1980 (9) TMI 79 - HC - Income Tax

Summary

Issues Involved:
1. Eligibility for agricultural development allowance under section 35C of the Income-tax Act, 1961.
2. Interpretation of the term "person" in section 35C.
3. Applicability of the agricultural development allowance to a company providing goods, services, or facilities to itself.

Detailed Analysis:

1. Eligibility for Agricultural Development Allowance:
The primary issue revolves around whether the assessee is entitled to an agricultural development allowance of Rs. 3,16,855 under section 35C of the Income-tax Act, 1961, for the assessment year 1973-74. The Income Tax Officer (ITO) disallowed the claim on the grounds that the conditions laid down in section 35C were not fulfilled. This disallowance was upheld by the Appellate Assistant Commissioner (AAC) and subsequently by the Tribunal.

2. Interpretation of the Term "Person":
The assessee contended that the agricultural development allowance should be available even if the company itself is the cultivator, grower, or producer of the agricultural products. The departmental representative argued that the allowance under section 35C covers only those expenditures incurred to provide goods, services, or facilities to cultivators, growers, or producers in India, who must be distinct from the assessee-company. The Tribunal upheld this view, stating that the provision of section 35C should be interpreted liberally but must distinguish between the company and the cultivator, grower, or producer.

3. Applicability to a Company Providing to Itself:
The Tribunal identified six conditions that must co-exist for the agricultural development allowance to be granted:
- The assessee should be a company.
- The company must utilize products of agriculture, animal husbandry, or dairy or poultry farming as raw materials.
- The expenditure must be incurred after 29th February, 1968.
- The expenditure should be for providing goods, services, or facilities to certain classes of persons.
- The class of persons should be cultivators, growers, or producers in India, not closely connected with the assessee.
- The relief available is 120% of the expenditure incurred.

The Tribunal concluded that the agricultural development allowance could not be allowed because the expenditure was incurred by providing seeds, manure, etc., to the assessee itself, which is for its sugarcane farm. The Tribunal held that the person benefiting from the expenditure must be distinct from the company.

Arguments Presented:
Mr. Nirmal Mukherjee, counsel for the assessee, argued that the term "person" in section 35C should include the company itself. He cited various legal precedents and interpretations, emphasizing that if a provision in a taxing statute can be reasonably interpreted in two ways, the interpretation favorable to the assessee should be accepted. He also referred to the legislative intent behind sections 35B and 35C, which aimed to provide tax incentives for improving agricultural productivity.

Court's Conclusion:
The court concluded that there was no ambiguity in the language of section 35C, and it was clear that the Legislature did not intend to grant relief to all concerned but only to a particular category. The allowance can be claimed by a company or a co-operative society engaged in the manufacture or processing of articles made from agricultural products, provided the expenditure is incurred for the provision of goods, services, or facilities to cultivators, growers, or producers distinct from the company.

The court agreed with the Tribunal's interpretation that the agricultural development allowance stipulated in section 35C would cover only that expenditure incurred for goods, services, or facilities to certain classes of persons distinct from the assessee-company. Consequently, the court answered the question in the negative and in favor of the revenue, denying the agricultural development allowance to the assessee. The court also dismissed the assessee's oral application for a certificate for leave to appeal to the Supreme Court.