COMMISSIONER OF AGRL INCOME-TAX KERALA STATE TRIVANDRUM Vs. NILAMBUR RUBBER CO LTD
HIGH COURT OF KERALA
COMMISSIONER OF AGRL.INCOME-TAX, KERALA STATE, TRIVANDRUM
NILAMBUR RUBBER CO.LTD., KOZHIKODE
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(1.) These are two references made by the Kerala Agricultural Income Tax Appellate Tribunal under S.60(1) of the Agricultural Income Tax and 2 of 1967 20 August, 1968 Act, 1950 (hereinafter referred to as the Act) on the application of the Commissioner of the Agricultural Income Tax, Kerala. The assessee is the same in both the cases; and the questions of law referred are also the same, and they read as follows: -
"1. Whether in the circumstances of the case the expenses for preparation of the Agrl. income tax returns are expenses allowable in determining the assessable income under the Agrl. Income Tax Act.
2. Whether in the circumstances of the case, the floating charge on the estates in Kerala will come under "mortgage or other capital charge" in S.5(f) of the Agrl. Income Tax Act.
3. Whether the floating charge on the estate in Kerala can be a charge on the said property unless and until the amount or a portion of it becomes irrecoverable from the properties specifically mortgaged for the amount and such a contingency had not arisen in the accounting year."
(2.) The assessee is an incorporated company, deriving agricultural income from lands situate in the States of Kerala and Mysore. The assessee has issued debentures for which its Mysore properties are mortgaged; and it has created also a floating charge, on its properties in Kerala State. For the assessment year 1962-63, for which the previous year ended on 31st September 1961, the assessee submitted a return showing a net loss of Rs. 80,674/-. In computing the said loss, the assessee had made several deductions from its income. We are concerned in these cases only with two items. One was an amount of Rs. 50/- which it claimed as the remuneration paid to its auditor for preparing the necessary statements and filing the return of its income before the Income Tax Officer. The other item was a sum of Rs. 8,822, which it claimed as interest paid on the debenture on account of the floating charge on its Kerala properties. The Income Tax Officer disallowed these claims, as well as other deductions which the assessee claimed. The assessee filed an appeal before the Appellate Assistant Commissioner. He disallowed the claim for Rs. 50/- and allowed the claim on account of debentures. The Income Tax Officer as well as the assessee filed appeals before the Appellate Tribunal from the order of the Appellate Assistant Commissioner. The appeals were disposed of by a common order, upholding the assessee's claim for deduction for both the amounts. The Commissioner of Agricultural Income Tax, therefore, filed an application in each of the two appeals for referring the questions, which we have extracted above, for the decision of this court. That is how two references happened to be made for decision of the same questions in respect of the same assessment.
(3.) The subject matter of the first question is a sum of Rs. 50/- paid to the auditor of the assessee for preparing the necessary statements and filing the income tax return before the Income Tax Officer. Though the amount involved is very small, the question whether such an expenditure is allowable in computing the total agricultural income of the assessee is one of general importance. S.3 of the Act is the charging section; and the tax is charged on the total agricultural income of the previous year. S.5 of the Act provides that the agricultural income of a person shall be computed after making the deductions enumerated therein. According to the assessee's learned counsel, remuneration paid to an auditor for preparing the income tax return and necessary statements to be filed before the Income Tax Officer would fall under clause (j) of S.5. It reads as follows: -
"5. Computation of agricultural income:- The agricultural income of a person shall be computed after making the following deductions, namely: -
x x x
(j) any 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;
x x x"
The learned counsel submitted that the above clause corresponds to clause (xv) of S.10(2) of the Indian Income Tax Act, 1922 and to S.37 of the Income Tax Act, 1961. We shall also read the relevant part of S.10 of the 1922 Act:-
"10. Business.- (1) The tax shall be payable by an assessee under the head "profits and gains of business, profession or vocation" in respect of the profits or gains of any business, profession or vocation carried on by him.
(2) Such profits or gains shall be computed after making the following allowances namely:
x x x
(xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and 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 such business, profession or vocation.
x x x"
The learned counsel for the Revenue submitted that the provisions of the two statutes are not the same in this respect. He submitted that under clause (j) of S.5 of the Agricultural Income Tax Act, the expenditure must be one laid out or expended "for the purpose of deriving the agricultural income", while under clause (xv) of S.10(2) of the Indian Income Tax Act, it is enough if it is laid out or expended ''for the purpose of such business, profession or vocation". He submitted that the expression "the purpose of such business" has got a far wider range than the expression "for the purpose of deriving the agricultural income" In the former case, the expenditure need not have any relation to the profits or gains; but in the latter case it must relate to the deriving of the income. We do not agree with this contention. Though there is difference in the words employed in the two statutory provisions, we think that their effect is the same. It is not necessary that there must be income for claiming the allowance under clause (j) of S.5 of the Agricultural Income Tax Act. All that is required is that it should have been expended for the purpose of deriving the income, whether the adventure results in profits or gains. The same is the position under the Indian Income Tax Act. The purpose of a business is deriving profits and gains: and in our opinion, an expenditure for the purpose of business is one for the purpose of deriving income therefrom.;
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