TMI Blog2001 (4) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... that there are other similar organisations under the State Government like Similipahar Forest Development Corporation etc. also, engaged in the same operations. The assessee incurred huge amounts of expenditure towards plantation over the different years like assessment year 1980-1981 onward. In its accounts, such expenditure is categorised under various subheads like nursery (involving raising young plants for which expenses are required to be incurred towards seeds, Manure, insecticides, etc.), preplanting expenses (relating to clearing, demarking and preparing land for plantation), post-planting expenses (covering expenses for maintenance of various plantations like Fucaliptus, Cashew-nuts, Casuarina, etc. and also involving operations like weeding, manuring, watering, application of fertilizers and insecticides, etc.) and finally expenses under the head 'field' (which include establishment expenses for salaries of Watchman, Field Assistants and Supervisors, etc.). It was the contention of the assessee before the Income-tax Department that as per the policies of the Central as well as the State Government under the 9-Point Programme (ultimately merged in 20-Point Programme), it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the other hand, it has to be considered as payment for business consideration and to be allowed as such. If, there is no such obligation, then the expenditure has to be considered by its nature ie. whether agriculture or capital or both.' 4. Accordingly, fresh assessments were made by the Assessing Officer during the course of which the Assessing Officer asked the assessee to produce relevant materials and copies of Circulars/Directives, etc. alongwith those of correspondences with the Government to prove that there was a binding obligation on the part of the assessee to implement the Government policy in respect of the plantation to enable it to have right of exploitation of forest. After consideration of the voluminous papers submitted by the assessee on the record of the Assessing Officer the Id. Assessing Officer came to the conclusion, for reasons to which we shall refer to later on, that there was no such binding obligation on the part of the assessee. The Assessing Officer made further discussions to the effect that the expenditure under consideration could not be considered to have been laid out wholly and exclusively for the business purpose of the assessee being expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cashew plantation in the coastal Districts of Puri and Ganjam under capital head to be set off in a phased manner over a period of ten years against the revenue yield starting from 1983-1984 onward. Accordingly, the CIT(A) agreed with the findings of the Assessing Officer that the plantation expenditure being not linked up with the actual business operations of the assessee and at the same time being both of agricultural as well as capital nature, cannot be allowed as revenue expense. He thus upheld the disallowances of the claims of the assessee for each of the years under consideration. 6. In the present appeals before us, the assessee challenges the above findings of the lower authorities. At the stage of the hearing of the appeals before us, Shri S.N. Rotbo, the Id. counsel for the assessee strongly argues that the assessee being a wholly-owned undertaking of the Government of Orissa is required to follow the directions of the Orissa Government under pressure from the Government of India to implement the 20-Point Programme regarding Social Forestry, etc. Shri Rotho argues that since there are other agencies also like Similipahar Development Corporation Ltd. in the same fiel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as capital in nature. Ultimately, it is argued by him that the expense has to be considered as an expense laid out solely and exclusively for the business purpose of the assessee and also allowable as revenue expense. In support of his contentions in these regards, he has relied on a number of decisions, to which we shall refer to later on. 7. On the other hand, the ld. D.R. strongly supports the orders of the lower authorities by arguing that the business obligations of the assessee are somewhat different from other obligations like social/tribal obligations. He argues in this connection that although the assessee might have been under the pressure from the Government to incur the expenditure under consideration, yet the said expenditure cannot be considered to be having any nexus with the actual business of the assessee, viz., exploitation of forest products. It is furthermore argued in this connection that by incurring the expenditure, the assessee might have carried out the orders as well as the directives of its owner, i.e. the Orissa Government, but that by itself does not make the expense as connected with the business of the assessee. 8. We have gone thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken into consideration. The state of affairs in the country is such that the Government Undertakings must follow the directives of the Government in the matter of plans and policies undertaken by the Government and the resources of the Undertaking must be spent in that connection. The question of not following the plan programmes of the Government by the Undertaking cannot arise at all. 9. Now we are required to look into the exact connection of the afforestation programme with the business operations of the assessee. It is required to be remembered in this connection that the assessee-Corporation, which is a Forest Development Corporation has been directed by the Government to implement the policy relating to afforestation and not undertakings of other nature. The connection of the assessee with forestry affairs cannot be denied. It is quite natural that as an Undertaking engaged in exploitation of forest products, the assessee would have to get it self-engaged in the policies of the Government relating to forestry. The afforestation is one of such policies of the Government. The matter may be looked into from another angle also. The assessee is in the business of exploiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the minor is required to carry on stowing work, ie. filling the cavity caused by exploitation of coal with sand. Although there may be a statutory obligation on the part of the miner to do so, yet even the commercial expediency involved in the process is also required to be taken into consideration. Unless the stowing operation is carried on by the minor, the surface area is likely to subside which may affect the mining operation of the miner in some other nearby areas. Otherwise, even the interest of the society as a whole is required to be taken into consideration by the miner. That is why, expenses on stowing operations are allowed as revenue expense even from commercial angle also. Finally, the expression 'business needs' should not be looked into from a narrow angle and the immediate benefits arising out of spending a particular amount of money should not be the look-out of a businessman. The over-all needs of the business running over a long span of time is envisaged in business expediency. Furthermore, under the modern day concepts, even social and similar other obligations are also required to be considered as part of the business obligations of a businessman. From that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner of the assessee-Corporation. On the other hand, we have seen that the afforestation programme is closely connected with the actual business operations of the assessee although the assessee may not be expected to derive any direct benefit out of the spending in that regard in the immediate future. As pointed out by Shri Rotho, the Tribunal has already allowed the claim of the assessee towards incurring of expenses towards building up of houses for the flood striken people in the assessment years 1985-1986 and 1986-87. In that case, there was not even any direct nexus between the operation undertaken by the assessee and the business in which the assessee is engaged. 10. When a Government Undertaking is under the obligation to carry out some work at the instance of or under the directions of the Government, incurring loss thereby, the loss cannot be ignored in computing the total income of the Undertaking. It is of common knowledge that the State Bank of India and other Nationalised Banks are required to implement various programmes of the Government towards alleviation of the conditions of the poor and rural people like arranging loan-melas, lending to agricultural and smal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses inasmuch as, the expenses were incurred towards planting and rearing nurseries and saplings. However, as pointed out by Shri Rotho, the assessee does not have any agricultural income at all. Hence, no part of the expenses incurred by it can be considered to be pertaining to the earning of agricultural income. The expression 'agricultural expenses' has not been defined anywhere in the Income-tax Act. Such expenses which are necessarily required to be incurred for earnings agricultural income, can alone be considered as agricultural expenses. In the instant case, there being no agricultural income, there cannot also be any agricultural expense. 12. It is an admitted fact that the assessee was not the owner of the land in which the plantation operations were carried out. The saplings planted or the trees grown thereby certainly do not belong to the assessee. As such, it cannot be considered that the assessee acquired any asset or even any benefit of any enduring nature by incurring the plantation expense. Shri Rotho has relied on the judgment of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, in this connection, in accordance with wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accounts of the assessee or that the A.G. opined that the expense should be shown as capital expense in the assessee's accounts, is of little consequence in determining the nature of the expense. We, therefore, consider the expense to be of revenue nature. 14. Ultimately, therefore, we hold that the plantation expenses incurred by the assessee over the different years are not only expenses laid out wholly and exclusively for the purpose of the business of the assessee, but also are non-agricultural as well as revenue in nature. We reverse the orders of the lower authorities and direct that the expenses be allowed in the assessments for all the years under consideration. 15. We now come to the other issues raised in these appeals. It may be mentioned in this connection that these issues were also raised in the appeals before the Tribunal at the earlier stage and the Tribunal, by its order dated 14-3-1995 restored these matters also back to the file of the Assessing Officer for reconciliation and fresh decision in the light of the Tribunal's other order dated 11-10-1991 in ITA Nos. 127 128/Ctk. of 1990 for assessment years 1985-1986 and 1986-1987. However, all the issues ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of details and creation of reserve. He adds that since in the meantime, reserves have been created, the Assessing Officer "is required to allow the investment allowance as per section 32A of the Act after verification of the creation of reserve'. We are unable to find the significance of the ground taken up by the assessee, in this regard. In fact, the CIT(A) has actually allowed the claim of the assessee subject merely to verification about the creation of the reserves. We are unable to interfere with his order and uphold the same. 19. For assessment years 1988-1989 and 1990-1991, disallowance of guest house expenses is being challenged. The CIT(A) states that the action of the Assessing Officer is based on the provisions of Income-tax Act. He has, therefore, sustained the disallowances. In view of the fact that no material has been placed on our record about allowability of the guest house expenses and also taking into consideration the provisions of section 37(4) and 37(5), we uphold the orders of the ld. CIT(A) in sustaining the disallowances in this regard. 20. For assessment year 1981-1982, the addition in respect of Mahua seeds is being objected to. The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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