1964 PLP 764 (PTD)

Agricultural income‑tax--‑Allowances ‑ Expenditure incurred for cultivation, upkeep, etc., of immature plants‑Method of determination ‑ Deduction of proportionate overhead estate expenses‑Legality‑Kerala Agricultural Income‑tax, 1950 (as amended in 1961), S.

5. Explanation (2). One way of finding out whether any portion of the estate or overhead expenses has been laid out or expended for the cultivation, upkeep or maintenance of immature plants is to see whether the said portion of those expenses would have been incurred in the absence of the "immature" area within the estate. If it would not have been incurred but for the existence of the "immature" area, it is connected with the cultivation, upkeep or maintenance of the immature plants and it will come within the Explanation to section 5 of the Kerala Agricultural Income‑tax Act and will not be admissible for deduction. To divide the total of the estate or overhead expenses by the number of acres com prising the estate and then multiply the expenses per acre by the number of acres covered by the immature plants to the estate of the assessee is an arbitrary approach which cannot be justified. Karimtharuvi Tea Estates Ltd. v. State of Kerala (1963) 48 I T R (S C) 83; Travancore Rubber & Tea Co. Ltd. v. Commissioner of Agricultural Income‑tax (1959) 37 I T R 549; Travancore Rubber & Tea Co. Ltd. v. Commissioner of Agricultural Income‑tax (1961) 41 1 T R 751 and Travancore Rubber & Tea Co. Ltd. v. State of Kerala (1963) 48 I T R (S C) 102 ref. Government Pleader for the Commissioner. JUDGMENT M. S. MENON, C. J.‑‑This is a reference by the Kerala Agricultural Income‑tax Appellate Tribunal Trivandrum under section 60 (1) of the Agricultural Income‑tax Act, 1950. The assessment year concerned is 1959‑60 and the accounting period, the twelve months ended March 31, 1959. The questions referred are:‑

1. Whether expenditure laid out or expended for the cultivation, upkeep or maintenance of immature plants as mentioned in Explanation 2 of amended section 3 of the Agricultural Income‑tax Act would take in any portion of tile estate or overhead expenses met by the appellant?

2. If so, whether the Tribunal was justified in striking down Rs. 4,915 from the taxable income being proportionate estate or overhead expenses disallowed and added back by the Department?" The assessee returned a net taxable income of Rs. 10,547‑

67. That amount was arrived at after deducting a sum of Rs. 25,548.86 from the gross receipts of the accounting period. Out of the said sum of Rs. 25,548.86, Rs. 14,808.79 represented expenses of a general nature incurred in respect of both the "mature" and "immature" areas of the cardamom estate of the assessee. The Assistant Commissioner held that Rs. 4,915 out of Rs. 14,808.79 was the proportionate overhead expenses in respect of the "immature" areas and held that the said amount did not constitute an admissible deduction. The assessee appealed to the Deputy Commissioner; but without success. The assessee then moved the Appellate Tribunal, and the Tribunal allowed the appeal by its order dated August 25, 1962. The Tribunal said:‑ "Regarding the expenses picked out and apportioned between mature and immature plantations, we have gone through the items of expenses so chosen for proportionate disallowance (see sheet 21) and we find that none of these‑ expenses relates directly to the cultivation, upkeep or maintenance of plants, much less immature plants. Therefore, the authorities below erred in resorting to allocation and disallowance. The sum of Rs. 4,915 so added back will be allowed." The statement of the case says:‑ "The Tribunal found that the sum of Rs. 4,915 added back by the assessing authority has to be allowed as none of these items of expenses relates directly to the cultivation, upkeep or maintenance of immature plants. It is contended on behalf of the State that the Tribunal committed an error of law in holding that the proportionate general charges included for immature area are admissible expenditure under the provisions of the Act. What the Tribunal has actually found is that none of these items of expenses amounting to Rs. 4,915 relates directly to the cultivation, upkeep or maintenance of the immature plants. Under Explanation 2 to amended section 5 of the Agricultural Income‑tax Act, the direct expenses met for cultivation, upkeep and maintenance of immature plants alone will have to be disallowed." Section 5 of the Agricultural Income‑tax Act, 1950, as it stood prior to the Agricultural Income‑tax (Amendment) Act, 1961, came up for consideration in this Court in Travancore Rubber & Tea Co. Ltd. v. Commissioner of Agricultural Income‑tax ((1959) 37 I T R 549). The question referred for decision in that case was:‑ "Whether under the Travancore Cochin Agricultural Income tax Act, 1950, in calculating the assessable agricultural income of a rubber estate already planted and containing both mature yielding rubber trees and also immature rubber plants which have not come into bearing, the annual expenses incurred for the upkeep and maintenance of such rubber plants, are not a permissible deduction, and if so, whether the sum of Rs. 42,660‑4‑1 expended by the assessee in the relevant accounting year 1952, under this head, may be deducted?" The contention of the assessee was that the claim was admissible under section 5 (j) of the Act which permitted the deduction of "expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly or exclusively for the purpose of deriving the agricultural income". This Court said (1959) 37 I T R 549, 551: "We find it impossible to say that the amounts spent on the upkeep and maintenance of the immature rubber plants were laid out or expended `for the purpose of deriving the agricultural income', much less that they were laid out or expended `wholly or exclusively' for that purpose. The `agricultural income', in the context, can only mean the agricultural income obtained in the accounting year concerned and not the agricultural income of any other period." The decision was reversed by the Supreme Court in Travancore Rubber & Tea Co. Ltd. v. Commissioner of Agricultural Income‑tax, Kerala ((1961) 41 I T R 751). The purpose of the Agricultural Income‑tax (Amendment) Act, 1961, was to get over the effect of the Supreme Court decision and restore the position to that under the decision of this court in Travancore Rubber & Tea Co. Ltd. v. Commissioner of Agricultural income‑tax ((1959) 37 I T R 549, 551). In order to effectuate that object, a new explana tion, Explanation 2, was added to section 5 with effect from January 1, 1951, the date on which the parent Act came into force. That Explanation reads as follows: "Nothing contained in this section shall be deemed to entitle a person deriving agricultural income to deduction of any expenditure laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income has been derived during the previous year." And section 3 of the amending Act (omitting the proviso), is: "Notwithstanding anything contained in any judgment, decree or order of any Court‑ (a) all taxes levied, assessed or collected under the principal Act shall for all purposes be deemed to be and to have always been levied, assessed or collected under that Act as amended by this Act; and (b) all proceedings taken, orders passed and acts done by any officer, authority or Tribunal under the principal Act shall for all purposes be deemed to be and have always been validly taken, passed and done, and all such proceedings, orders and actions may be continued as if they were taken; passed and done under the principal Act as amended by this Act." The new Explanation came up for consideration before the Supreme Court in Karimtharuvi Tea Estates Ltd. v. State of Kerala ((1963) 48 I T R (S C) 83) and Travancore Rubber & Tea Co. Ltd v. State of Kerala ((1963) 48 I T R (S C) 102, 106). In the former case, the Supreme Court said: "We, therefore, construe Explanation 2 to section 5 of the Agricultural Income‑tax Act not to extend to the computation of agricultural income derived from tea plantations and hold that in computing such agricultural income for the purpose of taxation under the Agricultural Income‑tax, Act, the Explanation to section 2 of that Act must be kept in mind and the income must be taken to be as defined for the purposes of the enactments relating to Indian income‑tax"; and in the latter: "The question of the applicability of Explanation 2 to section 5 to the agricultural income derived from tea planta tions was before us for determination in Karimtharuvi Tea Estates Ltd. v. State of Kerala (1963) 48 I T R (S C) 83,

92. We have held in that case that Explanation 2 to section 5 does not apply to the agricultural income from tea plantations. It was argued that if such be the view of this Court, the Explanation would bring about discrimination between agricultural income arising from rubber plantations and similar income arising from tea plantations and that therefore the Explanation would contravene the provisions of Article 14 of the Constitution. It was, however, fairly conceded that in case the decision that this Explanation does not apply to agricultural income from tea plantations is based on the special provisions in the Income‑tax Act and the Rules made thereunder in connection with the computation of agricultural income from tea plantations, there would be no such discrimination. Our decision in Karimtharuvi Tea Estates case is based on such special provisions." One way of finding out whether any portion of the estate or overhead expenses has been laid out or expended for the cultivation, upkeep or maintenance of immature plants is to see whether the said portion of those expenses would have been incurred in the absence of the "immature" area within the estate. If it could not have been incurred but for the existence of the "immature" area, it is certainly connected with the cultivation, upeek or maintenance of the immature plants. It will come within the Explanation and will not be admissible for deduction. The Tribunal has come to the conclusion that the disallowance of Rs. 4,915 was not proper and there is no material before us‑even the Sheet No. 31 mentioned by the Tribunal is not part of the paper‑book‑to differ from its conclusion even if we have the power and the inclination to do so on this question of fact. What the Department has done is to divide the total of the estate or overhead expenses by the number of acres comprising the estate and then multiply the expenses per acre by the number of acres covered by the immature plants in the estate of the assessee. This is an arbitrary approach which cannot be justified. In the light of what is stated above we can only affirm the decision of the Tribunal and answer the reference against the Department and in favour of the assessee. We do so, but without any order as to costs. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appel late Tribunal as required by subsection (6) of section 60 of the Agricultural Income‑tax Act, 1950. Reference answered in favour of the assessee.