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1972 DIGILAW 57 (KER)

CAIT v. THE KERALA ESTATE PLANTATION

1972-03-03

P.GOVINDA NAIR, T.S.KRISHNAMOORTHY IYER

body1972
Judgment :- 1. This is a Reference at the instance of the Commissioner of Agricultural Income-tax, Kerala by the Kerala Agricultural Income tax Appellate Tribunal under S.60 (1) of the Agricultural Income-tax Act, 1950. The question referred is in these terms: "Whether on the facts and circumstances of the case, the Tribunal is justified in holding that the interest of Rs. 4,204/-is allowable under S.5 (h) or 5 (i) of the Agrl Income-tax Act." 2. For the year of assessment 1961-62, in computing the total income of the assessee, the assessing authority added back among other things a sum of Rs. 4,204/-being a portion of the claim under interest which the assessee claimed as an allowable deduction. The assessing authority by the order Annexure A to the Statement of the Case, dealing with this question in Para.6 stated thus: "6. Interest. Out of Rs. 16,614.32 paid as interest during the period, a sum of Rs. 8,206,29 relates to interest paid on mortgage and hence will be allowed in full. Out of the balance of Rs. 8,408,03; 50 per cent will be disallowed as related to immature area, as the loan amount was not fully utilised for the lands from which agricultural income is derived." There was an appeal in which this aspect was challenged which was disposed of by the appellate authority in these terms: "Interest: During the period under assessment, the appellants have expended about one lakh rupees for maintenance of immature area. It cannot, therefore, be said that the entire loan amounts were utilised for cultivating the land from which agricultural income was received. In the circumstances of the case the disallowance made by the assessing authority which works out to only about 1/4th of the total interest paid cannot, be said to be excessive or unreasonable. The disallowance is, therefore, confirmed," In further appeal before the Tribunal, the claim of the assessee was fully allowed. The matter was disposed of by the Tribunal by stating "The assessing authority disallowed Rs. 4,204/ as relating to immature area. We find that the interest in question is allowable under S.5 (h) or 5 (i) of the Agrl. Income Tax Act 1950 even if the amount of loan has been utilised for purposes of development, of the estate. This disallowance is therefore cancelled." 3. 4,204/ as relating to immature area. We find that the interest in question is allowable under S.5 (h) or 5 (i) of the Agrl. Income Tax Act 1950 even if the amount of loan has been utilised for purposes of development, of the estate. This disallowance is therefore cancelled." 3. S.5 (h) and (i) referred to by the Tribunal's order provide for deductions in computing the agricultural income of a person and are worded in this manner: "5. Computation of Agricultural income: The agricultural income of a person shall be computed after making the following deductions, namely: (a) (h) any sum paid in the previous year as interest in respect of agricultural loans taken and expended on the land from which agricultural income is derived; (i) interest paid on any amount borrowed and actually spent for the purpose of reclaiming, improving or cultivating the property from which agricultural income is derived." We may also refer to S.5 0) which runs thus: "0) any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of deriving the agricultural income;" The Supreme Court interpreting S.5 0) came to the conclusion that expenditure laid out for the upkeep and maintenance of immature plants is also allowable under S.5 0) in the decision in Travancore Rubber and Tea Co. Ltd v. Commissioner of Agricultural Income-Tax, Kerala ((1961) 41 ITR. 751) reversing the decision of this Court in Travancore Rubber & Tea Co. Ltd. v Commissioner of Agricultural Income-Tax, Trivandrum ((1959) 37 ITR. 549.) Thereafter Explanation.2 was added to S.5 of the Agricultural Income Tax Act, 1950 which is worded in this manner: "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." This explanation camp up for consideration by this Court again in Commissioner of Agricultural Income-tax v. Johnsons Estates & Agencies (P) Ltd. (1964 KLT. 577). It will be useful to extract Para.13 and 14 from that judgment. "13. 577). It will be useful to extract Para.13 and 14 from that judgment. "13. Whether a particular item of expenditure is "laid out or expended for the cultivation, upkeep or maintenance of immature plants" is essentially a question of fact and cannot be decided on any general principal of law. All that can be said is that the connection between the item of expenditure and the cultivation, upkeep or maintenance of immature plants must be definite and real, and not vague or illusory. "14. One way of finding out whether any portion of the estate or over-head expenses has been laid out or expended for the cultivation, upkeep or maintenance of immature plants is to see whether the said portion of those expenses would have been incurred in the absence of the "immature" area within the estate. If it would not have been incurred but for the existence of the "immature" area, it is certainly connected with the cultivation, upkeep or maintenance of the immature plants. It will come within the Explanation and will be admissible for deduction." In that particular case, the Tribunal had set aside the disallowance of certain expenses as the proportionate disallowances attributable to immature area on the ground that "none of these expenses relates directly to the cultivation, upkeep or maintenance of plants, much less immature plants." 4. In this case also, there was no material available before the assessing authority to show the nature of the activities that the assessee conducted with the amounts borrowed on which interest had been paid. If it was mere amount expended on the land which cannot fairly be treated to be amount expended for cultivation, upkeep and maintenance of immature plants, the full amount will have to be allowed under S.5 (h). Similarly if the amount was spent for the purpose of reclaiming or improving the property this could not be said to be specifically expended for cultivation, upkeep or maintenance of immature plants and the whole of the amounts can be held to be allowed under clause (i) of S.5 if the other conditions of that clause are satisfied. In the absence of specific material that any portion of the amounts borrowed had been expended for cultivation, upkeep and maintenance of immature plants the Tribunal had decided not to disallow any portion of the interest paid by the assessee. In the absence of specific material that any portion of the amounts borrowed had been expended for cultivation, upkeep and maintenance of immature plants the Tribunal had decided not to disallow any portion of the interest paid by the assessee. This we consider is a conclusion on a finding of fact and the question always in these cases, we think with great respect as correctly pointed out in Commissioner of Agricultural Income-tax v. Johnsons Estates & Agencies (P) Ltd., (1964 KLT. 577), is a question of fact. 5. We therefore answer the question referred to in the affirmative, that is, against the department and in favour of the assessee. We make no order as to costs. 6. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by sub-section (6) of S.60 of the Agricultural Income-tax Act, 1950.