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Commissioner of Agricultural Income-tax Vs. Phalton Sugar Works Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberMaharashtra Agricultural Income-tax Reference No. 93 of 1976
Judge
Reported in[1980]121ITR920(Bom)
ActsMaharashtra Agricultral Income Tax Act, 1962 - Sections 2, 2(1), 3, 4, 5, 8, 9, (15) and (16); Income Tax Act, 1961 - Sections 43 and 43(6); Maharashtra Agricultral Income Tax Rules, 1962 - Rules 3 and 5; Income Tax Act, 1886; Income Tax Act, 1922; Saurashtra Income Tax Ordinance, 1949
AppellantCommissioner of Agricultural Income-tax
RespondentPhalton Sugar Works Ltd.
Appellant AdvocateG.S. Jetly, Adv.
Respondent AdvocateY.P. Trivedi, Adv.
Excerpt:
direct taxation - agricultural income - sections 2, 2 (1), 3, 4, 5, 8, 9 of maharashtra agricultural income tax act, 1962 and sections 43 and of income tax act, 1961, rules 3 and 5 of maharashtra agricultural income tax rules, 1962, income tax act, 1886, income tax act, 1922 and saurashtra income tax ordinance, 1949 - whether method adopted by agricultural income-tax officer (ito) for computing respondent's total agricultural income based on quantity of sugarcane crushed and then calculating income for two half yearly periods on basis of tonnage of sugarcane crushed during said two half yearly periods correct - ito should have taken market value of actual tonnage crushed during previous year - he should have further added to such income agricultural income earned by assessee from other.....madon, j.1. a case has been stated and five questions referred to this court by the maharashtra sales tax tribunal under sub-s. (1) of s. 39 of the maharashtra agrl. i.t. act, 1961 (maharashtra act no. xli of 1962), at the instance of the commr. of agrl. i.t. these five questions are as follows : '(1) whether, on the facts and in the circumstances of the case, the tribunal was justified in law in holding that the method adopted by the agricultural income-tax officer for the purpose of computing the respondents total agricultural income based on the quantity of sugarcane crushed, that is, by arriving at the average income per ton of sugarcane crushed during the respondents' two accounting years ending on september 30, 1961, and september 30, 1962, respectively, and then calculating the.....
Judgment:

Madon, J.

1. A case has been stated and five questions referred to this court by the Maharashtra Sales Tax Tribunal under sub-s. (1) of s. 39 of the Maharashtra Agrl. I.T. Act, 1961 (Maharashtra Act No. XLI of 1962), at the instance of the Commr. of Agrl. I.T. These five questions are as follows :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the method adopted by the Agricultural Income-tax Officer for the purpose of computing the respondents total agricultural income based on the quantity of sugarcane crushed, that is, by arriving at the average income per ton of sugarcane crushed during the respondents' two accounting years ending on September 30, 1961, and September 30, 1962, respectively, and then calculating the income for the two half yearly periods of the respondent's previous year ending on March 31, 1962, on the basis of tonnage of sugarcane crushed during the said two half yearly periods; was not correct

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the correct method is to make apportionment of income on time basis on the basis of assumption that the agricultural activities have to commence right from the stage when the land is ploughed or made fit for the purpose of planting the sugarcane plant into it

3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in coming to the conclusion that the expenditure is laid out wholly and exclusively for the purpose of deriving agricultural income in the absence of any finding by the lower authorities on the merits of each item of expenditure in the light of the Supreme Court decision in Purtabpore Company Ltd. v. State of Uttar Pradesh, : [1971]1SCR426

4. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that whenever there was a common charge, the determination made by the Income-tax Officer must be accepted by the Agricultural Income-tax Officer for allowing the expenditure under clause (b) of the proviso to section 9 of the Maharashtra Agricultural Income-tax Act, 1962

5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the respondents were entitled to claim depreciation on the basis of the cost price of their assets within the meaning of sub-section (6) of section 8 read with clause (16) of section 2 of the Maharashtra Agricultural Income-tax Act, 1962, and rule 3 of the Maharashtra Agricultural Income-tax Rules, 1962, and not on the basis of the cost price less depreciation allowable under the said Act ?'

2. The assessee, who are the respondents before us, are a public limited company. They own as well as are lessees of several acres of land situate in Phalton Taluka, Poona District, in the State of Maharashtra. The assessee cultivate these lands mainly for sugarcane crop and partly for food crops and cotton. The assessee also own a sugar factory situate on their land in which they crush and manufacture into sugar the sugarcane obtained from their agricultural lands. They have laid out a railway line extending over 36 miles in that area for transporting sugarcane to the factory and also for transporting crushed sugar to the main railway junction. The assessee maintain separate accounts in respect of their plantation department as also in respect of their manufacturing department.

3. Under Entry 46 in List II of the Seventh Schedule to the Constitution of India read with art. 246 of the Constitution taxes on agricultural income are a State subject. Prior to 1962, there was no Act passed by the Legislature of the State of Maharashtra levying tax on agricultural income. On December 15, 1962, the State of Maharashtra passed on Act entitled the Maharashtra Agricultural Income-tax Act, 1962 (Maharashtra Act No. XLI of 1962) (hereinafter for the sake of brevity referred to as 'the Act'), levying for the first time tax on agricultural income. Under s. 1(3) of the Act, the Act was deemed to have come into force on the 1st day of April, 1962. Thus the Act had retrospective operation from April 1, 1962. Under the Act agricultural income-tax is levied in respect of the total agricultural income of the previous year. The year of assessment as defined in the Act is a period of twelve months commencing on the 1st day of April every year. In the case of the previous year in respect of the income on which tax is levied, it was, inter alia, provided in the Act that the previous year would be the financial year immediately preceding the year of assessment, or if the accounts of the assessee had been made up to a date within the said financial year, then at the option of the assessee the twelve months ending on such date. The assessee's accounting year was from October 1 to September 30, and it was for this accounting period that the assessee were being assessed to income-tax under the Indian I.T. Act, 1922, and the I.T. Act, 1961. In respect of their assessments under the Act the assessee could have exercised their option to select their accounting year as their previous year. The assessee, however, did not exercise such option and preferred to be taxed in respect of the previous year which was the financial year.

4. The assessee filed their returns before the Agrl. ITO in respect of the previous year April 1, 1961, to March 31, 1962, for the assessment year April 1, 1962, to March 31, 1963. The returns so filed by them comprised halves of two accounting periods, namely, the second half of the accounting year October 1, 1960, to September 30, 1961, and the first half of the accounting year October 1, 1961, to September 30, 1962. The assessees submitted before the Agrl. ITO their profit and loss accounts for these two accounting years. The profit and loss account for the first accounting year, namely, October 1, 1960, to September 30, 1961, showed a profit of Rs. 3,48,725, and after adjusting certain expenses the statement filed by the assessees showed a net agricultural income, subject to depreciation and managing agency commission, of Rs. 3,98,645. As this income was for the whole accounting year, only the second half of which fell within the previous year, the assessees divided this amount by half and rounded off the income for the period April 1, 1961, to September 30, 1961, at Rs. 1,99,322. For the accounting year October 1, 1961, to September 30, 1962, the profit and loss account of the assessees showed a loss of Rs. 2,25,338 and after adjusting certain expenses the statement filed by the assessees showed a loss for that year in the sum of Rs. 2,28,377. As this loss was for the whole accounting year only the first half of which fell within the previous year, the assessee divided the amount of this loss by half and rounded it off to show a loss of Rs. 1,14,188. Setting off this loss against the income of Rs. 1,99,322, shown by the assessees for the second half of the first accounting year, the assessee showed in respect of the previous year an agricultural income of Rs. 85,134. Against this income the assessees adjusted certain amounts for depreciation and manager's salary, and the result so brought about was a loss of Rs. 1,18,535 in respect of the previous year.

5. In their assessment proceedings the assessees contended that since their previous year was different from their accounting year and involved parts of two accounting years, the proper method of arriving at their agricultural income for the previous year taxable under the Act was to take the results arrived at by them in the profit and loss accounts and the statements filed by them for the two accounting years and seeing that their previous year included equal halves of such accounting years to divide the net result of each year by half and total the results so obtained. At this stage it may be mentioned that the account books of the assessees have been accepted as correct both by the ITO, in their I.T. assessment, and by the Agrl. ITO. There is thus no controversy between the parties with respect to the correctness of any of the amounts shown in the assessees' books or in their profit and loss accounts. According to the Agrl. ITO, however, the method canvassed for by the assessee for computing their agricultural income was an erroneous one. He held that as the crushing season of sugarcane commenced generally from October and ended by May, in respect of the period April 1, 1961, to September 30, 1961, there were only two months in which actual crushing took place, namely, in the months of April and May, 1961, and in respect of the period October 1, 1961, to March 31, 1962, there were five months during which crushing had taken place. He accordingly took into account the total quantity of sugarcane crushed during these months. Further, in order to arrive at the agricultural income taxable under the Act the Agrl. ITO took into account the profit and loss accounts and the statements filed by the assessees for the two accounting years, disallowed from them certain items claimed as allowances and deductions by the assessees and worked out for each accounting year the income in respect thereof an this basis. He divided the result so arrived at by the total quantity of sugarcane crushed during that accounting year and arrived at the average rate of Rs. 6.93 per ton of sugarcane crushed. He then multiplied the quantity crushed during the period April and May, 1961, by the average rate of Rs. 6.93 per ton. So far as the period October 1, 1961, to March 31, 1962, was concerned, he multiplied the total quantity of sugarcane crushed during that period by an average rate of Re. 1.34 worked out by him as aforesaid. Apart from their sugarcane crops and sugarcane activities the assessees were also growing food crops and cotton. In these activities the assessees had admittedly suffered a loss. The Agrl. ITO treated this head of agricultural income as being wholly separate. He refused to accept the assessees' contention that the expenses of growing these crops and cotton should be set off or, in other words, deducted from the agricultural income earned from growing sugarcane. He instead took the agricultural income of food crops and cotton as being nil, and refusing to take into account the expenses incurred in respect thereof he arrived at the total agricultural income of the assessee for the previous year. He also refused to allow to the assessees the amount of depreciation claimed by them but granted to them a much lesser amount by way of depreciation. The result was that he worked out the total agricultural income of the assesses at Rs. 2,63,571.15 and after deducting therefrom the initial exempted levy of Rs. 36,000 the assessment order showed a net taxable income of Rs. 2,27,571.15 and the tax payable as Rs. 1,13,786.

6. Against this assessment order the assessees filed an appeal under s. 31 of the Act to the Asst. Commr. of Agrl. I.T. By this order the Assistant Commissioner rejected the assessees' contention as to the method to be adopted in determining the agricultural income for the previous year. He, however, set off the loss incurred by the assessees in respect of food crops and cotton. He further allowed depreciation of certain items claimed by the assessees. He thus worked out the assessees' total income at Rs. 1,85,413, and after deducting therefrom the initial exempted levy of Rs. 36,000 he assessed the net taxable income as Rs. 1,49,413 and the tax payable as Rs. 74,706. The assessees thereupon filed a second appeal to the Maharashtra Sales Tax Tribunal under s. 32 of the Act. The Tribunal upheld all the contentions of the assessees. According to the Tribunal, agricultural operations were an integrated process and agricultural income accrued from day to day and not when sugarcane was crushed. So far as the deductions which were claimed by the assessees were concerned, the Tribunal held that, in view of the decision of the Supreme Court in Purtabpore Company Ltd. v. State of Uttar Pradesh, : [1971]1SCR426 , the assessee were entitled to these deductions. It further upheld the assessees' contentions as to the manner in which depreciation was to be calculated.

7. It is from this order of the Tribunal that the present reference has been made at the instance of the Commr. of Agrl. I.T.

8. The five questions which have been referred to us in this reference resolve themselves into three heads; questions Nos. 1 and 2 relate to the method to be adopted for arriving at the taxable agricultural income of the assessee, questions Nos. 3 and 4 relate to the deductions to be allowed to them under the Act, and question No. 5 relates to the mode of calculation of the depreciation to be allowed to the assessees.

9. In order to appreciate the controversy between the parties in respect of these three heads, it is now necessary to refer to the relevant provisions of the Act. As mentioned earlier, s. 1(3) gives retrospective effect to the Act from April 1, 1962. Clause (1) of s. 2 defines 'agricultural income' as follows :

'(1) 'agricultural income' means -

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

(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 fir 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 or 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 on 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 : ...'

8. Clause (4) of s. 2 defines 'assessment year' or 'year of assessment' as meaning 'the period of twelve months commencing on the 1st day of April every year'. Clause (8) defined 'Income-tax Act' as meaning 'the Income-tax Act, 1961'. Clause (15) and (16) defined 'total agricultural income' and 'written down value', respectively, and are as follows :

'(15) 'total agricultural income' means the total amount of agricultural income referred to in section 5 and computed in the manner laid down in this Act;

(16) 'written down value' means in respect of any irrigation or protective work, or any machinery, plant or other capital asset -

(a) in the case of works constructed or assets acquired in the previous year, the actual cost to the assessee;

(b) in the case of works constructed or assets acquired before the previous year, the actual cost to the assessee less all depreciation allowable to him under this Act in respect of such work, machinery, plant or other asset, as the case may be.'

9. Section 3 is yet another definition section and defines 'previous year'. The relevant provisions of s. 3 are as follows :

'3. Definition of 'previous year' :

(1) For the purposes of this Act 'previous year' means -

(a) the financial year immediately preceding the year of assessment; or

(b) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date; or

(c) in the case of any person or business or class or persons or business not falling within clause (a) or clause (b), such period as may be determined by the Commissioner in this behalf; or....'

10. Thus, the assessees had an option under clause (b) of sub-s. (1) of s. 3 to take their accounts year as their previous year. They, however, did not exercise that option and preferred to be taxed on the basis of the financial year immediately preceding the first year of assessment. It would appear that under sub-s. (4) of s. 3, hereafter they cannot change their previous year, except with the consent of the Agrl. ITO and upon such conditions as he might deem fit to impose.

11. Chapter II of the Act which consists of ss. 4 and 5 is headed 'CHARGE OF AGRICULTURAL INCOME-TAX'. Section 4 is as follows :

'4. Charge of agricultural income-tax and rate. - (1) Agricultural income-tax shall be charged, at the rate specified in sub-section (2), for each financial year, in accordance with and subject to the provisions of this Act, in respect of the total agricultural income of the previous year or previous years of every person :

Provided that agricultural income-tax shall not be charged on the agricultural income of the Central Government, or any State Government, or any local authority.

(2) Every person, whose total agricultural income of the previous year exceeds thirty-six thousand rupees, shall pay agricultural income-tax in respect of that income at the rate of fifty naye paise for each rupee in excess of thirty-six thousand rupees.'

12. The relevant provisions of s. 5 are as follows :

'5. Scope of total agricultural income. - Subject to the provisions of this Act, the total agricultural income of any previous year of any person comprises all agricultural income derived from land situated within the State, and received by him within or without the State, including any land revenue or any local or education cess payable in respect of such land under any law for the time being in force in the State, but does not include.....'

13. Chapter III of the Act, which consists of ss. 6 to 13, is headed 'COMPUTATION OF AGRICULTURAL INCOME-TAX AND ALLOWANCES'. Under s. 6, unless otherwise provided by the Act, all agricultural income for the purposes of charge of agricultural income-tax and computation of total agricultural income is to be classified under two heads, namely, (i) agricultural income from rent or revenue (being agricultural income as defined in sub-cls. (a) and (c) of clause (1) of s. 2, and (ii) agricultural income from agriculture (being agricultural income as defined in sub-clause (b) of clause (1) of s. 2). Section 7 deals with the computation of tax and allowances under the first head, namely, 'Agricultural income from rent or revenue.' Section 8 deals with computation of tax and allowances under second head, namely, 'Agricultural income from agriculture'. The material provisions of s. 8 are as follows :

'8. Computation of tax and allowances under the head 'Agricultural income from agriculture' - Agricultural income-tax shall be payable by an assessee under the head 'Agricultural income from agriculture' in respect of all agricultural income derived from land referred to in sub-clause (b) of clause (1) of section 2 included in his total agricultural income and received by him in the previous year, subject to the following allowances, namely :

(1) the expenditure incurred by the assessee in the previous year -

(a) in cultivating such land;

(b) in performing any process contemplated in item (ii) of sub-clause (b) of clause(1) of section 2 for rendering the produce of such land fit to be taken to market;

(c) in transporting such produce;

(d) in maintaining agricultural implements and machinery in good repair and in providing for the upkeep of cattle for the purpose of such cultivation, process or transport; ....

(6) depreciation at such rate as may be prescribed, in respect of any irrigation or protective work or other capital asset (including machinery or plant) constructed or acquired for the benefit of the land from which such agricultural income from such land;

(7) in respect of any machinery or plant used exclusively for agricultural purposes which has been sold or discarded, the amount by which the written down value of the machinery or plant exceeds the amount for which the machinery or plant is actually sold or its scrap value; ....

(9) any other expenditure of the assessee (not being in the nature of capital expenditure or personal expenditure) laid out wholly an exclusively for the purpose of deriving agricultural income from such land; .....'

14. Section 9 deals with income which is partially agricultural and partially from other sources and is in the following terms :

'9. Income which is partially agricultural and partially from business. - (1) In the case of income which is partially agricultural income assessable under this Act, and partially income chargeable to income-tax under the head 'Profits and gains of business', under the Income-tax Act, agricultural income-tax shall be payable by an assessee in respect of the market value determined in the prescribed manner of any agricultural produce which has been raised by the assessee or received by him as rent-in-kind and which has been utilised as raw material or fuel in such business or the sale receipts of which are included in the accounts of the business, subject to any allowances which may be permissible under the provisions of this Act :

Provided that -

(a) where for the purposes of the assessment of income-tax under the Income-tax Act, the market value of the said produce has been determined, the market value as so determined shall be taken to be the market value for the purposes of this sub-section;

(b) where there is any common charge on both agricultural income assessable under this Act and income chargeable under the Income-tax Act, and such charge is an allowance permissible both under this Act and the Income-tax Act, then, if for the purpose of the Income-tax Act the part of such charge which is to be deemed to be the allowance permissible under that Act has been determined under that Act, the remaining part of such charge shall be deemed to be the allowance to which agricultural income assessable under this Act is subject.

(2) For the purposes of the assessment of agricultural income-tax under this section or any rule made thereunder, a certified copy of an order of assessment under the Income-tax Act or a certified copy of an order of any appellate or revising authority or of any court altering or amending such order of assessment under the provisions of that Act shall be conclusive evidence of the contents of such order.'

15. While we are setting out the relevant provisions of the Act it will be convenient at the same time to refer to the relevant provisions of the Maharashtra Agrl. I.T. Rules, 1962, framed by the Government of Maharashtra in exercise of the powers conferred upon it by sub-ss. (1) and (2) of s. 72 of the Act, Sub-rule (1) of r. 3 prescribes the rates at which depreciation in respect of any irrigation or protective work or other capital assets is to be allowed to an assessee under clause (6) of s. 8 of the Act. Sub-rule (3) of r. 3 deals with the rate of depreciation to be allowed for the purpose of ascertaining the written down value of plant or machinery for the purposes of clause (7) of s. 8. Rule 4 prescribes the manner in which the market value of agricultural produce is to be determined except in the case referred to in clause (a) of the proviso to sub-s. (1) of s. 9. Rule 5 prescribes how an allowance admissible under s. 7 or s. 8 or s. 9 in respect of mixed income is to be computed, and is as follows :

'Rule 5. Computation of allowance on mixed income. - Where an allowance admissible under section 7, 8 and 9 is in respect of a common charge incurred for the purpose of deriving both agricultural income assessable under the Act and income chargeable under the Income-tax Act, such allowance shall, except in the case referred to in clause (b) of the proviso to sub-section (1) of section 9, be calculated as such proportion of the common charges as such agricultural income bears to the total of such agricultural income and income chargeable under the Income-tax Act in respect of which such common charge is incurred.'

16. We will first turn to the controversy as to the method to be adopted for computing the agricultural income of the assessees for the previous year in question. This controversy arises because, though the assessees' accounting year was from 1st October to 30th September of the next year and though the assessees were being assessed to income-tax on the basis of such accounting year, the assessees had chosen not to exercise the option conferred upon them by clause (b) of sub-s. 3 of the Act and have preferred to be taxed in respect of the previous year which would be the financial year immediately preceding the year of assessment, that is, they had preferred to be assessed for the year April 1, 1961, to March 31, 1962, instead of for the year October 1, 1960 to September 30, 1961. It is this act of the assesses which as given rise to the question as to how the income of the assessees is to be computed, because this previous year involved two accounting years of the assessees as mentioned earlier. According to the assessees, agricultural operations being an integrated activity, agricultural income accrues or arises from day to day, and all that has transpired during each of these two accounting years, that is to say, the entire income earned by them during these two accounting years as also all the expenses incurred by them during these two accounting years, must be taken into account and then divided by half. Leaving aside the question of expenses and deductions claimed or allowable to the assessees, the contention of the assessees amounts to saying that the total quantity of sugarcane crushed by them during these two accounting periods should be taken and divided by half to arrive at the quantity which they should be taken to have crushed during the previous year. There is no dispute about the tonnage crushed by the assessee each month, and it will be convenient at this stage to set out the quantity of sugarcane crushed during these two accounting years, divide it by half and then add the results obtained and see what the result would be according to the method contended for by the assessees and compare it with the quantity of sugarcane actually crushed during the previous year;

Sl. Accounting Total Break-up ofNo. year tonnage tonnage crushed inof sugar- each half of thecane two accountingcrushed years-----------------------------------------------------------------------1. 1-10-1060 1-10-1960to } 97,926 to } 77,62930-9-1961 31-3-19611-4-1961to } 20,29730-9-1961------------Total97,926-------------2. 1-10-1961 1-10-1961to } 93,112 to } 91,72630-9-1962 31-3-19621-4-1962to } 1,38630-9-1962---------- -------------Total tonnage 1,91,038 Total 93,112crushed ---------- -------------

17. The total quantity of sugarcane crushed by the assessees during these two accounting years comes to 1,91,038 tons. On the method canvassed for by the assessees, their income is to be assessed in respect of half of this quantity, namely, 95,519 tons. If one were now to take the actual tonnage crushed during the previous year, that is, for the period April 1, 1961, to March 31, 1962, the quantity so crushed would come to 1,12,023 tons, that is, 16,504 tons more than what would be the result according to the method canvassed for by the assessees. According to the assessees, the method canvassed for by them could be the only possible method according to a sound system of accounting, as they make up their accounts for periods different from the period for which they are to be assessed, the other contention of the assessees being that it is not merely the crushing of the sugarcane which gives rise to agricultural income but agricultural income accrues day to day as each operation connected with the assessees' agricultural activities take place. In support of these contentions Mr. Trivedi, learned counsel for the assessee, has relied upon a decision of the Supreme Court, namely, CIT v. Ahmedbhai Umarbhai & Co. : [1950]18ITR472(SC) . That was a case under the E.P.T. Act, 1940. Under the third proviso to s. 5 of that Act, that Act was not to apply 'to any business the whole of the profits of which accrue or arise in an Indian State; and where the profits of a part of a business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits of which accrue or arise in an Indian State, and the other part of the business shall, for all the purposes of this Act, be deemed to be a separate business.' (The emphasis has been supplied by us). In that case the assessees were a firm resident in British India and carried on the business of manufacturing and selling groundnut oil. They had three mills in Bombay and one mill at Raichur in Hyderabad State where oil was manufactured. The oil that was manufactured at Raichur was sold partly in Raichur and partly in Bombay. The assessees contended that the part of the profits derived from sales in British India of the oil manufactured at Raichur was attributable to the manufacturing operations at Raichur and that such profits should be excluded from assessment to taxes profits tax under the said third proviso. The department's contentions, on the other hand, was that the manufacturing operations carried on at Raichur did not constitute a part of the assessees' business within the meaning of the said third proviso and that even if such operations could be regarded as a part of their business, the profits derived from sales in Bombay could not be said to have accrued or arisen in Hyderabad State. The Supreme Court held that the activity which the assessees carried on at Raichur was a part of their business within the meaning of the said third proviso and that the profits of a part of the business, namely, the manufacture of oil in their mills at Raichur, accrued or arose at Raichur and that such profits were not assessable to excess profits tax under the said third proviso. In this judgment in that case Mahajan J. (as he then was), said (p. 495) :

'It is true that no profits are realised until the oil is sold but the act of sale merely fixes the time and place of receipt of profits. Profits are not wholly made by the act of sale and do not necessarily accrue at the place of sale. Act of sale is the culminating process in the earning of profits but it goes without saying that the act of sale could not be performed unless the goods were produced at Raichur and it would be wrong from a business point to say that all the profits resulted from that operation. It was the operation of manufacture at Raichur that enabled the assessee to sell oil and some portion of the profits must necessarily be attributable to the manufacturing process. To the extent that the profits are attributable to the manufacture of oil it is not possible to say that they accrue or arise at any place different from the place where the manufactured article came into existence.'

18. Relying upon this decision it was submitted on behalf of the assessees that agricultural income could not be said to arise or accrue only when sugarcane was crushed and that agricultural activities commenced right from the start when the land was applied or made fir for the purposes of planting the sugarcane plants and that the crushing of the sugarcane, or in a case where the assessees did not crush the sugarcane grown by him for manufacturing it into sugar but sold it in the market, the sale of the sugarcane could not be taken to be the point of time when income from this operation could be said to have been derived. The Tribunal has accepted this contention of the assessees. The market value of the sugarcane crushed by the assessees is not and cannot be in dispute. The market value has been determined by the ITO in the assessees' income-tax assessments in respect of the two accounting years relevant to the present case, and under clause (a) of the proviso to s. 9 of the Act the market value so determined is to be taken by the Agrl. ITO for the purposes of sub-s. (1) of s. 9. In respect of the accounting year October 1, 1960, to September 30, 1961, the ITO has determined the market value of sugarcane to be Rs. 55.10 per ton and in respect of the accounting year October 1, 1961, to September 30, 1962, he has determined the market value to be Rs. 53.10 per ton. Thus, the market value of the total tonnage crushed during the two accounting years would come to Rs. 1,03,39,969.80 and on the method canvassed for by the assessees, the market value for the previous year would be Rs. 51,69,984.90. On the other hand, if we were to take the actual tonnage crushed during the previous year, its market value on the rates determined by the ITO would come to Rs. 59,89,015.30. It would thus exceed the result obtained by the method contended for by the assessees by a sum of Rs. 8,19,030.40. Further, according to the method adopted by the assessees, half the total expenses or such of them as are allowable under the Act for each accounting year are to be deducted from the market value arrived at in order to compute the taxable agricultural income

19. The question is whether there is any warrant or basis in the provisions of the Act for adopting the method contended for by the assessees. We are unable to see any such warrant or basis. Under s. 4 of the Act, agricultural income-tax is to be charged in respect of the total agricultural income of the previous year. 'Total agricultural income', according to the definition given in clause (15) of s. 2, is 'the total amount of agricultural income referred to in section 5 and computed in the manner laid down in the Act'. Further, under s. 4, the agricultural income-tax is to be charged in accordance with the subject to the provisions of the Act. The total agricultural income referred to in s. 5 is to comprise of agricultural income derived from lands situate within the State and received by the assessee within or without the State. Thus, if we read ss. 4 and 5 together bearing in mind the definition of 'total agricultural income' given in clause (15) of s. 2, the agricultural income-tax is levied not on the total income derived from land but on the total agricultural income derived from land within the State and received by the assessee within or without the State. Thus, what is taxed is not merely the deriving of agricultural income but the deriving and receipt of agricultural income. This is further made clear by the definition of 'total agricultural income' which speaks of 'total amount of agricultural income referred to in section 5 and computed in the manner laid down in this Act'. Chapter III of the Act is headed 'COMPUTATION OF AGRICULTURAL INCOME-TAX AND ALLOWANCES'. Under s. 8 agricultural income-tax is to be paid by an assessee in respect of his income falling under the head 'Agricultural income from agriculture', 'in respect of all agricultural income derived from land..... included in his total agricultural income and received by him in the previous year', subject to the allowances set out in the said section. Thus, s. 8 further makes it clear that what is taxed in the hands of the assessee is the receipt of agricultural income in the previous year. The question which arises is, when is agricultural income said to be derived and received and how is it to be computed In the case of composite business, that is, business which is partly agricultural and partly non-agricultural, the mode of computation is prescribed by s. 9 of the Act. Under that section where part of the income is agricultural income assessable under the Act and part is other income chargeable to income-tax under the head 'Profits and gains of business' under the I.T. Act, as is the case here, agricultural income-tax is to be paid be the assessee in respect of the market value of any agricultural produce 'which has been raised by the assessee.... and which has been utilised as raw material or fuel in such business.' Thus, where an assessee raises agricultural produce and utilizes t as raw material or fuel in a business, the income of which is chargeable to income-tax under the head 'Profits and gains of business', it is the market value of the agricultural produce so utilized which is liable to agricultural income-tax. Section 9 further provides that the market value so determined would be subject to any allowances which may be permissible under the provisions of the Act. We are unable to see in what manner the decisions of the Supreme Court relied upon by Mr. Trivedi on behalf of the assessees supports their case. The question in that case was the construction to be placed upon the third proviso to s. 5 of the E.P.T. Act, 1940, and the question was where the profits of a business accrued or arose. Concepts of income or profits accruing or arising which found place in that Act and finds place in the I.T. Act, is not germane for the purpose of the Act. The Act does not speak of agricultural income arising or accruing but speaks of its derivation and receipt. Mr. Trivedi, learned counsel for the assessees, however, submitted that s. 9 dealt only with the determination or quantification of agricultural income when the total income of an assessee was partly agricultural and partly non-agricultural and it did not lay down when income arose in point of time. He further submitted that the Act did not lay down any specific date on which the entire agricultural income could be said to have arisen and that if one wanted to find out the income of any part of a year such income would be the proportionate income which the part would bear to the whole year according to accounting principles. In support of these submission Mr. Trivedi referred us to s. 5 of the I.T. Act, 1961. Under that section 'the total income of any previous year of a person who is a resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year'. In the case of a person who is a non-resident it 'includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arise or is deemed to accrue or arise to him in India during such year'. We are wholly unable to see the relevance of this section. We have quoted above the relevant provisions of that section, and a bare glance at its is sufficient to show that the concept embodied in that section is different from that embodied in the Act. The chargeability under the two Acts is on a wholly different basis. The theory of accrual of income arising or of income deemed to accrue or arise is wholly absent in the Act. There is no warrant in the Act for taking any proportion on time basis as contended for by the assessees. What the Act requires to be taxed is the total agricultural income derived and received by an assessee during the previous year and previous year alone, subject to the allowances granted under s. 8. It does not provide for taking any income derived and received for any period prior to the previous year. By adopting the method which the assessees have done, they have tried to bring into the previous yea income for a period subsequent thereto. It may be that in this particular case the result is favourable to the assessees, but in another case the result might as well be unfavourable to the assessees. Further, the method adopted by the assessees brings into the previous year the expenses incurred both prior and subsequent to the previous year. This again they are not entitled to do under the provisions of the Act. The only allowance to which an assessee is entitled under the Act are the allowances set out in s. 8. We have set out the relevant provisions above, but when we look at the whole section we find that, apart from the case of depreciation which is covered by sub-ss. (6) and (7) of that sections and apart from sub-s. (9), every other sub-section speaks of the expenditure incurred in the previous year. The very wording of sub-s. (9) would show that it too refers to the expenditure incurred in the previous year. That sub-section uses the expression 'any other expenditure'. Further, it refers to expenditure which is not in the nature of capital or personal expenditure, that is, it is revenue expenditure of a nature different from that specified in the earlier sub-sections which deal with revenue expenditure. It is obvious that revenue expenditure for a period prior to the previous year cannot be brought into the previous year in order to reduce the taxable income of the previous year. According to the method adopted by the assessees if in their first accounting period the largest part of expenditure were incurred in the first half and a proportionately smaller one in the second half, the half of the total expenditure should be deducted from their income. Under the Act, however, they are entitled to claim a deduction only on the expenditure incurred in that half of their first accounting period as also of their second accounting period which falls within the previous year.

20. From the fact that the method adopted by the assessees is erroneous and not borne out by the Act, it does not follow that the method adopted by the Agrl. ITO is correct. We find it as erroneous as that adopted by the assessees. What the Agrl. ITO has done in order to arrive at the total income is for the most part to follow the same erroneous method as was adopted by the assessees. He took their profit and loss accounts for the two accounting years. From it he disallowed such of the deductions as, according to him, could not be granted under s. 8, and he thus arrived at the total income for each accounting year. He then divided this income by the total tonnage crushed to arrive at the average rate per ton and multiplied the tonnage crushed during the crushing season by such rate. In thus arriving at the agricultural income the error which the Agrl. ITO fell into was to draw into the accounting year both the income as also the expenditure for a period prior to the previous year and in respect of the second accounting period the income and expenditure of the period subsequent to the previous year. According to us, the correct method for the Agrl. ITO to have followed was to have taken the market value (as determined by the ITO in the income-tax assessments of the assessees) of the actual tonnage crushed during the previous year. He should have further added to such income the agricultural income earned by the assessees from other sources, namely, food crops and cotton, and should have taken the aggregate of all these heads of agricultural income as the total agricultural income of the assessees and deducted therefrom all allowances in respect of each of these types of agricultural income for the previous year which were permissible under s. 8 of the Act.

21. We will now turn to the question of deductions to which the assessees claim to be entitled and which have been rejected by the department. These deductions are in respect of 14 items of expenditure which have been set out in the statement of the case as follows :

1. Repairs to buildings (actual).

2. Gratuity paid (actual).

3. Provident Fund Account (actual).

4. Insurance-workers.

5. Sanitation and dispensary.

6. Travelling and motor car expenses.

7. Postage, telegram, stationery and printing.

8. Miscellaneous expenses.

9. Directors' fees.

10. Audit fees.

11. School expenses.

12. Dairy and vegetable expenses.

13. Managing agent's commission.

14. Manager's salary.

22. Admittedly, items Nos. 1, 2, 3 and 12 pertain purely to the plantation department of the assessees, while the expenses in respect of the other items were expenses incurred by them for carrying out the agricultural and sugar manufacturing activities of the assessees. The Tribunal allowed all these expenses on the basis of the decision of the Supreme Court in Purtabpore Company Ltd. v. State of Uttar Pradesh, : [1971]1SCR426 . In view of this decision, Mr. Jetly, learned counsel for the applicant, conceded that items 1 to 7 were covered by the Supreme Court decision and the assessees would be entitled to claim deductions in respect of these expenses. With respect to the rest of the items, he contended that they were not covered by the Supreme Court decision. Purtabpore Company's case, : [1971]1SCR426 , arose under the United Provinces Agrl. I.T. Act, 1948. The definition of 'agricultural income' given in the said Act is substantially the same as in the Act before us. Among the deductions allowed by that Act were certain expenses set out in sub-cls. (iv) and (vii) of clause (b) of sub-s. (2) of s. 6 of that Act. Under sub-clause (iv) what was allowed to be deducted were the expenses incurred in the previous year in raising the crops from which the agricultural income was derived, in making it fit or for marketing and in transporting it to market, including the maintenance or hire of agricultural implements and cattle required for these purposes. Under sub-clause (vii) what was allowed to be deducted were the expenses incurred in the previous year on the maintenance of any capital asset if such maintenance was required for the purpose of deriving the agricultural income. In that case, speaking for the court, Grover J. said (pp. 1581-2) :

'It is well known that modern agricultural farming which has become mechanised involves high degree of organisation, technical skill, etc., in the same way as a well-run industry. If agricultural production has to be obtained with optimum results it is necessary that there should be a proper supervisory and other staff as also the employment of such means as would be conducive to maximum production and proper marketing of the produce. It is axiomatic that the staff would require residential accommodation which will have to be kept in a proper state of repairs. The staff will also need medical attention and other amenities which are normally afforded to employees nowadays. The benefit of provident fund can hardly be denied to them when it has become the accepted and normal feature in all forms of employment in modern times. If any motor vehicle is being maintained for enabling the supervisory or other staff to look after the farm the expenses incurred thereon cannot be regarded as foreign to farming operations. The expenditure incurred on postage, telegrams, printing and stationery for the purpose of and in connection with farming would also be allowable. If certain periodicals are being subscribed to for obtaining technical knowledge and up to date information in the matter of agricultural farming it is difficult to see how that could be disallowed. It is not necessary to refer to all other items the details of which have been given before. What has to be essentially determined under s. 6(2)(b)(iv) is whether the expenses were incurred on or for the purpose of the entire work and operations involved in raising the crops, making the same fit for marketing and the transportation of the produce to the market. The words 'raising the crop' cannot be confined simply to the ploughing of the land, sowing the seed and cutting the harvest. It must be emphasised that section 6(2)(b)(iv) is not to be construed in a narrow and pedantic sense and must be given its full effect in the background of modern large scale farming and the organization required for it. We are generally in agreement with the view expressed in the previous unreported decision of the Allahabad High Court referred to before.'

23. The unreported decision of the Allahabad High Court is the one given by the court in Agrl. I.T. Reference No. 366 of 1953 decided on May 11, 1956. In that case the High Court allowed as deductions a number of items which were of an identical nature with those which fell to be considered by the Supreme Court. It also allowed the assessees' contribution to the provident fund on the ground that the employees were engaged at the farm and the contribution to their provident fund was in a way remuneration or salary paid to them. The other expenses allowed by the Allahabad High Court were the expenditure incurred on the maintenance and repairs to the assistant manager's bungalow and the repairs to quarters allowed to blacksmiths, watchmen, carpenters and clerks, all of them connected with cultivations. These were allowed under s. 6(2)(b)(vii). The High Court also allowed the expenditure incurred on the maintenance of an lorry used for transporting the harvest and of the car which was provided for the managerial staff to ensure proper supervision of the farm. It also allowed the payments made to directors, managing agents and expenses incurred on general officer and the general manager's commission on the ground that all this expenditure had been incurred on the controlling operations in the organisation for the cultivation of land, raising, transporting and marketing of the crops, etc., and had, therefore, been incurred for the purposes of the agricultural farm. Further, in respect of the managers' salary, his travelling expenses, leave and passage allowance and clerical salaries the High Court felt that unless there were reasons for holding that the expense was so unreasonable as to justify a finding that it did not relate to the agricultural activities of the company the assessing authority could not substitute its own views of prudent management for the actual management by the board of directors of the company. In view of this decision of the Supreme Court and of the Allahabad High Court which were approved by the Supreme Court in Purtabpore Company's case, : [1971]1SCR426 , we are unable to see how it is possible for Mr. Jetly to contend that items 8 to 14 do not fall within the ratio of that decision. Mr. Jetly, however, contended that since these items were said to constitute common charge, it was for the Agrl. ITO to determine whether they were in fact a common charge or not and if so how much portion of it could be said to be expenditure laid out wholly and exclusively for the purpose of deriving agricultural income from the lands in question and that for that purpose the Tribunal should have remanded the case to the Agrl. ITO. That these items are a common charge has been accepted both by the Agrl. ITO as also by the Assistant Commissioner and have been so held by the Tribunal. The Agrl. ITO, however, did not allow any of the 14 items of expenditure listed above on the ground that they did not bear any direct or proximate connection with the agricultural activities of the assessees. The Assistant Commissioner did not allow them on the ground that none of them appeared to be wholly and exclusively incurred by the assessees for the purpose of earning agricultural income. It may be said in fairness to the assessing authority and the Assistant Commissioner that their orders were passed before the Supreme Court delivered its judgment in Purtabpore Company's case, : [1971]1SCR426 . The application to remand the case was also made before the Tribunal and it was rejected. To our mind, the Tribunal rightly refused to remand and the case for the purpose of the Agrl. ITO determining whether any of the items constituted a common charge or not. Under clause (b) of the proviso to s. 9(1) of the Act where there is a common charge, that is, the charge for expenditure which has been incurred partly for agricultural business and partly for business chargeable to income-tax under the head 'Profits and gains of business' and such charge is an allowance permissible both under the Act as also the I.T. Act, then if a part of such charge which is to be deemed to be an allowance permissible under the I.T. Act has been determined under that Act for the purpose of assessment to income-tax, the remaining part of such charge, to quote the words of clause (b) of the proviso, 'shall be deemed to be the allowance to which agricultural income assessable under this Act is subject'. Thus, if in the case of a common charge part of it has already been determined by the ITO as an allowance under the I.T. Act, the remaining part of such charge must be taken to be an allowance under s. 8 where there is a composite business the income of which is liable to be taxed both under the Act and the I.T. Act. In order to eliminate the harassment which would be caused to an assessee by a double determination, one by the ITO and one by the Agrl. ITO, which might at times be even conflicting decisions, sub-s. (2) of s. 9 makes a certified copy of an order of assessment under the I.T. Act or of an order of any appellate or revising authority or court altering or amending any such order of assessment to be conclusive evidence for the purpose of the assessment of agricultural income-tax under s. 9 or any rule made thereunder. Rule 5 of the Maharashtra Agrl. I.T. Rules, 1962, which we have reproduced above, provides that the allowance in respect of a common charge is to be calculated at such proportion of the common charge as such agricultural income bears to the total of such agricultural income and income chargeable under the I.T. Act in respect of which such common charge is incurred 'except in the case referred to in clause (b) of the proviso the sub-section (1) of section 9', that is, except where the ITO has determined a part of such common charge to be deductible as an allowance under the I.T. Act. That it is the determination of the ITO which is to prevail is further shown by clause (a) of the proviso to s. 9(1) which makes the determination of the market value of the agricultural produce by the ITO to be taken as the market value for the purposes of determining the market value of the agricultural produce in the case of a composite business. Therefore, where an ITO has determined that a particular head of expenditure is a common charge in respect of such a composite business and has allowed a portion of it as a deduction permissible under the I.T. Act, it will not be open to an Agrl. ITO to re-determine the question whether it is a common charge or not or to re-determine what proportion of such common charge should be allowed to the assessee, because it would otherwise in substance permit him to reopen an assessment made by the ITO. He must accept what the ITO has found and allow the remaining portion as a deduction under the Act subject to this qualification that such deduction is an allowance permissible under s. 8. As we have already mentioned above, all the 14 items, including items 8 to 14, in respect of which alone a controversy now survives, would be deductions permissible under s. 8 on the authority of the Supreme Court's decision in Purtabpore Company's case, : [1971]1SCR426 .

24. In the case, however, of managing agent's commission an additional argument was advanced by Mr. Jetly, learned counsel for the department, that a deduction for such commission could not be allowed under the Agrl. I.T. Act, but ought to have been claimed and fully allowed by the ITO in the income-tax assessment of the assessees. In support of this submission Mr. Jetly relied upon another decision of the Supreme Court, namely, CIT v. Maharashtra Sugar Mills Ltd. : [1971]82ITR452(SC) . The assessee-company in that case was assessed to income-tax for the assessment year 1957-58. The assessee-company owned extensive lands on which it grew sugarcane and, like the assessees in the present case, used the sugarcane for manufacture of sugar in its factory. The Appellate Tribunal found that the cultivation of sugarcane and the manufacture of sugar by the assessee-company constituted one single and indivisible business, and the question was whether a part of the managing agency commission paid by the assessee-company could be disallowed on the ground that that part related to management of sugarcane cultivation, income from which was at that time exempt from tax as agricultural income. The Supreme Court held that the entire managing agency commission was laid out or expended for the purpose of the business carried on by the assessee-company and was allowable under s. 10(2)(xv) of the Indian I.T. Act, 1922, and the fact that the income from a part of the business was not exigible to tax under the said Act was not a relevant circumstance. We do not see what relevance that case has to the question before us. The assessment in that case was one prior to the enactment of the Act. Further, here, there is no question of agricultural income not being exigible to tax. We are concerned here with the statutory provisions of s. 9 of the Act which specifically talk of a common charge. The expenditure by way of payment of managing agency commission was allowed to be deducted by the Allahabad High Court in Agrl. I.T. Reference No. 366 of 1953, which we have referred to above and which was approved by the Supreme Court in Purtabpore Company's case, : [1971]1SCR426 . Yet another point of distinction is that the Maharashtra Sugar Mills' case : [1971]82ITR452(SC) is not an authority for what deduction should be allowed or disallowed under the Act but is an authority for what an assessee could claim as a deduction in income-tax in a case where a part of the income of the composite business, in respect of which also the managing agency commission is paid, is not exigible to tax.

25. However, one difficulty still remains, a difficulty of the assesses' own creation by not opting for their accounting year as their previous year for the purpose of assessment under the Act. The figures furnished by the assessees and the quantum of deductions worked out by them and accepted by the Agrl. ITO as also the Assistant Commissioner were in respect of their accounting years. They merely give the total at the end of each accounting year in respect of each head of expenditure. The deductions, however, to which the assessees would be entitled would be only that part of the figures given by them as appertaining to the previous year and not to any period of time either prior or subsequent thereto. Thus, the actual figures would have to be computed again but without any determination of the question whether these items or any of them is a common charge or whether these items or any of them is a deduction permissible under s. 8 read with s. 9 of the Act.

26. This then brings us to the question of depreciation. Under sub-s. (6) of s. 8 an assessee is entitled to an allowance by way of 'depreciation at such rate as may be prescribed, in respect of any irrigation or protective work or other capital assets (including machinery or plant) constructed or acquired for the benefit of the land from which such agricultural income is derived or for the purpose of deriving such agricultural income from such land'. The rates are prescribed by r. 3 of the Maharashtra Agrl. I.T. Rules, 1962. Before the Agrl. ITO the assessees claimed depreciation in respect of several items. The Agrl. ITO allowed depreciation on some of them but disallowed it on the rest. In appeal, the Assistant Commissioner allowed depreciation on most of the items except two, namely, (1) furniture and dead stock, and (2) livestock. The claim for depreciation in respect of livestock was given up at the stage of the second appeal before the Tribunal. The Tribunal allowed depreciation on furniture and dead stock. The point of law on which, however, this part of the case is stated and the relevant question referred to us is the quantum of depreciation to be allowed to the assessees. The rate prescribed by r. 3 at which depreciation is allowable to an assessee is a percentage rate on written down value. Written down value is not defined in the Rules, but by reason of the provisions of s. 20 of the Bombay General Clauses Act, 1904, expressions used in a rule have the same meaning as in the said Act conferring the power to make rules, unless there is anything repugnant in the subject or context. Thus, the expression 'Written down value' in r. 3 would have the meaning given to that expression in the definition contained in clause (16) of s. 2 of the Act. This clause has already been reproduced above. The particular sub-clause which applied to this case is sub-clause (b) under which in the case of works constructed or assets acquired before the previous year, written down value is to be 'the actual cost to the assessee less all depreciation allowable to him under this Act in respect of such work, machinery, plant or other asset, as the case may be'. According to the assessees, since there was no depreciation which could be allowed to them under the Act during the years when the Act was not in force, the depreciation which he could claim was on the actual cost of the assets. According to the department, written down value must be calculated by notionally taking into account the existence of the Act during the period when the Act was not in force and for each year reducing the cost of assets by the depreciation which would have been allowed under r. 3 had the Act been in force. The contention of the assessees was upheld by the Tribunal.

27. The answer to this controversy turns upon the true interpretation to be placed upon the phrase 'allowable to him under this Act' in sub-clause (b) of clause (16) of s. 2. In Mr. Jetly's submission these words must be read as if they meant 'allowable to him under the Act as if the Act had been in force'. According to him, this was the clear intention of the legislature, as otherwise the result would be unjust and inequitable to the department and would lead to loss of revenue. Mr. Jetly further referred us to the definition of 'written down value' given in clause (6) of s. 43 of the I.T. Act, 1961. Mr. Jetly also referred us to sub-s. (7) of s. 8 of the Act under which when any machinery or plant used exclusively for agricultural purposes which has been sold or discarded, the amount by which the written down value of the machinery or plant exceeds the amount for which the machinery or plant is actually sold or its scrap value is allowed to be deducted, provided that such amount is actually written off in the books of the assessee. According to Mr. Jetly, unless and until a notional written down value as contended for by the department were taken, considerable benefit and advantage would accrue to the assessee, depriving the State of its legitimate revenue. Mr. Trivedi, learned counsel for the assessees, on the other hand, submitted that on well-settled principles of interpretation of statutes on Act could not be given retrospective effect unless and until it was expressly and clearly intended to have such effect. Mr. Trivedi further submitted that sub-clause (b) of clause (16) of s. 2 of the Act was intended to apply to those cases where an asset is acquired after the Act has come into force, but because for some years the assessees have not become liable to pay agricultural income-tax, they do not adjust depreciation against the actual cost of the asset so that in the year in which they do become liable to pay agricultural income-tax, they could not be allowed to take the actual cost as the written down value but must take the actual cost less the amount of depreciation at the prescribed rates in force during the years for which they had not been liable to tax.

28. We are impressed neither by the submissions on interpretation on the supposed intention of the legislature advanced by Mr. Jetly nor by his appeal to us to help the State of augment its revenue. It is no concern of the court to read words into an Act in order to deprive an assessee of the benefit which the statute has granted to him. In a taxing statute the supposed intention of the legislature attributed to it by the department can hardly find favour with a court. In this connection, we would like to cite that oft-quoted passage from the judgment of Rowlatt J. in Cape Brandy Syndicate v. IRC [1921] 1 KB 64 at 71 (KB), which passage, we regret to say, has often been ignored by the department. Rowlatt J. said :

'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 presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.'

29. It is well-known rule of construction that when a Legislature intends a set of facts to notionally exist, it uses words appropriate to a deeming provision. There expressions are familiar to draftsmen of all legislations as also to all courts which have to interpret legislations. Had the legislature intended an effect canvassed for by the department, it would have used in sub-clause (b) of clause (16) of s. 2 of the Act the words 'allowable to him under this Act as if the Act had been in force' or some other words to that effect. It is unnecessary to refer to a number of instances. Suffice it to refer to only such instance. Sub-clause (5) of clause 13 of the Saurashtra I.T. Ordinance, 1949 (Ordinance No. IX of 1949), defines 'written down value' as meaning '(a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Ordinance or allowed under any Act repealed hereby or which would have been allowed to him if the Indian Income-tax Act, 1922, was in force in the past'. (The emphasis has been supplied by us). The words which we have emphasised make the point clear. We fail to see how the definition of 'written down value' contained in clause (6) of s. 43 of the I.T. Act, 1961, in any way supports Mr. Jetly's case. In that clause 'written down value' has been defined as '(a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act (XI of 1922) or any Act repealed by that Act or under any executive orders issued when the Indian Income-tax Act (II of 1886) was in force'. If at all, this definition is against the contention of the department. The Act has been made expressly retrospective from April 1, 1962. To accept the submissions of Mr. Jetly would be tantamount to making it retrospective in the case of different assessees from different dates and it would still leave open the question as to at what rate the depreciation should notionally be adjusted against the cost price during those years when the Act was not in force. In interpreting sub-clause (b) of cl (16) of s. 2 we must bear in mind that prior to the enactment of the Act there was no tax in force in the State with respect to the agricultural income and that such tax was levied for the first time by the Act, and that too at a flat rate of 50 per cent. of the agricultural income. It, therefore, could not in any way be said to be unjust or inequitable for the legislature to have given this allowance to an assessee. This apart from the fact that arguments of justice and injustice, equity and inequity have no place in the interpretation of taxing statutes. So far as giving retrospective effect to legislation is concerned, we can do no better than to quote a passage from Maxwell on the Interpretation of Statutes, twelfth edn., p. 215 a passage which Scarman J. in Carson v. Carson and Stoyek [1964] 1 WLR 511, 516 (Probate) described as 'so frequently quoted with approval that it now itself enjoys almost judicial authority'. That passage reads :

'Upon the presumption that the legislature does not intend what is unjust rests the leaning against giving certain statutes a retrospective operation. They are construed as operating only in cases or on facts which come into existence after the statutes were passed unless a retrospective effect is clearly intended. It is a fundamental rule of English law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication.'

30. Having before it the models of other income-tax legislations, when the legislature of this State came to impose tax on agricultural income for the first time, had it intended that the written down value in the case of an asset acquired prior to the previous year, being a period before the Act came into operation, should be the cost thereof reduced by adjusting against it for each year that the Act was not in force, depreciation at the rate prescribed by r. 3, the legislature would have used words appropriate to bring about this effect, as had been done in the Saurashtra. I.T. Ordinanace, 1949. We would part with this argument of Mr. Jetly by finally rejecting it in these words of Wright J. in In re Athlumney : Ex parte Wilson [1898] 2 QB 547, 551-2 (QB) :

'Perhaps no rule of construction is more firmly established than this - that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation, otherwise than as regards matter of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only.' (The emphasis has been supplied by us).

31. This would be more so in the case of a taxing statute.

32. In the result, we answer the questions referred to us as follows :

Question No. 1 :- The Tribunal was justified in holding that the method adopted by the Agrl. ITO for the purpose of computing the respondents' total agricultural income was not correct, but the reasons given by the Tribunal for arriving at this conclusion were erroneous.

Question No. 2 :- The Tribunal was not justified in holding that the correct method was to make apportionment of income on time basis on the basis of the assumption that the agricultural activities have to commence right from the stage when the land is ploughed or made fit for the purpose of plating the sugarcane plant into it. The Tribunal ought to have held that the correct method for determining the total agricultural income for the previous year was to take the market value of sugarcane crushed during the previous year as determined by the ITO in the income-tax assessments of the assessees, add to it the other agricultural income of the assessees and from the aggregate so arrived at deduct the allowances permissible under s. 8 of the Maharashtra Agrl. I.T. Act, 1962, which are in respect of the expenditure incurred by the assessees during the previous year and the other allowances mentioned in the section.

Question No. 3 :- The Tribunal was justified in coming to the conclusion that the expenditure in question was laid out wholly and exclusively for the purpose of deriving agricultural income. It was not open to the Agrl. ITO to determine whether any part of expenditure which had been held by the ITO as a common charge was a common charge or not. If it was an expenditure which fell within the ambit of s. 8 of the Maharashtra Agrl. I.T. Act, 1962, he was bound to allow it, and all the items of expenditure claimed before us were items of expenditure laid out wholly and exclusively for the purpose of deriving agricultural income in view of the decision of the Supreme Court in Purtabpore Company Ltd. v. State of Uttar Pradesh, : [1971]1SCR426 .

Question No. 4 :- In the affirmative.

Question No. 5 :- In the affirmative.

33. Since in this reference each party has won partly and lost partly, in our opinion, a fair order for costs would be that each party should bear and pay its own costs of the reference.


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