TMI Blog1987 (8) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, not taxable, the Income-tax Officer pointed out that under section 2 of the IT Act, only those incomes can be exempted which are by definition ' agricultural income '. According to him, this section does not contain any reference to rubber replanting subsidy. He also referred to section 10(30) which gives a specific exemption to tea replanting subsidy and in the absence of any such specific exemption he stated that by implication it was the intention of the Legislature to bring to tax all other types of subsidies. He, therefore, brought to tax the subsidies for both the assessment years. 4. On appeal, the Commissioner of Income-tax (Appeals) held that the subsidy is a receipt of capital nature and since it is intimately connected with agricultural operations it cannot be included for taxation under the IT Act, 1961. Against this finding, the department is in appeal before us. 5. Shri Karthikeyan for the department referred to the decision of the Kerala High Court in the case of Malayalam Plantations [1987] KLT 169, and submitted that the High Court has held that the rubber replantation subsidy to be an income. Therefore, it is urged that the order of the CIT(A) on this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities the question whether it is agricultural receipt or not was never raised or discussed. In the course of the judgment the Kerala High Court had addressed themselves to the only question which arose before the Tribunal, i.e., whether it is a capital receipt or a revenue receipt. By referring to the authorities on this point, the High Court came to a finding that the subsidy is a revenue receipt. 3. Since the question of its character has not been referred to the High Court in this judgment, it is open for the assessee to submit before us that the receipt is agricultural in nature. Now, in order to show that a receipt is agricultural the assessee should satisfy the conditions in section 2(2). The receipt should be any rent or revenue derived from land which is situated in India and used for agricultural purposes. In the case of CAIT v. Narayanan Tratan Namboodiripad [1967] 64 ITR 57, the Kerala High Court had stated that in order to determine whether a certain income is agricultural income, the immediate and effective source of income must be found out. If the immediate and effective source is not land, the income cannot be considered to be agricultural. 4. This will ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment to the assessee in 1945 and 1946 respectively (exclusive of the sums paid specifically for building repairs) were revenue receipts in the hands of the assessee comprising any element of income ? 2. If so, whether the whole of the said sums less the expenses incurred by the assessee intending the tea bushes constituted agricultural income in his hands exempt from tax under the Indian Income-tax Act, 1922 ? ' It would be seen that the compensation given in that case is in substance similar to the subsidy given to the assessee in the case before us. Question No. 2 raises the specific issue whether it is agricultural. The Assam High Court held that they are not agricultural. The reason given was that the land requisitioned could not have been and was not in fact used for agricultural purposes. Therefore, the compensation was also not rent or revenue from land used for agricultural purposes. It is implied in this ruling that if the land was used for agricultural purposes the compensation would be agricultural. That Rubber estate is agricultural land. The operations done are agricultural. The subsidy occurs directly on account of agricultural operation and it is purely an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows : ' Explanation 2 : Nothing contained in this section shall be deemed to entitle a person deriving agricultural income to deduction of any expenditure laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income has been derived during the previous year.' The object of this statutory Explanation is to overcome the decisions of the Supreme Court in Travancore Rubber Tea Co. Ltd. v. CAIT [1961] 41 ITR 751 and Karimtharuvi Tea Estates Ltd. v. State of Kerala [1963] 48 ITR 83 where the Court stated that such expenditure was revenue expenditure. Significantly, the State Legislature acted on the principle that, but for the statutory Explanation, money expended for cultivation, upkeep or maintenance of immature plants would be revenue expenditure. 8. It would be seen from the above that the High Court has not decided the issue whether it is agricultural or not. For these reasons I agree with my learned Brother that the receipt, though revenue in character, is agricultural in nature." 8. It remains to consider the other arguments raised by Shri Karthikeyan. He pointed out that if the subsidy is to be exempted there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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