Skip to content


Commissioner of Agricultural Income-tax Vs. Kerala Estate Plantations - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Referred Case No. 12 of 1970
Judge
Reported in[1973]89ITR167(Ker)
ActsKerala Agricultural Income Tax Act, 1950 - Sections 5
AppellantCommissioner of Agricultural Income-tax
RespondentKerala Estate Plantations
Appellant AdvocateGovt. Pleader
Respondent Advocate T.L. Viswanatha Iyer and; E.R. Venkiteswaran, Advs.
Cases ReferredTravancore Rubber and Tea Co. Ltd. v. Commissioner of Agricultural Income
Excerpt:
.....agricultural income tax act, 1950 - whether tribunal justified in holding that certain interest allowable deduction under section 5 (h) or section 5 (i) - no material before assessing authority to show nature of activities that assessee conducted with amounts borrowed on which interest paid - interest rightly allowed as deduction in absence of specific material that any portion of amounts borrowed expended for cultivation, upkeep and maintenance of immature plants - question answered in affirmative. - - if it was a mere amount expended on the land which cannot fairly be treated to be amount expended for cultivation, upkeep and maintenance of immature plants, the full amount will have to be allowed under section 5(h). similarly, if the amount was spent for the purpose of..........section 5(j) came to the conclusion that expenditure laid out for the upkeep and maintenance of immature plants is also allowable under section 5(j) in the decision in travancore rubber and tea co. ltd. v. commissioner of agricultural income-tax, [1961] 41 i.t.r. 751 ; [1961] 3 s.c.r. 279 (s.c.) reversing the decision of this court in travancore rubber and tea co. ltd. v. commissioner of agricultural income-tax, [1959] 37 i.t.r. 549 (ker.). thereafter explanation 2 was added to section 5 of the agricultural income-tax act, 1950, which is worded in this manner :' explanation 2.--nothing contained in this section shall be deemed to entitle a person deriving agricultural income to deduction of any expenditure laid out or expended for the cultivation, upkeep or maintenance of immature.....
Judgment:

Govindan Nair, J.

1. This is a reference at the instance of the Commissioner of Agricultural Income-tax, Kerala, by the Kerala Agricultural Income-tax Appellate Tribunal under Section 60(1) of the Agricultural Income-tax Act, 1950. The question referred is in these terms :

' Whether, on the facts and circumstances of the case, the Tribunal is justified in holding that the interest of Rs. 4,204 is allowable under Section 5(h) or 5(i) of the Agricultural Income-tax Act '

2. For the year of assessment 1961-62, in computing the total income of the assessee, the assessing authority added back among other things a sum of Rs. 4,204 being a portion of the claim under interest which the assessee claimed as an allowable deduction. The assessing authority by the order, annexure ' A ' to the statement of the case, dealing with this question in paragraph 6, stated thus :

' 6. Interest.--Out of Rs. 16,614'32 paid as interest during the period a sum of Rs. 8,206.29 relates to interest paid on mortgage and hence will be allowed in full. Out of the balance of Rs. 8,408.03, 50% will be disallowed as related to immature area, as the loan amount was not fully utilised for the lands from which agricultural income is derived. '

3. There was an appeal in which this aspect was challenged which was disposed of by the appellate authority in these terms :

' Interest.--During the period under assessment, the appellants have expended about one lakh rupees for maintenance of immature area. It cannot, therefore, be said that the entire loan amounts were utilised for cultivating the land from which agricultural income was received. In the circumstances of the case the disallowance made by the assessing authority which works out to only about 1/4th of the total interest paid, cannot be said to be excessive or unreasonable. The disallowance is, therefore, confirmed. '

4. In further appeal before the Tribunal, the claim of the assessee was fully allowed. The matter was disposed of by the Tribunal by stating :

' The assessing authority disallowed Rs. 4,204 as relating to immature area. We find that the interest in question is allowable under Section 5(h) or 5(i) of the Agricultural Income-tax Act, 1950, even if the amount of loan has been utilised for purpose of development of the estate. This disallowance is therefore cancelled.'

5. Sections 5(h) and (i) referred to by the Tribunal's order provide for deductions in computing the agricultural income of a person and are worded in this manner :

' 5. Computation of agricultural income.--The agricultural income of a person shall be computed after making the following deductions, namely :--......

(h) any sum paid in the previous year as interest in respect of agricultural loans taken and expended on the land from which agricultural income is derived;

(i) interest paid on any amount borrowed and actually spent for the purpose of reclaiming, improving or cultivating the property from which agricultural income is derived. '

6. We may also refer to Section 5(j), which runs thus :

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

7. The Supreme Court interpreting Section 5(j) came to the conclusion that expenditure laid out for the upkeep and maintenance of immature plants is also allowable under Section 5(j) in the decision in Travancore Rubber and Tea Co. Ltd. v. Commissioner of Agricultural Income-tax, [1961] 41 I.T.R. 751 ; [1961] 3 S.C.R. 279 (S.C.) reversing the decision of this court in Travancore Rubber and Tea Co. Ltd. v. Commissioner of Agricultural Income-tax, [1959] 37 I.T.R. 549 (Ker.). Thereafter Explanation 2 was added to Section 5 of the Agricultural Income-tax Act, 1950, which is worded in this manner :

' Explanation 2.--Nothing contained in this section shall be deemed to entitle a person deriving agricultural income to deduction of any expenditure laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income has been derived during the previous year.'

8. This Explanation came up for consideration by this court again in Commissioner of Agricultural Income-tax v. Johnson's Estates & Agencies (P.) Ltd., [1964] 52 I.T.R. 629 (Ker.) It will be useful to extract paragraphs 13 and 14 from that judgment :

'13. Whether a particular item of expenditure is 'laid out or expended for the cultivation, upkeep or maintenance of immature plants' is essentially a question of fact and cannot be decided on any general principle of law. All that can be said is that the connection between the item of expenditure and the cultivation, upkeep or maintenance of immature plants must be definite and real, and not vague or illusory.

14. One way of finding out whether any portion of the estate or overhead expenses has been laid out or expended for the cultivation, upkeep or maintenance of immature plants is to see whether the said portion of these expenses would have been incurred in the absence of the 'immature' area within the estate. If it would not have been incurred but for the existence of the 'immature' area, it is certainly connected with the cultivation, upkeep or maintenance of the immature plants. It will come within the Explanation and will not be admissible for deduction. '

9. In that particular case, the Tribunal had set aside the disallowance of certain expenses as the proportionate disallowances attributable to immature area on the ground that ' none of these expenses relates directly to the cultivation, upkeep or maintenance of plants, much less immature plants. '

10. In this case also, there was no material available before the assessing authority to show the nature of the activities that the assessee conducted with the amounts borrowed on which interest had been paid. If it was a mere amount expended on the land which cannot fairly be treated to be amount expended for cultivation, upkeep and maintenance of immature plants, the full amount will have to be allowed under Section 5(h). Similarly, if the amount was spent for the purpose of reclaiming or improving the property, this could not be said to be specifically expended for cultivation, upkeep or maintenance of immature plants and the whole of the amounts can be held to be allowed under Clause (i) of Section 5 if the other conditions of that clause are satisfied. In the absence of specific material that any portion of the amounts borrowed had been expended for cultivation, upkeep and maintenance of immature plants the Tribunal had decided not to disallow any portion of the interest paid by the assessee. This we consider is a conclusion on a finding of fact and the question always in these cases, we think with great respect as correctly pointed out in Commissioner of Agricultural Income-tax v. Johnson's Estates & Agencies (P.) Ltd., is a question of fact.

11. We, therefore, answer the question referred to in the affirmative, that is, against the department and in favour of the assessee. We make no order as to costs.

12. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by Sub-section (6) of Section 60 of the Agricultural Income-tax Act, 1950.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //