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PETITIONER: THE COMMISSIONER OF INCOME TAX, KERALA

       Vs.

RESPONDENT: THE KILKOTAGIRI TEA & COFFEE ESTATE CO. LTD.

DATE OF JUDGMENT:       13/02/1996

BENCH: SEN, S.C. (J) BENCH: SEN, S.C. (J) JEEVAN REDDY, B.P. (J)

CITATION:  JT 1996 (2)   349        1996 SCALE  (2)242

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T SEN, J.      This case  relates to  the assessment  year 1970-71 for which the  relevant accounting  period was  the  year  ended 31.3.1971. The following question of law was referred to the High Court under section 256(1) of the Income Tax Act:      "Whether, on  the facts  and in the      circumstances  of   the  case,  the      Tribunal    was     entitled     to      Development Allowance at 50% on the      sum of  Rs.71,500/- being a part of      the expenditure incurred during the      assessment year 1966/68 on 1967 Tea      clearing under  the  provisions  of      Section 33A  of the  Income-tax Act      for the assessment year 1971-72?" Section 33A  of  the  Income  Tax  Act,  1961  provides  for development allowance  for clearing land and planting of tea bushes by  a tea company. In this case, the clearing of land and planting  of the  tea bushes  was  done  in  July,  1967 (within  the  accounting  year  ended  on  31.10.1967).  The expenses for  that year  and the  subsequent year  ended  on 31.10.68 were taken into consideration in the assessment for the assessment  year 1969-70  for the purpose of computation of  development   allowance  under  Section  33A(1)(a).  The Tribunal found :- <SLS> "The Company chose to claim the allowance in respect of 1965 clearing fully,  i.e., Rs.30,846/-  and in  respect of  1967 clearing  although  they  had  incurred  an  expenditure  of Rs.89,800/- and entitled to Rs.44,900/-, they restricted the claim to  the difference between Rs.40,000/- the total claim for which  they had  provided reserve  and  Rs.30,846/-  the claim of 1965 clearing. The figures are as follows:-      1967  Tea  clearing  -  Plantation  July,  1967  (13.63 Hectares)

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    Ist year 1966/67              Rs. 44,525      2nd year 1967/68              Rs. 45,275                                 -----------------                                    Rs. 89,800      Less cost of clearing      to be considered in      the 4th year, i.e.,      A.Y. 71-72                    Rs. 71,500                                 ------------------                                    Rs. 18,300      50% thereof                   Rs.  9,150 Balance of expenses for which no claim was made                      Rs. 71,500 5.   For the  year 71-72,  the fourth  year of 1967 clearing the further expenses incurred were:-      3rd year                 Rs.26,832      4th year                 Rs.35,172                          --------------------                               Rs.62,004                          ===================== To this  was added  the expenditure  of Ist and 2nd year not covered by claim in that year of Rs.71,500/-. In 1969, there was another  clearing of 3.59 hectares for which 71-72 would be the  2nd year. The expenses incurred were Rs.33,861/-. In that year,  the company claimed development allowance on the following figures:- 1967 clearing:      Unclaimed expenses      of 67 & 68                Rs. 71,500      Expenses for 69 and 70    Rs. 62,004 1969 clearing :      Ist and 2nd year      expenses                  Rs. 33,864                              --------------                                Rs. 167,365      50% thereof               Rs.  83,682      The company had created a reserve of Rs. 70,000/-." For the  assessment year  1971-72, the  Income  Tax  Officer allowed the  claim in  respect of  1969 clearing,  i.e., the expenses in  respect of  the first  and second  year at that clearing. For the 1967 clearing, the assessee claimed that a part of  the expenses of the first and second year (1967 and 168) which  was neither  claimed nor  allowed in the earlier assessment years  should be  taken into  consideration.  The Income Tax  Officer  disallowed  the  claim.  The  Appellate Assistant Commissioner  agreed with  the Income  Tax Officer and observed  that  in  respect  of  the  expenses  actually incurred in  the first  two years, the assessee had to claim deduction in  the second  year and  only in  respect of  the expenses incurred  thereafter and  not  taken  into  account earlier, extra  allowance could  be claimed  in  the  fourth year. If  the assessee chose to claim only a part of what he was actually  entitled to  in the  first year,  he could not claim the balance in the fourth year.      On further appeal, the Tribunal upheld the order of the Appellant Assistant  Commissioner. The  Tribunal was  of the view that  development allowance  for the  first  two  years should have  been claimed  in the year 1969-70. The Tribunal pointed out  that the  amount allowable  under clause (a) of Section 33A(1)  was not  limited to  the amount which either the Income  Tax Officer cared to allow or the assessee cared to claim.  The amount  which was allowable depended upon the expenses incurred in the first and second year.      The High  Court held  that Section 33A(1)(a) dealt with

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"computation at  the  first  instance"  of  the  development allowance. This implied that computation was not final. Sub- clause (b)  provided that "development allowance shall again be computed  with reference to the actual cost of planting". Thus, sub-clause  (b) contemplated  recomputation of  actual cost of  planting. The  High Court  was of  the view that if after the  computation, it  was found that recomputed amount exceeded the  amount allowed  as deduction under clause (a), the excess  will have  to  be  allowed  as  deduction.  This provision, according  to the  High Court  was mandatory. The High Court,  therefore, concluded  that  the  claim  of  the assessee should  have been  allowed  by  the  Tribunal.  The question referred  to it was answered in the negative and in favour of  the assessee.  The Commissioner of Income Tax has now come in appeal against the decision of the High Court.      Section 33A(1) provides:-      "33A. Development allowance.-(1) In      respect of  planting of  tea bushes      on any  land in  India owned  by an      assessee who carries on business of      growing and  manufacturing  tea  in      India, a  sum by way of development      allowance equivalent to-           (i)  where  tea   bushes  have      been  planted   on  any   land  not      planted at any time with tea bushes      or  on  any  land  which  had  been      previously  abandoned,   fifty  per      cent  of   the   actual   cost   of      planting; and           (ii) where  tea   bushes   are      planted  in   replacement  of   tea      bushes  that   have  died  or  have      become permanently  useless on  any      land already  planted,  thirty  per      cent  of   the   actual   cost   of      planting,      shall subject  to the provisions of      this  section,   be  allowed  as  a      deduction in  the manner  specified      hereunder, namely :-      (a)  the amount  of the development      allowance  shall,   in  the   first      instance,    be    computed    with      reference to  that portion  of  the      actual cost  of planting  which  is      incurred during  the previous  year      in which  the land  is prepared for      planting or replanting, as the case      may be,  end in  the previous  year      next following,  and the  amount so      computed  shall  be  allowed  as  a      deduction  in   respect   of   such      previous year next following, and      (b)  thereafter,  the   development      allowance shall  again be  computed      with  reference   to  the  computed      exceeds the  amount  allowed  as  a      deduction  under  clause  (a),  the      amount  of   the  excess  shall  be      allowed as  a deduction  in respect      of the  third  succeeding  previous      year next  following  the  previous      year in  which the  land  has  been      prepared    for     planting     or

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    replanting, as the case may be:           Provided  that   no  deduction      under clause  (i) shall  be allowed      unless the  planting has  commenced      after the  31st day of March, 1965,      and no  deduction shall  be allowed      under  clause   (ii)   unless   the      planting has  commenced  after  the      31st day  of March,  1965, and been      completed before  the  Ist  day  of      April, 1970. Sub-section (2)  provides for  set-off and carry forward  of unadjusted development allowance to the following assessment years. Sub-section  (3) provides  that the  deduction  under sub-section (1)  shall be   allowed  only if  the prescribed particulars had been furnished by the assessee and a reserve was created  of an  amount equal  to  75  per  cent  of  the development allowance  to be actually allowed. Having regard to the  object and  clear language of Section 33A, we are of the view  that the High Court has come to a correct decision in this  case. The  scheme of  development allowance  was to encourage  tea   industry  to   expand.  Unlike  some  other provisions of  the Income  Tax Act, for expenditure incurred for planting  tea bushes  in one  particular year, allowance under section 33A may be given in a subsequent year. In view of the  specific provisions of Section 33A, the grant of the allowance cannot  be limited  only to  the year in which the expenditure was actually incurred or the immediate next year thereafter. This  allowance is given "in respect of planting of tea  bushes on  any land on which tea bushes had not been planted at  an time  earlier  or  on  any  abandoned  land". Development allowance  is also  permissible where  fresh tea bushes are  planted in  replacement of useless tea bushes or tea bushes  that have died. The basis for calculation of the allowance is  a percentage  of "actual  cost of planting" of tea bushes  which has been defined by Section 33A(7) to mean the aggregate  of (i)  the cost  of preparing the land; (ii) the cost  of seeds, cutting and nurseries; (iii) the cost of planting and replanting; and (iv) the cost of upkeep thereof for the  previous year  in which  the land has been prepared and the  three successive previous years next following such previous year.  The aggregate  amount of  the costs  on  the aforesaid heads has to be reduced if any of these costs have been met  directly or indirectly by any person or authority. In other  words, if  any financial  assistance or subsidy or any other  form of  aid is  received from the Government. or any other  agency or  person. that  will go  to  reduce  the amount of  costs which will form the basis of calculation of development allowance  . All these things may not take place in one particular year.      The  very  definition  of  "actual  cost  of  planting" indicates that  a span  of four  years has  to be taken into account  for  the  purpose  of  computation  of  development allowance. Section  33A(1)(a) and  (b) makes  it clear  that deduction  on  account  of  development  allowance  will  be granted in  two stages.  The first stage is under clause (a) under which  the  development  allowance  will  have  to  be computed "in the first instance" and will be limited to that portion of  actual costs  of  planting  which  was  incurred during the  previous year in which the land was prepared for planting or replanting, as the case may be. In computing the income of  the previous  year following the previous year in which  the   land  was   first  prepared   for  planting  or replanting, the  actual costs  will be calculated and in the assessment  of   the  second   year’s  income,   development

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allowance will  be granted  to the  assessee provided he has taken the  other steps  for claiming the allowance including creation of  sufficient reserves.  In the  instant case, the assessee had  made sufficient  reserves for the claim he had made under  clause (a)  of Section  33A. But merely because, the assessee  had not claimed the full amount of development allowance in  the first  instance, will  not disentitle  him from claiming  the outstanding  amount at  the second  stage under clause (b). Development allowance under clause (b) has to be  given by  computing the  actual costs of landing once again. Clause  (b) states  that "development allowance shall again be  computed with  reference to  the  actual  cost  of planting....". That  means, notwithstanding  the computation made under  clause (a) and grant of development allowance on the basis of that computation, the assessee will be entitled to compute  the allowance  once again on the basis of actual costs of  planting tea  bushes at  the second  stage in  the assessment of  the third  succeeding previous  year reckoned from the  previous year  in which  the land was prepared for planting or  replanting. There  is nothing in Section 33A to suggest that  development allowance for expenditure incurred in respect of first two years must be calculated and claimed at the  very first  stage, i.e.,  at the stage of the second year of  assessment after planting of tea bushes. Because of the protracted  work involved  in preparation  of the  land, planting of  seeds, cutting and nurturing nurseries and also the cost of planting and replanting of tea bushes as well as the cost  of upkeep  thereof besides  various other  factors like setting  off of  subsidies or  other  grants  from  the Government or  any other  agencies,  an  assessee  has  been permitted  to  claim  the  deduction  even  upto  the  third succeeding year  next following  the previous  year in which the land  has been  prepared for  planting or replanting, as the case  may be.  The High  Court was right in pointing out the significance  of the phrase "development allowance shall again be  computed" which  means the  actual costs  that had been computed  under clause  (a) will  have to  be  computed afresh. This  is what  the assessee  has done in the instant case.      We are  of the  view that  the High Court had come to a correct decision  in answering  the question referred by the Tribunal in  the negative and in favour of the assessee. The Civil Appeal  is, therefore,  dismissed. Each party will pay and bear its own costs.