M. S. MENON, J. - Section 5(e) of the Madras Plantations Agricultural Income-tax Act, 1955, provides that the agricultural income of a person shall be computed after making the following deduction, namely,
'any expenditure incurred in the previous year (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 the plantation.'
The respondents claim for the deduction of a sum of Rs. 20,287-4-8 in respect of the assessment year 1955-56 (accounting period : the year ending with 31st March, 1955) was negatived by the Agricultural Income-tax Officer, Tamarasseri, and then by the Assistant Commissioner of Agricultural Income-tax, Kozhikode, in the appeal filed by the respondent under section 31(1) of the Act.
The petitioner subsequently moved the Agricultural Income-tax Appellate Tribunal, Trivandrum, and succeeded in the appeal. it is the correctness of the decision of the Tribunal that is challenged before us in this application by the Commissioner of Agricultural Income-tax, Kerala, under section 54(1) of the Act.
The application states the point in controversy as follows :
'The only question in dispute is the validity of the claim of the respondent that a sum of Rs. 20,287-4-8 expended towards the upkeep and maintenance of immature rubber trees should be deducted while computing the taxable income.'
And the contention as presented by the learned Government Pleader is that the expenditure concerned was of a capital nature and so cannot be considered as an admissible deduction under section 5(e) of the Act. The sole question for determination, therefore, is whether the said expenditure is a capital or revenue disbursement.
The difference between capital expenditure and revenue expenditure has often come up for discussion in connection with section 10(2)(xv) of the Indian Income-tax Act, 1922, in which Act also as in the Madras Plantations Agricultural Income-tax Act, 1955, there is no definition of the expression 'capital expenditure'. As stated by the Privy Council in Mohanlal Hargovind v. Commissioner of Income-tax the expression must be construed 'in a business sense save in so far as there may be rules of construction applicable to it', and in Halsbury, 3rd edition, volume 20, page 162 :
'It is difficult to lay down a definite series of tests which will cover all cases, but in general outgoings which result in the acquisition of a fixed capital assets, or which produce an advantage of a permanent and enduring nature, are not allowable, but the advantage must be analogous to an asset.'
The deduction claimed is not in respect of planting the rubber plants but only in respect of the current expenses after they had been planted. The case nearest to the one before us is Vallambrosa Rubber Co. Ltd. v. Farmer.Konstam summarises the decision as follows :
'The necessary expenses of cultivating and managing a rubber estate incurred in the year in which profits are earned are deductible, and it is no answer to the claim for deduction that a part of those expenses produced no return in that year because the whole of the rubber trees were not in full bearing; that fact does not make the expenses of superintendence, weeding, etc., a capital expenditure; but the expenses of clearing and draining the estate and of making roads are capital expenditure' (12th edition, paragraph 118).
There is an analysis - if we may say so with respect, a very clear and masterly analysis - of all the leading cases on the subject in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax. The test is laid down as follows in that decision :
'If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure.'
Applying this test, there can be no doubt that the amounts spent on the upkeep and maintenance of immature rubber trees after they had been planted - ordinary day to day expenses of a plantation which in the very nature of things must consist of trees in different stages of growth and development - is a current and not a capital expenditure, and is hence entitled to the deduction claimed under section 5(e) of the Madras Plantations Agricultural Income-tax Act, 1955.
The Income-tax Manual (10th edition, page 536) deals with the capital and revenue expenditure of tea gardens as follows :
'In assessing the profits of tea concerns there will be allowed, as a charge against profits, the whole of the cost of the upkeep (e.g., weeding and draining) of extensions of the estate which are not in bearing; but no capital expenditure in connection with such extensions. Once the cultivation has begun with the completion of the planting, the annual cost of the upkeep of such extensions should be allowed as a business expense even though the estate is not in bearing.
The question as to what is capital or revenue expenditure in respect of tea gardens is one the answer to which depends on certain general principles. The English decision in the case of Vallambrosa Rubber Co. v. Farmer establishes certain principles which are applicable to their case. The main is that the cost of the upkeep (e.g., weeding and draining) of an area that is not in bearing may be charged to revenue.'
Our attention was drawn to the following decisions : Malayalam Plantations Ltd. v. Commissioner of Income-tax Malankara Rubber Produce v. Commissioner of Agricultural Income-tax Travancore Rubber & Tea Co. Ltd. v. Commissioner of Agricultural Income-tax and all these decisions were based solely on the wording of the enactments concerned. In view of that they are of no assistance in deciding the question before us and are hence not discussed in this judgment.
What was decided in those cases will be clear from paragraphs 4 and 5 of Travancore Rubber & Tea Co. Ltd. v. Commissioner of Agricultural Income-tax :
'4. The deduction admissible under section 5(j) is : any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly or exclusively for the purpose of deriving the agricultural income.
We find it impossible to say that the amounts spent on the upkeep and maintenance of the immature rubber plants were laid out or expended for the purpose of deriving the agricultural income, much less that they were laid out or expended wholly and exclusively for that purpose. The agricultural income, in the context, can only mean the agricultural income obtained in the accounting year concerned and not the agricultural income of any other period.
5. In Malankara Rubber Produce v. Commissioner of Agricultural Income-tax a Division Bench of the Travancore-Cochin High Court had to deal with a claim for deduction under section 7(2)(c) of Act 1 of 1119 (Travancore) and section 14(3)(c) of Act XXII of 1121 (Travancore), namely :
the expenses of cultivating the crop from which such agricultural income is derived, of transporting such crop to market, including the maintenance of agricultural implements and cattle required for the purpose of such cultivation and for transporting the crop to market.
The court observed that it found it impossible :
to include within the expression 'the expenses of cultivating the crop from which such agricultural income is derived' the expenses incurred by the assessee on the maintenance of rubber plants which were immature and had not begun to yield. 'Such agricultural income' in the section must mean agricultural Income from which the deduction is claimed and 'the expenses of cultivating the crop', the expenditure on the mature rubber trees from which that income was earned;
dealt with the provisions of the Indian Income-tax Act and the decision of the Bombay High Court in In re Tata Iron and Steel Co. Ltd. and said :
The provision we have to deal with is entirely different. For a deduction to be permissible as far as agricultural income in this State is concerned it is not enough if the expenditure was not in the nature of capital expenditure and was in respect of the agricultural operations of the assessee during the accounting year. It must be far more intimately related - so related as to form a link in the chain of causation - to the crop that earned the profits or gains which form the basis of the assessment.'
10. In the light of what is stated above we must hold that the Appellate Tribunal was right in its conclusion and that this application should be dismissed. We decide accordingly.
11. The applicant will pay the costs of the respondent, advocates fee Rs. 150.