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PETITIONER: THE TRAVANCORE RUBBER AND TEACO., LTD.

       Vs.

RESPONDENT: THE COMMISSIONER OF AGRICULTURALINCOME-TAX, KERALA

DATE OF JUDGMENT: 15/12/1960

BENCH: KAPUR, J.L. BENCH: KAPUR, J.L. HIDAYATULLAH, M. SHAH, J.C.

CITATION:  1961 AIR  604            1961 SCR  (3) 279  CITATOR INFO :  RF         1964 SC 572  (2,6)

ACT: Agricultural  Income  Tax-Rubber  Plantation-Expenditure  on immature  trees--Whether  Permissible  deduction-Travancore- Cochin  Agricultural Income-tax Act, 1950 (Tr.  Co. XXII  of 1950), s. 5.

HEADNOTE: In computing the agricultural income of a person s. 5(f)  of the  Travancore-Cochin  Agricultural Income-tax  Act,  1950, allowed  deductions of any expenditure "laid out wholly  and exclusively   for  purpose  of  deriving  the   agricultural income".   The assessee who had rubber  plantations  claimed that  the amount expended on the maintenance and tending  of immature  rubber trees should be deducted in  computing  its agricultural  income but this was disallowed on  the  ground that  the  use  of  the  article  "the"  before  the   words agricultural income implied deduction (1)  [1955] 1 S.C.R. 313 280 from the income of the year in which the trees on which  the amount was expended bore income. Held, that the assessee was entitled to the deduction claim- ed.  It  was no answer to the claim for the  deduction  that these expenses produced no return in the year in question as the trees were not yielding rubber in that year. Vallambrosa  Rubber Co. Ltd. v. Farmer, (1910) 5 T. C.  529, followed. Assam Bengal Cement Co. Ltd. v. The Commissioner of  Income- tax, West Bengal, [1955] 1 S.C.R. 972, not applicable.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 290 to  292 of 1959. Appeals  by special leave from the judgment and order  dated December  6, 1957, of the Kerala High Court in  Agricultural Income-tax Referred Cases Nos. 15, 18 and 19 of 1955. C.K.   Daphtary,  Solicitor-General  of   India,   Thomas

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Vellapally  and M. R. K. Pillai, for the appellants (in  all the appeals) Sardar Bahadur, for the respondents. 1960.  December 15.  The Judgment of the Court was delivered by KAPUR,  J.-These three appeals are brought by special  leave against  the judgment and order of the High Court of  Kerala and  arise out of a common  judgment of that court given  in three Agricultural Income-tax References Nos. 15, 18 and  19 of 1955.  In the first reference the question raised was:               "Whether under the Travancore-Cochin  Agricul-               tural Income Tax Act, 1950 in calculating  the               assessable  agricultural  income of  a  rubber               estate  already  planted and  containing  both               mature yielding rubber trees and also immature               rubber   plants  which  have  not  come   into               bearing, the annual expenses incurred for  the               upkeep and maintenance of such rubber  plants,               are  not a permissible deduction, and  if  so,               whether the sum of  Rs. 42,660-4-1 expended by               the  assessee in the relevant accounting  year               1952, under this head may be deducted."               and  in  the other two the  question  referred               was:               281               "Whether the expenses incurred for the mainte-               nance  and  upkeep of  immature  rubber  trees               constitute a permissible deduction within  the               meaning of s. 5(j) of Act XXII of 1950?" In  all  the references the questions were answered  in  the negative and against the appellant. The appeals relate to three accounting years 1950, 1951  and 1952  (assessment years 1951-52, 1952-53 and 1953-54).   The appellants have rubber plantations and in  the  accounting year 1950, corresponding to the assessment year 1951-52, the appellants had under cultivation 3558-84 acres out of  which 334-64 acres had immature rubber trees growing and the  rest i.e.  3224-20  acres  mature  rubber  yielding  trees  under cultivation.   In that year a sum of Rs.  19,056-0-9,  which was  expended  for the upkeep and  maintenance  of  immature portion  of  the  rubber  plantation,  was  allowed  by  the Agricultural Income tax Tribunal and at the instance of  the respondent  a reference was made to the High Court under  s. 60(1) of the Agricultural Income tax Act (Act XXII of  1950) hereinafter  termed the ’Act’ and that was reference No.  18 of 1955. During  the  accounting  year  1951  corresponding  to   the assessment year 1952-53 the appellant had under cultivation. a total area of 3426,55 acres of which 3091.91acres were mature rubber yielding trees and 334.64 acres  had  immature rubber trees.  In that year a sum of Rs. 59,271.9-5 was  the expenditure  incurred  for  the upkeep  and  maintenance  of immature portion of the rubber estate.  That sum was allowed by the Agricultural Income-tax Tribunal and at the  instance of the respondent a reference was made under s. 60(1) of the Act to the High Court and that was reference No. 19 of 1955. In  Agricultural Income-tax Reference No. 15 of  1955  which related  to,  accounting year 1952 and the  assessment  year 1953-54, the area under cultivation was 3453,65 out of which 2967,91  acres had mature rubber yielding trees  and  485,74 acres  had immature rubber growing trees.  In that year  the amount expended on the maintenance and tending of the  imma- ture rubber trees was Rs. 42,660,4-1.  In that case, 36 282

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however,  the Agricultural Income tax Tribunal rejected  the appellant’s  claim and disallowed the expenditure.   At  the instance  of  the appellant a case was stated  to  the  High Court  under  s. 60(1) of the Act and was  answered  in  the negative  and against the  appellant. In all the  cases  the assessee company is the appellant and the main question  for decision  is whether the amount expended for the upkeep  and maintenance  of the immature, rubber trees is a  permissible deduction under s. 5(j) of the Act. The charging section under the Act is s. 3 and s. 5  relates to computation of agricultural income.  It provides:-               S.5  "The agricultural income of a  person               shall  be computed after making the  following               deductions, namely:-               expenditure  (not  being  in  the  nature   of               capital  expenditure or personal  expenses  of               the assessee) laid out or expended wholly  and               exclusively  for the purpose of  deriving  the               agricultural income;".               In regard to this income the High Court held:               "We  find  it  impossible  to  say  that   the               ’amounts  spent on the upkeep and  maintenance               of the immature rubber plants were laid out or               expended  "for  the purpose  of  deriving  the               agricultural income", much less that they were               laid  out or expended "wholly and  exclusively               for that purpose".               "The agricultural income", in the context, can               only mean the agricultural income obtained  in               the  accounting  year concerned  and  not  the               agricultural income of any other period." In our opinion the High Court has taken an erroneous view of the   relevant  provision.   It  is  not  denied  that   the expenditure   claimed   as  a  deduction  was   wholly   and exclusively laid out for the purpose of deriving income  but the  use of the definite article "the"  before  agricultural income  has  given  rise  to  the  interpretation  that  the deduction is to be from the income of the year in which  the trees on which the amount claimed 283 was  expended bore any income.  In a somewhat  similar  case Vallambrosa Rubber Co. Ltd. v. Farmer (1) the expenditure of the  kind  now claimed was allowed under  the  corresponding provision  of the English Income-tax Act.  In that  case  a rubber  company  had  an  estate in which  in  the  year  of assessment only 1/7 produced rubber and the other 6/7 was in process of cultivation for the production of rubber.  It may be  added  that rubber trees do not yield any  rubber  until they  are  about  six years old.  The  expenditure  for  the superintendence,  weeding  etc. incurred by the  company  in respect of the whole estate including the nonbearing  rubber estate  was  allowed on the ground that in arriving  at  the assessable  profits the assessee was entitled to deduct  the expenditure  for superintendence, weeding etc. on the  whole estate  and not only on the 1/7 of such  expenditure.   Lord President said at page 534:               "Well that is for the case quite correct,  but               it  must be taken, as you must always  take  a               Judge’s dicta, secundum materiam subjectum  of               the case that is decided.  But to say that the               expression of Lord Esher’s lays down that  you               must  take each year absolutely by itself  and               allow no expense except the expense which  can               be put against the profit which is reaped  for

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             the  year is in my judgment to press  it  much               further than it will go." Counsel  for the respondent relied upon a judgment  of  this Court in Assam Bengal Cement Co. Ltd. v. The Commissioner of Income-tax, West Bengal (2) and particularly on a passage at page 983 where Bhagwati J. observed:               "The  distinction  was thus made  between  the               acquisition of an income-earning asset and the               process   of  the  earning  of   the   income.               Expenditure  in the acquisition of that  asset               was capital expenditure and expenditure in the               process  of  the earning of  the  profits  was               revenue expenditure." But  that case has no relevancy to the facts of the  present case nor has that passage any applicability to the facts  of the present case.  The question there was (1) (1910) 5 T.C. 529. (2) [1955] 1 S.C.R. 972. 284 whether  certain  payments  made  were  by  way  of  capital expenditure or revenue expenditure.  The assessee acquired a lease  from Government for twenty years and in  addition  to paying the rent and royalties for the lease the assessee had to pay two further sums as ’protection fees’ under the terms of   the  lease.   Those  sums  were  held  to  be   capital expenditure   inasmuch  as  they  were  incurred   for   the acquisition  of an asset or an advantage of enduring  nature and were no part of the working or operational expenses  for carrying on the business of the assessee. In  our opinion the amount expended on the  superintendence, weeding  etc. of the whole estate should have  been  allowed against the profits earned and it is no answer to the  claim for  a  deduction that part of those  expenses  produced  no return in that year because all the trees were not  yielding rubber in that year. We  therefore allow these appeals, set aside  the  judgments and  orders  of the High Court and answer the  questions  in favour  of  the  appellant in  all  the  three  agricultural Income-tax References.  The appellant will have its costs in this  Court  and the High Court.  One hearing  fee  in  this Court. Appeals allowed.                  _________________ 285