1990 (8) TMI 75 - HC - Income Tax

Summary

Issues Involved:
1. Whether the subsidy received from the Rubber Board is to be treated as revenue derived from land and exigible to agricultural income-tax or as a capital receipt not exigible to agricultural income-tax.
2. Whether the expenditure incurred on ammonia gas for conservation of latex is to be allowed to the full extent or restricted with reference to the income derived in a particular accounting year.

Issue-wise Detailed Analysis:

1. Treatment of Subsidy from Rubber Board:

The Tribunal applied the Supreme Court's ratio in V. S. S. V. Meenakshi Achi v. CIT [1966] 60 ITR 253 and held that subsidies received from the Rubber Board are exigible to tax as revenue receipts. The petitioner contended that this view was incorrect, arguing that the circumstances in Meenakshi Achi's case were different. The petitioner cited the Full Bench decision of the Kerala High Court in CIT v. Ruby Rubber Works Ltd. [1989] 178 ITR 181, which held that subsidies received from the Rubber Board are not includible in taxable agricultural income. The petitioner also referenced the Division Bench of the Karnataka High Court, which similarly held that subsidies from the Rubber Board are not agricultural income derived from land and thus not exigible to agricultural income-tax.

The court examined the relevant clauses in the Development Replanting Subsidy Scheme and sections of the Tamil Nadu Agricultural Income-tax Act, 1955. The court noted that the Full Bench of the Kerala High Court distinguished Meenakshi Achi's case based on the facts and the scheme's provisions, concluding that the replantation subsidy is not a revenue receipt and cannot be included in the computation of profits or income of the assessee. The court agreed with this view, stating that the subsidies are not meant to swell the profits of the assessees but to encourage replanting of old and uneconomic plantations.

2. Expenditure on Ammonia Gas for Conservation of Latex:

The Tribunal upheld the Agricultural Income-tax Officer's decision to disallow a portion of the expenditure on ammonia gas, arguing that the expenditure was excessive compared to the previous year without a corresponding increase in income. The petitioner argued that the accounts were accepted by the officer and that under section 5(e) of the Act, no condition of proportionality to income is prescribed.

The court referred to the decisions in Kil Kotagiri Tea and Coffee Estates Co. Ltd. v. Government of Madras [1974] 96 ITR 165 and Puthutotam Estates (1943) Ltd. v. State of Tamil Nadu [1984] 148 ITR 341, which elucidated the scope of section 5(e). These decisions clarified that section 5(e) covers a wide range of expenses related to the land, not just those directly incurred for deriving agricultural income. The court concluded that the disallowance of a portion of the expenditure on ammonia gas was not justified as the expenditure falls under section 5(e).

Conclusion:

The court found that the subsidies received from the Rubber Board should not be treated as revenue receipts and are not exigible to agricultural income-tax. Additionally, the court held that the disallowance of a portion of the expenditure on ammonia gas for conservation of latex was not justified under section 5(e) of the Act. Consequently, the tax cases were allowed, with no order as to costs.