2021 (10) TMI 1371 - HC - Income Tax

Assessment of Agricultural income - income received from the sale of rubber was subjected to tax under Kerala Agricultural Income Tax Act 1950 ( KAIT Act ) - re-plantation expenses are considered as capital expenditure and the expenses incurred by the assessee for upkeep and maintenance of newly planted rubber trees are in the nature of revenue expenditure for mere plantation of rubber trees the assessees do not earn income but the income is derived only from proper upkeep and maintenance of trees - HELD THAT - The scope and extent of the operation of Rule 7A which is similar to Rule 8(2) with regard to allowance for replanting expenses and deduction towards upkeep and maintenance expenses of immature plants in computation of income from rubber under the provisions of the Act and Rules need an authoritative pronouncement from this Court. Revenue argues that there is no need or necessity for reconsideration of Rehabilitation Plantations Ltd. case 2012 (6) TMI 570 - KERALA HIGH COURT by the Full Bench Accordingly to Revenue it is for the Supreme Court if necessary to lay down law in this behalf. We are not persuaded with the objection stated by the Revenue. Firstly Rehabilitation Plantations Ltd. has not taken note of the judgments referred to above in Travancore Rubber Tea Co. Ltd. 1960 (12) TMI 15 - SUPREME COURT and Karimtharuvi Tea Estates Ltd. 1962 (11) TMI 44 - SUPREME COURT . Rule 7A(2) juxtaposed with Rule 8(2) and the case law on the point under KAIT Act would demonstrate that the applicable provisions of law and the precedents on the point are not adverted to by the Division Bench. The claims of assessees are rejected by referring to the view taken in Division Bench judgment. We refer the following question for consideration by a Full Bench of this Court subject to the orders of Hon ble The Chief Justice Whether the assessee/Plantation Companies under Rule 7A(2) of the Rules are entitled to an allowance towards replanting expenses and a further deduction towards upkeep and maintenance expenses incurred by the assessee for the immature plants till the age of maturity in the computation of income under the Act and Rules. In our considered view the issues are of regular occurrence for all the plantation owners and the question needs an authoritative pronouncement from a Full Bench of this Court.

Summary

Issues:
- Interpretation of Rule 7A of the Income Tax Rules 1962 regarding allowance for replanting expenses and deduction for upkeep and maintenance expenses of immature rubber plants.
- Conflict between the Division Bench judgment in Rehabilitation Plantations Ltd. and the Supreme Court judgments in Travancore Rubber & Tea Co. Ltd. and Karimtharuvi Tea Estates Ltd.
- Necessity of an authoritative pronouncement from the Court on the scope and extent of operation of Rule 7A in the computation of income from rubber plantations.

Analysis:

Issue 1: Interpretation of Rule 7A of the Income Tax Rules 1962
The appeals involved Plantation Companies challenging individual orders of the Income Tax Appellate Tribunal regarding the treatment of income from rubber plantations. The dispute focused on the application of Rule 7A, introduced in 2002, which divided income from rubber plantations into business income and agricultural income. The assessees claimed allowances for replanting expenses and maintenance costs under Rule 7A(2) while computing income tax payable.

Issue 2: Conflict between Judgments
The assessees argued that expenses for replanting were capital expenditure, while maintenance costs for immature rubber plants were revenue expenditure. They relied on Supreme Court judgments in Travancore Rubber & Tea Co. Ltd. and Karimtharuvi Tea Estates Ltd., which allowed such deductions under the Kerala Agricultural Income Tax Act. However, the Division Bench in Rehabilitation Plantations Ltd. held that upkeep and maintenance expenses were not deductible until plants started yielding income after 6-7 years.

Issue 3: Necessity of Authoritative Pronouncement
The Court found a conflict between the Division Bench judgment and the Supreme Court decisions, necessitating a clear interpretation of Rule 7A and its application to replanting and maintenance expenses. The Court concluded that a Full Bench should consider whether Plantation Companies are entitled to deductions for replanting and maintenance expenses under Rule 7A in the computation of income from rubber plantations, as the issue is significant for all plantation owners and requires a definitive ruling.

In summary, the judgment highlighted the need for a Full Bench to address the conflicting interpretations of Rule 7A and determine the eligibility of Plantation Companies for deductions related to replanting and maintenance expenses, providing clarity on the application of tax rules to income from rubber plantations.