2021 (11) TMI 970 - HC - Income Tax

Deduction u/s 43B - AO rejected deduction claimed on the ground that the assessee has paid tax under Act 1991 on the whole of its income, whereas a part of income alone is amenable to Agricultural Income Tax Ac t - obligation of assessee to file separate returns under Central Act and Act 1991 - HELD THAT - Assessee is under obligation to file returns under both the enactments. Agricultural income is excluded from the scope of Section 10(1) of Central Act. Therefore agricultural income does not form part of computation under Section 14 of the Act, 1991. Further, the deduction is envisaged for the purpose of ascertaining the net income of the assessee under different heads. The agricultural income is excluded and appering into admissible tax, a deduction would again be inconsistent with Sections 10,14 and 43B of the Act. Clause-B of Section 43B deals with the tax payable by the assessee. Main fault under any law for the time being in force means tax payable by the assessee for earning the income for which the computation is carried out. The agricultural income tax paid for the apportioned agricultural income cannot overlap into the business income as tax payable by the assessee for earning business income. No reported judgment on this aspect of the matter is brought to our notice. Therefore from a plain and literal meaning of applicable clause, we are of the view that the argument that the tax paid under Act 1991, ensures for deduction is unsustainable and accordingly rejected. Revenue has accepted the return of the assessee for the preceding assessment years and the departure now in the subject assessment years is illegal - The judgment relied on by the revenue 2012 (1) TMI 410 - KERALA HIGH COURT provides a complete answer in this behalf and by following the ratio of the Apex Court in Gangadharan's case 2008 (7) TMI 10 - SUPREME COURT , the said objection of the assessee is also rejected. For the above reasons and discussion, we are of the view that the gist of the questions framed by the assessee is canvassed in the manner referred to above and we have, after taking note of the liability under respective enactments are satisfied that the Tribunal has recorded a valid, legal and correct finding on the claim of assessee for deduction of agricultural tax paid under Act 1991 as not available. Questions in the instant appeals are answered against the assessee and in favour of revenue.

Issues Involved: Entitlement to deduction of Income Tax paid under the Kerala Agricultural Income Tax Act, 1991, and under Section 43B of the Central Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 43B of the Central Income Tax Act:

The primary issue in these appeals is whether the assessee is entitled to deduct the tax paid under the Kerala Agricultural Income Tax Act, 1991 (Act 1991) under Section 43B of the Central Income Tax Act, 1961 (Central Act). The assessee, a company engaged in oil palm cultivation and production of crude palm oil, argued that the tax paid under Act 1991 should be allowed as a deduction under Section 43B of the Central Act. Section 43B allows deductions for any sum payable by the assessee by way of tax, duty, cess, or fee under any law for the time being in force.

2. Application of Rule 7 of the Central Income Tax Rules, 1962:

The assessee contended that the income received from the sale of crude palm oil constitutes agricultural income and should not be taxed under the Central Act. The revenue, however, applied Rule 7, which provides for the assessment of income that is partly agricultural and partly business income. The Assessing Officer rejected the assessee's claim for exclusion of income from the purview of the Central Act, stating that only a part of the income is amenable to the Agricultural Income Tax Act.

3. Consistency in Tax Liability and Estoppel:

The assessee argued that the revenue had accepted the formula decided by the Commissioner of Income Tax under Rule 7 for preceding assessment years and should maintain the same view for consistency. The revenue, however, contended that non-filing of appeals in previous years does not bar the department from enforcing the provisions of law in subsequent years.

4. Tribunal's Findings and Legal Interpretation:

The Tribunal held that agricultural income is exempt from Central Income Tax under Section 10(1) of the Central Act. Consequently, the payment made out of agricultural income, which is already exempt, should not be allowed as a deduction in computing business income under the Central Act. The Tribunal emphasized that Section 43B only allows deductions for taxes "otherwise allowable" under the Central Act, and since agricultural income tax is not "otherwise allowable," it cannot be deducted.

5. Obligation to File Separate Returns:

The court examined the obligation of the assessee to file separate returns under the Central Act and Act 1991. The judgment in ITA No.382/2010 and Writ Petition (c) No.36862 of 2004 established that the assessee must file returns under both enactments. Agricultural income, being excluded under Section 10(1) of the Central Act, does not form part of the computation under Section 14 of the Act. Therefore, allowing a deduction for agricultural income tax would be inconsistent with Sections 10, 14, and 43B of the Central Act.

6. Precedent and Revenue's Right to Appeal:

The revenue argued that the non-filing of appeals in previous years does not prevent it from appealing in subsequent years. The court cited the judgment in C.K. Gangadharan v. Commissioner of Income Tax, which held that the revenue's decision not to appeal in some cases does not bar it from appealing in others where there is just cause or public interest.

Conclusion:

The court concluded that the agricultural income tax paid under Act 1991 cannot be deducted under Section 43B of the Central Act. The arguments presented by the assessee were found to be unsustainable, and the Tribunal's findings were upheld. The appeals were dismissed, and the questions framed by the assessee were answered in favor of the revenue. No order as to costs was made.

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