1971 (9) TMI 64 - SC - Income Tax

Whether the fact that the applicant apportioned the sum of ₹ 79,680 out of the general revenue expenses of its estate towards the immature area and capitalised the same for purposes of its accounts precluded the appellant from claiming the same as revenue expenses for the purpose of agricultural income-tax assessment ? Whether the Tribunal ought not to have considered the nature of the expenses amounting to ₹ 79,680 for the purpose of determining whether it is allowable expenditure or not irrespective of the way it was dealt with by the applicant for the purpose of its accounts ? Held that - The questions set out in the application of the assessee do arise for consideration and, therefore, the High Court should have directed the Tribunal to refer those questions to the High Court for its opinion. In the result, we allow the appeal and direct the Tribunal to refer the two questions set out in the application of the assessee to the High Court for its opinion. Appeal allowed.

Summary

Issues:
Refusal of Tribunal to refer questions under section 60(2) of the Kerala Agricultural Income-tax Act, 1950; Interpretation of expenses as revenue or capital expenditure for agricultural income-tax assessment; Opportunity for assessee to challenge account books; High Court's rejection of application to compel reference under section 60(2); Previous decision of Tribunal and High Court on similar questions.

Analysis:
The Supreme Court heard an appeal arising from the Kerala High Court's decision to deny the assessee's request to direct the Tribunal to refer two questions under section 60(2) of the Kerala Agricultural Income-tax Act, 1950. The questions pertained to whether certain expenses could be claimed as revenue expenses for agricultural income-tax assessment despite being capitalized in the accounts. The Tribunal had refused to refer the questions, stating that the expenses were related to the maintenance of immature plants and thus not allowable under the Act.

The Tribunal's order was based on the assessee's own account entries, which indicated the expenses were for immature plants. However, the assessee contended that it was not given the opportunity to challenge the accuracy of the account books. The Supreme Court noted that the Tribunal seemed influenced by a previous decision and did not properly consider the assessee's assertion regarding the account books' accuracy. The Court emphasized that an admission in account books is not conclusive and that the assessee should have been allowed to present evidence to the contrary.

The Court referred to Section 5 of the Act, which deals with the computation of agricultural income-tax and prohibits deduction of expenses for immature plants without agricultural income. The Court highlighted that the assessee should have been given a fair opportunity to contest the accuracy of the account entries. Despite the High Court's dismissal of the application, the Supreme Court found that the questions raised by the assessee were valid and should have been referred to the High Court for consideration.

Ultimately, the Supreme Court allowed the appeal, directing the Tribunal to refer the two questions raised by the assessee to the High Court for its opinion. The Court made no order as to costs in the appeal. This judgment underscores the importance of providing a fair opportunity for parties to challenge evidence and assertions in legal proceedings, especially concerning tax assessments and deductions.