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TMI Blog2020 (3) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... nce expenses are incurred for planting new area of rubber and not an area already planted with yielding rubber. The finding of the Hon ble Kerala High Court being very clear and categorical, the judgment is binding on the lower authorities. - Decided against assessee. - Shri Chandra Poojari, AM And Shri George George K, JM For the Appellant : Sri.Iype John For the Respondent : Sri.Mritunjaya Sharma, Sr. DR ORDER PER GEORGE GEORGE K, JM : These appeals at the instance of the assessee are directed against two orders of the CIT(A), both dated 30.10.2019. The relevant assessment years are 2012-2013 and 2013-2014. 2. Since common issue is raised in the appeals, they were heard together and are being disposed of this consolidated order. 3. The solitary issue raised in both these appeals is whether the CIT(A) is justified in confirming the A.O. s action in disallowance of claim of deduction on cost of replanting under Rule 7A of the Income-tax Rules, 1962. 4. The brief facts of the case are that the assessee is a plantation company, which is fully owned by the Government of Kerala. The assessee undertakes processing of latex into value added forms like centrifuging latex. Income from sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants and corresponding rules in respect of coffee and tea, as extracted in the judgment, read as follows: 7 A(2). In computing such income, an allowance shall be made in respect of the cost of planting rubber plants in replacement of plants that have died or become permanently useless in an area already planted if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which under the provisions of cl.(31) of section 10, is not includible in total income. 7B(2). In computing the incomes referred to in sub-rr. (1) and (1A) an allowance shall be made in respect of the cost of planting coffee plants in replacement of plants that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of cl. (31) of section 10, is not includible in the total income. 1. The finding of the Kerala High Court could be found to be inconsistent with the provision and reality in plantation based on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kindly refer Supreme Court decision in the case of Assam Company Ltd. and Another Vs. State of Assam as reported in 248 ITR 567 and the Kerala High Court decision in the case of Tata Tea Ltd. Vs. Inspecting Assistant Commissioner as reported in (2006) 1 KLT 752. (c) Expenditure on re-plantation of an area where from no income is derived by the assessee is not to be reckoned in computation of income from yielding area This finding is not consistent with the decision of the Supreme Court in the case of Travancore Rubber Tea Co. Ltd. and Karimtharuvi Tea Estates. (d) Investment in planting and development of plantation up to maturity i.e., until the plants starts yielding has to be treated as capital expenditure for development of a capital asset. No doubt that this is an expenditure in planting and developing of plantation upto its maturity but the Act provides for this expenditure as an allowance in computation under Rule 7 A. As submitted above this allowance is in lieu of depreciation. It is also an allowance to offset the loss of income or is in the form of a benefit granted to a farmer to recoup from the earnings the loss of revenue for. a period of 7 years, since the expenses o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Karimtharuvi Tea Estates Vs. State of Kerala as reported in 48 ITR 83 the Hon. Supreme Court held that the contention that the amounts spend for the upkeep and maintenance of immature plants till they become mature is in the nature of a capital expenditure is also not sound. It is a running expenditure and not in the nature of capital expenditure. Copy of the said judgment is annexed hereto as Annexure IV which is at pages 14 to 18. The further contention that treating Maintenance Expenditure as deductible Revenue Expenditure would make the Proviso to Rule 24 of the Indian Income Tax Rules,1922 (similar to Rule 8(2) of the Income Tax Rules, 1962) redundant was also rejected. The Supreme Court held The proviso allows deduction of the cost of replanting bushes in replacement of bushes which died or became permanently useless in an area already planted. It deals with the cost of planting bushes and not the expenses incurred in the upkeep and maintenance of bushes already planted . The Maintenance Expenditure is therefore clearly allowable as a Revenue Expenditure under Section 37 of the IT Act and is not be considered under Rule 7 A(2) (iii) In any event Rule 7 A applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 holding that a tea bush is also an income earning apparatus and therefore a (Plant within the meaning of the term in Section 43(3). The legislature realizing that assessees were now getting 100% deduction of the cost of replanting under Rule 8 (2) and thereafter also getting depreciation for the same amount treating tea bushes as a plant, amended Section 43(3) by Finance Act 1995 with retrospective effect from 1-4-1962 to settle at rest the controversy as to whether tea bush is a plant Section 43 (3) was therefore amended retrospectively as under:- 'Plant' includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purpose of business or profession but does not include tea bushes or livestock , In the memorandum explaining the amendment (reported in 212 ITR (St) 356 it was explained as under.- Amendment of section 43(3) of the Income Tax Act to exclude plantations and livestock from the definition of plant: Under subsection (3) of section 43 the term plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of business or profession. In certain judicial pronouncements, it has been held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(31) reads as under: In the case of an assessee who carries on the business of growing and manufacturing rubber, coffee, cardamom or such other commodity in India, as the Central Government may, by notification in the Official Gazette, specify in this behalf, the amount of any subsidy received from or through the concerned Board under any such scheme for re-plantation or replacement of rubber plants, coffee plants, cardamom plants or plants for the growing of such other commodity or for rejuvenation or consolidation of areas used for cultivation of rubber, coffee, cardamom or such other commodity as the Central Government may, by notification in the Official Gazette, specify . (x) It is thus further clear that by linking Rule 7 A(2) with section 10(31), the legislature wanted to give full deduction of cost of re-plantation of rubber under Rule 7 A(2), even though subsidy itself is not taxable. (xi) It is thus clear that Rule 7 A(2) of the Income Tax Rules 1962 provides for 100% deduction in respect of the expenditure incurred on cost of replanting rubber plants in replacement of plants that have died or become permanently useless in an area already planted and this deduction is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh SLP filed against the decision was dismissed by the Honourable Supreme Court, it is settled law that a mere dismissal of SLP does not declare any law nor does it approve the decision appealed against It is also submitted that this Hon. Bench has dismissed the appeal for the assessment years 2011-12 and 2014-15 in ITA No.381/COCH/2018 and ITA No.239/COCH/2018 as per order dated 01-08-2019. Copy of the said order is annexed hereto as Annexure V which is at pages 19 to 35. 7. The learned Departmental Representative supported the orders passed by the Income-tax authorities. 8. We have heard the rival submissions and perused the material on record. The Hon ble Kerala High Court in the case of M/s.Rehabilitation Plantations Ltd. (supra) had categorically held that the expenditure incurred for planting and development of plantation up to maturity has to be necessarily capitalized and it cannot be allowed as revenue expenditure. The relevant finding of the Hon ble High Court reads as follows:- After hearing both sides, we are unable to accept the case of the assessee for more than one reason. In the first place, expenditure covered by Rule 7A(2) does not cover expenditure incurred for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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