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TMI Blog2022 (10) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... s are entitled to an allowance towards replanting expenses and a further deduction towards upkeep and maintenance expenses incurred by the assessee for the immature plants till the age of maturity in the computation of income under the Act and Rules." 2.1 Our consideration of the controversy revolves around the Income Tax Act 1961, the Income Tax Rules 1962 and the Kerala Agricultural Income Tax Act 1991 (for short we would refer to these enactments as 'Act 1961, 'Rules 1962' and 'KAIT Act' respectively). We are referring to the circumstances stated in I.T.A. No.83/2018 and treat the same as the lead case for answering the question. The circumstances set out in the other cases are identical, hence the learned Counsel would suggest, for brevity, reference to one matter would be sufficient for deciding the question of law referred to the Full Bench. I.T.A. No.83/2018 3. M/s. Thamarapally Rubber Company Ltd, Kottayam/assessee is the appellant. The Assistant Commissioner of Income Tax, Kottayam/Revenue is the respondent. For consistency, we refer to the parties as 'the assessee' and 'the Revenue'. The assessee is a Public Limited Company having rubber plantations and processes natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7A(2) and in our view the lower authorities including the Tribunal rightly rejected the claim. We also feel that the Central ITO while determining income in the nature of agricultural as well as business income under rule 7A should keep in mind the principles of computation of agricultural income under the State ATT Act and as far as possible, assessment should be made without violating the provisions of the State Agrl. IT Act. If the appellants claim is allowed, certainly so much of the portion of the agricultural income determined by the Central ITO will be in direct conflict with the scheme of assessment of agricultural income under the State Agrl. IT Act which prohibits deduction of expenditure on replantation of an area and only an incentive is provided by way of replantation allowances under rule 3 of the State Agrl. IT 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 upto maturity has to be necessarily capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issible deductions under Sections 28 to 44DB. Travancore Rubber & Tea Co. Ltd v. Commissioner of Agricultural Income Tax (1961) 41 ITR 751 and Karimtharuvi Tea Estates Ltd. v. State of Kerala (1963) 48 ITR 83 (SC) are judgments of the Supreme Court rendered under the KAIT Act. As per Rule 7A of Rules 1962, 65% of computed income constitutes agricultural income. The computation of income is under Act 1961 and in terms of Rule 7A. The allowance referred to in Sub-Rule (2) of Rule 7A is a statutory allowance and also cannot be construed, in any manner, as excluding the claim of expenses for upkeep and maintenance of replanted rubber trees till the date of maturity. The replantation allowance is one of the statutorily permissible deductions and expenses incurred for the upkeep and maintenance of replanted rubber plants till they attain maturity are residuary expenses incurred by the assessee for the purposes of the business of manufacturing rubber. 4.2 The view of the Division Bench in Rehabilitation Plantations Ltd. case is not based on the scheme of Act 1961 and Rules 1962, but based on clause (v) of Section 5(2)(o) of KAIT Act which reads as follows: "Any expenses incurred in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR 1981 SC 1922; Additional Commissioner of Income Tax, Gujarat v. Surat Art Silk Cloth Manufacturer's Association, Surat AIR 1980 SC 387; and Commissioner of Agricultural Income Tax v. Midland Rubber and Produce Co. Ltd 1990 ITR 493 (Ker.). The learned counsel pray for answering the question in favour of the assessee and against the Revenue. 5. Per contra, the learned Senior Counsel appearing for the Revenue distinguishes the circumstances in which the ratio on the entitlement of upkeep and maintenance is accepted as revenue expenditure by the Supreme Court in Travancore Rubber & Tea Co. Ltd and Karimtharuvi Tea Estates Ltd. cases (supra). He places strong reliance on clause (v) of Section 5(2)(o) of the KAIT Act and argues that the view taken by the Division Bench in the Rehabilitation Plantations Ltd. case does not warrant reconsideration. While noting the contentions of the Revenue we would like to record that the Revenue does not have a case that by adopting the computation method of Section 5 of the KAIT Act, the claim for deduction is negatived but the basis for denial of upkeep and maintenance expenses is Rehabilitation Plantations Ltd. judgment. 6. Neither there is a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving income but the use of the definite article "the" before agricultural income has given rise to the interpretation that the deduction is to be from the income of the year in which the trees on which the amount claimed was expended bore any income." (emphasis supplied) The Supreme Court reversed the view taken by this Court, namely, that upkeep and maintenance expenses are not allowable expenditures. Karimtharuvi Tea Estates Ltd. v. State of Kerala (supra) 7.2 Karimtharuvi Tea Estates Ltd. is a petition filed under Article 32 of the Constitution of India by the assessee. The petitioners therein canvassed a grievance in computing a taxable income of the assessee under the KAIT Act for the Accounting Years 1958-59, 1959-60 and 1960-61. In computing the taxable income for assessment to tax under the AIT Act, the Assessing Authority did not allow deduction of the expenses incurred by the assessee in the upkeep and maintenance of immature tea plants from which no agricultural income had been derived during the Assessment Year. The Supreme Court considering Explanation 2 incorporated by Amendment Act 9 of 1961, however with effect from 01.04.1951, has held that: "The contention t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull Bench of this Court considered the following points: "The following points arise for consideration: (1) Whether, in the scheme of section 5, section 5(j) is a residuary provision in regard to the claims of deduction from taxable agricultural income similar to sections 10(2)(xv) and 12(2) of the Indian Income-tax Act, 1922, and sections 37(1) and 57(iii) of the Income-tax Act, 1961? (2) Whether Explanation 2 to section 5 of the Kerala Act is an Explanation intended for explaining section 5(j) only, or whether it is intended to be an Explanation for the other clauses of section 5 also? (3) If Explanation 2 is to be treated as referable to section 5(j) only, whether the said Explanation covers the entire field covered by section 5(j) or only a part of it? On point no.1 the Full Bench held that the interpretation put upon Section 10(2)(xv) of the Income Tax Act 1922 as also upon Section 37(1) of the Income Tax Act 1961, by the Supreme Court will be applicable so far as may be to Section 5(j) of the KAIT Act. Point no.1 was decided accordingly. 8. We may hasten to add that the learned counsel appearing for the assessee has relied on the view taken by the Full Bench in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in a rubber plantation. 10. Per contra, the Revenue canvasses the very argument accepted by the Division Bench in Rehabilitation Plantations Ltd. case. 11. We keep in perspective a few axiomatic principles on interpretation of taxing Statutes/Rules. In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing to be read in, nothing is to be implied. One can only look fairly at the language used [Cape Brandy Syndicate VIRC, (1921) 1 KB, 64 at 71]. In Commissioner of Income-tax, Madras v. Kasturi and Sons, the Supreme Court quoted with approval the principle of strict construction of taxing statutes. In the words of Lord Simonds "the question is not at what transaction the section is according to some alleged general purpose aimed, but what transaction its language according to its natural meaning fairly and squarely hits [St. Aubyn [LM] v. AG (1951) of All ER 473, at 485. So the proper course in construing revenue Acts is to give a fair and reasonable construction to their language without leaning to one side or the other but keeping in mind that no tax can be imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 1961. The Rule provides for computation of income to tax under Act 1961 and in such computation allowance like cost in planting the rubber trees is allowed. The allowance, however, from the strict meaning assignable to all the expressions used in Sub-Rule (2) of Rule 7A is subject to the condition that the replantation is undertaken of the rubber trees that died or became permanently useless, i.e., in the rubber plantation of the assessee. 13. The permissible allowance of replantation cost of rubber saplings is limited to the area already planted and has not been previously abandoned. In our understanding of the two contingencies attracting disallowance are: (i) replantation cost is claimed in the area where rubber trees were planted and are cut or the rubber trees have become useless/unproductive (ii) the replanting must be a continuous act upon felling the rubber trees in the rubber plantation. In other words, the area where replantation was undertaken should not have been abandoned by the assessee. It sounds practical and nearer to the nature of rubber plantation and extraction of rubber. Rule 7A is structured in a way keeping in perspective the very nature of rubber plantat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing period ranges between 6 and 7 years from the time the rubber saplings are planted on a rubber plantation. 15.2 The learned counsel for the assessees would urge that the claim for deduction of upkeep and maintenance expenses was an area of the contest between the plantation owners and the assessing officers under the AIT Act 1950 and KAIT Act 1991. The Supreme Court in Travancore Rubber & Tea Co. Ltd and Karimtharuvi Tea Estates Ltd. cases (supra) held that these expenses are deductible in computing the agricultural income under the AIT Act. The assessees claim upkeep and maintenance expenses under Section 37 of Act 1961 as residuary/available expenses for deduction in the computation of income to tax under Act 1961. The Supreme Court in Malayalam Plantations Ltd has explained the meaning of two expressions viz. (a) 'for the purpose of the business' and (b) 'for the purpose of earning profits'. Therefore, upkeep and maintenance expenses are available expenses for deduction under Section 37 of Act 1961. The deduction is firstly not against the standard accounting practices and secondly not covered by Sections 30 to 36 of Act 1961. The Revenue cannot disallow the upkeep and maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing provisions in Section 10(2)(xv) of Act 1961. Section 37(1) of Act 1961 on one hand and Section 5(j) of the KAIT Act and Section 5(e) of the Madras Act held thus: "In this court, the question again came up before a Division Bench in Commr. of Agrl. I. T. v. Nilambur Rubber Co. Ltd. [1969] 71 ITR 686, and the learned judges clearly stated that section 5(j) of the Kerala Act corresponds to the residuary provision in section 10(2)(xv) of the Indian Income-tax Act, 1922. They further clarified that this was so in spite of the slight difference in the language, section 5(j) of the Kerala Act using the words "for the purpose of deriving the (agricultural) income" and section 10(2)(xv) using, the words "for the purpose of such business, profession or vocation. In R. G. A. Baker v. State of Kerala [1979] 116 ITR 570 (Ker), another Division Bench reaffirmed the view that section 5(j) corresponds to the residuary provision in section 10(2)(xv) of the Indian Income Tax Act, 1922 It is, therefore, clear that the interpretation put upon section 10(2)(xv) of the Indian Income-tax Act, 1922, as also upon section 37(1) of the Income-tax Act, 1961, by the Supreme Court will be applicable, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y withdrawn from the capital or out of the profits. One should consider the nature of the concern, the ordinary course of business usually adopted in that concern, and the object with which an expense is incurred. (emphasis supplied). Similarly, according to normally accepted principles, a capital expenditure is something which is spent once and for all, while revenue expenditure is that which is to be incurred every year. Though the said criteria is not decisive, several other attended factors are taken into consideration and upon such consideration, if the expenditure is to bring into existence an asset or advantage for the enduring benefit of the business, it is considered as capital expenditure otherwise revenue expenditure. 19.1 In Praga Tools Ltd. v. CIT (1980) 123 ITR 773, 790 a Full Bench of Andhra Pradesh High Court held that where the expenditure has a direct nexus, connection or relation to the carrying on of or conducting the business of the assessee, it must be regarded as an integral part of the profit-making process. In such a case, it must be held to be a revenue expenditure. Keeping the above tests in mind we examine whether the upkeep and maintenance expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preponderance of legal opinion from Travancore to Malabar is on the upkeep and maintenance expenses incurred on replanted rubber trees as revenue expenditures. In view of the ratio laid down in the Malayalam Plantations Ltd case, it is not necessary to merit deduction as a revenue expenditure the expenditure is incurred to earn profits in the applicable assessment year. Rehabilitation Plantations Ltd. case has expressed a view on infilling of trees in the vacant area as not forming part of replantation. In Midland Rubber and Produce Co. Ltd. a Division Bench of this case held thus: "Lastly, we deal with question No. 5. The Tribunal allowed expenses relating to replacement of plants in the cardamom area. The plea put forward by the Revenue was that it related to immature plants and so expenditure on new plants, though in the mature area, and should be capitalised. The Tribunal found that the assessee has only interplanted new cardamom plants in the place of the ones which got dried up and decayed and in order to keep the estate well-kept, a uniform planted area should be kept as a matter of routine. It also held that no new planting was done in the process and what was done was o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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