1984 (8) TMI 27 - HC - Income Tax

Agricultural Income, Agricultural Income Tax, Assessment, Cultivation Expenses, Deduction, Depreciation, Loss

Issues Involved:
1. Carry forward and set off of loss.
2. Agricultural income computation.
3. Cultivation expenses.
4. Deduction of cess paid.
5. Taxability of profit on sale of machinery.
6. Overhead expenses.
7. Depreciation calculation.

Detailed Analysis:

Re: Question No. (i)
The issue was whether the company could carry forward and set off the loss of Rs. 6,48,333 incurred during the year ending June 30, 1955. The court noted that the Act came into force on October 1, 1957, with the charging section retroactively effective from April 1, 1957. The relevant accounting year for the assessment year 1957-58 was the year ending June 30, 1956. Section 15 of the Act allows the carry forward of losses sustained in the previous year immediately before the commencement of the Act. Since the previous year was the year ending June 30, 1955, the company was entitled to the benefit of carry forward under the proviso to s. 15. The Tribunal erred in denying this benefit.

Re: Question No. (ii)
The issue was whether Rs. 7,50,601 represented the company's agricultural income liable to tax. The company raised sugarcane in its own lands and used it in its sugar factory. The Agrl. ITO accepted the company's claim of extra costs per tonne for better recovery of sugar, which was not accepted by the Central Income-tax Department. The court held that the principles for allowing expenditure for agricultural income computation should align with those for non-agricultural income under the Central Income-tax Act. The company's claim of Rs. 17.01 per tonne was not accepted by the Central authorities, and thus, it should not be the basis for computing agricultural income under the Act. The company was entitled to a deduction of Rs. 17,50,601.

Re: Question No. (iii)
This question concerned the disallowance of cultivation expenses for the years 1953-54, 1954-55, and 1955-56. The Tribunal allowed 75% of the expenditure for these years. The court noted that s. 5(k) of the Act allows deductions for expenditures incurred in the previous year. However, considering the substance over the form, the court held that if the crop required more than one year, the expenditure for those years should be allowed. The Tribunal did not examine whether overhead charges were included in the expenses for the years 1953-54 and 1954-55. The assessing authority was directed to reconsider the claim in light of these observations.

Re: Question No. (iv)
The issue was whether the cess paid under the Karnataka Sugarcane Cess Act, 1958, was an allowable expenditure. The company paid the cess for sugarcane grown on its own lands and used in its factory. The court held that the cess paid was an item of expenditure necessarily incurred to derive agricultural income and should be allowed as a deduction.

Re: Question No. (v)
The question was whether the profit of Rs. 17,329 from the sale of old machinery was taxable. The Tribunal rejected the company's claim due to the lack of information on the purchase and sale values of the machinery. The court noted that the second proviso to s. 5(f) of the Act, which deals with the sale of machinery, did not apply as no depreciation was allowed on the machinery before the Act came into force. Thus, the profit from the sale could not be added as agricultural income.

Re: Question No. (vi)
The issue was the disallowance of various overhead expenses. The Tribunal disallowed these expenses, stating they were not incurred for deriving agricultural income but for the company's business activities. The court upheld the Tribunal's decision.

Re: Question No. (vii)
The question was whether depreciation should be allowed on the written down value or the original cost. The company did not provide evidence of the original cost of the assets. The Tribunal rejected the claim, and the court agreed with this decision.

Conclusion:
The revision petition was allowed in part. The court directed the assessing authority to redo the assessment in light of the observations made. No order as to costs was made.

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