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2020 (3) TMI 1134

..... ee undertakes processing of latex into value added forms like centrifuging latex - HELD THAT:- The Hon’ble Kerala High Court in the case of M/s.Rehabilitation Plantations Ltd. [2012 (6) TMI 570 - KERALA HIGH COURT] 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 assessee does not have a case that the expenses incurred under the head replanting and maintenance are for infilling through replacement of dead trees or other trees that have become useless. On the contrary, it is an admitted position that the replanting expenses and maintenance expenses are incurred for planting new area of rubber and not an area already planted with yielding rubber. The finding of the Hon’ble Kerala High Court being very clear and categorical, the judgment is binding on the lower authorities. - Decided against assessee. - ITA No.1/Coch/2020, ITA No.2/Coch/2020 - 2-3-2020 - Shri Chandra Poojari, AM And Shri George George K, JM For the Appellant : Sri.Iype John For the Respondent : Sri.Mritunjaya Sharma, Sr. DR ORDER PER GEORGE GEORGE K, JM : Thes .....

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..... 6/- (i) Replanting allowance of ₹ 98,62,206/- is disallowed relying on the decision of the Kerala High Court in the case of Rehabilitation Plantations Ltd. as reported in 251 CTR 343. (ii) In reply to the proposal for assessment, the assessee had filed detailed submissions a copy of which is annexed hereto as Annexure I which is at pages 1 to 8. In the said reply it was specifically pointed out that the ground realities for the claim and allowability of replanting allowance was not considered by the Hon. High Court in the case of Rehabilitation Plantations Ltd. As such the ratio of the said decision will not be directly applicable to the facts of the assessees case. (iii) It may kindly be noted that Rule 7 A(2) in respect of rubber plants and corresponding rules in respect of coffee and tea, as extracted in the judgment, read as follows: 7 A(2). In computing such income, an allowance shall be made in respect of the cost of planting rubber plants in replacement of plants that have died or become permanently useless in an area already planted if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of th .....

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..... is out of the 75 Hectares of Planted area.) If, considering the same extent, the planter undertakes replanting of 35 Hectares, then 10 hectares would not be eligible as it qualifies as an area previously abandoned, if such area has not previously been abandoned and consequently be a capital expenditure. (b) If the assessee's claim is allowed, so much of the portion of the agricultural income determined by the Central ITO will be in direct conflict with agricultural income assessment of the State Agricultural Income Tax Act. This finding, it is respectfully submitted is incorrect, in so far as the provision clearly states that the income determined by the CTO will be adopted by the State Officer and to that extent there can be no conflict Kindly refer Supreme Court decision in the case of Assam Company Ltd. and Another Vs. State of Assam as reported in 248 ITR 567 and the Kerala High Court decision in the case of Tata Tea Ltd. Vs. Inspecting Assistant Commissioner as reported in (2006) 1 KLT 752. (c) Expenditure on re-plantation of an area where from no income is derived by the assessee is not to be reckoned in computation of income from yielding area This finding is not consist .....

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..... ce Expenses and have been disallowed. (ii) It is submitted that the disallowance of Maintenance Expenses is clearly erroneous as Rule 7 A(2) applies only to Replanting Expenses and not Maintenance Expenses. The Hon. Supreme Court in the case of the Travancore Rubber & Tea Co. Ltd. Vs. Commissioner of Agrl. Income Tax as reported in 41 ITR 751 as held that Maintenance Expenditure incurred on tending Immature rubber trees cannot be disallowed on the ground that the said trees have. not come into bearing during the year and thereby confirming that Maintenance Expenditure is a Revenue Expenditure wholly and exclusively laid out for the purpose of deriving income. Copy of the said decision is annexed hereto as Annexure III which is at pages 11 to 13. Further in the case of Karimtharuvi Tea Estates Vs. State of Kerala as reported in 48 ITR 83 the Hon. Supreme Court held that the contention that "the amounts spend for the upkeep and maintenance of 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 in the nature of capital expenditure." Copy of the said judgment is annexed hereto as Annexure .....

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..... r the provisions of clause (31) of section 10, is not includible in the total income". (vi) It is pertinent to note that while most assessees having income from tea claimed deduction for cost of replantation of tea bushes under Rule 8(2) of the Income Tax Rules, some assessees started claiming depreciation also on the value of tea bushes under Section 32 of the IT Act on the ground that a "tea bush" is a 'plant', In Section 43 of the IT Act which provides definition of various terms relevant to income from business 'Plant' was defined in Section 43(3) as under:- 'Plant' includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purpose of business or profession ". Some High Courts allowed the claim for depreciation on tea bushes under Section 32 holding that a tea bush is also an income earning apparatus and therefore a (Plant" within the meaning of the term in Section 43(3). The legislature realizing that assessees 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) .....

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..... rom AY 2002-03, the Income Tax Act was amended to make similar provision with respect to composite income from rubber and coffee. While introducing Rule A and 7B similar deduction for cost of replantation, as is available to tea under Rule 8(2), was introduced under Rule 7 A (2) and 7B(2). The rules of interpretation therefore required that the interpretation granted to Rule 8(2) is equally applied to Rule 7 A (2) and 7B(2). (ix) It is also to be noted that though subsidy given by the Tea Board for replantation or replacement of tea bushes. is exempt under Section 10(30) of the IT Act Rule 8(2) provides that the said subsidy is not required to be deducted from the cost of replantation. Likewise, Rule 7 A(2) also provides that similar subsidy given for replantation of rubber plants though exempt under section 10(31) is not required to be reduced from the costofre plantation. Section 10(31) reads 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 fr .....

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..... he same lines as Rule 8(2) was probably "unaware of the limitations in the rubber plantation" to the effect that while infilling may be possible in existing tea and coffee plantations on account of the height of the tea and coffee plants it is not possible in an existing rubber plantation because of the height of the rubber trees. This Honourable Court has not considered the fact that deduction under Section 8(2) has always been granted for replacement of useless tea bushes in an entire tea area and not just for infilling and this has always been accepted by the Department, the explanation given for amendment under Section 43 (3) where the Legislature has accepted that the entire cost of replanting is fully allowed as a deduction in lieu of depreciation. It is therefore respectfully submitted that the decision of the Kerala High Court is not applicable to the facts of the case. It is also submitted that though SLP filed against the decision was dismissed by the Honourable Supreme Court, it is settled law that a mere dismissal of SLP does not declare any law nor does it approve the decision appealed against It is also submitted that this Hon. Bench has dismissed the appeal .....

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..... ation of an area and only an incentive is provided by way of replantation allowances under Rule 3 of the State Agricultural Income Tax Rules as stated above. We are of the view that the Tribunal rightly held that the expenditure on replantation of an area wherefrom no income is derived by the assessee is not to be reckoned or considered in the computation of income from yielding area. Expenditure incurred for planting and development of the plantation up to maturity has to be necessarily capitalised and is not allowable as a revenue expenditure. Since the assessee has no case that they have incurred any expenditure for infilling the yielding area and the expenditure incurred is only for replantation after cutting and removing old plantation, there is no question of considering or allowing the claim under Rule 7A(2). The assessee's claim is thoroughly misconceived and the lower authorities including the Tribunal rightly held so. Consequently, we dismiss all the appeals. 8.1 The assessee does not have a case that the expenses incurred under the head replanting and maintenance are for infilling through replacement of dead trees or other trees that have become useless. On the contr .....

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