1977 (11) TMI 49 - HC - Income Tax

Actual Cost - income from tea and coffee estates - development allowance under section 33A(1)(a) - doctrine of constructive res judicata - HELD THAT - It is clear that the development allowance is granted for the process of planting or replanting any land with tea bushes. The process is a continuous one spread over a length of time and involving alteration and readjustment of ideas and operations from time to time. The reckoning of the actual cost incurred for planting and replanting must in the nature of things await the finalisation of the plans and ideas and termination of the process of planting and replanting. It is only thereafter that an allowance can be given for the actual cost of planting as defined in section 33A(7) Any cost worked out till the final evolution of ideas and their execution must in the nature of things be only tentative. This aspect we think is sufficiently indicated by the terms of the section itself. We find it difficult to sustain the conclusion of the Tribunal on any general considerations of legal principle or the scheme of the taxing statute. The Tribunal seems to think that each assessment year is a separate unit for purposes of assessment and if a deduction or allowance which could have been claimed in the course of one assessment year is not so claimed the assessee is precluded from making the same claim for the next year. This appears reminiscent of the doctrine of constructive res judicata embodied in section 11 of the Civil Procedure Code and known to the civil law-what is generally referred to as the doctrine of might and ought . Even in that region the position is well settled that before a party s mouth is shut on considerations of constructive res judicata the plea omitted to be taken should have been one which not only might have been raised in the previous proceeding but ought to have been so raised. We doubt whether this doctrine of constructive res judicata in all its rigour and severity can be applied to a taxing statute on the ground that each assessment year is a separate unit of assessment. Without finally pronouncing on that question we think there is sufficient indication in the terms of section 33A from the provisions we have already adverted to to show that even if the claim here in question might have been made in the first and the second year of planting it was not one which ought to have been so made. We answer the question referred in the negative that is in favour of the assessee and against the revenue. We make no order as to costs.

Summary

Issues Involved:

1. Entitlement to development allowance under section 33A of the Income-tax Act.
2. Computation and timing of claiming development allowance.
3. Application of the doctrine of constructive res judicata in tax assessments.

Detailed Analysis:

1. Entitlement to Development Allowance:

The primary issue was whether the assessee was entitled to a development allowance at 50% on Rs. 71,500, part of the expenditure incurred during the assessment years 1966-67 and 1967-68 on tea clearing, under section 33A of the Income-tax Act for the assessment year 1971-72. The Tribunal held that the assessee was not entitled to the development allowance for these years as claimed in the assessment year 1971-72. The Tribunal's decision was based on the interpretation that the development allowance must be claimed in the specific assessment year to which it relates, and any claim not made in the relevant year cannot be carried forward to a subsequent year.

2. Computation and Timing of Claiming Development Allowance:

The Tribunal's decision was challenged on the grounds that the actual cost of planting could only be determined at the end of the four-year period, as per section 33A(7). The Tribunal recognized that the actual cost is a notional figure until the fourth year when the total expenditure is known. The Tribunal noted that section 33A(1)(b) does not provide an opportunity to claim the allowance comprehended under section 33A(1)(a) in subsequent years. However, the court found that the development allowance should be recomputed with reference to the actual cost of planting, and any excess should be allowed as a deduction. The court emphasized that the provision to allow excess deduction is mandatory once the conditions are satisfied.

3. Application of the Doctrine of Constructive Res Judicata:

The Tribunal's view was that each assessment year is a separate unit for assessment purposes, implying that if a deduction or allowance could have been claimed in one year but was not, it cannot be claimed in another year. This perspective was likened to the doctrine of constructive res judicata, which prevents re-litigation of issues that could have been raised in earlier proceedings. However, the court found this doctrine inapplicable to the present case. The court reasoned that even if the claim might have been made in the first two years of planting, it was not one that "ought" to have been made, given the continuous nature of the planting process and the finalization of costs at the end of the fourth year.

Conclusion:

The court concluded by answering the question in the negative, ruling in favor of the assessee and against the revenue. The court determined that the assessee was entitled to claim the development allowance in the assessment year 1971-72, as the actual cost of planting could only be finalized at the end of the four-year period. This judgment underscores the importance of interpreting tax provisions in light of their practical implications and the continuous nature of certain business processes. The court made no order as to costs, and a copy of the judgment was to be sent to the Income-tax Appellate Tribunal, Cochin Bench.