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Lankashi Tea and Seed Estates P. Ltd. and anr. Vs. Commissioner of Taxes and ors. - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberWrit Petition (Civil) Nos. 1456 and 1459-61 of 1999 and Civil Rule Nos. 2784 and 2786 of 1995
Judge
ActsAssam Agricultural Income Tax Act, 1939 - Sections 2, 8, 8(1) and 8(2); Assam Agricultural Income Tax (Amendment) Act, 1989; Assam Taxation (on Specified Lands) Act, 1990 - Sections 2; Income Tax Act, 1961 - Sections 2(1A), 7, 28, 37, 37(1), 43B and 50; Income Tax Rules, 1962 - Rule 8 and 8(1)
AppellantLankashi Tea and Seed Estates P. Ltd. and anr.
RespondentCommissioner of Taxes and ors.
Appellant AdvocateB.P. Todi and S. Hazarika, Advs., W.P. (C.) Nos. 1456, 1459, 1460 and 1461 of 1999 and A.K. Saraf, K.K. Gupta, R.K. Agarwal and S.K. Kejriwal, Advs., Civil Rule Nos. 2784 and 2786 of 1995
Respondent AdvocateK.N. Choudhary, R. Dubey and J. Patowary, Advs.
DispositionPetition dismissed
Excerpt:
- - commissioner of taxes set aside the order passed by the assessing officer as well as the appellate authority and allowed the related writ petition accordingly. according to him, the intention is precisely to give a wider meaning to the provisions of section 8(2)(f)(vii) and to allow as deduction even expenses relating to business while computation of the agricultural income under the assam act. 26. referring to the second proviso to section 8(2)(h) which provides as indicated already, that in case agricultural income from cultivation, manufacture of tea, the agricultural income for the purposes of the assam act shall be deemed to be that portion of the income from cultivation, manufacture and sale which is agricultural income within the meaning of the central act and the same shall..... a.h. saikia, j.(a) issues raised under reference:1. the questions that have been referred to this larger bench by the hon'ble the then chief justice (acting) vide order dated october 31, 2005, on the administrative side for a conclusive resolution read as follows:(i) whether in view of the provisions of section 8(2)(f)(vii) of the assam agricultural income-tax act, 1939, as amended by the assam act xxiii of 1989 with effect from december 28, 1989, (for short 'the assam act'), unpaid cess under the assam taxation (on specified lands) act, 1990 (for short the 'land act'), is to be allowed as a deduction from the net agricultural income under the assam act?(ii) if not, whether in view of the decision of the supreme court in cit v. gemini cashew sales corporation , unpaid cess under the land.....
Judgment:

A.H. Saikia, J.

(A) Issues raised under reference:

1. The questions that have been referred to this larger Bench by the Hon'ble the then Chief Justice (Acting) vide order dated October 31, 2005, on the administrative side for a conclusive resolution read as follows:

(I) Whether in view of the provisions of section 8(2)(f)(vii) of the Assam Agricultural Income-tax Act, 1939, as amended by the Assam Act XXIII of 1989 with effect from December 28, 1989, (for short 'the Assam Act'), unpaid cess under the Assam Taxation (on Specified Lands) Act, 1990 (for short the 'Land Act'), is to be allowed as a deduction from the net agricultural income under the Assam Act?

(II) If not, whether in view of the decision of the Supreme Court in CIT v. Gemini Cashew Sales Corporation , unpaid cess under the Land Act has still to be allowed as a deduction from the net agricultural income under the Assam Act, in a situation where the assessee has maintained its/his accounts in the mercantile system?

(B) Provisions of law referred to and relied upon:

2. Before delving into the issues under the reference, it would be prudent and necessary to refer to those provisions of law under the related statutes to the extent relevant for the purpose of illumination of the contours of the questions raised herein and those may be noticed hereunder.

The Land Act (Assam Taxation (on specified Lands) Act, 1990.

3. Under the Land Act, the specified land is defined in Section 2(h) which 3 reads as:

(i) any land used or intended to be used for growing tea and for purposes ancillary thereto or any part of such land, in this Act referred to as 'tea estate' or

(ii) any land held for the purpose of obtaining or extracting coal or any part of such land, in this Act referred to as 'coal mine'.

Income-tax Act, 1961:

4. The meaning of the expression 'agricultural income', being relevant in the present context, as provided under Section 2(1A) of the Income-tax Act, 1961 (for short, 'the Central Act'), may be noted as under:

2.(1A) 'agricultural income' means—

(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes ;

(b) any income derived from such land by—

(i) agriculture ; or

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause;

(c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on....

5. Section 37 of the Central Act provides as under:

37.(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.'

6. The relevant provisions of Section 43B of the Central Act under the heading 'Certain deductions to be only on actual payment' essential for our discussion are quoted as follows:

43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—

(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or

(b) ... or

(c) ... or

(d) ... or

(e) ...

shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him:

Income-tax Rules, 1962:

7. Rule 8(1) of the Income-tax Rules, 1962 (for short, 'the Central Rules'), 7 envisages as under:

Income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from the business, and forty per cent, of such income shall be deemed to be income liable to tax.

The Assam Act (Assam Agricultural Income-tax Act, 1939):

8. The definition of 'agricultural income' under the Assam Act is more or 8 less in pari materia with the definition provided in the Central Act aforementioned. Under Section 2(a) of the Assam Act 'agricultural income' means—

(1) any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land revenue in Assam or subject to a local rate assessed and collected by officers of the Government as such ;

(2) Any income derived from such land by—

(i) agriculture, or

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market, or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in Sub-clause (ii).

Explanation.—'Agricultural income derived from such land by cultivation of tea' means that portion of the income derived from the cultivation, manufacture and sale of tea as is defined to be agricultural income for the purposes of the enactments relating to the Indian Income-tax.

9. Under the Assam Act, Section 8(1) provides that the agricultural income mentioned in Sub-clause (2) of Clause (a) of Section 2 shall be assessed on the net amount of such income as determined in the prescribed manner.

10. Section 8(2)(e) enumerates as under:

Rules prescribing the manner of determining the net amounts of agricultural income for the purpose of this clause shall provide that the following deductions shall be made from the gross amounts of such income, namely:

(e) any tax, or rate paid under any enactment in force in Assam on the cultivation or sale of the crop from which such agricultural income is derived ;

11. Section 8(2)(f)(vii) is the focal point that revolves around the issue under reference. This provision was amended with effect from December 28, 1989, by the Assam Act XXII of 1989 effective from 1990-91.

12. Prior to this amendment, it provided as follows:

any expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of earning or deriving the agricultural income.

13. Be it noticed herein that the aforesaid unamended Section 8(2)(f)(vii) of the Assam Act and Section 37(1) of the Central Act as quoted above, are more or less pari materia provisions.

14. After the amendment, Section 8(2)(f)(vii) of the Assam Act stands as under:

any expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose for earning or deriving the agricultural income ; provided that such expenditure, if laid out or expended wholly and exclusively for the purpose of earning income chargeable to tax under the Income-tax Act, 1961 (43 of 1961) would have been admissible for deduction under that Act.

15. Under Section 8(2)(h) of the Assam Act it is provided:

such other deductions as may be prescribed by the rules made under Section 50 of this Act:

Provided always that no deduction shall be made under this clause, if it has already been made under Section 7 of this Act or in the assessment under the Income-tax Act, 1961:

Provided further that in case of agricultural income from cultivation and manufacture of tea the agricultural income for the purposes of this Act shall be deemed to be that portion of the income from cultivation, manufacture and sale which is agricultural income within the meaning of the Indian Income-tax Act and shall be ascertained by computing the income from the cultivation, manufacture and sale of tea as computed for Indian Income-tax Act from which shall be deducted any allowance by this Act authorised in so far as the same shall not have been allowed in computation for the Indian Income-tax Act.

(C) Factual matrix:

16. In the backdrop of the forementioned provisions of law touching the factual background of the whole dispute, the facts in brief, being almost identical and similar in all these writ petitions, necessary for adjudication of the referred issues may be projected. All the writ petitioners herein are engaged in the business of plantation, manufacture and sale of tea. The writ petitioners in W.P.C. Nos. 2784 of 1995, 1456 of 1999 and 1461 of 1999 and those in W.P.(C) Nos. 2786 of 1995, 1459 of 1999 and 1460 of 1999 had submitted their respective returns of agricultural income-tax for the assessment period from 1991-92 and 1992-93, respectively, before respondent No. 3, the Agricultural Income-tax Officer, Assam, Dispur the Assessing Officer, claiming deduction of 60 per cent, of the cess on green leaves disallowed under the Central Act in exercise of power under section 43B of the Central Act, as has already been referred to above, on the plea that in a case where the assessee himself grew or manufactured tea, in terms of the Explanation to Section 2(a) of the Assam Act, the agricultural income derived from such land by the cultivation, manufacture and sale of tea would be the agricultural income for the purposes of the Central Act, then 40 per cent, of such income derived from the sale of tea grown or manufactured, as per Rule 8 of the Rules, should be deemed as income liable to tax under the Central Act and the balance 60 per cent, was to be regarded as agricultural income liable to be taxed under the Assam Act from which further deductions as allowable under the Assam Act, were to be made and as such since there was no provision similar to Section 43B of the Central Act contained in the Assam Act so as to restrict the allowability of deduction on the ground that the amount was to be deducted only if this was paid within the specified period as provided in the Central Act, the cess, being wholly related to agricultural activity, the petitioners were entitled to get deductions.

17. The Assessing Officer disallowed the claim of the petitioners in respect of 60 per cent, of the amount of disallowed cess under Section 43B of the Central Act holding that unpaid cess was not allowed as admissible/allowable deduction from composite business income under Section 43B of the Central Act, in view of Section 8(2)(f)(vii) of the Assam Act.

18. Being aggrieved by the said rejection order of respondent No. 3, the petitioners went on statutory appeal and the view taken by the Assessing Officer was upheld in appeal. Hence, this bunch of writ petitions before the single Bench of this Court claiming similar relief granted in a case reported in Phukenbari Tea Co. P. Ltd. v. Commissioner of Taxes mentioned hereinbelow.

19. In an earlier case exactly on the similar fact situation, the single Bench in Phukenbari Tea Co. P. Ltd. v. Commissioner of Taxes set aside the order passed by the Assessing Officer as well as the appellate authority and allowed the related writ petition accordingly. However, while deciding the said case, the amended provision of Section 8(2)(f)(vii) of the Assam Act in question was not brought to the notice of the court and the judgment was rendered without taking into account the said amendment which was made effective from December 28, 1989.

20. This fact was noticed by another co-ordinate Bench at the time of signing the final order disposing of the present batch of writ petitions, which was heard and dictated in the open court on March 31, 2005, deciding to allow this batch of writ petitions following Phukenbari's case and it was viewed therein necessitating the present reference as follows:

7. Learned Counsel for the petitioners, at the hearing, had tried to steer away from the decision of this Court in Phukenbari Tea Co. and have advanced arguments to the effect that notwithstanding the amendment to Section 8(2)(f)(vii) of the Assam Act, unpaid cess, though it is not to be allowed as a deduction under the Income-tax Act until actual payment thereof, would still be allowable under the Assam Act. The learned Additional Advocate General of the State, who has appeared on behalf of the Revenue, on the other hand, has contended that the otherwise broad provisions contained in the first part of Section 8(2)(f)(vii) have been restricted in operation by the addition of the proviso by the amendment made and if a deduction is not admissible or allowable under the Central Act, similar will be the position under the Assam Act. Learned Counsel for both sides have submitted that this Court may proceed to decide the present cases on the merits and on the arguments raised without reference to the decision rendered in Phukenbari Tea Co. by holding the aforesaid decision to have been rendered sub silentio.

After due consideration of the matter, I am of the view that it would be an act of judicial impropriety for another co-ordinate Bench to do so. If this Court proceeds to decide the cases on the merits and is unable to accept the arguments of the writ petitioners, a conclusion contrary to what has been recorded in Phukenbari will have to be reached giving rise to two contrary/conflicting conclusions of two co-ordinate Benches on the same question of law. Not only that, in the aforesaid event, the application of the law laid down by the apex court in Gemini Cashew Sales Corporation will still have to be determined….

21. In view of the above, all these six writ petitions have been referred to this Full Bench for an authoritative pronouncement on the questions above noted.

(D) Contentions of the rival parties:

22. Heard Dr. B.P. Todi and Dr. A.K. Saraf, learned Senior Counsel assisted 22 by Mr. K.K. Gupta, Mr. S. Hazarika, Mr. R.K. Agarwal, Mrs. S.K. Kejriwal and Miss N. Hawlia, learned Counsel for the petitioners, and Mr. K.N. Choudhury, learned Additional Senior Advocate General, Assam, assisted by Mr. R. Dubey and Mr. J. Patowary, learned Counsel appearing for the Revenue/State of Assam.

(a) Arguments on behalf of the petitioners:

23. Assailing the disallowance of deduction in respect of 60 per cent, unpaid 23 amount of cess payable on green tea leaves under the Land Act relating to agricultural activity by the Revenue authorities below, Dr. Todi, learned Senior Counsel has contended that although there is no dispute that there is no provision akin to Section 43B of the Central Act contained in the Assam Act so as to restrict the availability of deduction on the ground that the amount be deducted only if it is paid within the specified period as contained under the Central Act, both the Revenue authorities below misconstrued the amended provision to Section 8(2)(f)(vii) of the Assam Act as the provision added in Sub-clause (vii) does not fetter the expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of earning or deriving the agricultural income. The cess, being wholly and exclusively laid out for the purpose of earning or deriving agricultural income, the respondents are not correct that the petitioners were not entitled to such deductions.

24. In the same breath, Dr. Saraf, learned Senior Counsel has strenuously submitted that by the amendment made in Section 8(2)(f)(vii) the scope of the provision has been widened and the same has been put at par with that of Section 37 of the Central Act and as such, the legislative intent in making such amendment is very clear. According to him, the intention is precisely to give a wider meaning to the provisions of Section 8(2)(f)(vii) and to allow as deduction even expenses relating to business while computation of the agricultural income under the Assam Act. Such amended provision only puts a limitation relating to the deduction to the admissibility of expenditure for deduction under the Central Act.

25. It is further contended by both learned Senior Counsel that after such amendment, if an expenditure is admissible for deduction, under the Central Act, the same cannot be disallowed as deduction from the agricultural income on the ground that the same cannot actually be allowed as deduction under the Central Act because of the provisions of Section 43B of the Central Act. After the amendment in question, it cannot be said, the expenditure actually deductible under the Central Act can only be allowed as deduction.

26. Referring to the second proviso to Section 8(2)(h) which provides as indicated already, that in case agricultural income from cultivation, manufacture of tea, the agricultural income for the purposes of the Assam Act shall be deemed to be that portion of the income from cultivation, manufacture and sale which is agricultural income within the meaning of the Central Act and the same shall be ascertained by computing the income from cultivation, manufacture and sale of tea as computed for the Central Act from which the same shall be deducted by allowances by the Assam Act authorised in so far as the same shall not have been allowed in the computation for the Central Act, learned senior counsel have submitted that such provision, having overriding effect over Section 8(2)(f)(vii), clearly provides that allowances authorised by the Assam Act shall be allowed as deductions from the agricultural income laid out unassessed under the Central Act as per Rule 8 of the Rules subject to the condition that the same should not have been allowed as a deduction while computation of the income under the Central Act.

27. It is also argued that before applicability of Rule 8 of the Rules, all the expenditure as allowable under the Central Act are is be allowed as deduction inasmuch as the entire income from cultivation, manufacture and sale of tea is construed to be a business income. If an expenditure is, therefore, already allowed as deduction, the question of allowing the same as deduction from the agricultural income by applying the second proviso above-mentioned does not arise because the second proviso intends only to allow as deduction from the agricultural income, the expenses provided for in Section 8 of the Act in so far as the same have not been allowed as deductions while computation of income under the Central Act. According to learned senior counsel, a conjoint reading of the second proviso above noted and this amended Section 8(2)(f)(vii) makes it explicitly clear that Section 8(2)(f)(vii) after its amendment provides for deduction of those expenses which are admissible for deduction under the Central Act. In view of the same, it is forcefully submitted that to give Section 8(2)(f)(vii) a contrary meaning will make the second proviso to Section 8(2)(h) redundant.

28. In totality, it is strongly contended by both Dr. Todi and Dr. Saraf that the scheme under Section 8 of the Assam Act as a whole does not restrict the petitioners' claim for cess laid out or expended wholly or exclusively for the purpose of deriving the agricultural income though the same was not actually paid.

(b) Submissions advanced by the Revenue:

29. Refuting categorically the averments and submissions advanced on 29 behalf of the petitioners, Mr. Choudhury, learned Additional Advocate General, Assam, has emphatically contended that there was no patent illegality or any jurisdictional error in disallowing the deduction of the expenditure claimed by the petitioners on account of unpaid amount of cess payable under the Land Act as the same was not allowed as a deduction from the composite income under the Central Act in view of the specific provisions, as amended in Section 8(2)(f)(vii) of the Assam Act. The stand of the State-respondents is that the proviso in question, added by way of amendment in 1989, is the provision, which authorises the agricultural tax authority of the State to disallow an expenditure which has been incurred from agricultural income under the Assam Act unless the expenditure is actually incurred/paid during the previous year corresponding to the relevant assessment year.

30. It is further contended that the amendment in question has put a restriction on the admissibility of expenditure incurred by an assessee for the purposes of assessing agricultural income under the Assam Act by providing that such expenditure must also be actually admissible under the Central Act specially with reference to Section 43B thereof under which only expenditure actually incurred/paid is admissible. Learned Senior Counsel for the Revenue has urged that Section 43B of the Central Act, starting with a non obstante clause, has an overriding effect over Section 37(1) of the same Act and the phrase 'for the purpose of business' in Section 37(1) carries a wider meaning in its tone and tenor than the expression 'for the purpose of deriving agricultural income' appearing in Section 8(2)(f)(vii) of the Assam Act. Though concededly cess on green tea leaves is admissible for deduction under the Central Act, the admissibility of such deduction has been restricted by Section 43B(a) of the Central Act which provides for deduction of such expenditure, i.e., cess on actual payment basis not on due basis.

31. In such a background of the legislative intent, according to the learned Additional Advocate General, the decision in Phukenbari's case needs to be reconsidered by this Court as while deciding the Phukenbari's case , it did not take note of the proviso added to Section 8(2)(f)(vii) by the Assam Act and it was held therein that there was no provision as such similar to Section 43B of the Central Act to refuse the deductions as asserted.

32. Mr. Choudhury, learned Senior Counsel has submitted that had this amendment in question been taken note of in Phukenbari's case the decision ought to have been resulted otherwise ; meaning thereby the decision of disallowance of the deduction of unpaid amount of cess by the Revenue authority would have been affirmed without any interference.

(E) Reasons for resolution:

33. The resolution of the issue under reference is basically based on the interpretation of the amended provision to Section 8(2)(f)(vii) of the Assam Act as already noticed above. While the contention of the petitioners is that the proviso by way of amendment has not placed any embargo on the operation of the preceding provision of the enactment of Section 8(2)(f)(vii) itself but suitably has widened the scope of the general enactment reflecting the clear intention of the Legislature to give and provide useful meaning to the provision of Section 8(2)(f)(vii) so as to allow a deduction in the expense relating to business income while computing the agricultural income under the Assam Act, it is the stand of the Revenue that the unpaid cess must not be allowed as an allowable deduction from the composite business income in view of the specific provision of Section 43B of the Central Act which strictly provides for deduction only on actual payment read with the amended provision of Section 8(2)(f)(vii) of the Act.

34. Prior to December 28, 1989, i.e., the amendment in question, deduction permissible under Section 8(2)(f)(vii) of the Assam Act as regards any expenditure (not being in the nature of capital expenditure) laid out or expended wholly or exclusively for the purpose of earning or deriving the agricultural income was not subject to any condition. However, it is only after such amendment, the question has been posed in regard to permissibility/allowance of such deduction resorting to Section 43B of the Central Act.

35. With the aid of the unamended provision of law under Section 8(2)(f)(vii) and without having noticed such amendment in question the single Bench in Phukenbari Tea Co's case allowing the writ petition that raised the similar and identical issue like the present one, by setting aside both the findings of the Assessing Officer as well as the appellate authority below, held that since there was no provision in the Assam Act being those contained in Section 43B of the Central Act, the deduction of amount of cess payable under the Land Act, being allowable or admissible under the Assam Act, therefore, could not be refused on the ground that the same was not actually paid. Furthermore, the Bench relying on Gemini Cashew Sales Corporation's case took the view that if the accounts of the assessee were maintained in the mercantile system of account, such deduction must be allowed.

36. Phukenbari Tea Co's case :

37. For ready reference the relevant portion of Phukenbari Tea Co's case 37 may be extracted hereinunder (page 367):

In this case, there is no dispute at the Bar that the amount of cess on green tea leaves was payable by the petitioner-company. The petitioner-company is engaged in the business of production and sale of green tea leaves only and as such they are not liable to pay income-tax but are liable to pay agricultural income-tax only.

The claim of the petitioner-company was rejected on the ground that the claim of deduction in respect of unpaid provision is not an allowable deduction either under Section 8(2)(e) or Section 8(2)(f)(vii) of the Agricultural Income-tax Act, 1939, for short 'the Act'.

Section 8(2)(f)(vii) reads as follows:

(vii) any expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of earning or deriving the agricultural income.

From the above, I find that any accrued liability laid out is an allowable deduction and deduction of payment of cess on green tea leaves is no doubt an accrued liability of the company.

Section 8(2)(e) reads as follows:

(e) any tax, or rate paid under any enactment in force in Assam on the cultivation or sale of the crop from which such agricultural income is derived ;

The Assessing Officer as well as the appellate authority laid emphasis on the word 'paid' and drawing reference to section 43B of the Income-tax Act, held that the tax, duty, cess or fee not paid during the accounting year cannot be allowed to be deducted. Section 43B of the Income-tax Act is very specific and provides that only the tax, duty, cess or fee actually paid in the accounting year shall be computed for deduction. However, there is no such identical provision in the Assam Agricultural Income-tax Act. Section 37 of the Act provides for such allowance.

It is the case of the petitioner-company that they are maintaining their accounts in the mercantile system. In the above system of accounting on which the cess is payable cannot be considered again and the amount which is paid and received be shown as expenditure…. In view of the specific provisions under Section 43B of the Income-tax Act the meaning of the word 'paid' is clear, i.e., the 'amount actually paid' but in the absence of any identical provision in the Act and in view of the system of accounting adopted by the petitioner, I find that both the Assessing Officer and the appellate authority were wrong in disallowing the deduction.

Gemini Cashew Sales Corporation's case .

38. In arriving at the final conclusion in Phukenbari's case , considering the maintenance of the account by the petitioner therein in the mercantile system, reliance has been placed on Gemini Cashew's case . The relevant portion of the above case, referred to in Phukenbari's case , occurred at page 650, which reads as follows:.where accounts are maintained on the mercantile system, if liability to make the payment has arisen during the time the business is carried on, it may appropriately be regarded as expenditure.

39. The question that arose to be determined in Gemini Cashew's case was whether the liability which arose on transfer of the business was to be regarded as a permissible outgoing in the account of the business which was transferred. What happened therein was that after dissolution of the partnership firm on the death of one of the two partners, the business was taken over and continued by the other surviving partner on his own account and the services of the employees were not interrupted ; even there was no alteration in the terms of their employment. In proceedings for assessment of tax, it was urged on behalf of the firm that a certain amount taken into account under the head 'Gratuity payable to the workers of the business' in settling the accounts of the firm till the death of the other partner was a permissible outgoing. That claim was rejected by the Revenue authorities below. Though the matter was moved before the Income-tax Appellate Tribunal as well as the High Court, eventually it reached the Supreme Court on appeal preferred by the Revenue.

40. While allowing the appeal, the Supreme Court maintained the claim of the petitioner though it held to the effect as quoted above as regards the maintenance of the accounts on the mercantile system. However, immediately after the above quoted observation the apex court further opined as follows (page 650):

But where the liability is, during the whole of the period that the business is carried on, wholly contingent and does not raise any definite obligation during the time that the business is carried on, it cannot fall within the expression 'expenditure laid out or expended wholly and exclusively for the purpose of the business.

41. The decision in Phukenbari's case was subsequently followed by another single Bench of this Court in an unreported judgment in W.P.(C) No. 946 of 1999 (Hollonghabi Tea Estate v. Commissioner of Taxes).

42. Obviously, the decision in Phukenbari's case relying on Gemini Cashew's case and followed in Hollonghabi Tea Estate's case, was rendered by the single Bench manifestly without taking into account the effect of the provision to Section 8(2)(f)(vii) as effected by the amendment in question as the same was not brought to the notice of the court.

Proviso interpreted:

43. Now the fundamental question that arises for discussion and consideration is as to what is the nature, scope and extent of a proviso. Commonly a proviso is meant to be an exception to something within the main enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. The effect of an excepting or qualifying proviso, according to the ordinary rules of construction, is to except out of the preceding portion of the enactment, or to qualify something enacted therein, which but for the proviso would be within it (see Craies ; Statute Law—seventh edition at page 218). In the construction of a proviso, it has been normally stated that the function of a proviso is to limit the main part of the section and carve out something which but for the proviso would have been within the operative part.

44. In Shah Bhojraj Kuverji Oil Mills and Ginning Factory v. Subhash Chandra Jograj Sinha reported in , the apex court, speaking through M Hidayatullah J., as he then was, very concisely and accurately indicated in paragraph 9 (page 1600) the parameters of a proviso as under:

The law with regard to provisos is well-settled and well-understood. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso is not interpreted as stating a general rule.

45. The apex court in State of Rajasthan v. Mrs. Leela Jain in paragraph 14 made the following observation:

So far as a general principle of construction of a proviso is concerned, it has been broadly stated that the function of a proviso is to limit the main part of the section and carve out something which but for the proviso would have been within the operative part

46. In another case reported in STO v. Hanuman Prasad : [1967] 19 STC 87 in paragraph 5 (page 567) it was held as under (page 91 of [1967] 19 STC):

It is well recognised that a proviso is added to a principal clause primarily with the object of taking out of the scope of that principal clause what is included in it and what the Legislature desires should be excluded....

47. The rule of interpretation of a proviso was succinctly and very aptly dealt with by the Supreme Court in the case of S. Sundaram Pillai v. V.R. Pattabiraman reported in . The aforesaid judicial authority speaking through S.M. Fazal Ali J., in majority view, relying upon a catena of decisions of its own court, laid down the scope of a proviso in paragraph 43, at page 610, which runs as under:

43. We need not multiply authorities after authorities on this point because the legal position seems to be clearly and manifestly well established. To sum up, a proviso may serve four different purposes:

(1) qualifying or excepting certain provisions form the main enactment;

(2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable ;

(3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and

(4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision.

48. Vepa P. Sarathi in Interpretation of Statutes, Fourth edition, 2003 under head 8 proviso at page 374 outlined as many as 10 principles in regard to a proviso and those are as follows:

(a) When one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject-matter of the proviso.

(b) A proviso must be construed with reference to the preceding parts of the clause to which it is appended.

(c) Where the proviso is directly repugnant to a section, the proviso shall stand and be held a repeal of the section as the proviso speaks the latter intention of the makers.

(d) Where the section is doubtful, a proviso may be used as a guide to its interpretation ; but when it is clear, a proviso cannot imply the existence of words of which there is no trace in the section.

(e) The proviso is subordinate to the main section.

(f) A proviso does not enlarge an enactment except for compelling reasons.

(g) Sometimes an unnecessary proviso is inserted by way of abundant caution.

(h) A construction placed upon a proviso, which brings it into general harmony with the terms of section should prevail.

(i) When a proviso is repugnant to the enacting part, the proviso will not prevail over the absolute terms of a later Act directed to be read as supplemental to the earlier one.

(j) A proviso may sometimes contain a substantive provision.

49. In Union of India v. Sanjay Kumar Jain reported in in paragraphs 11 and 12 the Supreme Court demarcating the normal function of a proviso held as follows (pages 712 and 713):

11. The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment....

12. A statutory proviso 'is something engrafted on a preceding enactment' R. v. Taunton St. James (Inhabitants) [1829] 109 ER 309.

The ordinary and proper function of a proviso coming after a general enactment is to limit that general enactment in certain instances' (per Lord Esher in Barker, Re [1890] 25 QBD 285).

50. In view of the above well-established principles on the scope and the ambit of a proviso, we shall now proceed to examine the extent and effect of the proviso under Section 8(2)(f)(vii) of the Assam Act by inserting the amended proviso to the existing provision of Section 8(2)(f)(vii). It can be clearly stated that the amended provision does not enlarge the original enactment but has put a restriction to the enacted provision. The scope of admissible deductions is widened. The language used by the Legislature in the proviso is clear and unambiguous. This proviso has intended that such expenditure (not being in the nature of capital expenditure), to be allowable deduction under Section 8(2)(f)(vii), if laid out or expended wholly or exclusively for the purpose of earning income chargeable to tax under the Central Act would have been admissible for deduction under that Act. Meaning thereby the deduction expenditure if laid out or expended wholly and exclusively for the purpose of earning or deriving the agricultural income under the Assam Act would be allowable, if the same is actually admissible deduction under the Central Act. In other words the deduction which has not been allowed from the composite income under the Central Act cannot be allowed as a deduction while determining the agricultural income under the Assam Act.

51. In the light of the above cited judicial authorities on the construction of the scope of a proviso and also on ordinary reading of Section 8(2)(f)(vii), as amended, it appears that the legislative intendment in inserting the proviso by way of amendment in 1989 is that the Revenue authority under the Assam Act is authorised to disallow an expenditure which has been incurred for earning agricultural income under the Assam Act subject to condition that such expenditure is actually paid during the previous period corresponding to the relevant assessment year.

52. It may be usefully noticed herein that the unamended Section 8(2)(f)(vii) and Section 37 of the Central Act are pan materia provisions. When Section 37 of the Central Act does not visualise a concept on actual payment as is understood under section 43B of the Central Act, the amended proviso has to be assigned its due meaning having referred to the legislative intent in incorporating the amendment.

53. The argument advanced on behalf of the petitioners to the effect that the amended proviso enlarges the scope of admission of deduction rather than restricting it if it is read with the second proviso of Section 8(2)(h) cannot be legally sustained in view of the clarity and unambiguity in the amended proviso.

54. On a careful perusal of the amended proviso it appears that the restriction that has been imposed by such amended proviso is that in order to be an admissible deduction under the Assam Act, the expenditure should not only be allowable but it should also be actually admissible and such interpretation would definitely be in consonance with the legislative intent sought to be achieved by the amendment in question. Otherwise, the amendment brought by the State Legislature would make itself a futile exercise.

55. The proviso to Section 8(2)(f)(vii) as amended, in the light of the judicial authorities referred to hereinabove with regard to the construction of a proviso as well as the principles Nos. (c) and (f) as quoted in paragraph 32 (page 531 supra) abovenoted propounded by Sarathi, speaks of the latter intention of the maker and the same does not enlarge the scope of the general enactment of Section 8(2)(f)(vii) as it stood prior to amendment.

56. In the premises of the attending facts of the case, no compelling or plausible reason can be inferred so as to interpret the provision of Section 8(2)(f)(vii) on its amendment, in an otherwise broader sense beyond its enacted limitation.

57. That being so, we are of the considered view that the amended proviso insists on fulfilment of certain mandatory condition to the effect that the cess on green tea leaves is admissible for deduction under the Assam Act subject to the restriction imposed by Section 43B of the Central Act providing for deduction of such cess on actual payment basis in order to make the enactment workable.

Taxing statute:

58. Besides, a taxing statute, as a general rule, needs to be interpreted strictly. In the case of two views, when one speaks of that the exemption should be liberally construed in favour of the assessee and the other is that since exemption from taxation increases the burden on other members of the society, it should be construed strictly and in the case of doubt, against the assessee. (Ref: Sarathi: Interpretation of Statutes, Fourth edition, 2003 page 513). The apex court in J.K. Woollen Manufacturers v. CIT reported in held as under (page 616 of [1969] 72 ITR):

In applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Income-tax Department.

59. In a recent case reported in District Registrar and Collector v. Canara Bank , the Supreme Court in paragraph 10 (page 508) dealing with the principles of interpretation of taxing statute has held that if the letter of law is clear and unambiguous, there is no scope for equity and judiciousness.

(F) Findings:

60. In view of what have been discussed hereinabove as regards the interpretation of a proviso as well as strict consideration of a taxing statute, in our firm opinion, unpaid cess payable under the Land Act is not to be allowed as a deduction from the net agricultural income under the Assam Act in view of the provision of Section 8(2)(f)(vii) of the said Act as amended in 1989. As such the findings of the appellate authority confirming the views of the Assessing Officer below do not call for any interference.

61. Due to specific limitation/restriction embodied in the provision of Section 8(2)(f)(vii) of the Assam Act on being amended and bearing in mind the fact situation occurred in Gemini Cashew's case as already recorded in paragraphs 24(b) and (c)(pages 528 and 529 supra) hereinabove, this Full Bench is of the considered view that the question of granting benefit for maintenance of accounts on the mercantile system, for being appropriately recorded as expenditure in the case of liability to make the payment having arisen during the time the business is carried on, does not arise and as such though the assessee has maintained its/his accounts on the mercantile system, unpaid cess under the Land Act cannot be permitted to be allowed as a deduction from the net agricultural income under the Assam Act. It can, therefore, be safely held that the ratio of Gemini Cashew's case to the extent of maintenance of accounts on the mercantile system has no applicability herein.

62. Since the amended provision of Section 8(2)(f)(vii) of the Assam Act was not brought to the notice of the single Bench in pronouncement of Phukenbari's case , we are constrained to hold that in the absence of application of the abovementioned amended provision, the law laid down in Phukenbari's case could not be correctly stated and this view shall also be extended to the subsequent cases including Hollonghabi Tea Estate's case (supra) that followed Phukenbari's case .

(G) Conclusion:

63. For the foregoing reasons, discussions and observations, the two questions referred to in paragraphs 1(1) and 1(11) are hereby answered accordingly.

64. In the result, the petitioners in this batch of writ petitions are not entitled to get any relief as prayed for. Accordingly all these six writ petitions stand dismissed.


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