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The State of Madras, Represented by the Commissioner of Agricultural Income-tax, Board of Revenue Vs. Balmadies Plantations Limited, Naduvattam P.O., Managing Agents, Managing Agencies Private Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Reported in(1960)2MLJ499
AppellantThe State of Madras, Represented by the Commissioner of Agricultural Income-tax, Board of Revenue
RespondentBalmadies Plantations Limited, Naduvattam P.O., Managing Agents, Managing Agencies Private Ltd.
Cases ReferredPretty v. Solly
Excerpt:
.....7. it should be obvious that but for the specific provision in section 5(1) of the act, even payment of bonus to a worker within the scope of section 5 (/), which satisfied the test of section 5 (e) that it was expended wholly and exclusively for the purposes of the land, would have been a permissible deduction under section 5 () of the act. but we are unable to accept as correct his further submission, that the statutory requirement that the payment should be to a worker is just one more of the tests to be satisfied, and that it is not a factor to be taken into account any more than the test of reasonableness in deciding what is the essential subject-matter, the pith and substance, of the legislative provision in section 5(1) of the act. we would find it difficult to accept the..........advocate-general was that section 5 (i) is a specific legistlative provision for deduction of bonus payments, and that no payment of bonus that fails to satisfy any of the requirements of section 5(1) could be dealt with under section 5 (e). we are unable to accept that contention, which involves the basic assumption, that the subject-matter of section 5(1) of the act is all expenditure by way of payments of bonus. the learned advocate-general was, of course, right when he pointed out that, when a deduction is claimed under section 5 (l), and the claim is rejected on the grotind that the payment fails to satisfy, for example, the test of reasonableness imposed by the first proviso to section 5(1) the claim could not be considered under section 5 (e) of the act. but we are unable to.....
Judgment:

Rajagopalan, J.

1. Since an identical question of law arises for determination in each of these applications, preferred by the State under the Madras Agricultural Income-tax Act (V of 1955), to which we shall refer in the rest of this judgment as the Act, we shall dispose of the applications by a single judgment. In each of these cases the assessee claimed that the sum he paid his employee--in some cases that employee was designated the manager and in others as superintendent--as bonus in the relevant year of account was a permissible deduction under Section 5 (e) of the Act. That claim was upheld by the Tribunal, and the correctness of that decision was challenged by the Department. The main contention of the learned Advocate-General who appeared for the petitioner, Department, was that Section 5(1) of the Act was the only statutory provision under which the assessee was entitled to deduction of payments of bonus, and, as admittedly the claim of the assessee in each of these cases did not fall within the scope of Section 5(1) of the Act, the claim of the assessee should be negatived.

2. The relevant Sub-sections of Section 5 of Act V of 1955 are:

Section 5: The agriculiural income of a person shall be computed after making the following deductions namely:

* * * * * * *(e) 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 land;

* * * * * * *(l) any sum paid to a worker as defined in the Plantations Labour Act, 1951 (Central Act LXIX of 1951), as bonus for services rendered where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus:

Provided that the bonus is of a reasonable amount with reference to--

(i) the wages and conditions of service of such worker;

(ii) the income from the land in the year in question; and

(iii) die general practice in the land:

Provided that no deduction shall be made under this section if it has already been made in the assessment under the Indian Income-tax Act, 192a (Central Act XI of 1922), or is allowable in assessing a person to tax under that Act.

3. To understand the scope of the statutory expression 'worker', we have to refer to the relevant provisions of the Plantations Labour Act, LXIX of 1951. Section 2 (k) of Act LXIX of 1951, provides the statutory definition of worker:

Worker means a person employed in a plantation for hire or reward whether directly or through any agency to do any work skilled, unskilled, manual or clerical but does not include--

(a) a medical officer at the plantation;

(b) any person whose monthly wages exceed Rs. 300, or

(c) a person employed in plantation primarily in managerial capacity notwithstanding that his monthly wages do not exceed Rs. 300.

Plantation itself was denned in Section 2 (/) of Act LXIX of 1951:

Plantation means any land used or intended to be used for growing tea, coffee rubber or cinchona which admeasures twenty-five acres or more and whereon thirty or more persons are employed, or were employed on any day of the preceding twelve months, and in any State where the provisions of this Act have been applied by notification under Sub-section (4) of Section 1 to anv other class of plantations, means also any land used or intended to be used for growing the plant mentioned in such notification and whereon thirty or more persons are employed, or were emnloved on any day if the preceding twelve months.

The definition of 'plantation ' in Madras Act V of 1955 differs substantially from that in Central A ctLXIX of 1951. Section 2 (r) of Madras Act V of 1955 defines plantation:

Plantation means any land used for growing all or any of the following, namely, arecanut, tea, coffee, rubber, cinchona or cardamom.

4. Apart from the statutory requirement of the employment of thirty or more persons before a given piece of land is treated as a plantation for the purposes of Act LXIX of 1951, the position is, that while the land on which cardamom and arecanut are grown will be plantations within the meaning of Madras Act V of 1955, they will not be plantations within the meaning of Central Act LXIX of 1951, and even the labourers working on lands on which cardamom and arecanut are grown will not be workers within the meaning of Section 5 (I) of Act V of 1955. Those employed in work on any other class of agricultural or horticultural land will also, be obviously outside the scope of 'workers', as that expression has to be understood in the context of Section 5(1) of the Act V of 1955.

5. To bring the claim for deduction within the scope of Section 5 (I) of the Act, what the assessee has to establish is: (i) That the payment was made in the relevant year of account, (ii) that the payment was to an employee who is a worker, as defined by Central Act LXIX of 1951, (iii) that the payment was made as a bonus, (iv) that the payment as bonus was for services rendered by the employee, the recipient of the bonus; and (v) the amount so paid as bonus would not have been payable to that employee as profits or dividend. In addition, the assessee has to establish: (1) that the payment satisfied the test of reasonableness which the First Proviso to Section 5(1) prescribed, and (2) that the terms of the Second Proviso to Section 5(1) did not apply.

6. What follows from the second of the requirements listed above should be clear. No payment to an employee other than a worker as defined by Act LXIX of 1951 will fall within the scope of Section 5 (I) of the Act, even if all the other requirements of Section 5(1) are satisfied. Even of the employees working in a plantation as defined by the Central Act LXIX of 1951, some stand excluded by the definition of worker in that Act. The employees engaged in all other classes of agricultural and horticultural lands will not be workers either within the meaning of Section 5(1) of the Act. Act LXIX of 1951 would also exclude labourers employed on land used for growing tea, coffee, rubber or cinchona, where either the land is less than 25 acres in extent, or where less than thirty persons are employed. Payments of bonus to these classes of employees fall outside the scope of Section 5 (I) of the Act, because they are not within the statutory concept of workers.

7. It should be obvious that but for the specific provision in Section 5(1) of the Act, even payment of bonus to a worker within the scope of Section 5 (/), which satisfied the test of Section 5 (e) that it was expended wholly and exclusively for the purposes of the land, would have been a permissible deduction under Section 5 () of the Act. But what falls within the scope of Section 5 (I) cannot be dealt with under Section 5 (e) of the Act. Section 5 () deals with all expenses, while Section 5 (I) deals with speified classes of expenditure. The normal rule of construction is in the words of Romilly, M.R. in Pretty v. Solly (1859) 26 Beav. 606 : 53 E.R. 1032:

The general rules which are applicable to particular and general enactments in statutes are very clear. The only difficulty is in their application. The rule is that whenever there is a particular enactment and a general enactment in the same statute and the latter taken in its most comprehensive sense would overrule the former, the particular enactment must be operative and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply.

(See Craies on Statute Law, 5th edition, page 205).

8. As what is included in Section 5 (I) will stand excluded from the scope of Section 5 (e) of the Act, we have to verify what is it that falls within the ambit of Section 5 (I). The contention of the learned Advocate-General was that Section 5 (I) is a specific legistlative provision for deduction of bonus payments, and that no payment of bonus that fails to satisfy any of the requirements of Section 5(1) could be dealt with under Section 5 (e). We are unable to accept that contention, which involves the basic assumption, that the subject-matter of Section 5(1) of the Act is all expenditure by way of payments of bonus. The learned Advocate-General was, of course, right when he pointed out that, when a deduction is claimed under Section 5 (l), and the claim is rejected on the grotind that the payment fails to satisfy, for example, the test of reasonableness imposed by the First Proviso to Section 5(1) the claim could not be considered under Section 5 (e) of the Act. But we are unable to accept as correct his further submission, that the statutory requirement that the payment should be to a worker is just one more of the tests to be satisfied, and that it is not a factor to be taken into account any more than the test of reasonableness in deciding what is the essential subject-matter, the pith and substance, of the legislative provision in Section 5(1) of the Act. As we read Section 5 (I) in the context of the Act, the subject-matter of that statutory provision is in the words of the Sub-section itself, ' sums paid to a worker as bonus for services rendered ' or at least sums paid to a worker as bonus, worker, of course, being understood in the terms of Act LXIX of 1951. As we pointed out, the statutory concept of worker excludes a large class of employees on land, and the legislature should have been fully aware of that position. The Legislature should also have been aware of the fact, that bonus is claimed by and paid to other employees also besides the limited class of employees included in the statutory definition of workers in Section 5 (I) of the Act. We find no real basis in the scheme of the Act to justify the contention, that the Legislature in eff ct intended to Legislate that no payment of bonus to an employee other than the payment to a worker could ever be a permissible item of expenditure which could be deducted in computing the assessable agricultural income of an assessee.

9. The learned Advocate-General invited our attention to the analogous provisions of the Income-tax Act. Section 10(2) of the Income-tax Act provides:

Profits or gains shall be computed after making the following allowances, namely:

* * * * * * *(x) any sum paid to an employee as bonus or commission for services rendered where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission:

Provided that the amount of bonus or commission is of a reasonable amount with reference to (a) the pay of the employee and the conditions of his service; (b) the profiis of the business, profession or vocation in the year in question; and (c) the general practice in similar businesses, professions, or vocations;

* * * * * * *(xv) any expenditure not being an allowance of the nature described in any of the Clauses (i) to (xiu) inclusive, and 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 such business, profession or vocation.

10. Section 10(2)(xv) of the Income-tax Act in substance corresponds to Section 5 (e) of Act V of 1955, while Section 10(2)(x) of the Income-tax Act is akin to Section 5(1) of Act V of 1955. The scope of Section 10(2)(x) of the Income-tax Act is much wider than that of Section 5(1) of the Act (Vof' 1955), because Section 10(2)(x) of the Income-tax Act takes in all employees, and also payments both by way of bonus and as commission for services rendered. We would find it difficult to accept the contention that payment of commission for services rendered by a person other than an employee, which would of course be outside the scope of Section 10(2)(x), could not be dealt with under Section 10(2)(xv) of the Income-tax Act, even if the test prescribed by Section 10(2)(xv) is satisfied.

11. To come back to the question, what was the subject-matter of Section 5(1) of the Act, it is certainly not all payments to an employee or even all payments to the limited class of employees, the workers, but payments to workers by way of bonus. There was no specific statutory provision in the Act to deal with payments by way'of bonus to other class of employees and in the absence of any specific statutory provision, the general provision, Section 5 (e) of the Act should apply to decide whether such payments constitute admissible deductions. The acceptance of the contentions of the learned Advocate-General, that no bonus payment other than the payment to the limited class of employees designated workers would be a permissible item of deduction, would involve reading Section 5(1) of the Act as if it ran:

Any sum paid (to an employee) as bonus for services rendered, provided that no deduction shall be made if the payment was to an employee other than a worker as defined by Act LXIX of 1951.

12. We can see no justification for so reading Section 5(1) of the Act or interpret it to lead to that result. In our opinion Section 5(1) of the Act does not operate as a statutory bar to the deduction of payments of bonus to employees other than statutory workers. Such payments to employees other than statutory workers constitute an item of expenditure, and if that satisfies the test of Section 5 (e) of the Act, it must be allowed as a deduction.

13. The correctness of the finding of the Tribunal, that the test prescribed by Section 5 (e) of the Act, that it was expenditure wholly and exclusively laid out or expended for the purposes of the land was satisfied in each of these cases, was not challenged before us. We agree with the Tribunal that in each of these cases the assessee was entitled to deduct these items of expenditure under Section 5 (e) of the Act in computing his assessable agricultural income.

14. These petitions fail and are dismissed with costs. In each of these petitions other than T.C. Nos. 53 and 56 of 1959, in which the respondent did not enter appearance, the respondent-assessee will be entitled to his costs. Counsel's fee Rs. 100.


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