1978 (7) TMI 101 - HC - Income Tax

Agricultural Income Tax, Allowable Expenditure, Income From Tea, Litigation Expenses, Wholly And Exclusively

Summary

Issues:
Interpretation of allowable deductions under section 5 of the Agrl. I.T. Act, 1950 for various expenses incurred by the assessee in deriving agricultural income.

Analysis:
The Kerala High Court addressed the issue of whether certain expenses incurred by the assessee, such as police expenses, litigation expenses, wages to witnesses, and other miscellaneous expenses, could be considered allowable deductions under section 5 of the Agrl. I.T. Act, 1950. The assessing officer and Deputy Commissioner initially disallowed these claims, but the Appellate Tribunal allowed them, leading to references being made at the instance of the Commissioner of Agricultural Income-tax.

The Appellate Tribunal justified the deductions under section 5(j) of the Act, stating that the expenses were spent wholly and exclusively for the purpose of deriving agricultural income. The Tribunal relied on decisions under the Indian I.T. Act, 1922, to support its view that section 5(j) corresponds to section 10(2)(xv) of the former Act. The revenue challenged this view, arguing that the scope of the two provisions differed.

The High Court analyzed the language of section 5(j) of the Agrl. I.T. Act and section 10(2)(xv) of the Indian I.T. Act, 1922. While the revenue contended that the scope of deductions under section 5(j) was narrower due to the term "deriving" used in the Kerala Act, the Court disagreed. It held that the purpose of business is deriving profits and gains, and therefore, an expenditure for the purpose of business is considered one for deriving income.

The Court referred to previous decisions, including the Supreme Court's ruling in Travancore Rubber and Tea Co. Ltd. v. Commr. of Agrl. IT, where it was established that expenses incurred for the maintenance and upkeep of non-yielding trees were permissible deductions under section 5(j). The Court emphasized that expenses need not be directly and immediately related to income derivation, rejecting a narrow construction favored by the revenue.

Ultimately, the High Court concluded that the expenses incurred by the assessee were laid out for preserving the land, trees, and maintaining income, making them allowable deductions under section 5(j) of the Agrl. I.T. Act. The Court ruled in favor of the assessee, holding that the expenses were wholly and exclusively spent for the purpose of deriving agricultural income.