burden, potentially rendering the legislation confiscatory and violating Article 19(1)(f) of the Constitution.3. Competence of the State Legislature to Amend the Definition of 'Agricultural Income':The court examined whether the State Legislature was competent to amend the definition of 'agricultural income' to align with the Income-tax Act, 1961. It was held that Article 366(1) of the Constitution allows the definition of 'agricultural income' to be based on the income-tax enactments in force from time to time, avoiding conflicts between State and Union taxation powers. The court rejected the argument that the definition should be fixed as per the Income-tax Act, 1922, as of January 26, 1950.4. Impact of Retrospective Amendments on the Rights of Assessees:The petitioner argued that the retrospective operation of the amendment imposed an unreasonable burden, as there was no anticipation of such liability, and proper accounts were not maintained. The court noted that the legislative background indicated ongoing attempts to tax such income, suggesting prudent persons could have anticipated potential liability. The court found no specific facts or figures demonstrating that the retrospective operation was confiscatory.5. Validity of Validation Provisions in Taxing Statutes:The court addressed the argument that validating orders of assessment despite contrary court decisions constituted an inroad into judicial power. It was held that validation is permissible if the legislature has the competence and removes the basis of invalidity. The retrospective operation of section 2 of Act 12 of 1971 was found to render the basis of assessment valid, thus validating prior orders.6. Alleged Arbitrariness in the Assessment Order:The petitioner contended that the assessment order was arbitrary and that a petition under section 19 of the Agricultural Income-tax Act, 1959, was pending. The court stated that the merits of the petition under section 19 would be addressed separately, and any grievances could be pursued through appropriate reliefs.Conclusion:The original petition was dismissed, with the court upholding the validity of the retrospective amendments and the assessment order. The court found no grounds to declare the amendments or the assessment process as unconstitutional or unreasonable. The petitioner's challenge to the Amendment Act and the assessment order was rejected, and no costs were awarded.