COMMISSIONER OF AGRICULTURAL INCOME TAX Vs. SHREE HANUMAN SUGAR MILLS LTD

JUDGEMENT

(1.) : As required under S. 28(3) of the Bihar Agrl. INCOME TAX ACT, 1948 (Bihar Act 32 of 1948), hereinafter called the Act, the Board of Revenue has stated a case and referred it to the High Court on the following question of law :"1. Whether the alleged transactions of sale to some of the directors and members of their family, pursuant to the resolution of the board of directors dated the 10th of April, 1950, are void in law ?

(2.) WHETHER in the circumstances of the case the order dated the 14th of May, 1959, passed by the Board of Revenue is, illegal for non -consideration of material evidence disclosed in the enquiry report ?" The person assessed under the Act is a public limited company, Shree Hanuman Sugar Mills Ltd., Motihari, hereinafter referred to as the assessee or the company, which owns a sugar mill for the crushing of sugarcane at Motihari in the district of Champaran and owned several agricultural farms wherein sugarcane was produced. The periods of assessment are 1951 -52 and 1952 -53, giving rise to two reference cases but the facts and points involved being identical, both of them have been heard together and are being disposed of by this judgment. 2. The facts stated in the statement of case are these : Before 1357 Fasli, the company had about 4,440 bighas of land, consisting of several farms, out of which 12 farms covering an area of about 4,004 bighas of land had been sold by the company to about 23 persons through registered sale deeds in August, 1950. The admitted relationship of the purchasers is that they include 3 directors and their relations who between themselves held about 95 per cent of the shares in the company at the time of the transfer of the lands aforesaid. These sales were sanctioned at a meeting of the directors held on the 10th of April, 1950, and ratified by the shareholders at a meeting held on the 19th of December, 1953. The assessee's stand has been that, after the sales aforesaid, it had no concern with the lands sold, possession and management of which were taken over by the purchasers, and as such the agricultural income from the said lands cannot be taxed as income of the company. The Agrl. ITO, Motihari, by his orders dated February 27, 1953, and February 15, 1954, passed in respect of the two periods, has assessed the tax on the company with respect to the agricultural income of the entire land measuring 4,440 bighas. He has held that the alleged transfers to the 23 persons are not genuine and are sham and fictitious transactions entered into for the purpose of evading tax and that the sales are illegal and void in law. On appeals being filed by the assessee, the Deputy Commr. of Agrl. IT, Bihar, has held the sales to be good sales, in fact and in law, and has directed assessment of the company in respect of the agricultural income derived from that area of the land which was not sold and remained with the company. The revision applications filed by the Commr. of Agrl. IT, Bihar, failed and have been dismissed by the Board of Revenue by its order contained in the resolution dated 14th May, 1959. The Board also refused to draw up a statement of case and refer it to the High Court under S. 28(2) of the Act.

(3.) IN the revision petition filed by the CIT of Agrl. IT before the Board of Revenue, copious referenses were made to the facts stated in the enquiry report dated April 1, 1955, submitted in relation to the assessment for the year 1950 -51, and the stand taken before the Board on behalf of the taxing Department was that the transactions of sale were fictitious and sham in point of fact and null and void in point of law. The Board, by its order dated May 14, 1959, upheld the decision of the Dy. CIT on both the questions and dismissed the revision applications of the CIT. In the other, the Member, Board of Revenue, has at one place observed : "Ordinarily, a report of a local enquiry made in connection with a previous assessment should not be taken into account", but has considered the report and the facts stated therein subsequently in his order, on the ground that although "no explanation is forthcoming as to why the AO did not give a notice to the opposite party about the date, time and place of the enquiry, which was held after considerable delay, the fact remains that the opposite party had no opportunity of knowing the contents of the enquiry report before the hearing in that case." On a consideration of the other facts and circumstances, the Board has held that the transactions of sale were genuine in point of fact and valid in law. While considering the legality of the impugned transactions, it has also referred to the fact of their ratification at a meeting of the share -holders subsequently held in December, 1953, but, at the same time, has observed that ratification was not necessary and the sales by themselves were good ones entered into on behalf of the company on receipt of proper consideration.