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TMI Blog2009 (3) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal raw material in the assessee's business is white chillies. The State of Karnataka is the main source for procuring white chillies required for the business of the assessee. 3. In order to promote the availability of white chillies without any interruption. the assessee sought to impress upon the farmers in Karnataka to adopt better farming practices. Accordingly, the assessee company had taken agricultural land on lease for the cultivation of white chillies and incurred expenses towards cultivating white chillies. These expenses included cost of seeds, labour charges, purchase of manures, pesticides, tilling, weeding, land rent and other expenses. All the above expenses have been debited by the assessee company in its P&L a/c. Whate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... David & Co. (P) Ltd. vs. CIT (1979) 10 CTR (SC) 383 : (1979) 118 ITR 261 (SC); and (iii) Mahabir Sugar Mills (P) Ltd. vs. CIT (1973) 89 ITR 143 (All) 7. The AO on the above grounds has disallowed a sum of Rs. 18,11,000 for the asst. yr. 1994-95 and Rs. 1,32,035 for the asst. yr. 1996-97. The disallowance of the farming expenses alone is the issue raised in both the appeals before us. 8. We heard both sides in detail and considered the matter. In the present case, the assessee has spent certain amount by way of expenditure in cultivating white chillies in Karnataka as a means of demonstration to the local farmers to carry on better agricultural farming practices so that the production of white chillies is increased and the regular supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961, is also to be excluded in computing the total income. In the present case. the assessee has earned some agricultural income by way of sale of white chillies cultivated by it. But the expenses for farming the white chillies were more than such income. Therefore, the assessee had to debit the net expenses in its P&L a/c. If, on the other hand, there was a surplus on sale of white chillies, the surplus income being in the nature of agricultural income could not be brought to tax under the IT Act, 1961. If there was a surplus of agricultural income in the hands of the assessee for these impugned assessment years, there would have been no question of claiming expenses by way of deduction or question of allowing the same as deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c distinction cannot be overlooked only on the ground that the assessee company incurred the agricultural expenses for the inevitable purposes of carrying on of its business. The business urgency and justification of the assessee company in incurring farming expenses is not an answer to the constitutional division of subjects made between the Union Government and the State Governments. 12. There is no doubt that farming operations carried on by the assessee company were nothing but agricultural operations. The expenses relating to agricultural operations cannot be allowed as expenditure in computing the business income for the simple reason that agricultural income does not form part of the total income under the IT Act. 13. The principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the said decision does not help the assessee to support its argument. 15. Another decision relied upon by the assessee is the judgment of the Orissa High Court in the case of Aska Co-op. Sugar Industries Ltd. vs. CIT. In that case the assessee a co-operative society engaged in the manufacture of sugar and molasses, purchased sugarcane from cultivators. The assessee adopted a scheme whereby a subsidy would be advanced to the cultivators for early planting of sugarcane. The scheme also provided for penalty and refund of the advance with interest, if there was default in undertaking early cultivation or in delivering the sugarcane. The assessee advanced amounts under the scheme and showed as suspense and in the subsequent year claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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