ASPINWALL AND COMPANY LTD Vs. INSPECTING ASSISTANT COMMISSIONER

JUDGEMENT

(1.) A plantation company owning rubber plantation and an assessee under the Kerala Agricultural Income Tax Act, 1991, was amalgamated with the assessee in this case under a scheme of amalgamation approved by the High Court of Kerala. The amalgamation was made effective from 01/01/2006 and consequently amalgamating company's first assessment under the Kerala Agricultural Income Tax Act, 1991 was made for the assessment year 2006-2007 covering income for three months for the financial year ending 31/03/2006. Besides very little income from minor crops, the main income earned by the assessee on acquisition of estate from the amalgamated company is income from rubber in the form of field latex which was processed in assessee's factory and sold as centrifuged latex. Even though the income from centrifuged latex was being assessed exclusively as agricultural income under the State Act until the assessment year 2001-2002, from the next year onwards by virtue of introduction of R.7A to the Income Tax Rules with effect from 01/04/2002, income from manufactured rubber was determined as if it is income assessable under the Central Act and thereafter 35% of the income so computed was subject to tax under the Central Act and 65% was assessed under the Agricultural Income Tax Act of the respective State. Following R.7A, the assessee computed income from manufacture of rubber and offered 65% for assessment under the AIT Act and balance 35% for assessment under the Central Act. Even though the Assessing Officer under the AIT Act accepted the computation of income under R.7A, assessee's claim for carry forward and set off of huge unabsorbed loss of Rs.48,930,939/- was rejected by the Assessing Officer for the reason that the relevant provision in the AIT Act namely, S.12 does not authorise set off of carried forward unabsorbed loss of the amalgamated company in the assessment of the amalgamating company namely, the assessee. Two level appeals filed against the assessment were rejected and consequently assessee has filed this OTC under S.78 of the Kerala Agricultural Income Tax Act, 1991 before us. We have heard Senior Counsel Sri. Sarangan appearing along with Adv. Sri. P. Balakrishnan for the assessee and Government Pleader Sri. Mohammed Rafeeq for the State.

(2.) There is no dispute that income from manufactured rubber is partially agricultural income and partially business income by virtue of R.7A(1) of the Income Tax Rules, 1962 which is as follows:

(3.) Senior Counsel appearing for the assessee raised the contention that by virtue of R.7A of the Income Tax rules and S.72A of the Income Tax Act, the assessee is entitled to the benefit because income assessable partially as agricultural income and partially as business income should be computed as if the income is derived from business. Government Pleader appearing for the State opposed the claim stating that neither R.7A of the Income Tax Rules nor S.72A provides for set off of carried forward loss against agricultural income computed under the AIT Act.