Commissioner of Income Tax, Kottayam v. Oil Palm India Limited

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940** **ITA.No. 932 of 2009** **AGAINST THE ORDER/JUDGMENT IN ITA 651/2005 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 30-11-2007** **APPELLANT/S:** **THE COMMISSIONER OF INCOME TAX KOTTAYAM.** **BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX** **RESPONDENT/S:** **M/S. OIL PALM INDIA LTD. KOTTAYAM.** **BY ADV. SRI.E.K.NANDAKUMAR (SR.) SRI. RAJA KANNAN** **OTHER PRESENT:** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.384/2010, ITA.11/2011, ITA.401/2010, ITA.400/2010, ITA.1134/2009, ITA.988/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** _I.T.A.No.932/2009 & connected cases_ 2 **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940** **ITA.No. 384 of 2010** **AGAINST THE ORDER/JUDGMENT IN ITA 811/2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 16-06-2010** ## **APPELLANT/S:** **THE COMMISSIONER OF INCOME TAX KOTTAYAM.** **SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX** ## **RESPONDENT/S:** **M/S. OIL PALM INDIA LIMITED XIII/354, OLD STAR THEATRE ROAD, P.B.NO.1715, KOTTAYAM.** **BY ADVS. SRI.P.BENNY THOMAS SRI.JOSON MANAVALAN SRI.K.JOHN MATHAI SRI.KURYAN THOMAS SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.GOPINATH** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.11/2011, ITA.401/2010, ITA.400/2010, ITA.1134/2009, ITA.988/2009, ITA.932/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** _I.T.A.No.932/2009 & connected cases_ 3 # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940** **ITA.No. 11 of 2011** **AGAINST THE ORDER/JUDGMENT IN ITA 466/2009 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 16-06-2010** ## **APPELLANT/S:** **THE COMMISISONER OF INCOME TAX KOTTAYAM.** **SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX** ## **RESPONDENT/S:** **M/S. OIL PALM INDIA LIMITED XIII/354, OLD STAR THEATRE ROAD, P.B.NO.1715, KOTTAYAM-686 039.** **BY ADVS. SRI.P.BENNY THOMAS SRI.JOSON MANAVALAN SRI.K.JOHN MATHAI SRI.KURYAN THOMAS SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.GOPINATH** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.384/2010, ITA.401/2010, ITA.400/2010, ITA.1134/2009, ITA.988/2009, ITA.932/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** _I.T.A.No.932/2009 & connected cases_ 4 **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940** **ITA.No. 401 of 2010** **AGAINST THE ORDER/JUDGMENT IN ITA 1124/2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 16-06-2010** ## **APPELLANT/S:** **THE COMMISSIONER OF INCOME TAX, KOTTAYAM.** **BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX** ## **RESPONDENT/S:** **M/S. OIL PALM INDIA LIMITED, XIII/354, OLD STAR THEATRE ROAD, P.B. NO.1715, KOTTAYAM SOUTH P.O., KOTTAYAM-686039.** **BY ADVS. SRI.P.BENNY THOMAS SRI.JOSON MANAVALAN SRI.K.JOHN MATHAI SRI.KURYAN THOMAS SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.GOPINATH** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.11/2011, ITA.384/2010, ITA.400/2010, ITA.1134/2009, ITA.988/2009, ITA.932/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** _I.T.A.No.932/2009 & connected cases_ 5 **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940** **ITA.No. 400 of 2010** **AGAINST THE ORDER/JUDGMENT IN ITA 22/2009 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 16-06-2010** ## **APPELLANT/S:** **THE COMMISSIONER OF INCOME TAX KOTTAYAM .** **BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX** ## **RESPONDENT/S:** **M/S. OIL PALM INDIA LIMITED, XIII/354, OLD STAR THEATRE ROAD, PB NO.1715, KOTTAYAM.** **BY ADVS. SRI.P.BENNY THOMAS SRI.JOSON MANAVALAN SRI.K.JOHN MATHAI SRI.KURYAN THOMAS SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.GOPINATH** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.384/2010, ITA.11/2011, ITA.401/2010, ITA.1134/2009, ITA.988/2009, ITA.932/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** _I.T.A.No.932/2009 & connected cases_ 6 # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940** **ITA.No. 1134 of 2009** **AGAINST THE ORDER/JUDGMENT IN ITA 650/2005 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 30-11-2007** ## **APPELLANT/S:** **COMMISSIONER OF INCOME TAX KOTTAYAM** **BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX** **RESPONDENT/S:** **M/S. OIL PALM INDIA LTD, KOTTAYAM.** **BY ADV. SRI.E.K.NANDAKUMAR (SR.) SRI. RAJA KANNAN.** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.384/2010, ITA.11/2011, ITA.401/2010, ITA.400/2010, ITA.988/2009, ITA.932/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** _I.T.A.No.932/2009 & connected cases_ 7 # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 29TH DAY OF OCTOBER 2018 / 7TH KARTHIKA, 1940** ## **ITA.No. 988 of 2009** **AGAINST THE ORDER/JUDGMENT IN ITA 649/2005 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 30-11-2007** **APPELLANT/S:** **THE COMMISSIONER OF INCOME TAX, KOTTAYAM.** **BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX** **RESPONDENT/S:** **M/S. OIL PALM INDIA LTD., KOTTAYAM.** **BY ADV. SRI.E.K.NANDAKUMAR (SR.) SRI. RAJA KANNAN** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.10.2018, ALONG WITH ITA.384/2010, ITA.11/2011, ITA.401/2010, ITA.400/2010, ITA.1134/2009, ITA.932/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** _I.T.A.No.932/2009 & connected cases_ 8 ## **JUDGMENT** ## **[ITA 932/2009, ITA.988/2009, ITA.1134/2009, ITA.384/2010, ITA.400/2010, ITA.401/2010, ITA.11/2011]** ## Vinod Chandran, J. The issue raised in the appeal is academic by reason of the judgment of a Division Bench in W.P.(C) No.36862/2004. The assessment years in I.T.As. Nos.932/2009, 988/2009, 1134/2009, 384/2010 & 401/2010 are 1999-2000, 1997-98, 1998-99, 2004-05 and 2002-03 respectively, all prior to assessment year 2004-05. The issue raised before the Tribunal was whether Rule 7 of the Income Tax Rules, 1962 could be applied in the case of the assessee. The assessee is a public limited company engaged in the cultivation of oil palms and production and sale of crude palm oil. The palm oil is also produced by the assessee from the palm fruit obtained from its plantations as also from local purchase. The assessee was offering the entire income as agricultural income before the State Tax Authorities and was assessed under the Agricultural Income Tax Act. From the year 2004-05, the Income Tax Authorities applied Rule 7 _I.T.A.No.932/2009 & connected cases_ 9 and made an apportionment of the agricultural income and treated the balance as business income assessable under the Income Tax Act, 1961. While doing so, the Income Tax Department also revisited the assessments from the year 1997-98 onwards. Certain assessments from years after 2005-06 were also pending in appeal before this Court. 2. A Division Bench of this Court considered in the applicability of Rule 7 in the I.T.As. filed for various assessment years against application of Rule 7. The challenge in the Writ Petition was on the ground of hardship of double taxation in so far as the assessee having been subjected to the agricultural tax regime and conceded 100% of its income for the purpose of levy of agricultural income tax. The Income Tax Department, over the years had not applied Rule 7 and had after a long period attempted to tax the income of the assessee as business income, applying the rule, despite the rule being available from the inception of the Income Tax Rules. 3. The statutory appeals filed were decided by the Division Bench in _**Oil Palm India Ltd. v. Assistant**_ _I.T.A.No.932/2009 & connected cases_ 10 _**Commissioner of Income Tax**_ by judgment dated 01.12.2011 in I.T.A.No.402/2010 and connected matters. The Division Bench found that the reopening of assessments were proper, and the application of Rule 7 of the Income Tax Act is perfectly in order. The Division Bench referred to sub-rule (2) of Rule 7 and held that the market value of the agricultural produce, which in this case is the fruit grown in the assessee's plantations, with the pulp and kernel therein; has to be excluded and business income has to be computed only for the value addition made by way of the industrial process of extraction of crude palm oil. The question with respect to whether double taxation could be permitted or not was left to be considered in the Writ Petition. 4. The Writ Petition was considered and decision rendered on 31.01.2012 in _**Oil Palm India Ltd. v. Assistant**_ _**Commissioner of Income Tax**_ , ( _**WP(C) No.36862/2004**_ ). Therein, the Division Bench noticed the introduction of Rules 7A and 7B relating to rubber and coffee in the year 2000. However, the Central Board of Direct Taxes (CBDT) took note of the difficulties faced by the several assessees, who had _I.T.A.No.932/2009 & connected cases_ 11 paid 100% tax treating the entire income as agricultural income and issued Circular No.5/2003 dated 22.05.2003 prohibiting assessment under Section 147 or Section 263 for any years prior to 2002-03. The Division Bench found that the position is more or less same for income from crude palm oil, which is the product in the case of the assessee before it, for reason of the total income having been disclosed for assessment under the Agricultural Income Tax Act with prompt payment of tax. The Central Income Tax Authorities, though was aware of Rule 7 as stood under the rules from its inception, took proceedings for assessment under the Income Tax Act only in the year 2004. Hence, the Division Bench directed all agricultural income assessments completed from assessment year 2005-06 to stand set aside with a direction to the State Taxing Authority to modify the assessments in line with the assessments completed by the 1[st] respondent under the Central Income Tax. It was also directed that the agricultural income tax assessed for the assessment year 2004-05 and prior years would be treated as confirmed. The Income Tax Authorities were _I.T.A.No.932/2009 & connected cases_ 12 directed not to assess the income under Rule 7 of the Rules for the said years. In I.T.A.Nos.932/2009, 988/2009, 1134/2009, 384/2010 & 401/2010 the assessments are prior to 2005-06 and hence the appeals will stand rejected. 5. In I.T.A.Nos.400/2010 and 11/2011, the assessment years are 2005-06 and 2006-07. There the assessments under Rule 7 of the Income Tax Rules would have to be sustained. In fact, the assessments were sustained by both the First Appellate Authority and the Tribunal. The appeal is on the question of the direction of the First Appellate Authority to determine the income based on a formula, which the Senior Counsel for Government of India (Taxes) would submit is not a statutory formula. We find force in the contention raised by the Revenue. Since the formula evolved by the First Appellate Authority is not a statutory one, it is only appropriate that the Assessing Officer consider the issue untrammeled by such directions issued by the First Appellate Authority to apply the formula so evolved. Rule 7 in fact gives sufficient guidelines on how to apportion the income and hence there is no requirement _I.T.A.No.932/2009 & connected cases_ 13 for a formula. The Tribunal refused to interfere in the order of the First Appellate Authority finding that it is an open remand. We clarify that it is in fact an open remand and the Assessing Officer will not employ the formula as evolved by the First Appellate Authority. Hence, I.T.A.Nos.400/2010 and 11/2011 are allowed to the limited extent and remanded for fresh consideration on the issue of apportionment alone. No order as to costs. ## **Sd/-** ## **K.VINOD CHANDRAN** ## **JUDGE** **Sd/-** **ASHOK MENON** **JUDGE** _dkr_ _I.T.A.No.932/2009 & connected cases_ 14 ## **APPENDIX OF ITA 932/2009** **PETITIONER'S/S EXHIBITS:** **ANNEXURE A COPY OF THE ORDER U/S 143(3) R.W.S 147 OF THE INCOME TAX ACT 1961 DATEE 31.8.2004. ANNEXURE B COPY OF CIT(A) ORDER IN ITA 50/K/CIT-IV/04-05 DATED 29.1.2005.** **ANNEXURE C COPY OF THE ORDER OF ITAT IN ITA NO.651/COCH/ 2005 DATED 30.11.2007.** ## **APPENDIX OF ITA 384/2010** **PETITIONER'S/S EXHIBITS:** **ANNEXURE A ASSESSMENT ORDER U/S.143(3) DATED 11.12.2006. ANNEXURE B COPY OF CIT(A)'S ORDER IN APPEAL NO.ITA 37/K/CIT(A)-IV/06-07, DATED 20.6.2007. ANNEXURE C COPY OF ITAT'S ORDER IN APPEAL NO.ITA NO.811/COCH/2007 DATED 16.6.2010.** ## **APPENDIX OF ITA 11/2011** ## **PETITIONER'S/S EXHIBITS:** **ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 31.12.2008. ANNEXURE B TRUE COPY OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 25.5.2009. ANNEXURE C TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 16.6.2010.** _I.T.A.No.932/2009 & connected cases_ 15 ## **APPENDIX OF ITA 401/2010** ## **PETITIONER'S/S EXHIBITS:** **ANNEXURE-A ASSESSMENT ORDER U/S. 143(3) DATED 25/02/2005. ANNEXURE-B CIT(A)'S ORDER IN APPEAL NO. ITA 70/K/CIT(A)IV/04-05 DATED 22/08/2005.** **ANNEXURE-C ITAT'S ORDER IN APPEAL NO. ITA NO.1124/COCH/ 2007 DATED 16/06/2010.** ## **APPENDIX OF ITA 400/2010** **PETITIONER'S/S EXHIBITS:** **ANNEXURE-A COPY OF ASSESSMENT ORDER U/S. 143(3) DATED 24/12/2007.** **ANNEXURE -B COPY OF CIT((A)'S ORDER IN APPEAL NO.ITA 36/ KTM/CIT(A)-IV/07-08, DATED 07/10/2008.** **ANNEXURE-C COPY OF ITAT'S ORDER IN APPEAL NO.ITA NO.22/COCH/2009 DATED 16/06/2010.** ## **APPENDIX OF ITA 1134/2009** **PETITIONER'S/S EXHIBITS:** **ANNEXURE A COPY OF THE ORDER U/S. 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961 DATED 31/08/2004.** **ANNEXURE B COPY OF CIT(A) ORDER IN ITA NO.49/K/CIT-IV/0405 DATED 29/01/2005.** **ANNEXURE C COPY OF THE ORDER OF ITAT IN ITA NO.650/COCH/ 2005 DATED 30/11/2007.** _I.T.A.No.932/2009 & connected cases_ 16 ## **APPENDIX OF ITA 988/2009** ## **PETITIONER'S/S EXHIBITS:** **ANNEXURE A COPY OF THE ORDER U/S. 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961 DATED 31/08/2004. ANNEXURE B COPY OF CIT(A) ORDER IN ITA NO.48/K/CIT-IV/0405 DATED 29/01/2005. ANNEXURE C COPY OF THE ORDER OF ITAT IN ITA NO.649/COCH/ 2005 DATED 30/11/2007.**