MALAYALAM PLANTATIONS LTD Vs. COMMISSIONER INCOME TAX

JUDGEMENT

(1.) THIS reference is made by the Income Tax Appellate tribunal, Trivandrum, at the instance of the Malayalam Plantations Limited, quilon, whose appeal No. 41/1123 challenging their assessment to agricultural income tax on Pounds 2861-3-6 d. had been dismissed by their order dated 15. 12. 1123. Four questions have been referred to this Court as arising out of the said order. They are: (i) Whether on the facts and circumstances of the case the sum of Pounds 2861-3-6 is not allowable as a deduction in arriving at the agricultural income? (ii) Whether the case is governed by the provisions of act I of 1119 or Act XXIII of 1121. (iii) Whether the land on which the trees grow should be taken as the entire plantation and not any particular piece of land on which particular bush or tree grow? and (iv) Whether the term "expenses for cultivating the crop" covers only the expenses of the particular trees which yield within the year of account?

(2.) ACT I/1119 Travancore imposed tax on agricultural income which had thereto before been exempt therefrom. It was an act appertaining exclusively to agricultural income. Subsequently a consolidated act, XXIII/1121 was passed making separate provisions for tax on agricultural as also on non-agricultural income. The provisions relating to agricultural income are materially different form those relating to non-agricultural income. Whereas in the case of non-agricultural income the method of computation of income, profits and gains mentioned in the charging Section is not statutorily laid down, in the case of agricultural income, ACT I/1119 as also that part of act XXIII/1121 appertaining to agricultural income contain detailed provisions as to how agricultural income subject to the impost of tax is to be ascertained. S. 3 of ACT I/1119 provides for a charge on the "total agricultural income" which expression is defined in S. 2 (15) thus: "2. [15]. "total agricultural income" means the aggregate of the amounts of agricultural income of the different heads specified in Ss. 6 and 7 as determined respectively in the manner laid down in the said Sections including income comprised in dividends from companies earning agricultural income and share of income from any firm or association of individuals earning agricultural income. " and Ss. 6 and 7 run as follows: "6. The agricultural income mentioned in sub-cl. [a] of Cl. [1] of S. 2 shall be deemed to be the sum realised in the previous year, on account of agricultural income mentioned in the said sub-cl. [a], after making the following deductions: [a]. the sum actually paid in the previous year as revenue to Our Government or to the Sripandaravagai or to the Sripadam or as jenmikarom or as rent to a landlord in respect of the land from which such agricultural income is derived; [b]. the sum actually paid in the previous year in respect of such land as any local cess or rate payable in pursuance of any enactment for the time being in force; [c] a sum equal to such percentage, as may be prescribed, of the total amount of the rent which accrued due in the previous year, in respect of the charges for collecting the same; [d] any expense incurred on the maintenance of any irrigation or protective work constructed for the benefit of the land from which such agricultural income is derived; [e] interest actually paid on any amount borrowed and actually spent on any capital expenditure incurred after the commencement of this ACT for the benefit of the land from which such agricultural income is derived; [f] depreciation at the prescribed rate in respect of any capital asset purchased or constructed after the commencement of this ACT for the benefit of the land from which such agricultural income is derived, or for the purpose of deriving such agricultural income from such land; [g] any interest paid on any mortgage or any other kind of debt or any interest paid on other capital charge incurred for the purpose of acquiring the property from which such agricultural income is derived. 7. [1]. The agricultural income mentioned in sub-cl. [b] of Cl. [1] of S. 2 shall be assessed on the net amounts of such income determined in the prescribed manner. [2]. Rules prescribing the manner of determining the net amounts of agricultural income for the purpose of this section shall provide the following deductions shall be made from the gross amounts of such income, namely: [a] the sum actually paid in the previous year as revenue to Our Government or to the Sripandaravagai, or to the Sripadam or as jenmikaram or as rent to a landlord in respect of the land from which such agricultural income is derived; [b] the sum actually paid in the previous year in respect of such land as any local cess or rate payable in pursuance of any enactment for the time being in force; [c] 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; [d] any tax, cess or rate paid on the cultivation or sale of the crop from which such agricultural income is derived; [e] any expense incurred on the maintenance of any capital asset purchased or constructed before this ACT came into force, if such maintenance is required for the purpose of deriving such agricultural income from such land; [f] [i] any expense incurred on the maintenance of any irrigation or protective work constructed for the benefit of the land from which such agricultural income is derived; [ii] interest actually paid on any amount borrowed and actually spent on any capital expenditure incurred after the passing of this act for the benefit of the land from which such agricultural income is derived, or for the purpose of deriving such agricultural income from such land; [iii] depreciation at the prescribed rate in respect of any capital asset purchased or constructed after the commencement of this ACT for the benefit of the land from which such agricultural income is derived, or for the purpose of deriving such agricultural income from such land; and [iv] any interest paid on any mortgage or other capital charge incurred for the purpose of acquiring the property from which such agricultural income is derived or for the purpose of cultivation of the property: Provided that no deduction shall be made under this clause, if it has already been made under S. 6; and [g] such other deductions as may be prescribed. " "prescribed" means prescribed by rules made under this ACT. (S. 2, C1. 12 ). S. 44 provides for the making of rules pursuant to which, rules were made and published. (See ACTs & Proclamations, Vol. XIV, Part ii, Pages 668 at seq) R. 3 runs as follows: "3. [1]. Except in the cases mentioned in the next two succeeding rules, for the purpose of determining the net amount of income of any land referred to in sub-s. [1] of S. 7 the following shall be deemed to be the gross agricultural income of such lands: [i] if the agricultural produce of the land has been sold, the actual price for which such produce was sold; [ii] if the agricultural produce of the land has not been sold in its raw state but has been subjected to any process ordinarily employed by a cultivator or receiver of rent in kind to render the produce raised or received by him fit or better suited to be taken to market the actual value at which it was sold or the value of such produce calculated according to the average price at which such produce was sold in the market during the year previous to that in which the assessment is made; Explanation:- For the purpose of this sub-rule the term 'produce' includes all saleable rights held or owned by the cultivator or estate owner for the production, growth, sale or export of the produce in its marketable form. [iii] if the agricultural produce of the land has not been sold, or if such produce has been utilised only as raw material for any manufacturing business, the value of such produce calculated according to the average price at which such produce was sold in the market, in the year previous to that in which the assessment is made. [2] For arriving at the next assessable amount of income deductions in respect of the following items shall be made from the gross agricultural income computed in the manner specified in sub-r. [1]: [i] The expenses incurred by the cultivator or receiver of rent in kind in performing any processes contemplated in cl. [ii] of sub-r. [1]; [ii] The expenses mentioned in Cl. [a] to [f] of sub-s. 2 of S. 7 of the ACT; [iii] In respect of animals which were used for the purpose of agriculture and have died or become permanently unfit for use in the previous year the difference the original cost to the assessee of the animals and the amount, if any, realised in respect of the carcasses or animals, as the case may be; [iv] Any sums paid by the assessee in the previous year as premium in order to effect any insurance against loss of or damage to such land or any corps to be raised or cattle to be reared thereon; [v] The expenses in respect of charges for collecting the produce receivable by the assessee as rent or share in the produce; and [vi] The customary annuities paid in cash or kind to artisans and other persons, whose services are required in connection with cultivation: Provided that no expenses in respect of which deductions have already been allowed to an assessee under any of the provisions of S. 6, in connection with the assessment of the agricultural income of the nature mentioned in sub-cl. [a] of Cl. [1] of S. 2 in respect of the same land, nor any payments of a charitable or religious nature, shall be permissible under this sub-rule. " The provisions of ACT XXIII/1121 in this regard are similar.

(3.) LEARNED counsel for the assessee referred to the Law lexicon of Ramanatha Iyer wherein it is stated as follows: "the word crop is derived from the old English "croppe" signifying the top of a plant. It is primarily some product of the soil and has been defined as everything produced from the earth by annual planting, cultivation and labour; and it may mean either a gathered or a growing crop. As thus limited the word is practically synonymous with emblements and hence does not include the fruits of perennial trees, but taken in its most comprehensive sense it includes grasses and the fruits of trees. A crop is considered as "growing" from the time the seed is planted in the ground, and it is usually classed as such until it is gathered. " He also referred to the definition of the word given in the Incometax Ordinance, 1947 of the Federation of Malaya which runs thus: "crops include any form of vegetable produce". The citations do not appear to render any assistance to the assessee. The Act authorises deductions only of the expenses of cultivating the crop from which such agricultural income is derived. This is obviously inapt to include the expenses of replantation. LEARNED counsel for the assessee placed great reliance upon a decision of the Court of Session (Scotland) in Vallambrosa rubber Co. Ltd. v. Farmer (V Tax Cases 529) for the position that though only 1/7th of the total number of trees had begun to yield, the cost of maintenance not merely of those that yielded, but of those that did not being immature, would be a permissible annual revenue expenditure and that the assessable income would be the yield from the 1/7th of the estate minus the expenditure in respect of the entire estate. The contention urged is that the matter should be approached from the point of view of sound business according to which, an estate or plantation must be taken as a single unit and the income expenditure of that unit as a whole must be regarded and not of parcels of portions separately. The soundness of the decision relied upon is unquestionable. The decision itself is however of no application to the facts of this case. Their Lordships had not to consider the provisions of a statute as we have to do here. Again their Lordships were considering the question of maintenance of an estate already planted which would be revenue expenditure. Whether the expenditure for replantation can be regarded as revenue expenditure did not form the subject-matter of their Lordships consideration. The decision therefore affords us no assistance in this case. "