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TMI Blog1984 (8) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... es representing the extra cost incurred for better yield of sugarcane grown in the lands belonging to the company; (iii) The total expenditure incurred for raising the sugarcane not only in the previous year to the assessment year, but also in the earlier two years; (iv) The cess paid under the Karnataka Sugarcane Ces s Act, 1958 (v) Overhead expenses; and (vi) Depreciation. During the assessment year, the company sold some machineries and made a profit of Rs. 17,329. The company did not include that profit in the taxable income on the ground that it would not fall under the second proviso to s. 5(f) of the Act. The Agrl. ITO, the Deputy Commissioner and the Appellate Tribunal all have disallowed all the claims and further added to the agricultural income Rs. 17,329 as the profit on the sale of machinery. The correctness of the view taken by the Tribunal is questioned in this revision petition. From the arguments addressed by the counsel on both sides and on the material on record, the following questions arise for consideration: " (i) Whether the Tribunal was justified in holding that the company was not entitled to the benefit of carry forward and set o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of the Act was the year ending June 30, 1955, and the assessment year was 1956-57. Since the Act is applicable from the assessment year 1957-58, the company is entitled to the benefit of carry forward of the said loss under the proviso to s. 15. The Tribunal, in our opinion, was wholly in error in denying that benefit to the company. Re: Question No. (ii) : To understand this question, we have got to narrate some facts. The company raises sugarcane in its own agricultural lands and utilises the same in the manufacture of sugar. The Agrl. ITO has levied tax only in respect of that income. It has claimed extra costs of Rs. 17.01 per tonne for better recovery of sugar. That claim was made in the assessment proceedings under the Central Income-tax Act. But, the taxing authorities thereunder did not allow that tall claim. They have taken into consideration the market value of the sugarcane purchased by the company from other growers and reduced the said claim proportionately. The Incometax Appellate Tribunal also agreed with that view in I.T.A. Nos. 9341 and 9342 of 1963-64 disposed of on May 14, 1965, and the matter rested there. The Agrl. ITO, however, accepted the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the years 1953-54, 1954-55 and 1955-56 for raising two varieties of sugarcane crop. For the years 1953-54, 1954-55 and 1955-56, the company has raised sugarcane, Adsali No. 16, and for the years 1954-55 and 1955-56, it has raised sugarcane, Ratoon No. 15. Adsali No. 16 is stated to be a crop of 18 months and Ratoon No. 15 is of about 12 months. The assessing authority while examining the claim has observed as follows : " The expenditure incurred on Adsali Crop No. 16 is spread over three years and similarly the expenditure on Ratoon Crop No. 15 is spread over two years ....... Hence, I allow those expenses by disallowing expenses at the rate of 25% thereof. In respect of Adsali Crop No. 16, expenses worth Rs. 97,119.48 and Rs. 12,23,071.34 were incurred in the years 1953-54 and 1954-55. These expenses are inclusive of the expenses apportioned under different heads like travelling, printing, postage and stationary and directors' fee and travelling, audit fee and travelling, legal fee, consultation fee, managing remuneration, sundry expenses, motor car expenses and depreciation, etc., I which are not in the nature of cultivation expenses. The assessee company is entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessing authority, since there was no cross-objection by the Department. The Tribunal also found that 25% disallowance for the year 1955-56 made by the assessing authority on the ground that the expenses included the overhead charges was not correct. The Tribunal upon examination of that part of the account has found that the overhead charges were separately debited and, therefore, the allowance claimed should be allowed in to for the year 1955-56. The Tribunal, however, has no occasion to examine whether the overhead charges were included in the expenses for the years 1953-54 and 1954-55. The question for consideration is whether the company is entitled to the entire expenditure incurred in respect of the said crops or only that part of the expenditure incurred for the previous year relevant to the assessment year. Sri Babu, Government-Advocate, urged that the company cannot be allowed the expenditure incurred for several years earlier to the previous year, while Sri Srinivasan, for the company contended to the contrary. In support of the contention, Sri Babu placed reliance on section 5(k) of the Act. It reads: "any expenditure (not being in the nature of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to be taxed, that claim should be allowed if there is no prohibition under the Act. Mr. Babu, however, urged that s. 5(j) of the Kerala Act is not similar to s. 5(k) of the Karnataka Act and in the former there is no reference to the expenditure incurred in the previous year and it only refers to the expenditure incurred for the purpose of deriving the agricultural income and, therefore, the decision of the Kerala High Court cannot be pressed into service by the assessee in this case. We do not think that we could accept this submission. Section 5(j) of the Kerala Act is similar to s. 10(2)(xv) of the Indian I.T. Act, 1922, and also s. 37(1) of the I.T. Act, 1961. In both these provisions, the term to previous year " has not been used. The Supreme Court in Badridas Daga's case [1958] 34 ITR 10, while examining the scope of s. 10(2)(xv) of the Indian I.T. Act, 1922, observed thus (p. 15): "........ when a claim is made for a deduction for which there is no specific provision in section 10(2), whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1958. It is not in dispute that the company has paid the cess under the said Act. The company claims deduction of the cess paid in respect of its own sugarcane brought for crushing in its factory. It has not made any claim for deduction of the cess paid in respect of the sugarcane purchased from growers. Section 4 of the Karnataka Sugarcane Cess Act, 1958, reads " 4. Imposition of cess.-A cess at such rate not exceeding six rupees per tonne, as may be specified by notification by the Government shall be levied on the entry of sugarcane into a local area for consumption or use therein." Sugarcane cess is liable to be paid by the company as occupier of the factory as provided under s. 7 of the Act. The Tribunal has disallowed the claim on the ground that the cess paid was not an item of expenditure borne by the agriculturists who grow the sugarcane. It is true that under the Act, the growers are not required to pay the cess. But, in the instant case, the company has dual capacity. It owns the factory and also the sugarcane crop raised in the lands owned by it. It is not in dispute that the company has used the sugarcane grown from its own lands in the factory for manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the previous year in which the sale took place. " The sale of machinery was effected in the year 1955-56. There was no depreciation allowed on the machinery since the Act came into force on April 1, 1957. Since there was no depreciation allowed and indeed could not be allowed, the above proviso evidently has no application. The profit derived from the sale of the machinery, therefore, could not be added as agricultural income. There is no other provision in the Act to treat the profit derived on the sale of capital assets as agricultural income. The view taken by the Tribunal cannot, therefore, be sustained. Re: Question No. (vi): This question relates to the claim of the company regarding overhead expenses. The Tribunal has disallowed the claim of the company on the ground that the expenses incurred were not for the purpose of deriving the agricultural income. The expenses on this head were proved to have been incurred in order to carry on the business activity of the company. The Tribunal, in our opinion, was justified in rejecting this part of the claim of the company. Re: Question No.(vii): The question is whether the Tribunal was justified in law in all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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