Kerala High Court
The Rahabilitation Plantation ... vs Commissioner Of Income Tax on 1 August, 2022
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
MONDAY, THE 1ST DAY OF AUGUST 2022 / 10TH SRAVANA, 1944
ITA NO. 201 OF 2013
ITA 303/2011 OF I.T.A.TRIBUNAL,COCHIN BENCH
APPELLANT/S:
REHABILITATIPON PLANTATIONS LIMITED
PUNALUR, KOLLAM DISTRICT, KOLLAM 691305
BY ADVS.
SRI.M.GOPIKRISHNAN NAMBIAR; SRI.P.BENNY THOMAS
SRI.K.JOHN MATHAI; SMT.PREETHA S.NAIR
RESPONDENT/S:
COMMISSIONER OF INCOME TAX
AYAKAR BHAWAN, KAWDIAR, THIRUVANANTHAPURAM 695003
SR.SC.MR.P K R MENON
THIS INCOME TAX APPEAL HAVING COME UP FOR ORDERS ON 01.08.2022, ALONG
WITH ITA.23/2018, 208/2013 AND CONNECTED CASES, THE COURT ON THE SAME
DAY PASSED THE FOLLOWING:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-2-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
MONDAY, THE 1ST DAY OF AUGUST 2022 / 10TH SRAVANA, 1944
ITA NO. 23 OF 2018
ITA 90/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH
APPELLANT/S:
MALANKARA PLANTATIONS LTD
MALANKARA BUILDING,KODIMATHA,KOTTAYAM-686039.
BY ADVS.
SRI.JOSEPH MARKOSE (SR.); SRI.V.ABRAHAM MARKOS
SRI.ABRAHAM JOSEPH MARKOS
SRI.HARAN THOMAS GEORGE; SRI.ISAAC THOMAS
SRI.JERIE RAMESH; SMT.RACHEL ABRAHAM
RESPONDENT/S:
THE DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE-1,KOTTAYAM-686001.
BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX
THIS INCOME TAX APPEAL HAVING COME UP FOR ORDERS ON 01.08.2022, ALONG
WITH ITA.201/2013 AND CONNECTED CASES, THE COURT ON THE SAME DAY
PASSED THE FOLLOWING:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-3-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
MONDAY, THE 1ST DAY OF AUGUST 2022 / 10TH SRAVANA, 1944
ITA NO. 208 OF 2013
ITA 422/2011 OF I.T.A.TRIBUNAL,COCHIN BENCH
APPELLANT/S:
REHABILITATION PLANTATIONS LIMITED, PUNALUR
PUNALUR, KOLLAM DISTRICT, KOLLAM - 691 305.
BY ADVS.
SRI.M.GOPIKRISHNAN NAMBIAR; SRI.P.BENNY THOMAS
SRI.K.JOHN MATHAI; SMT.PREETHA S.NAIR
RESPONDENT/S:
COMMISSIONER OF INCOME TAX
AYAKAR BHAWAN, KAWDIAR, THIRUVANANTHAPURAM - 695 003.
SR.SC.P K R MENON
THIS INCOME TAX APPEAL HAVING COME UP FOR ORDERS ON 01.08.2022, ALONG
WITH ITA.201/2013 AND CONNECTED CASES, THE COURT ON THE SAME DAY
PASSED THE FOLLOWING:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-4-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
MONDAY, THE 1ST DAY OF AUGUST 2022 / 10TH SRAVANA, 1944
ITA NO. 225 OF 2013
ITA 137/2012 OF I.T.A.TRIBUNAL,COCHIN BENCH
APPELLANT/S:
REHABILITATION PLANTATIONS LIMITED
PUNALUR, KOLLAM DISTRICT. KOLLAM-691305.
BY ADVS.SRI.M.GOPIKRISHNAN NAMBIAR
SRI.P.BENNY THOMAS; SRI.K.JOHN MATHAI
RESPONDENT/S:
COMMISSIONER OF INCOME TAX
AYKAR BHAWAN, KAWDIAR, THIRUVANANTHAPURAM-695003.
BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)
SRI.JOSE JOSEPH, SC, FOR INCOME TAX
THIS INCOME TAX APPEAL HAVING COME UP FOR ORDERS ON 01.08.2022, ALONG
WITH ITA.201/2013 AND CONNECTED CASES, THE COURT ON THE SAME DAY
PASSED THE FOLLOWING:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-5-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
MONDAY, THE 1ST DAY OF AUGUST 2022 / 10TH SRAVANA, 1944
ITA NO. 71 OF 2020
ITA 1/2020 OF I.T.A.TRIBUNAL,COCHIN BENCH
APPELLANT/S:
THE PLANTATION CORPORATION OF KERALA LTD
MUTTAMBALAM P.O. KOTTAYAM 686 004.
BY ADV RAMESH CHERIAN JOHN
RESPONDENT/S:
1 THE DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE I, O/O THE ASSISTANT COMMISSIONER OF INCOME TAX, PUBLIC LIBRARY
BUILDING, SHASTHRI ROAD, KOTTAYAM 66 001.
2 THE COMMISSIONER OF INCOME TAX,
O/O THE COMMISSIONER OF INCOME TA, PUBLIC LIBRARY, BUILDING, SHASTHRI
ROAD, KOTTAYAM 686 001.
BY ADVS.
SRI.P.K.RAVINDRANATHA MENON (SR.)
JOSE JOSEPH, SC, FOR INCOME TAX
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-6-
THIS INCOME TAX APPEAL HAVING COME UP FOR ORDERS ON 01.08.2022, ALONG
WITH ITA.201/2013 AND CONNECTED CASES, THE COURT ON THE SAME DAY
PASSED THE FOLLOWING:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-7-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
MONDAY, THE 1ST DAY OF AUGUST 2022 / 10TH SRAVANA, 1944
ITA NO. 39 OF 2018
ITA 105/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH
APPELLANT/S:
THE REHABILITATION PLANTATION LTD.
PUNALUR, KOLLAM-691 305, REPRESENTED BY ITS COMPANY SECRETARY
MS.MERENA VARGHESE.
KOLLAM, PIN - 691305
BY ADVS. M.GOPIKRISHNAN NAMBIAR
K.JOHN MATHAI; JOSON MANAVALAN
KURYAN THOMAS; PAULOSE C. ABRAHAM
K.SHARANYA VIJAY
RESPONDENT/S:
COMMISSIONER OF INCOME TAX
AYAKAR BHAVAN, KOWDIAR, THIRUVANANTHAPURAM-695 003.
THIRUVANANTHAPURAM, PIN - 695003
BY ADVS. CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT
P.K.RAVINDRANATHA MENON (SR.)
JOSE JOSEPH, SC, INCOME TAX DEPARTMENT, KERALA
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-8-
THIS INCOME TAX APPEAL HAVING COME UP FOR ORDERS ON 01.08.2022, ALONG
WITH ITA.201/2013 AND CONNECTED CASES, THE COURT ON THE SAME DAY
PASSED THE FOLLOWING:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-9-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
MONDAY, THE 1ST DAY OF AUGUST 2022 / 10TH SRAVANA, 1944
ITA NO. 37 OF 2018
ITA 104/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH
APPELLANT/S:
THE RAHABILITATION PLANTATION LTD.
PUNALUR, KOLLAM 691305 REPRESENTED BY ITS COMPANY SECRETARY, MS.
MERENA VARGHESE
BY ADVS.M.GOPIKRISHNAN NAMBIAR; JOHN MATHAI
JOSON MANAVALAN; KURYAN THOMAS; PAULOSE C. ABRAHAM
K.SHARANYA VIJAY
RESPONDENT/S:
COMMISSIONER OF INCOME TAX
AAYAKAR BHAVAN, KOWDIAR, THIRUVANANTHAPURAM 695003.
BY ADVS. CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT
P.K.RAVINDRANATHA MENON (SR.); JOSE JOSEPH, SC
THIS INCOME TAX APPEAL HAVING COME UP FOR ORDERS ON 01.08.2022, ALONG
WITH ITA.201/2013 AND CONNECTED CASES, THE COURT ON THE SAME DAY
PASSED THE FOLLOWING:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-10-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
MONDAY, THE 1ST DAY OF AUGUST 2022 / 10TH SRAVANA, 1944
ITA NO. 37 OF 2020
ITA 239/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH
APPELLANT/S:
THE PLANTATION CORPORATION OF KERALA LTD
MUTTAMBALAM P.O, KOTTAYAM 686 004
BY ADV RAMESH CHERIAN JOHN
RESPONDENT/S:
1 THE ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE 1, O/O THE ASSISTANT COMMISSIONER OF INCOME TAX PUBLIC LIBRARY
BUILDING, SHASTHRI ROAD, KOTTAYAM 686 001
2 THE COMMISSIONER OF INCOME TAX,
O/O THE COMMISSIONER OF INCOME TAX PUBLIC LIBRARY BUILDING, SHASTHRI
ROAD, KOTTAYAM 686 001
BY ADVS.
JOSE JOSEPH, SC, INCOME TAX DEPARTMENT, KERALA
P.K.RAVINDRANATHA MENON (SR.)
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-11-
THIS INCOME TAX APPEAL HAVING COME UP FOR ORDERS ON 01.08.2022, ALONG
WITH ITA.201/2013 AND CONNECTED CASES, THE COURT ON THE SAME DAY
PASSED THE FOLLOWING:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-12-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
MONDAY, THE 1ST DAY OF AUGUST 2022 / 10TH SRAVANA, 1944
ITA NO. 83 OF 2018
ITA 249/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH
APPELLANT/S:
M/S. THAMARAPALLY RUBBER COMPANY LTD.
ANCHERIL BANK BUILDING, BAKER JUNCTION, KOTTAYAM-686001.
BY ADVS. JOSEPH MARKOSE (SR.)
SRI.V.ABRAHAM MARKOS; SRI.ABRAHAM JOSEPH MARKOS
SRI.ISAAC THOMAS
RESPONDENT/S:
THE ASSISTANT COMMISSIONER OF INCOME TAX,
CIRCLE-I, KOTTAYAM-686001.
BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.)
SRI.JOSE JOSEPH, SC, FOR INCOME TAX
THIS INCOME TAX APPEAL HAVING COME UP FOR ORDERS ON 01.08.2022, ALONG
WITH ITA.201/2013 AND CONNECTED CASES, THE COURT ON THE SAME DAY
PASSED THE FOLLOWING:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-13-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
MONDAY, THE 1ST DAY OF AUGUST 2022 / 10TH SRAVANA, 1944
ITA NO. 84 OF 2018
ITA 248/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH
APPELLANT/S:
KAILAS RUBBER COMPANY LIMITED
ANCHERIL BANK BUILDING, BAKER JUNCTION, KOTTAYAM - 686 001.
BY ADVS. JOSEPH MARKOSE (SR.); SRI.ISAAC THOMAS
SRI.V.ABRAHAM MARKOS; SRI.ABRAHAM JOSEPH MARKOS
RESPONDENT/S:
THE ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE-1, KOTTAYAM - 686 001.
BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.)
SRI.JOSE JOSEPH, SC, FOR INCOME TAX
THIS INCOME TAX APPEAL HAVING COME UP FOR ORDERS ON 01.08.2022, ALONG
WITH ITA.201/2013 AND CONNECTED CASES, THE COURT ON THE SAME DAY
PASSED THE FOLLOWING:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
-14-
ORDER
[ITA Nos.201/2013, 23/2018, 208/2013, 225/2013, 71/2020,
39/2018, 37/2018, 37/2020, 83/2018, 84/2018]
S.V. Bhatti, J.
We have heard the learned Senior Advocate Mr Joseph
Markos, Advocates Mr Kuryan Thomas, Mr Ramesh Cherian
John for appellants and the learned Senior Counsel Mr P K R
Menon for the respondent.
2. Vide Reference Order dated 28.10.2021 a Division
Bench, to which two of us: Justice S V Bhatti and Justice Basant
Balaji are parties, referred a question for consideration by a
Full Bench of this Court. The question reads as follows:
"Whether the assessee/Plantation Companies under
Rule 7A(2) of the Rules are entitled to an allowance
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
towards replanting expenses and a further deduction
towards upkeep and maintenance expenses incurred
by the assessee for the immature plants till the age of
maturity in the computation of income under the Act
and Rules."
2.1 Our consideration of the controversy revolves
around the Income Tax Act 1961, the Income Tax Rules 1962
and the Kerala Agricultural Income Tax Act 1991 (for short we
would refer to these enactments as 'Act 1961, 'Rules 1962' and
'KAIT Act' respectively). We are referring to the
circumstances stated in I.T.A. No.83/2018 and treat the same
as the lead case for answering the question. The
circumstances set out in the other cases are identical, hence
the learned Counsel would suggest, for brevity, reference to
one matter would be sufficient for deciding the question of law
referred to the Full Bench.
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
I.T.A. No.83/2018
3. M/s. Thamarapally Rubber Company Ltd,
Kottayam/assessee is the appellant. The Assistant
Commissioner of Income Tax, Kottayam/Revenue is the
respondent. For consistency, we refer to the parties as 'the
assessee' and 'the Revenue'. The assessee is a Public Limited
Company having rubber plantations and processes natural
rubber. The assessee challenged the order dated 06.09.2018 of
the Income Tax Appellate Tribunal, Cochin Bench, (for short
'the Tribunal') in I.T.A. No.249/Coch/2018. The dispute in the
tax appeal relates to the return filed for the Assessment Year
2011-12. The orders leading to the appeal to this Court are
stated hereunder:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
Sl. Assessment Order of Commissioner of Income Tax ITA No.
No Year & Date of Income Tax (Appeals) Appellate Tribunal
. Assessment
Order
1 2011-12; ITA ITA 83/2018
29.01.2014 No.46/CIT(A)/KTM/2013-14 No.249/Coch/2018
dt.22.03.2018 dt.06.09.2018
3.1 The assessee in the subject Assessment Year
claimed allowance for the cost of replanting expenses
amounting to Rs.14,43,706/- incurred over an extent of 48
acres and a further deduction of Rs.10,97,660/- towards
maintenance and upkeep expenses incurred by the assessee
for the rubber plants replanted in an area of 182 acres. The
allowance of deduction of the cost of replantation and the
deduction towards upkeep and maintenance expenses were
rejected in the assessment made under Section 143(3) of Act
1961, vide order dated 29.01.2014. As noted above, the said
finding was confirmed, both by the Commissioner and the
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
Tribunal. At this juncture, it is contextual to excerpt the view
taken by the Tribunal by referring to the ratio laid down by
this Court in Rehabilitation Plantations Ltd. v. Commissioner of
Income Tax1. The relevant excerpt reads thus:
""After hearing both sides, we are unable to accept the case
of the assessee for more than one reason. In the first place,
expenditure covered by rule 7A(2) does not cover expenditure
incurred for replantation of an area. On the other hand, rule
7A(2) only provides for deduction of expenditure for infilling
through replacement of dead trees or other trees that have
become useless, which is not the case here. As already stated
by us, rule 7A(2) is in the same line as rule 7B(2), which
provides for replacement of dead or old or unyielding coffee
plants in yielding coffee plantation, and rule 8(2) which
provides for replacement of dead or useless tea bushes in tea
plantation. Yielding healthy rubber plantation does not admit
replacement of dead plants within such area as new saplings
cannot grow under shade and it is never done by any planter.
So much so, expenditure for replantation of an area is not
covered by rule 7A(2) and in our view the lower authorities
(2012) 251 CTR 343 (Kerala)
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
including the Tribunal rightly rejected the claim. We also feel
that the Central ITO while determining income in the nature
of agricultural as well as business income under rule 7A
should keep in mind the principles of computation of
agricultural income under the State ATT Act and as far as
possible, assessment should be made without violating the
provisions of the State Agrl. IT Act. If the appellants claim is
allowed, certainly so much of the portion of the agricultural
income determined by the Central ITO will be in direct
conflict with the scheme of assessment of agricultural income
under the State Agrl. IT Act which prohibits deduction of
expenditure on replantation of an area and only an incentive
is provided by way of replantation allowances under rule 3 of
the State Agrl. IT Rules as stated above. We are of the view
that the Tribunal rightly held that the expenditure on
replantation of an area wherefrom no income is derived by
the assessee is not to be reckoned or considered in the
computation of income from yielding area. Expenditure
incurred for planting and development of the plantation upto
maturity has to be necessarily capitalised and is not allowable
as a revenue expenditure. Since the assessee has no case that
they have incurred any expenditure for infilling the yielding
area and the expenditure incurred is only for replantation
after cutting and removing old plantation, there is no
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
question of considering or allowing the claim under rule
7A(2). The assessees claim is thoroughly misconceived and
the lower authorities including the Tribunal rightly held so.
Consequently, we dismiss all the appeals."
3.2 By relying on the above ratio the Tribunal recorded:
"6. We have heard the rival submissions and perused the
material on record. Admittedly in this case the expenditure
incurred is not for infilling in yielding area. The expenditure
has been incurred for maintenance of immature rubber
plants in replanted areas and such expenditure could not be
allowed as deduction going by the dictum laid down by the
Hon'ble Kerala High Court in the case of Rehabilitation
Plantations Ltd. (supra). In view of the judgment of the
Hon'ble Kerala High Court (supra), we hold that the order of
the CIT(A) is correct and in accordance with law and no
interference is called for."
Hence the appeal. As noted in the Reference Order dated
28.10.2021, the correctness of the ratio laid down in the
Rehabilitation Plantations Ltd. case was canvassed leading to the
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
present Reference.
4. The learned counsel appearing for the assessees
canvass that the income derived from rubber manufacturing
or rubber plantation has been treated as agricultural income
under the Agricultural Income Tax Act 1950 (for short 'the AIT
Act 1950') which was repealed or replaced by the Kerala
Agricultural Income Tax Act 1991. Article 366 clause (1)
defines 'agricultural income' to mean agricultural income as
defined for the purposes of the enactment relating to Indian
Income-tax. 7A and 8 of Rules 1962 come under Part II D -
Special Cases. By incorporation of the said Rules, the income
derived either from rubber or tea shall be treated as income
from business and upon apportionment, as set out by the
respective Rules, agricultural income is determined. In the
case of rubber, 35% of the computed income is charged under
Act 1961 and 65% is treated as agricultural income taxed under
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
the KAIT Act.
4.1 Therefore, the assessee argues that the
computation of income is not only under Rule 7A of Rules 1962
but also by allowing permissible deductions under Sections 28
to 44DB. Travancore Rubber & Tea Co. Ltd v. Commissioner of
Agricultural Income Tax2 and Karimtharuvi Tea Estates Ltd. v. State
of Kerala3 are judgments of the Supreme Court rendered under
the KAIT Act. As per Rule 7A of Rules 1962, 65% of computed
income constitutes agricultural income. The computation of
income is under Act 1961 and in terms of Rule 7A. The
allowance referred to in Sub-Rule (2) of Rule 7A is a statutory
allowance and also cannot be construed, in any manner, as
excluding the claim of expenses for upkeep and maintenance
of replanted rubber trees till the date of maturity. The
(1961) 41 ITR 751
(1963) 48 ITR 83 (SC)
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
replantation allowance is one of the statutorily permissible
deductions and expenses incurred for the upkeep and
maintenance of replanted rubber plants till they attain
maturity are residuary expenses incurred by the assessee for
the purposes of the business of manufacturing rubber.
4.2 The view of the Division Bench in Rehabilitation
Plantations Ltd. case is not based on the scheme of Act 1961 and
Rules 1962, but based on clause (v) of Section 5(2)(o) of KAIT
Act which reads as follows:
"Any expenses incurred in the previous year on the
maintenance of any capital asset if such maintenance is
required for the purpose of deriving agricultural income."
The income of the assessee is computed as income from
business. It is argued that Section 37 covers a deduction of
upkeep and maintenance expenses. Section 37, being a
residuary provision of law, allows:
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
(i) any expenditure, but not being expenditure of the nature
described in Sections 30 to 36 of Act 1961,
(ii) any expenditure not being in the nature of capital
expenditure or personal expenses of the assessee,
(iii) laid out or expended wholly and exclusively for the
business or profession shall be allowed in computing the
income chargeable under the head "Profits and gains of
business or profession".
4.3 It is vehemently argued that it is not the case of the
Revenue that the expenses now claimed by the assessee
towards upkeep and maintenance fall under expenditure of
the nature described in Sections 30 to 36 of Act 1961, or that
the expenses are like capital expenditure or personal expenses
of the assessee. The expenses, from the very nature of outlay,
are not creating a capital asset or substituting a capital asset
but preserving the capital asset already brought into existence
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
for the business of the assessee. In rubber plantations,
slaughter tapping is one of the techniques employed before
cutting the trees completely and replantation is undertaken.
Therefore, the ratio in the Rehabilitation Plantations Ltd. case
does not lay down the correct proposition of law and needs to
be declared so; and the assessee is entitled to an allowance and
a deduction for upkeep and maintenance expenses for the
replanted rubber trees. All the counsel, in support of their
contentions, have referred to or relied on the following
judgments H.S. Shivakantappa v. Commissioner of Agricultural
Income-tax4; Plantation Corporation of Kerala Ltd. v. Commissioner
of Agricultural Income-tax5; Commissioner of Income-tax, Kerala v.
Malayalam Plantations Ltd6.; Commissioner of Income-tax, West
Bengal I v. Birla Cotton Spinning and Weaving Mills Ltd and
(1993) 204 ITR 349 (SC)
(1993) 200 ITR 27 (Ker.)
(1964) lIII ITR 140 (SC)
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
Commissioner of Income-tax, West Bengal I v. Birla Brothers P. Ltd.7;
Commissioner of Income-tax, Madras v. Mahalakshmi Textile Mills
Ltd8.; K.P. Varghese v. Income Tax Officer, Ernakulam9; Additional
Commissioner of Income Tax, Gujarat v. Surat Art Silk Cloth
Manufacturer's Association, Surat10; and Commissioner of
Agricultural Income Tax v. Midland Rubber and Produce Co. Ltd 11.
The learned counsel pray for answering the question in favour
of the assessee and against the Revenue.
5. Per contra, the learned Senior Counsel appearing for
the Revenue distinguishes the circumstances in which the
ratio on the entitlement of upkeep and maintenance is
accepted as revenue expenditure by the Supreme Court in
Travancore Rubber & Tea Co. Ltd and Karimtharuvi Tea Estates Ltd.
(1971) 82 ITR 166 (SC)
(1967) 66 ITR 710
AIR 1981 SC 1922
AIR 1980 SC 387
1990 ITR 493 (Ker.)
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cases (supra). He places strong reliance on clause (v) of Section
5(2)(o) of the KAIT Act and argues that the view taken by the
Division Bench in the Rehabilitation Plantations Ltd. case does
not warrant reconsideration. While noting the contentions of
the Revenue we would like to record that the Revenue does not
have a case that by adopting the computation method of
Section 5 of the KAIT Act, the claim for deduction is negatived
but the basis for denial of upkeep and maintenance expenses
is Rehabilitation Plantations Ltd. judgment.
6. Neither there is a controversy nor a debatable
question on the applicable principles for computation of
income of an assessee who is covered by the provisions of the
AIT Act 1950 r/w KAIT Act, with effect from 01.04.2002 under
Act 1961. In other words, up to 31.03.2002, the income from
rubber plantations has been treated as agricultural income
and the computation of agricultural income was by the
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allowances and deductions provided by Section 5 of the KAIT
Act. With effect from 01.04.2002, the income derived from the
manufacture of rubber is treated as income from business and
65% of the income is apportioned for agricultural income tax.
Therefore, it is not a case of the Revenue, that while computing
the income of an assessee under Rule 7A the provisions under
the KAIT Act are also made applicable. Therefore, in the
scheme of present things the assessment of income from
rubber plantations is, in the first instance, made under
Sections 28 to 44DB of Act 1961.
7. Now let us refer to a few decisions and the
circumstances leading to amendment by way of Explanation to
Section 5(2)(o) of the AIT Act 1950 which is repositioned as
clause (v) in KAIT Act 1991 as excerpted above.
Travancore Rubber & Tea Co. Ltd v. Commissioner of Agricultural
Income Tax (supra)
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7.1 The assessees under the Travancore-Cochin
Agricultural Income Tax Act claimed deduction of expenses
incurred towards upkeep and maintenance of replanted
rubber trees. A Division Bench of this Court considered the
following question:
"Whether under the Travancore-Cochin yield 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 I. Rs. 42,660-4-1
expended by the assessee in the relevant accounting year
1952, under this head may be deducted."
and negatived the claim of the assessee. The Supreme Court,
while reversing the view of this Court, in paragraph 5 of the
judgment, held as follows:
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".......
In our opinion the High Court has taken an erroneous view of
the relevant provision. It is not denied that the expenditure
claimed as a deduction was wholly and exclusively laid out for
the purpose of deriving income but the use of the definite
article "the" before agricultural income has given rise to the
interpretation that the deduction is to be from the income of
the year in which the trees on which the amount claimed was
expended bore any income."
(emphasis supplied)
The Supreme Court reversed the view taken by this Court,
namely, that upkeep and maintenance expenses are not
allowable expenditures.
Karimtharuvi Tea Estates Ltd. v. State of Kerala (supra)
7.2 Karimtharuvi Tea Estates Ltd. is a petition filed under
Article 32 of the Constitution of India by the assessee. The
petitioners therein canvassed a grievance in computing a
taxable income of the assessee under the KAIT Act for the
Accounting Years 1958-59, 1959-60 and 1960-61. In computing
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the taxable income for assessment to tax under the AIT Act,
the Assessing Authority did not allow deduction of the
expenses incurred by the assessee in the upkeep and
maintenance of immature tea plants from which no
agricultural income had been derived during the Assessment
Year. The Supreme Court considering Explanation 2
incorporated by Amendment Act 9 of 1961, however with
effect from 01.04.1951, has held that:
"The contention that the amount spent for the upkeep and
maintenance of the immature plants till they become mature
is in the nature of capital expenditure is also not sound. It is
a running expenditure and not of the nature of capital
expenditure."
The Court further held:
"..... that Explanation 2 to Section 5 of the Agricultural Income
Tax Act added by the Amendment Act does not cover the
expenses incurred in the upkeep or maintenance of immature
tea plant from which no income has been derived during an
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accounting year and that the agricultural income derived
from tea plantations will be computed in accordance with the
provisions of the Income Tax Act and Income Tax Rules."
(emphasis supplied)
Commissioner of Income-tax, Kerala v. Malayalam Plantations Ltd
(supra)
7.3 The case considered the question, of whether the
estate duty paid by the resident Company as assessee
incorporated outside India on behalf of the members not
domiciled in India is deductible from its profits in computing
its assessable income? Supreme Court interpreted the
expressions 'for the purpose of the business' and in contrast the
expression 'for the purpose of earning profits' and held thus:
"The expression" for the purpose of the business" is wider in
scope than the expression for the purpose of earning profits".
Its range is wide; it may take in not only the day to day
running of a business but also the rationalisation of its
administration and modernisation of its machinery; it may
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include measures for the preservation of the business and for
the protection of its assets and property from expropriation,
coercive process or assertion of hostile title; it may also
comprehend payment of statutory dues and taxes imposed as
a precondition to commence or for the carrying on of a
business; it may comprehend many other acts incidental to
the carrying on of the business. However wide the meaning
of the expression may be, its limits are implicit in it. The
purpose shall be for the purpose of the business, that is to say,
the expenditure incurred shall be for the carrying on of the
business and the assessee shall incur it in his capacity as a
person carrying on the business. It cannot include sums spent
by the assessee as agent of a third party whether the origin of
the agency is voluntary or statutory."
Plantation Corporation of Kerala Ltd. v. Commissioner of Agricultural
Income-tax (supra)
7.4 A Full Bench of this Court considered the following
points:
"The following points arise for consideration:
(1) Whether, in the scheme of section 5, section 5(j) is a
residuary provision in regard to the claims of deduction from
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taxable agricultural income similar to sections 10(2)(xv) and
12(2) of the Indian Income-tax Act, 1922, and sections 37(1)
and 57(iii) of the Income-tax Act, 1961?
(2) Whether Explanation 2 to section 5 of the Kerala Act is an
Explanation intended for explaining section 5(j) only, or
whether it is intended to be an Explanation for the other
clauses of section 5 also?
(3) If Explanation 2 is to be treated as referable to section 5(j)
only, whether the said Explanation covers the entire field
covered by section 5(j) or only a part of it?
On point no.1 the Full Bench held that the interpretation put
upon Section 10(2)(xv) of the Income Tax Act 1922 as also upon
Section 37(1) of the Income Tax Act 1961, by the Supreme
Court will be applicable so far as may be to Section 5(j) of the
KAIT Act. Point no.1 was decided accordingly.
8. We may hasten to add that the learned counsel
appearing for the assessee has relied on the view taken by the
Full Bench in the Plantation Corporation of Kerala Ltd. case for the
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purpose that the interpretation applied to section 10(2)(xv)
and Section 37(1) of the Income Tax Act 1961 so far as may be
applicable to Section 5(j) of the KAIT Act, as a residuary
provision.
9. In our considered view, the question referred for
our consideration has two facets arising normally under Rule
7A of Rules 1962 in the computation of business income from
the manufacture of rubber. Both for clarity and convenience
as well, the question is dealt with by us in two divisions. The
first question, therefore, is whether the rubber plantation
companies, under Rule 7A(2) of Rules 1962, are entitled to an
allowance towards replanting expenses.
9.1 The assessee's case is that the normal period for the
maturity of a rubber tree to yield is 6 to 7 years. The non-
productive or sterile rubber trees are given on slotter cutting
or cut and removed and rubber plants are replanted for
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continuing to produce centrifuged latex or cenex or latex
based crepes etc. The replantation expenses of rubber
saplings, according to the assessee, are allowable deduction
under Rule 7A(2) of Rules 1962, for immediate reference Rule
7A(2) is reproduced hereunder"
" 7A (1) ***
7A(2): In computing such income, an allowance shall be
made in respect of the cost of planting rubber plants in
replacement of plants that have died or become
permanently useless in an area already planted, if such area
has not previously been abandoned, and for the purpose of
determining such cost; no deduction shall be made in
respect of the amount of any subsidy which, under the
provisions of clause (31) of Section 10, is not includible in
the total income.
9.2 The assessees argue, on the correctness of the ratio
laid down in Rehabilitation Plantations Ltd. case, that the
interpretation of Rule7A(2) is contrary to the canons applied
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to the interpretation of taxing Statutes. The counsel point out
that the ratio is based on the practical perspectives of a rubber
plantation; not on the actual interpretation of applicable
provisions; and cannot be treated as comprehensive in all the
cases where replantation of rubber saplings takes place in a
rubber plantation. The counsel for the assessees commend to
the Court strict construction of Rule 7A(2) for determining the
entitlement of allowance towards the cost of planting rubber
plants in replacement of dead plants in a rubber plantation.
10. Per contra, the Revenue canvasses the very
argument accepted by the Division Bench in Rehabilitation
Plantations Ltd. case.
11. We keep in perspective a few axiomatic principles
on interpretation of taxing Statutes/Rules. In a taxing Act, one
has to look merely at what is clearly said. There is no room for
any intendment. There is no equity about a tax. There is no
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presumption as to tax. Nothing to be read in, nothing is to be
implied. One can only look fairly at the language used [Cape
Brandy Syndicate VIRC, (1921) 1 KB, 64 at 71]. In Commissioner
of Income-tax, Madras v. Kasturi and Sons, the Supreme Court
quoted with approval the principle of strict construction of
taxing statutes. In the words of Lord Simonds "the question is
not at what transaction the section is according to some
alleged general purpose aimed, but what transaction its
language according to its natural meaning fairly and squarely
hits [St. Aubyn [LM] v. AG (1951) of All ER 473, at 485. So the
proper course in construing revenue Acts is to give a fair and
reasonable construction to their language without leaning to
one side or the other but keeping in mind that no tax can be
imposed without words clearly showing an intention to lay the
burden and that equitable construction of the words is not
permissible.
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11.1 In A V Fernandez v. State of Kerala12 the Apex Court
stated the principle as follows:
"..... in construing fiscal Statutes and in determining the
liability in a subject to tax one must have regard to the strict
letter of the law. If the Revenue satisfies the Court that the
case falls strictly within the provisions of the law, the subject
can be taxed. If, on the other hand, the case is not covered
within the four corners of the provisions of the taxing statute,
no tax can be imposed by inference or by analogy or by trying
to probe into the intention of the Legislature and by
considering what was the substance of the matter."
11.2. The principle formulated in Commissioner of Sales
Tax v. Modi Sugar Mills Ltd 13is apt and contextual to our purpose
and lays down that:
"In interpreting a taxing Statutes, equitable considerations
are entirely out of place. Nor can taxing statutes be interpreted
on any presumption or assumptions. The Court must look
squarely at the words of the Statute and interpret them. It
AIR 1957 SC 657, at 661
1961 AIR 1047
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must interpret a taxing statute in the light of what is clearly
expressed; it cannot imply anything which is not expressed;
it cannot import provisions in the Statute so as to supply any
assumed deficiency."
(emphasis supplied)
12. We are dealing with a provision of law that, by
operation of Article 366 (1) of the Constitution of India,
'agricultural income' read with Rule 7A(1) is determined. Rule
7A(1) refers to income derived from the sale of centrifuged
latex or Cenex or latex-based crepes etc shall be computed as
if it were income derived from business and thirty-five per
cent of such income shall be deemed to be income i.e., under
Act 1961 liable to tax. Sub-Rule (2) of Rule 7A of Rules 1962
deals with the computation of income for tax under Act 1961.
Sub-Rule (2) of Rule 7A begins with the words viz. In computing
such income, (a) an allowance be made in respect of the cost
of planting rubber plants i.e., (i) that have died (ii) becomes
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permanently useless in an area already planted, however, such
area has not previously been abandoned. Yet another
condition for determining such cost is that the cost shall not
include deduction made as subsidy under clause (31) of Section
10 of Act 1961. The Rule provides for computation of income
to tax under Act 1961 and in such computation allowance like
cost in planting the rubber trees is allowed. The allowance,
however, from the strict meaning assignable to all the
expressions used in Sub-Rule (2) of Rule 7A is subject to the
condition that the replantation is undertaken of the rubber
trees that died or became permanently useless, i.e., in the
rubber plantation of the assessee.
13. The permissible allowance of replantation cost of
rubber saplings is limited to the area already planted and has
not been previously abandoned. In our understanding of the
two contingencies attracting disallowance are: (i) replantation
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cost is claimed in the area where rubber trees were planted
and are cut or the rubber trees have become
useless/unproductive (ii) the replanting must be a continuous
act upon felling the rubber trees in the rubber plantation. In
other words, the area where replantation was undertaken
should not have been abandoned by the assessee. It sounds
practical and nearer to the nature of rubber plantation and
extraction of rubber. Rule 7A is structured in a way keeping in
perspective the very nature of rubber plantation, time to yield
produce, the normal produce yield period etc. As we
understand, replantation allowance is a straight allowance
available to an assessee subject to satisfying the other two
conditions: viz. (i) replantation cost is claimed in the area
where rubber trees were planted and are cut, or the rubber
trees have become useless/unproductive (ii) the replanting
must be a continuous act upon felling the rubber trees in the
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rubber plantation. Yet another circumstance to appreciate
from the language of Rule 7A of Rules 1962 is that the
allowance is not availed to a rubber plantation established/
brought into existence. Such cases are not considered by us in
this opinion.
14. The language ensures continuity of rubber
plantation by providing for the allowance of replantation
costs. The concept of infilling is not attracted to the nature of
allowance. In interpreting the instant Sub-Rule, we take note
that in the computation of business income, allowance of
replantation expenses has been granted. Any other view or
interpretation would lead to denial of an allowance which is
extended by Rule 7A, which now treats a percentage of income
from rubber manufacture as business income. Therefore,
from the above discussion we hold and declare that:
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"Under Rule 7A of Rules 1962 in computing the
income to tax under Act 1961, the allowance shall
be made in respect of the cost of replanting rubber
plants that died or become permanently useless in
an area already planted if the area has not been
abandoned.
In determining the cost of replanting/replacement,
no deduction of the amount of any subsidy under
provisions of clause (31) of Section 10 is includable
in the total income."
15. Now we shall consider the second facet referred to
the Full Bench, namely:
"...... a further deduction towards upkeep and maintenance
expenses incurred by the assessee for the immature plants till
the age of maturity in the computation of income under the
Act and Rules."
15.1 With effect from 01.04.2002 income derived from
the sale of centrifuged latex etc obtained from rubber plants
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shall be computed as if it were income derived from the
business. The controversy in the computation of business
income relates to the deduction of upkeep and maintenance
expenses incurred by the assessee/rubber plantation owner
from replantation till the maturity period of the rubber tree.
The latex yielding period ranges between 6 and 7 years from
the time the rubber saplings are planted on a rubber
plantation.
15.2 The learned counsel for the assessees would urge
that the claim for deduction of upkeep and maintenance
expenses was an area of the contest between the plantation
owners and the assessing officers under the AIT Act 1950 and
KAIT Act 1991. The Supreme Court in Travancore Rubber & Tea
Co. Ltd and Karimtharuvi Tea Estates Ltd. cases (supra) held that
these expenses are deductible in computing the agricultural
income under the AIT Act. The assessees claim upkeep and
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maintenance expenses under Section 37 of Act 1961 as
residuary/available expenses for deduction in the
computation of income to tax under Act 1961. The Supreme
Court in Malayalam Plantations Ltd has explained the meaning
of two expressions viz. (a) 'for the purpose of the business' and (b)
'for the purpose of earning profits'. Therefore, upkeep and
maintenance expenses are available expenses for deduction
under Section 37 of Act 1961. The deduction is firstly not
against the standard accounting practices and secondly not
covered by Sections 30 to 36 of Act 1961. The Revenue cannot
disallow the upkeep and maintenance claim in the
computation of income under Section 37 of Act 1961. The
Revenue cannot compel capitalization of upkeep and
maintenance expenses and claim depreciation on the
capitalized asset. The assessee/plantation owners to continue
the business must lay out these expenses as revenue expenses
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to protect the rubber plants till the yield period. The upkeep
and maintenance expenses do not result in bringing into
existence a new capital asset or substituting a capital asset.
This expenditure upkeeps and maintains a capital asset and
over years enables the capital asset to generate business
income. Therefore, inversely and conversely in the
application of Section 37 of Act 1961 the assessees are entitled
to claim the deduction of upkeep and maintenance expenses
in the computation of income for tax under Act 1961.
16. The argument of the Revenue is twofold: (i) the
expenditure is not available or allowable expenditure from the
very nature of spending, (ii) Section 37 of Act 1961 cannot be
interpreted to cover expenses which are not incurred for
earning an income. The claim for a deduction of upkeep and
maintenance of replanted trees, under the AIT Act was
examined by the Supreme Court in Travancore Rubber & Tea Co.
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Ltd case (supra). The relevant portion from the reported
judgment is already excerpted and what is contextual is the
view expressed by the Apex Court as follows:
"In our opinion the High Court has taken an erroneous view
of the relevant provision. It is not denied that the
expenditure claimed as a deduction was wholly and
exclusively laid out for the purpose of deriving income ......"
17. The next reported judgment viz Karimtharuvi Tea
Estates Ltd. case (supra) rejected the contention that the
amount spent for the upkeep and maintenance of the
immature plants till they become mature is like capital
expenditure, as not sound. It is a running expenditure and not
of the nature of capital expenditure. The view on upkeep and
maintenance expenditure as revenue expenditure is
categorical in the decisions (i) Travancore Rubber & Tea Co. Ltd
and (ii) Karimtharuvi Tea Estates Ltd. cases (supra). It is not the
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case of the Revenue that by a provision/Rule under the Act
upkeep and maintenance expenditure has a different
connotation than being a revenue expenditure. A Full Bench
of this Court in Plantation Corporation of Kerala Ltd case
examined corresponding provisions in Section 10(2)(xv) of Act
1961. Section 37(1) of Act 1961 on one hand and Section 5(j) of
the KAIT Act and Section 5(e) of the Madras Act held thus:
"In this court, the question again came up before a Division
Bench in Commr. of Agrl. I. T. v. Nilambur Rubber Co. Ltd.
[1969] 71 ITR 686, and the learned judges clearly stated that
section 5(j) of the Kerala Act corresponds to the residuary
provision in section 10(2)(xv) of the Indian Income-tax Act,
1922. They further clarified that this was so in spite of the
slight difference in the language, section 5(j) of the Kerala Act
using the words "for the purpose of deriving the
(agricultural) income" and section 10(2)(xv) using, the words
"for the purpose of such business, profession or vocation. In
R. G. A. Baker v. State of Kerala [1979] 116 ITR 570 (Ker),
another Division Bench reaffirmed the view that section 5(j)
corresponds to the residuary provision in section 10(2)(xv) of
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the Indian Income Tax Act, 1922
It is, therefore, clear that the interpretation put upon section
10(2)(xv) of the Indian Income-tax Act, 1922, as also upon
section 37(1) of the Income-tax Act, 1961, by the Supreme
Court will be applicable, so far as may be to section 5(j) of the
Kerala Act. Point No. 1 is decided accordingly"
18. Lastly, in our reference, we note the construction of
the expressions: viz. 'for the purpose of the business' and 'for the
purpose of earning profits' by the Supreme Court in Malayalam
Plantations Ltd case:
"The expression" for the purpose of the business" is wider in
scope than the expression for the purpose of earning profits".
Its range is wide; it may take in not only the day to day
running of a business but also the rationalisation of its
administration and modernisation of its machinery; it may
include measures for the preservation of the business and for
the protection of its assets and property from expropriation,
coercive process or assertion of hostile title; it may also
comprehend payment of statutory dues and taxes imposed as
a precondition to commence or for the carrying on of a
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business; it may comprehend many other acts incidental to
the carrying on of the business. However wide the meaning
of the expression may be, its limits are implicit in it. The
purpose shall be for the purpose of the business, that is to say,
the expenditure incurred shall be for the carrying on of the
business and the assessee shall incur it in his capacity as a
person carrying on the business. It cannot include sums spent
by the assessee as agent of a third party whether the origin of
the agency is voluntary or statutory."
18.1 Section 37 of Act 1961 reads thus:
S.37. General. (1) Any expenditure (not being expenditure of
the nature described in sections 30 to 36 and not being in the
nature of capital expenditure or personal expenses of the
assessee), laid out or expended wholly and exclusively for the
purposes of the business or profession shall be allowed in
computing the income chargeable under the head "Profits
and gains of business or profession".
Explanation 1. *** *** ***
Explanation 2. *** *** ***"
19. Whether the expenditure incurred is revenue or
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capital, it is fairly well established by a catena of decisions, and
definitely depends on the facts of each case and assessment
year. Direct authority on the point is not placed before us. In
Taj Mahal Hotel v. CIT14, the Andhra Pradesh High Court has held
that for determining whether an expenditure is of a capital or
revenue nature, it is immaterial whether the expenditure is
made out of money withdrawn from the capital or out of the
profits. One should consider the nature of the concern, the
ordinary course of business usually adopted in that concern,
and the object with which an expense is incurred.
(emphasis supplied). Similarly, according to normally
accepted principles, a capital expenditure is something which
is spent once and for all, while revenue expenditure is that
which is to be incurred every year. Though the said criteria is
(1967) 66 ITR 303, at 305
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not decisive, several other attended factors are taken into
consideration and upon such consideration, if the expenditure
is to bring into existence an asset or advantage for the
enduring benefit of the business, it is considered as capital
expenditure otherwise revenue expenditure.
19.1 In Praga Tools Ltd. v. CIT15 a Full Bench of Andhra
Pradesh High Court held that where the expenditure has a
direct nexus, connection or relation to the carrying on of or
conducting the business of the assessee, it must be regarded as
an integral part of the profit-making process. In such a case,
it must be held to be a revenue expenditure. Keeping the
above tests in mind we examine whether the upkeep and
maintenance expenditure firstly, is a one-time outflow;
secondly, bringing into existence a capital asset or not; and
(1980) 123 ITR 773, 790
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thirdly, whether it has any nexus to the profit of the assessee.
All the tests do point in favour of the assessee to hold that the
upkeep and maintenance expenditure is revenue expenditure.
For availing the deduction under Section 37 of Act 1961, the
assessee has to first show that the deduction claimed as
expenditure is not being expenditure of the nature described
in Sections 30 to 36. It is not in the nature of capital
expenditure or personal expenses of the assessee. And the
converse of it is that the expenses are laid out for the purpose
of the business. The above analysis would show that the
upkeep and maintenance expenditure claimed by the owner of
rubber plantation/ assessee merits consideration as revenue
expenditure.
19.2 The question paused for our consideration since is
arising under Section 37, which, as already noted, is a
residuary provision, we keep in our perspective that in
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determining whether a particular item of expenditure is, or is
not, deductible in computing the business profits, it is
necessary first to enquire whether the deduction is expressly
prohibited under any other provision or an expenditure
described in Sections 30 to 36 of Act 1961. Therefore, in tax
parlance, the computation of income from rubber plantations
is treated as business income. In computing business income,
Sections 28 to 44DB are kept in view.
19.3 Section 37 deals with what is known as residuary
provision. The upkeep and maintenance expenses are
incurred by the assessee till the rubber tree earns income.
The test we would like to apply is whether the upkeep and
maintenance expenditure is resulting in a new capital asset or
an addition to the existing capital asset. The answer is no. The
outlay brings into existence a new capital asset, then, from any
point of view, such expenditure is nothing but capital
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expenditure. Take a case and examine where maintenance of
a capital asset is necessary for deriving income from the asset,
and whether such maintenance expenses of the asset would
become capital expenditure. The expenditure is incurred by
the assessee every year. The agricultural income is deemed as
business income from the sale of rubber. Therefore, the
available and allowable expenses are deducted in the
computation of the business income of the assessee.
20. The preponderance of legal opinion from
Travancore to Malabar is on the upkeep and maintenance
expenses incurred on replanted rubber trees as revenue
expenditures. In view of the ratio laid down in the Malayalam
Plantations Ltd case, it is not necessary to merit deduction as a
revenue expenditure the expenditure is incurred to earn
profits in the applicable assessment year. Rehabilitation
Plantations Ltd. case has expressed a view on infilling of trees
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
in the vacant area as not forming part of replantation. In
Midland Rubber and Produce Co. Ltd. a Division Bench of this case
held thus:
"Lastly, we deal with question No. 5. The Tribunal allowed
expenses relating to replacement of plants in the cardamom
area. The plea put forward by the Revenue was that it related
to immature plants and so expenditure on new plants, though
in the mature area, and should be capitalised. The Tribunal
found that the assessee has only interplanted new cardamom
plants in the place of the ones which got dried up and decayed
and in order to keep the estate well-kept, a uniform planted
area should be kept as a matter of routine. It also held that no
new planting was done in the process and what was done was
only in the nature of filling up of vacancy and not in the form
of "new plantation". On this finding, it is evident that no
question of allowing an expenditure, much less a capital
expenditure, is involved calling in aid Explanation (2) to
section 5 of the Act. In the light of the finding of the Tribunal
that what was done is only the filling up of the vacancy as a
matter of routine and for keeping a uniform planted area, the
expenditure incurred was rightly held to be revenue
expenditure. No question of law, formulated as question No.
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
5, arises on the facts of the case. Therefore, we decline to refer
the question."
21. For the above reasons and discussion, we are
convinced that the ratio in Rehabilitation Plantations Ltd. case
both on allowance and upkeep and maintenance expenses, is
incorrect. The upkeep and maintenance expenses are revenue
expenditures and the assesses are entitled to claim deduction
under Section 37 of Act 1961.
The answers to the two facets of the question referred to
the Full Bench are that:
"In the computation of business income under Rule 7A of
the Rule 1962, the assessee under Rule 7A(2) is entitled to an
allowance in respect of the cost of replacement of dead and
useless rubber trees in the rubber plantation in an area not
abandoned, subject to Section 10(31) of Act 1961. The upkeep
and maintenance expenses incurred by the assessee till the
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
maturity of rubber trees are revenue expenditures eligible for
deduction under Section 37 of Act 1961."
The question is answered accordingly. The Registry is
directed to post the ITAs before the Division Bench having a
roster to decide the cases on merits.
S.V.BHATTI
JUDGE
BECHU KURIAN THOMAS
JUDGE
BASANT BALAJI
JUDGE
jjj
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
APPENDIX OF ITA 23/2018
PETITIONER ANNEXURES
ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 12.03.2014 PASSED
BY THE RESPONDENT FOR THE ASSESSMENT YEAR 2011-12.
ANNEXURE B TRUE COPY OF THE REVISED COMPUTATION OF TEA INCOME.
ANNEXURE C TRUE COPY OF APPELLATE ORDER DATED 31.12.2015 PASSED BY
THE COMMISSIONER OF INCOME TAX (APPEALS), KOTTAYAM
ANNEXURE D TRUE COPY OF ITA NO.90/COCH/2016 DATED 09.02.2016 FILED BY
THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL,
KOCHI BENCH.
ANNEXURE E TRUE COPY OF THE DECISION IN THE CASE OF REHABITATION
PLANTATIONS LTD.
ANNEXURE F TRUE COPY OF THE RELEVANT PROVISIONS OF MEMO EXPLAINING
PROVISIONS OF FINANCE BILL, 1995.
ANNEXURE G IMPUGNED ORDER DATED 05.06.2017 OF THE APPELLATE TRIBUNAL
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
APPENDIX OF ITA 208/2013
PETITIONER ANNEXURES
ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 24.12.2009 ISSUED
BY THE ASSESSING OFFICER TO THE APPELLANT FOR THE YEAR
2007-08.
ANNEXURE B TRUE COPY OF THE ORDER DATED 28.03.2011 ISSUED BY THE
COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT.
ANNEXURE C TRUE COPY OF THE ORDER DATED 22.01.2013 ISSUED BY THE
INCOME TAX APPELLATE TRIBUNAL
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
APPENDIX OF ITA 225/2013
PETITIONER ANNEXURES
ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 24.12.2009 ISSUED
BY THE ASSESSING OFFICER TO THE APPELLANT FOR THE YEAR
2007-08
ANNEXURE B TRUE COPY OF THE ORDER UNDER SECTION 154 DATED 29.03.2010
ISSUED BY THE ASSESSING OFFICER TO THE APPELLANT.
ANNEXURE C TRUE COPY OF THE NOTIE UNDER SECTON 263 DATED 14.02.2012
ISSUED BY THE COMMISSIONER OF INCOME TAX TO THE
APPELLANT.
ANNEXURE D TRUE COPY OF THE ORDER DATED 06.03.2012 ISSUED BY THE
COMMISSIONER OF INCOME TAX TO THE APPELLANT.
ANNEXURE E TRUE COPY OF THE ORDER DATED 22.01.2013 ISSUED BY THE
INCOME TAX APPELLATE TRIBUNAL
ANNEXURE F TRUE COPY OF THE LETTER DATED 09.11.2009 FILED BY THE
APPELLANT BEFORE THE DEPUTY COMMISSIONER OF INCOME TAX
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
APPENDIX OF ITA 71/2020
PETITIONER ANNEXURES
ANNEXURE A TRUE COPY OF THE ORDER OF ASSESSMENT DATED 27.03.2015.
ANNEXURE B TRUE COPY OF THE ORDER OF CIT (A) DT. 30.10.2019.
ANNEXURE C TRUE COPY OF THE FORM OF APPEAL AND GROUNDS OF APPEAL
FILED BEFORE THE TRIBUNAL DATED. 27.12.2019.
ANNEXURE D TRUE COPY OF THE SUMMARY OF ARGUMENTS WITHOUT
ANNEXURES MENTIONED THERE IN FIELD BEFORE THE TRIBUNAL
BY THE AUTHORISED REPRESENTATIVE CHARTERED ACCOUNTANT
OF THE APPELLANT.
ANNEXURE E TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED. 01.08.2019
WHICH IS A COMMON ORDER FOR THE AY 2012-13 DATED 2013-14.
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
APPENDIX OF ITA 39/2018
PETITIONER ANNEXURES
ANNEXURE A A TRUE COPY OF ASSESSMENT ORDER DATED 28.12.2011 FOR THE
ASSESSMENT YEAR 2009-10 PASSED BY THE ASSISTANT
COMMISSIONER OF INCOME TAX, CIRCLE-1, KOLLAM.
ANNEXURE B A TRUE COPY OF THE ORDER DATED 18.12.2015 PASSED BY THE
COMMISSIONER OF INCOME TAX (APPEALS),
THIRUVANANTHAPURAM.
ANNEXURE C A TRUE COPY OF THE APPEAL MEMORANDUM DATED 24.02.2016,
ALONG WITH ANNEXURES.
ANNEXURE D THE TRUE COPY OF THE COMMON ORDER DATED 22.12.2017 IN ITA
NOS. 104 & 105/COCH/2016 ISSUED BY THE INCOME TAX
APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN.
ANNEXURE E THE DOCUMENTS EVIDENCING THE CRYSTALLIZATION OF THE
PRIOR PERIOD EXPENSES DURING THE FINANCIAL YEAR 2009-10.
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
APPENDIX OF ITA 37/2018
PETITIONER ANNEXURES
ANNEXURE A A TRUE COPY OF ASSESSMENT ORDER DATED 29.12.2010 FOR THE
YEAR 2008-09 PASSED BY THE DEPUTY COMMISSIONER OF INCOME
TAX, CIRCLE-I, KOLLAM.
ANNEXURE B A TRUE COPY OF THE ORDER DATED 18.12.2015 PASSED BY THE
COMMISSIONER OF INCOME TAX (APPEALS),
THIRUVANANTHAPURAM.
ANNEXURE C A TRUE COPY OF THE APPEAL MEMORANDUM DATED 24.02.2016,
ALONG WITH ANNEXURES FILED BY THE APPELLANT BEFORE THE
INCOME TAX APPELLATE TRIBUNAL.
ANNEXURE D THE TRUE COPY OF THE COMMON ORDER DATED 22.12.2017 ISSUED
BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH,
COCHIN.
ANNEXURE E THE DOCUMENTS EVIDENCING THE CRYSTALLIZATION OF THE
PRIOR PERIOD EXPENSES DURING THE FINANCIAL YEAR 2007-08.
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
APPENDIX OF ITA 37/2020
PETITIONER ANNEXURES
ANNEXURE A TRUE COPY OF THE ORDER OF ASSESSMENT DT. 08-12-2016
DISALLOWING THE CLAIM OF REPLANTING EXPENSE UNDER RULE
7A
ANNEXURE B TRUE COPY OF THE ORDER OF CIT (A) DT. 28-03-2018
ANNEXURE C TRUE COPY OF THE FORM OF APPEAL AND GROUNDS OF APPEAL
FILED BEFORE THE TRIBUNAL DT 14-05-2018
ANNEXURE D TRUE COPY OF THE COVERING LETTER DT 02-04-2019 OF THE
CHARTERED ACCOUNTANT OF THE APPELLANT AND ADDITIONAL
GROUNDS OF APPEAL
ANNEXURE E TRUE COPY OF THE SUMMARY OF ARGUMENTS ALONG WITH
ANNEXURES FILED BEFORE THE TRIBUNAL
ANNEXURE F TRUE COPY OF THE ORDER OF THE TRIBUNAL DT. 01-08-2019 IN ITA
NO. 239/COCH/2018 WHICH IS A COMMON ORDER INCLUDING
ANOTHER ASSESSEE NAMELY M/S. VELIMALAI RUBBER COMPANY
LTD, KOTTAYAM.
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
APPENDIX OF ITA 83/2018
PETITIONER ANNEXURES
ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 29.1.2014 PASSED
BY THE RESPONDENT FOR THE ASSESSMENT YEAR 2011-12.
ANNEXURE B TRUE COPY OF THE APPELLATE ORDER DATED 22.3.2018 PASSED BY
THE COMMISSIONER OF INCOME TAX (APPEALS), KOTTAYAM.
ANNEXURE C TRUE COPY OF I.T.A.NO.249/COCH/2018 DATED 18.5.2018 FILED BY
THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL,
COCHIN BENCH.
ANNEXURE D TRUE COPY OF ARGUMENT NOTES FILED BY THE APPELLANT
BEFORE THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN
I.T.A.NO.249/COCH/2018.
ANNEXURE E TRUE COPY OF THE DECISION DATED 21.2.2012 OF THE
HONOURABLE HIGH COURT OF KERLA IN THE CASE OF
REHABILITATION PLANTATIONS LTD IN I.T.A.NOS.126, 128 TO 132
OF 2011.
ANNEXURE F TRUE COPY OF THE RELEVANT PROVISIONS OF MEMO EXPLAINING
PROVISIONS OF FINANCE BILL, 1995.
ANNEXURE G IMPUGNED ORDER DATED 6.9.2018 OF THE INCOME TAX APPELLATE
TRIBUNAL, COCHIN BENCH, COCHIN IN I.T.A.NO.249/COCH/2018.
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
APPENDIX OF ITA 84/2018
PETITIONER ANNEXURES
ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 29/01/2014 PASSED
BY THE RESPONDENT FOR THE ASSESSMENT YEAR 2011-12.
ANNEXURE B TRUE COPY OF THE APPELLATE ORDER DATED 22/03/2018 PASSED
BY THE COMMISSIONER OF INCOME TAX (APPEALS), KOTTAYAM.
ANNEXURE C TRUE COPY OF I.T.A.NO.248/COCH/2018 DATED 18/5/2018 FILED BY
THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL,
COCHIN BENCH.
ANNEXURE D TRUE COPY OF ARGUMENT NOTES FILED BY THE APPELLANT
BEFORE THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN
I.T.A.NO.248/COCH/2018.
ANNEXURE E TRUE COPY OF THE DECISION DATED 21/02/2012 OF THE
HONOURABLE HIGH COURT OF KERALA IN THE CASE OF
REHABILITATION PLANATATIONS LTD IN I.T.A.NOS. 126, 128 TO 132
TO 2011.
ANNEXURE F TRUE COPY OF THE RELEVANT PROVISIONS OF MEMO EXPLAINING
PROVISIONS OF FINANCE BILL, 1995.
ANNEXURE G IMPUGNED ORDER DATED 06/09/2018 OF THE INCOME TAX
APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN
I.T.A.NO.248/COCH/2018.
I.T.A. Nos.201, 208, 225/2013; 23, 37, 39,83, 84/2018; 37 & 71/2020
APPENDIX OF ITA 201/2013
PETITIONER ANNEXURES
ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 24.12.2009 ISSUED
BY THE ASSESSING OFFICER TO THE APPELLANT FOR THE YEAR
2007-08
ANNEXURE B TRUE COPY OF THE ORDER DATED 28.03.2011 ISSUED BY THE
COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT
ANNEXURE C TRUE COPY OF THE ORDER DATED 22.01.2013 ISSUED BY THE
INCOME TAX APPELLATE TRIBUNAL
