2017 (12) TMI 1822 - AT - Income Tax

Deduction u/s 43B - agricultural income tax paid by the assessee during the assessment years concerned - AO held that section 43B(a) will not have application since agricultural income tax is not a tax otherwise allowable under the Income-tax Act - HELD THAT - Admittedly, the agricultural income is exempt from Central Income tax by virtue of provisions of section 10(1) of the Income-tax Act. When agricultural income itself is exempt from the purview of Central Income tax, there is no reason why a payment made out of agricultural income (already exempt) should be allowed as a deduction in computing the business income under the Central Income-tax Act. Section 43B states that a deduction otherwise allowable under this Act shall alone be allowed as a deduction u/s 43B(a). Since the agricultural income tax is not tax otherwise allowable under the Income-tax Act, payment of agricultural income tax in the respective assessment years on payment basis cannot be allowed as a deduction u/s 43B(a). DR as well as the AR was unable to enlighten us what has happened subsequent to the remand by the Tribunal in assessee s own case in assessment years 1997-98, 1998-99 and 1999-2000. For our reasoning in aforesaid paragraph we hold that the agricultural income being exempt from taxation under the Central Income-tax, the agricultural income tax paid by the assessee cannot be allowed as a deduction under the Central Incometax. Therefore, the order of the CIT(A) on this issue is reversed.

Summary

Issues:
- Whether agricultural income tax paid by the assessee can be deducted under section 43B of the Income-tax Act.

Analysis:
The judgment involves five appeals by the Revenue against orders of CIT(A) related to the deduction of agricultural income tax paid by the assessee. The main issue is whether the agricultural income tax paid can be claimed as a deduction under section 43B of the Income-tax Act. The assessee, a joint venture engaged in oil palm cultivation, claimed the deduction for agricultural income tax paid during the relevant assessment years. The Assessing Officer denied the claim stating that agricultural income tax paid on exempted income cannot be allowed as a deduction. The A.O. held that section 43B(a) does not apply as agricultural income tax is not a tax "otherwise allowable" under the Act.

The CIT(A) allowed the deduction based on the Tribunal's previous orders in the assessee's own case. The Revenue appealed to the Tribunal challenging the CIT(A)'s decision. The Tribunal analyzed the provisions of section 43B and noted that agricultural income is exempt from Central Income tax under section 10(1) of the Income-tax Act. Consequently, the payment made out of exempt agricultural income cannot be allowed as a deduction under the Act. The Tribunal also clarified that the previous Tribunal order in the assessee's case did not decide the issue in favor of the assessee but remitted it back to the Assessing Officer for re-computation.

As a result, the Tribunal reversed the CIT(A)'s order, holding that agricultural income tax paid by the assessee cannot be allowed as a deduction under the Central Income-tax Act. The appeals filed by the Revenue were partly allowed, indicating a reversal of the CIT(A)'s decision on the issue of deductibility of agricultural income tax paid by the assessee.