1986 (3) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Validity of deductions claimed under section 8 and/or sub-section (9) of section 8 of the Maharashtra Agricultural Income-tax Act, 1962.
2. Whether the income received by the assessee was merely as an agent of the Government.
3. Whether there was a diversion of income at source.
4. Applicability of the concept of real income under the Maharashtra Agricultural Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of Deductions Claimed:
The primary issue was whether the Tribunal was correct in disallowing the deductions claimed by the assessee for Rs. 4,57,350 as licence fees, Rs. 2,71,325 as Government share of profit, and Rs. 44,000 as part of interest under section 8 or section 8(9) of the Maharashtra Agricultural Income-tax Act for the assessment year 1964-65. The court referred to the relevant provisions of the Maharashtra Agricultural Income-tax Act, 1962, specifically sections 4, 5, and 8, and concluded that for any expenditure to be allowed as deductible under section 8, it must be incurred in the relevant previous year. The amounts in question were paid after May 10, 1965, while the relevant previous year ended on March 31, 1964. Thus, these amounts could not be claimed as deductions for the assessment year 1964-65.

2. Income Received as an Agent of the Government:
The assessee argued that the income received was merely as an agent of the Government and the real income was only the part retained by the assessee. The court rejected this submission, stating that there was no indication in the question raised that the assessee received the income as an agent of the Government. Furthermore, the terms of the agreement between the assessee and the State did not suggest that the income was received or the sugarcane crop was utilized as an agent of the Government.

3. Diversion of Income at Source:
The assessee contended that there was a diversion of income at source, and hence, the amounts claimed as deductions should not form part of the income. The court rejected this argument, noting that the terms of the agreement only imposed a liability on the assessee to make payments but did not create a charge on the income. The sugarcane crop was utilized by the assessee for manufacturing sugar, and there was no diversion of income at source.

4. Concept of Real Income:
The assessee argued that only the real income should be taxed, and the amounts claimed should be deducted to determine the real income. The court referenced the judgment in Commr. of Agrl. I.T. v. Phalton Sugar Works Ltd. [1980] 121 ITR 920 (Bom), which stated that agricultural income-tax is levied on the total agricultural income derived and received by the assessee within the relevant previous year. The court concluded that the concept of real income was not applicable under the Maharashtra Agricultural Income-tax Act, as the amounts in question were not expended in the relevant previous year.

Conclusion:
The court answered the question in the affirmative and against the assessee, affirming the Tribunal's decision to disallow the deductions. The court also noted that the assessee could make a claim for these deductions in the assessment for the year 1966-67, if permissible under the law. The assessee was ordered to pay the costs of the reference to the State.