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Commissioner of Agrl. Income-tax Vs. Vellimala Estate - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 38 of 1974 (Agrl.)
Judge
Reported in[1977]110ITR372(Ker)
ActsKerala Agricultural Income-tax Act, 1950 - Sections 60(6)
AppellantCommissioner of Agrl. Income-tax
RespondentVellimala Estate
Appellant AdvocateGovernment Pleader
Respondent Advocate K.S. Rajamony and; A. Shahul Hameed, Advs.
Cases ReferredC) and Keshav Mills Co. Ltd. v. Commissioner of Income
Excerpt:
.....of bonus to employees who retired from service during year allowable as deduction while computing agricultural income of assessee - no reasons given by tribunal in order - court not in position to consider whether payments were in any way connected with future conduct of business of assessee - court not able to find whether payments could be supported on principle of commercial expediency - court declined to answer question in view of defective finding of tribunal. - - in the circumstances, we think it appropriate to decline to answer the question on the ground that the tribunal has failed to consider and decide the question whether the expenditure, was laid out or expended wholly and exclusively for the purpose of the business of the company and has not considered all appropriate.....govindan nair, c.j.1. the question referred by the kerala agricultural income-tax appellate tribunal for the assessment year 1967-68 under the agricultural income-tax act, 1950, is in these terms : 'whether, on the facts and in the circumstances of the case, the tribunal was justified in holding that the amount of rs. 4,322.36 incurred for payment of gratuity and arrears of bonus to the employees who retired from service during the year is an allowable deduction in computing the agricultural income of the assessee '2. the relevant facts have been stated in paragraphs 2, 3 and 4 of the statement of the case which are in these terms : '2. the vellimala estate is a firm and an assessee borne on the files of the agricultural income-tax officer, kottarakara. for the year ended october 31,.....
Judgment:

Govindan Nair, C.J.

1. The question referred by the Kerala Agricultural Income-tax Appellate Tribunal for the assessment year 1967-68 under the Agricultural Income-tax Act, 1950, is in these terms :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 4,322.36 incurred for payment of gratuity and arrears of bonus to the employees who retired from service during the year is an allowable deduction in computing the agricultural income of the assessee '

2. The relevant facts have been stated in paragraphs 2, 3 and 4 of the statement of the case which are in these terms :

'2. The Vellimala Estate is a firm and an assessee borne on the files of the Agricultural Income-tax Officer, Kottarakara. For the year ended October 31, 1966, relevant for the assessment year 1967-68, it filed returns declaring a net income of Rs. 1,57,600. The Agricultural Income-tax Officer did not accept the accounts and other records produced in support of the returns as correct and complete for the reasons stated by her in the assessment order. Rejecting them and the returns she finalised the assessment estimating the income and disallowing certain items of expenses claimed. The net income was accordingly fixed at Rs. 2,56,293. In so fixing the net income the Agricultural Income-tax Officer disallowed among other items an item of Rs. 4,322.36 representing payments of gratuity and bonus arrears to certain employees whose services were terminated during the relevant accounting year due to retirement either on superannuation or at the option of the employees. (We are concerned with this item alone in this reference). According to the Agricultural Income-tax Officer the payments were ex gratia and in special consideration of services. The order of the Agricultural Income-tax Officer dated October 14, 1967, forms part of the case. A copy thereof is annexed hereto as annexure 'A'.

3. The firm preferred an appeal against the assessment before the Appellate Assistant Commissioner, Quilon, raising various contentions including that against the disallowance of the payments towards gratuity and bonus arrears. The Appellate Assistant Commissioner observed as follows in regard to this contention.

The next claim is for Rs. 4,322.36 paid as gratuity to workers who voluntarily retired. The amount is paid as ex gratia payment as special consideration for services and hence not allowable as an obligatory payment.'

The order of the Appellate Assistant Commissioner in ITA No. 358/67 dated October 23,1969, forms part of the case. A copy thereof is annexed hereto as annexure 'B'.

4. The assessee-firm came up in second appeal before us raising various contentions including that regarding the payment of gratuity and arrears of bonus to the employees. A detailed statement showing the persons to whom such payments were made, their respective years of service and the reasons for payments were furnished before us at the time of hearing. This statement was perused at the time of hearing and no objection was raised in this regard by the learned representative for the State. Based on the same and the arguments of both sides, the Tribunal found as follows:

' The third point raised is that regarding the disallowance of gratuity and arrears of bonus, etc., amounting to Rs. 4,322.36 paid during the year. Details of the persons to whom such payments were made, their respective years of service, and the reasons for payments have been furnished before us. It is seen that all the employees had more than ten years of service and these payments were either on retirement at the option of the employees or retirement on superannuation. A sum of Rs. 114.66 has been paid to Kuttakoya Thevar (employee) towards arrears of bonus. Another sum of Rs. 14 is bonus arrears of T. V. Chacko who retired after 10 years of service. We find that none of the items are of a disallowable nature. Hence, the entire claim of Rs. 4,322.36 under this head will be allowed.'

The above order of the Tribunal, AITA. 12/70 dated August 3, 1973, forms part of the case. A copy thereof is annexed hereto as annexure ' C'. '

3. Counsel for the revenue contended before us relying on the decision of this court in Teekoy Rubbers (India] Ltd. v. State of Kerala : [1966]60ITR350(Ker) , that the bonus and gratuity payments were not allowable as deductions as there was no connection between the purpose of the payments and the future conduct of the business of the assessee. It was urged that the payments were in the nature of ex gratia payments and that ex gratia payments cannot be supported on grounds of commercial expediency. No nexus, it was urged, had been established between the payment and the future conduct of the business. The Tribunal in its order has stated thus :

' ......Details of the persons to whom such payments were made, theirrespective years of service, and the reason for payments have been furnished before us...... '

4. What are those reasons have not been stated in the order nor have those reasons been discussed by the Tribunal in the order. We are not in a position, therefore, to consider whether the payments were in any way connected with the future conduct of the business of the assessee. Nor are we able to find whether the payments could be supported on the principle of commercial expediency. In these circumstances we are unable to answerthe question that has been referred to us. We think the procedure to adopt in such cases is what has been done by the Supreme Court in the decision in Commissioner of Income-tax v. Greaves Cotton & Co. Ltd. : [1968]68ITR200(SC)

' We have, therefore, reached the conclusion that the question of law referred to the High Court cannot be answered in view of the defective finding by the Appellate Tribunal which is recorded without consideration of all the evidence. It will be open to the Appellate Tribunal to rehear the appeal under Section 66(5) of the Act and record a clear finding after hearing the parties and after considering all the relevant material in the case as to whether the amount of Rs. 18 lakhs paid by the respondent-company to the managing agents on the termination of the managing agency agreement was an admissible deduction under Section 10(2)(xv) of the Income-tax Act. After recording a clear finding on the question, the Appellate Tribunal will finally dispose of the appeal. '

5. The same view has been taken by the Supreme Court in the decision in Commissioner of Income-tax v. Indian Molasses Co. P. Ltd. : [1970]78ITR474(SC) which is in these terms :

'Two courses are now open to us : to call for a supplementary statement of the case from the Tribunal; or to decline to answer the question raised by the Tribunal and to leave the Tribunal to take appropriate steps to adjust its decision under Section 66(5) in the light of the answer of this court. If we direct the Tribunal to submit a supplementary statement of the case, the Tribunal will, according to the decisions of this court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax : [1959]37ITR11(SC) Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax : [1963]48ITR92(SC) and Keshav Mills Co. Ltd. v. Commissioner of Income-tax : [1965]56ITR365(SC) be restricted to the evidence on the record and may not be entitled to take additional evidence. That may result in injustice. In the circumstances, we think it appropriate to decline to answer the question on the ground that the Tribunal has failed to consider and decide the question whether the expenditure, was laid out or expended wholly and exclusively for the purpose of the business of the company and has not considered all appropriate provisions of the statute applicable thereto. It will be open to the Tribunal to dispose of the appeal under Section 66(5) of the Indian Income-tax Act, 1922, in the light of the observations made by this court after determining the questions which ought to have been decided.'

6. This court has followed these decisions in I.T.R. No. 113 of 1971 (Commissioner of Income-tax v. Seshasayee Bros. (Travancore) Pvt. Ltd. : [1976]102ITR372(Ker) ) and I.T.R. Nos. 43 and 44 of 1972.

7. In the light of the above, we decline to answer the question in view of the defective findings of the Tribunal. The Tribunal will dispose of the appeal before it after rehearing it as envisaged by Section 60(6) of the Agricultural Income-tax Act, 1950, in the light of the observations in this judgment. There will be no order as to costs.

8. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Agricultural Income-tax Appellate Tribunal, Trivandrum.


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