TMI Blog2019 (8) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... finding of the Hon ble Kerala High Court being very clear and categorical, the judgment is binding on the lower authorities. Hence, the appeal filed by the assessee dismissed. - ITA No.239/Coch/2018, ITA No.381/Coch/2018 - - - Dated:- 1-8-2019 - Shri Chandra Poojari, AM AMD Shri George George K, JM For the Appellants : Sri. Joseph Marcose/Sri. Iype John For the Respondent : Smt. A.S.Bindhu, Sr. DR ORDER Per George George K, JM These are appeals at the instance of the assessees. These appeals arise out of order of the CIT(A) dated 28.03.2018 concerning assessment year 2014-2015 in the case of M/s.The Plantation Corporation of Kerala Limited and order of the CIT(A) dated 12.06.2018 concerning assessment year 2011- 2012 in the case of M/s.The Velimalai Rubber Co. Limited. 2. Common issue is raised in these appeals, hence, they are being disposed off by this consolidated order. We shall narrate the facts concerning ITA No.239/Coch/2018 in the case of M/s.The Plantation Corporation of Kerala Limited. 3. The grounds raised in ITA No.239/Coch/2018 read as follows:- 1. The order of the Ld.Commissioner of Income Tax (Appeals), Kottayam is opposed to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 343 (Ker.)]. The relevant finding of the Assessing Officer in disallowing the claim of the assessee reads as follows:- 2. Allowability of claim towards cost of replanting under Rule 7A has been a persistent issue in assessee s case for the past several years. The jurisdictional High Court in the case of M/s.Rehabilitation Plantations (251 CTR 343 (Kerala)) had considered an identical issue and had come to the conclusion that eh claim towards cost of replanting under Rule 7A cannot be entertained unless it is a case of infilling in an existing rubber plantation .. 3. Here, the assessee does not have a case that it has incurred any expenditure for infilling in a yielding area. The expenditure incurred is for planting in an area which had been cleared off an existing plantation that had become unproductive. Therefore, assessee s case clearly falls outside the ambit of the allowance as envisaged in Rule 7A(2). Hence, the deduction claimed under Rule 7A(2) to the tune of ₹ 6,75,49,321/- is hereby disallowed. 4. `Cost of replanting has been claimed under direct expenses. 100% of the direct expenses have gone into the cost of production in factory. 35% of the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case. 2. Against the assessment order an appeal was filed before the Commissioner (Appeals), Kottayam. However, the Appeal was dismissed by order dated 28-03-2018. Against the order of the Commissioner (Appeals) the Second Appeal was preferred before this Hon. Tribunal on 18-05-2018. Additional grounds of appeal was filed on 02-04-2019. 3. (i) During the year under reference the total income returned by the assessee was ₹ 14,38,15,260/-. This is after claiming the amount of ₹ 6,75,49,321.16 towards Replanting Maintenance Expenditure of immature rubber area the details of which are as follows: (ii) Rule 7 A was introduced from the year 2001-02 whereby the income from value added rubber is computed as business income as per which the income derived from the sale of such rubber is to be computed as if it were income derived from business at 35% of such income and is deemed to be income liable to tax under the Income Tax Act The balance 65% is liable to State Agrl. Income Tax. It is also judicially recognized that the State Officers has to accept the proportionate computation as made by the Central Officers has to accept the proportionate computation as made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng pages 5 to 7 of Annexure II. Likewise in Karimtharuvi Tea Estates vs. State of Kerala reported in AIR 1963 SC 760 or 48 ITR 83 the Hon'ble Supreme Court held The contention that the amount spent for the upkeep and maintenance of the immature plants till they become mature is in the nature of a capital expenditure is also not sound. It is a running expenditure and not of the nature of capital expenditure . The further contention that treating maintenance expenditure as deductible revenue expenditure would make the Proviso to Rule 24 of the Indian Income Tax Rules, 1922 (similar to Rule 8(2) of the Income Tax Rules, 1962) redundant was also rejected. The Supreme Court held The proviso allows deduction of the cost of replanting bushes in replacement of bushes which died or became permanently useless in an area already planted. It deals with the cost of planting bushes and not the expenses incurred in the upkeep and maintenance of bushes already planted . Copy of the judgment is at running pages 8 to 12 of Annexure III. The maintenance expenditure of ₹ 4,28,10,446.92 is therefore clearly allowable as a revenue expenditure under section 37 of the IT Act and is not to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognition to such claim, the legislature realizing that assesses were now getting 100% deduction of the cost of replanting under Rule 8(2) and thereafter also getting depreciation for the same amount treating tea bushes as a plant, amended section 43(3) by Finance Act 1995 with retrospective effect from 1-4-1962 to settle at rest the controversy as to whether tea bush is a plant Section 43(3) was therefore amended retrospectively as under:- 'Plant' includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purpose of business or profession and does not include tea bushes or livestock . (v) In the memorandum explaining the amendment (reported in 212 ITR (St) 356 it was explained as under:- Amendment of section 43(3) of the Income Tax Act to exclude plantations and livestock from the definition of plant. Under subsection (3) of section 43 the term plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of business or profession. In certain judicial pronouncements, it has been held that the term plant includes tea bushes and, therefore, they would also be eligible for depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: In the case of an assessee who carries on the business of growing and manufacturing rubber, coffee, cardamom or such other commodity in India, as the Central Government may, by notification in the Official Gazette, specify in this behalf, the amount of any subsidy received from or through the concerned Board under any such scheme for re-plantation or replacement of rubber plants, coffee plants, cardamom plants or plants for the growing of such other commodity or for rejuvenation or consolidation of areas used for cultivation of rubber, coffee, cardamom or such other commodity as the Central Government may, by notification in the Official Gazette, specify . (ii) It is thus further clear that by linking Rule 7A(2) with section 10(31), the legislature wanted to give full deduction of cost of re-plantation of rubber under Rule 7 A(2), even though subsidy itself is not taxable. 8. It is thus clear that Rule 7 A(2) of the Income Tax Rules 1962 provides for 100% deduction in respect of the expenditure incurred on cost of replanting rubber plants in replacement of plants that have died or become permanently useless in an area already planted and this deduction is allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e see para D. 10. A analysis of the findings in the Kerala High Court judgment, as stated in para 8, could be found to be inconsistent with the provision and reality in plantation based on the following arguments: (a) Rule 7A(2) only provides for deduction of expenditure for infilling through replacement of dead trees or other trees that have become useless (please see running page 4 of para 8 of Annexure I). The rule nowhere mentions infilling . Instead the rule provides for (i) An allowance (ii) For cost of (iii) Planting of Rubber Plants (and not plant) (iv) In replacement of (v) Plants (and not plant) (vi) That have died (vii) Or (viii) Become permanently useless (ix) In an area already planted (x) If such area has not previously been abandoned. It is a provision, both for infilling and re-plantation since the expression i) That have died or an area already planted, qualifies infilling and ii) OR iii) Become permanently useless in an area already planted qualifies replantation iv) In an area already planted, if such are has not previously been abandoned. This clearly indicates an area which is qualified as one that was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred for replantation of an area but only expenditure for infilling through replacement of dead trees or trees that are become useless which is not the case here. The wording in the Rule does not give an interpretation so as to restrict it to infilling. If it was so, the word infilling' was not alien for the law makers and could have imposed such a restriction at the time of drafting. This can only be seen as a conscious omission to give a beneficial interpretation for the purpose of growth and development In this connection we refer to the decision of the Supreme Court in 255 ITR 147. Copy of the judgment is at running pages 13 to 18 of Annexure IV. Moreover it is not the function of the Court to supply a supposed omission, which can only be done by the Parliament (2013) 180 Company Cases 311. Copy of the judgment is at running pages 19 to 26 of Annexure V. 11.(i) The Income Tax Appellate Tribunal, Kolkatta in the case of ACIT Vs. Gillanders Arbuthnot Co. Ltd. has observed that so far as there is no expansion of plantation to an additional area adding to the capital already invested the re-plantation expenses would be in revenue nature. Copy of the judgment is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of Maintenance expenditure of ₹ 4,28,10,446.92 and Replantation expenditure of ₹ 2,47,38,874.24 totaling to ₹ 6.75.49.321.16 may be directed to be allowed. 8. The learned Departmental Representative supported the orders passed by the Income-tax authorities. 9. We have heard the rival submissions and perused the material on record. The Hon ble Kerala High Court in the case of M/s.Rehabilitation Plantations Ltd. (supra) had categorically held that the expenditure incurred for planting and development of plantation up to maturity has to be necessarily capitalized and it cannot be allowed as revenue expenditure. The relevant finding of the Hon ble High Court reads as follows:- After hearing both sides, we are unable to accept the case of the assessee for more than one reason. In the first place, expenditure covered by Rule 7A(2) does not cover expenditure incurred for replantation of an area. On the other hand, Rule 7A(2) only provides for deduction of expenditure for infilling through replacement of dead trees or other trees that have become useless, which is not the case here. As already stated by us, Rule 7A(2) is in the same line as Rule 7B(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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