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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 ..... lue added forms like centrifuging latex. Income from sale of centrifuging latex, a portion of the same is liable to be taxed under the Central Income-tax. For the assessment years 2012-2013 and 2013-2014, the returns were filed by the assessee. In the said returns filed, the assessee had claimed deduction under Rule 7A(2) of the Income-tax Rules, amounting to Rs. 98,62,206 and Rs. 1,74,39,892 for assessment years 2012-2013 and 2013-2014, respectively. The Assessing Officer disallowed the claim of the assessee by following the judgment of the Hon'ble Kerala High Court in the case of M/s.Rehabilitation Plantations Limited v. CIT [(2012) 251 CTR 343 (Ker.)]. 5. Aggrieved by the orders passed by the Assessing Officer disallowing the claim of deduction under Rule 7A(2) of the I.T.Rules, the assessee preferred appeals to the first appellate authority for the assessment years 2012-2013 and 2013-2014. The CIT(A) after elaborately analyzing and quoting the relevant portion of the judgment of the Hon'ble Kerala High Court in the case of M/s.Rehabilitation Plantations Limited (supra), decided the issue against the assessee. 6. The assessee being aggrieved by the orders of the CIT(A), has f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision and reality in plantation based on the following arguments" The findings in the judgment are narrated in bold: (a) Rule 7A(2) only provides for deduction of expenditure for infilling through replacement of dead trees or other trees that have become useless. The rule nowhere mentions "infilling". Instead the rule provides for - (i) An allowance (ii) For cost of (iii) Planting of Rubber Plants (and not plant) (iv) In replacement of (v) Plants (and not plant) (vi) That have died (vii) Or (viii) Become permanently useless (ix) In an area already planted (x) If such area has not previously been abandoned. It is a provision, both for infilling and re-plantation since the expression (i) That have died or an area already planted, qualifies infilling and (ii) OR Here the word OR is significant since it qualifies two different and separate events, both of which have been understood and considered by the law makers tobe resulting in a loss of revenue, during such period of immaturity of the plants say about 7 years, eligible to be compensated by way of an allowance. (iii) Become permanently useless in an area already planted qualifies replantation (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a benefit granted to a farmer to recoup from the earnings the loss of revenue for. a period of 7 years, since the expenses on establishment remains the same irrespective of the extent under cultivation. As such the expenses upto maturity would be eligible as an. allowance for replantation. This is also supported by the decision of the Supreme Court in 41 ITR 751 and 48 ITR 83. (e) Rule 7 A(2) does not cover expenditure incurred for re-plantation of an area but only expenditure for infilling through replacement of dead trees or trees that are become useless which is not the case here. The wording in the Rule does not give an interpretation so as to restrict it to infilling. If it was so, the word "infilling' was not alien for the law makers and could have imposed such a restriction at the time of drafting. This can only be seen as a conscious omission to give a beneficial interpretation for the purpose of growth and development In this connection please refer to the Constitution Bench decision of the Supreme Court in 255 ITR 147 in the case of Padma Sundara Rao and Others Vs. State of Tamil Nadu. Relevant extracts annexed hereto as Annexure II which is at pages 9 to 10. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 applicable to Rubber is on similar lines as Rule 8 of the Income Tax Rules, 1962 applicable to Tea under which income derived from the sale of tea grown and manufactured is to be computed as if it were income derived from business and 40% of such income is deemed to be income liable to tax under the Income Tax Act 1961 and the balance 60% is deemed to be income liable to Agricultural Income Tax. (iv) In making such computation of income from tea the Income Tax Officer grants benefit for an allowance of the cost of replanting of tea bushes under Rule 8 (2) of the Income Tax Rules which is extracted below:- "In computing such income, an allowance shall be made in respect of the cost of planting bushes in replacement of bushes 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 clause (30) of section 10, is not includible in the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 term "Plant" includes tea bushes and, therefore, they would also be eligible for depreciation under section 32. Rule 8(2) of the Income Tax Rules, already provide for a deduction in respect of the expenditure incurred on replacement of old tea bushes by an assessee. The deduction under rule 8(2) is allowed in lieu of depreciation. As a result of the judicial pronouncements, double deduction is now being claimed on the tea bushes, one as replacement cost and then as depreciation allowance. " With a view of setting at rest the aforesaid controversy, section 43(3) is being amended to provide that the term "Plant" will not include tea bushes and livestock. The proposed amendments will take effect, retrospectively, from 1st April, 1962 and will accordingly, apply in relation to assessment year 1962- 63 and subsequent years. " (vii) The amendment makes it clear that the deduction under Rule 8(2) for Replantation Expenses is allowed in lieu of depreciation. The legislative intention is therefore clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction 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 allowed in lieu of depreciation. The only condition is that replanting of new rubber plants should be in replacement of old rubber plants in an area already planted and such area has not been previously abandoned. When the rubber trees standing in an area becomes old and unyielding after giving yield for several years together, the same should necessarily be replaced with new plants to continue the plantation. The use of the words "if such area has not previously been abandoned" makes it clear that the deduction is allowed with respect to replanting in an area earlier planted and not for infilling a few plants in place of damaged plants. The total replanting expenditure in this regard is allowed as deduction in lieu of depreciation and since all tea assesses are getting such a deduction under Rule 8(2) for the past many years the same interpretation has to be given for Rule 7 A(2) and 7B(2) also. Hence it is submitted that Replanting Expenses is also allowable as a Revenue Expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 replantation of an area. On the other hand, Rule 7A(2) only provides for deduction of expenditure for infilling through replacement of dead trees or other trees that have become useless, which is not the case here. As already stated by us, Rule 7A(2) is in the same line as Rule 7B(2), which provides for replacement of dead or old or unyielding coffee plants in yielding coffee plantation, and Rule8(2) which provides for replacement of dead or useless tea bushes in tea plantation. Yielding healthy rubber plantation does not admit replacement of dead plants within such area as new saplings cannot grow under shade and is never done by any planter. So much so, expenditure for replantation of an area is not covered by Rule 7A(2) and in our view the lower authorities including the Tribunal rightly rejected the claim. We also feel that the Central Income Tax Officer while determining income in the nature of agricultural as well as business income under Rule 7A should keep i ..... 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