TMI Blog1997 (12) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... nd commission paid on sales of latex in a sum of Rs. 11,140.04, all totalling to Rs. 1,43,933.04. The Assessing Officer, namely, the Agricultural Income-tax Officer-I, Nagercoil (Assessing Officer) as well as the Assistant Commissioner of Agricultural Income-tax, Grade-I, Nagercoil (Appellate Authority), and also the Tribunal, disallowed the claims so made by the assessee-company, culminating in the present action-Tax Case (Revision) No. 970 of 1993. From the submissions of Mr. K.J. Chandran, learned counsel appearing for the assessee-company, and Mr. K. Elango, learned Government Advocate (Taxes) representing the Revenue, the one and the only question that crops up for consideration is as to : "Whether the concurrent findings recorded by all the taxing authorities below, inclusive of the Tribunal that the assessee-company is not entitled to claim by way of deduction in the computation of agricultural income the alleged expenditure incurred under the various heads, such as "soil conservation", "domestic inquiry" and "commission paid on sale of latex" amounting to Rs. 1,43,933.04, on the facts and in the circumstances of the case, are sustainable in law ?" There is no pale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred are immediately debited even before the amounts in question are actually disbursed. Where, accounts are kept on mercantile basis, the profits or gains are credited though they are not actually realised and the entries thus made really show nothing more than an accrual or arising of the said profits at the material time. The same is the position with regard to debits made." In Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC), their Lordships of the Supreme Court followed the earlier decision rendered in Indermani Jatia [1959] 35 ITR 298 (SC) relatable to the finer aspects of distinction and difference between "cash system of accounting" and "mercantile system of accounting". Implicit reliance had also been placed by the said learned counsel on two more precedents emerging from the apex court of this country to drive home the point that where the expenditure is actually incurred and thereby a liability is created ; but there is postponement of the payment of the liability so created, it can figure as an allowable deduction in the computation of income of the year, in case the system of accounting followed by the assessee was one of "mercantile system of accounting". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if there was no specific provision for it, under section 10(2) of the Income-tax Act, was certainly an allowable deduction, in arriving at the profits and gains of the business of the appellant, under section 10(1) of the Act, there being no prohibition against it, express or implied, in the Act. The expression 'profits or gains' in section 10(1) of the Income-tax Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted therefrom---whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date. In CIT v. Cawnpore Textiles Ltd. [1972] 85 ITR 407 (All), the assessee was maintaining "mercantile system of accounting". Bonus in the relevant assessment year was declared and in fact provision was made in the balance-sheet. Actually payment was, however, made in the subsequent year. (a) The question that arose therein was, as to whether the assessee was entitled to deduction in the year in which provision has been made. (b) In answering the question, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of allowance made by the assessee-company relatable to "soil conservation" amounting to Rs. 1,32,043. The second claim is relatable to the disallowance made by the authorities as respects the expenses incurred by the assessee-company, in holding a domestic inquiry. It appears, an employee of the assessee-company committed certain petty thefts of goods or articles. The assessee-company, instead of lodging a FIR before the police in relation to the thefts so committed, actually held a domestic inquiry and for the conduct of the domestic inquiry, a fee in a sum of Rs. 750 had been paid to an advocate. The claim so made had been disallowed on the flimsy ground of holding directly a domestic inquiry, instead of lodging an information to the police, To such a view, we are unable to affix our seal of approval. It is always open to the assessee-company to either lodge an information to the police in respect of petty thefts committed by its employees during their employment or hold a domestic inquiry and take disciplinary action against the offending employee without even lodging an information before the police. The fact that the assessee-company incurred an expenditure of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alone figure as deduction in computing the income derived by the assessee-company from such rubber plantations. Here the expenses admittedly are relatable to commission paid on the sales of latex, an agricultural produce. This sort of a commission paid, learned counsel appearing for the assessee-company would say, can very well figure as a deduction under section 5(e) of the Act. Section 5(e), as it then stood---that is to say, before the amendment by Tamil Nadu Act No. LVI of 1994---reads as under : "5. Computation of agricultural income.---The agricultural 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 ;" If we scan or analyse provisions, as extracted above, it is crystal clear that the parameters are as below, namely, (i) expenditure ought to have been incurred in the previous year ; (ii) the expenditure so incurred should not be in the nature of a capital expenditure or personal expenses of the assessee ; and (iii) the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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