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CochIn Malabar Estates and Industries Ltd. Vs. Commissioner of Agricultural Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 87 and 88 of 1979
Judge
Reported in[1982]135ITR536(Ker)
ActsKerala Agricultural Income Tax Act, 1950 - Sections 4
AppellantCochIn Malabar Estates and Industries Ltd.
RespondentCommissioner of Agricultural Income-tax
Appellant Advocate T.L. Viswanatha Iyer and; P.S. Narayanan, Advs.
Respondent AdvocateGovernment Pleader
Cases ReferredPurlabpore Co. Ltd. v. State of Uttar Pradesh
Excerpt:
.....whether expenses incurred for salary to manager, contribution to provident fund and staff pension fund of estate allowable expenses - estate sold away by assessee - staff attached to that estate continued to be employed by assessee - expenses incurred by assessee for payment to such employees were allowable expenses. - - act, as well as the agrl. 5. the claim put forward by the assessee for a deduction of the loss said to have been incurred by it in the sale of assets like old machinery, tools and furniture can be regarded only as a capital loss and it was rightly held by the tribunal to be not deductible since it had no proximate relationship whatever with the actual earning of the agricultural income. in our opinion, the tribunal was perfectly right in holding that the amount..........tribunal disposing of a.i.t.a. nos. 200 to 204 of 1974, filed by the assessee, in relation to the assessment years 1957-58 to 1960-61. the assessee is a company owning rubber plantations in the state. in the assessment proceedings taken against it for the aforementioned assessment years. the company put forward claims for deduction in respect of, (a) loss incurred by it in the sale of certain assets such as old machinery, tools and furniture ; (b) the amounts expended by it by way of stock exchange listing fee ; and (c) and the expenditure incurred for payment of salary to the manager, contribution to provident fund and staff pension fund of an estate by name edivanna estate which was under the ownership and management of the company during the assessment years 1959-60 and 1960-61. the.....
Judgment:

Balakrishna EradI,C.J.

1. The Kerala Agricultural Income-tax Appellate Tribunal, Additional Bench, Kozhikode (hereinafter called 'the Tribunal') has made these two references to this court under Section 60 of the Agricultural Income-tax Act, for short 'the Act'. I.T.R. No. 87 of 1979 is a reference made at the instance of the assessee and I.T.R. No. 88 of 1979 is a reference made at the instance of the revenue. The questions of law referred are said to arise out of the common order passed by the Tribunal disposing of A.I.T.A. Nos. 200 to 204 of 1974, filed by the assessee, in relation to the assessment years 1957-58 to 1960-61. The assessee is a company owning rubber plantations in the State. In the assessment proceedings taken against it for the aforementioned assessment years. the company put forward claims for deduction in respect of, (A) loss incurred by it in the sale of certain assets such as old machinery, tools and furniture ; (B) the amounts expended by it by way of stock exchange listing fee ; and (C) and the expenditure incurred for payment of salary to the manager, contribution to provident fund and staff pension fund of an estate by name Edivanna Estate which was under the ownership and management of the company during the assessment years 1959-60 and 1960-61. The assessing authority rejected the claim for deduction put forward by the assessee under all the aforementioned heads and the assessments so made were confirmed by the AAC. The assessee thereupon took up the matter before the Tribunal by filing five second appeals. The Tribunal affirmed the view taken by the subordinate authorities in respect of the claims for deductionput forward by the assessee under the heads A and B shown above but allowed the appeal to the extent of upholding the claim for deduction made by the assessee in respect of the expenditure incurred for payment of salary to the manager, contribution to provident fund and staff pension fund of the Edivanna Estate in the assessment years 1959-60 and 1960-61. One other contention put forward by the assessee before the Tribunal was that the income earned by it by sale of surplus nursery plants ought not to have been treated as agricultural income by the assessing authority since it was income by the sale of a capital asset. This contention found favour with the Tribunal and a modification to the said extent also was made by the Tribunal in the orders of assessments.

2. In I.T.R. No. 87 of 1979 the question of law referred to this court by the Tribunal is:

'Was the Tribunal justified in rejecting the claim of loss on sale of assets in the assessment year 1957-58, under the Madras Plantations Tax Act and in the assessment years 1958-59, 1959-60 and 1960-61, and stock exchange listing fee in the year 1960-61 Were not these items incidental or ancillary to the agricultural activity carried on by the applicant and the derivation of income ?'

3. In I.T.R. No. 88 of 1979 two questions of law have been referred to this court by the Tribunal at the instance of the revenue and they are :

'(a) Whether, on the facts and in the circumstances of the case, the income from the sales of nursery in 'the assessment year 1959-60 is a capital income or not

(b) Whether, on the facts and in the circumstances of the case, the expenses incurred for the salary to the manager, contribution to provident fund and staff pension fund of the Edivanna Estate in the assessment years 1959-60 and 1960-61 are allowable expenses under the Agrl. Income-tax Act even after the Estate was sold on April 1, 1958, and the payments were in terms of the contract of sale ?'

4. We shall first take up for consideration the question which forms the subject-matter of I.T.R. No. 87 of 1979. It would appear that for the year 1957-58 the assessee had been assessed to tax under the Madras Plantations Agrl. I.T. Act, as well as the Agrl. I.T. Act, 1950 (Travancore-Cochin Act No. 22 of 1950 as extended to the Malabar area with effect from April 1, 1957). In so far as the question referred relates to the assessment made under the Madras Plantations Agrl. I.T. Act, the reference made by the Tribunal is totally incompetent since there is no provision in the said enactment empowering the Tribunal to make a reference to this court. But since the identical question arises in relation to the assessments made against the assessee for all the four assessment years under the Agrl. I.T. Act, 1950, we shall proceed to consider the question on merits.

5. The claim put forward by the assessee for a deduction of the loss said to have been incurred by it in the sale of assets like old machinery, tools and furniture can be regarded only as a capital loss and it was rightly held by the Tribunal to be not deductible since it had no proximate relationship whatever with the actual earning of the agricultural income. The assets sold were all capital assets in respect of which depreciation had been claimed by the company and allowed to it. Hence, there is no merit in the contention put forward by the assessee that the Tribunal ought to have allowed the deduction claimed by it in respect of loss incurred in the sale of such capital assets.

6. The next item in respect of which the assessee's claim for deduction had been disallowed by the Tribunal is the amount expended by it in paying stock exchange listing fee in the year 1960-61. It is strongly urged before us by the counsel appearing for the assessee that the membership of the stock exchange adds to the prestige and reputation of the company and is bound to have favourable repercussions in the market in relation to the price that the products of the company would fetch and, hence, the expenditure incurred by way of stock exchange listing fee must be held to be deductible. We do not find it possible to accede to this contention. It is difficult to see any proximate connection whatever between the expenditure incurred on acquiring membership of the stock exchange and the process of earning agricultural income by raising the produce and the marketing the same. In our opinion, the Tribunal was perfectly right in holding that the amount expended by the assessee on payment of stock exchange listing fee was not an allowable item of deduction.

7. In the light of what is stated above, we answer the question referred in I.T.R. No. 87 of 1979 in the affirmative, that is, against the assessee and in favour of the revenue.

8. We now come to the two questions which form the subject-matter ofreference in I.T.R. No. 88 of 1979. On the facts and circumstances contained in the statement of the case as well as in the order passed by theTribunal it would appear that the nursery maintained by the assessee wasa part of its capital asset and that some of the plants grown in the saidnursery were sold during the assessment year 1959-60 which was really asale of a part of the capital asset of the assessee. Hence, the sale proceedsrealised from the said transaction cannot, be regarded as agriculturalincome derived by the assessee during the year but was on the other hand,capital income, as rightly held by the Tribunal.

9. That leaves us with the question whether the assessee is entitled to deduction in respect of expenditure incurred by it for payment of salary tothe manager, contribution to the provident fund and staff pension fund of Edivanna Estate in the assessment years 1959-60 and 1960-61. Although the aforementioned estate which belonged to the assessee was sold away in 1958, the staff that was originally attached to that estate continued to be employed by the assessee itself in other estates belonging to it. Hence, the circumstances that Edivanna Estate had been sold away has little bearing on the question of the deductibility of the expenditure incurred by the assessee for the payment of salary, contribution to provident fund, etc., to such staff. That the amounts spent by way of salary to the manager working in one of the estates of the assessee constitutes an allowable item of deduction can admit of no doubt. That contributions made to the provident fund and pension fund are also deductible items of expenditure has been clearly laid down by the Supreme Court in Purlabpore Co. Ltd. v. State of Uttar Pradesh [1970] 2 SCWR 156 ; AIR 1970 SC 1578. The Tribunal was, therefore, perfectly right in holding that the expenses incurred by the assessee for payment of salary to the manager and by way of contributions to the provident fund and staff pension fund of personnel originally attached to the Edivanna Estate who continued to be the employees of the assessee during the years 1959-60 and 1960-61 are allowable expenses under the Act. Accordingly, we answer both the questions referred in I.T.R. No. 88 of 1979 in favour of the assessee and against the department.

10. The parties will bear their respective costs in both these cases.

11. A copy of this judgment under the seal of the court and the signature of the Registrar will be forwarded to the Tribunal as required by law.


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