Decided on August 01,1968



Isaac, J. - (1.) THE following question of law has been referred to this court by the Kerala Agricultural Income-tax Appellate Tribunal under Section 60(1) of the Agricultural Income-tax Act, 1950, on the application of the assessee: " Whether on the facts and circumstances of the case, depreciation and maintenance expenditure were not allowable in respect of all the buildings as claimed by the applicant instead of limiting them to buildings which were actually let out and from which rent was actually realised ? "
(2.) THE assessee is the Plantation Corporation of Kerala Ltd., which is a company formed for the purpose of carrying on agricultural activities. For the assessment year 1964-65 the assessee returned a net loss of Rs. 47,297. THE assessee owns a number of buildings used for the occupation of its employees engaged in planting. In computing the above amount of loss the assessee showed an income of Rs. 1,669 by way of rent of buildings occupied by some of its employees and claimed a sum of Rs. 47,614 on account of depreciation and an amount of Rs. 6,136 on account of repairs for all its buildings. THE Income-tax Officer held that the rent received by the assessee was not agricultural income and that the allowances claimed were not admissible as the plantations were only at the stage of development. THE assessee filed an appeal before the Appellate Assistant Commissioner who took the view that the rent of Rs. 1,669 received by the assessee was agricultural income liable to tax under the Act. At the same time he disallowed the claim for repairs and depreciation on the ground that allowances on account of expenditure were not admissible until the plantations reached the stage of production. THE assessee went in appeal before the Appellate Tribunal and it held that the rental income was assessable under the Act and that the assessee was also entitled to allowance on account of depreciation and repairs in respect of the buildings which actually yielded the said income but not in respect of the buildings which did not fetch any rent. THE assessee, therefore, moved the Tribunal for referring the above question for decision by this court. Deduction in respect of repairs of the buildings is claimed under Clause (d) of Section 5 of the Act, while deduction on account of depreciation is claimed under Clause (1) of Section 5. We shall quote these clauses and also Clause (j) of Section 5 : " The agricultural income of a person shall be computed after making the following deductions namely :...... (d) any expenses incurred in the previous year on repairs in respect of any capital asset which was purchased or constructed for the benefit of the land from which the agricultural income is derived;...... (j) any expenditure (not being in the nature of capital expcnditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of deriving the agricultural income ;....., (1) in respect of depreciation of buildings, machinery, plant and furniture which are the property of the assessee and are required for the purpose of deriving the agricultural income, a sum equivalent to such percentage on the written down value thereof as may in any case or class of cases be prescribed and where the buildings have been newly erected or the machinery or plant newly installed a further sum subject to such conditions as may be prescribed :......" Admittedly all the buildings are used for occupation of the assessee's employees engaged in planting. There is no case that these buildings would not fall within Clauses (d) and (1) of Section 5. The contention of the revenue is only that, as the agricultural operations for the purpose of which these buildings were put up have not begun to yield an income, allowances on account of any expenditure are not permissible. In other words, unless there is income, there is no question of deducting expenses. On the other hand, the learned counsel for the assessee contended that an assessee is entitled to these deductions, whether there is any income or not in any particular year. In support of this contention he relied on a decision of the Supreme Court in Travancore Rubber and Tea Co. Ltd. v. Commissioner of Agricultural Income-tax, [1961] 41 I.T:R. 751 (S.C.). In that case the assessee claimed a deduction of an amount expended by it for the upkeep and maintenance of an immature plantation under Clause (j) of Section 5 of the Act. The claim was resisted by the revenue on the ground that the assessee was entitled to deductions only from the income of the particular year in which the deductions were sought, and that if there was no income in that year, the deductions were not admissible. But the Supreme Court overruled this contention and held that the assessee was entitled to the deductions, though there may be no income in that year. The learned counsel submitted that the same reasoning should apply in the case of deductions claimed under Clauses (d) and (1) of Section 5. We think that he is right.
(3.) SECTION 12 of the Act provides for carrying forward of a loss in agricultural income in any year to the following year and for set-off against the agricultural income of that year. The loss may occur when the expenditure exceeds the income derived and also when there is no income but only expenditure. Lord Thankerton in Hughes v. Bank of New Zealand, [1938] 6 I.T.R. 636, 644 (H.L.) said: "Expenditure in the course of the trade which is unremunerative is none-the-less a proper deduction if wholly and exclusively made for the purposes of the trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense. " The same principle has been stated by the Supreme Court in Eastern Investments Ltd. v. Commissioner of Income-tax, [1951] 20 I.T.R. 1, 4 (S.C.) It said : " It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned. " ;

Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.