ASSAM FRONTIER TEA INDUSTRIES LIMITED Vs. ASSISTANT COMMISSIONER OF TAXES

JUDGEMENT

(1.) THIS writ appeal is directed against the judgment and order dated August 19, 1996 (see ), passed by a learned single judge in Civil Rule No. 2303 of 1992 dismissing the writ petition.

(2.) FOR the purpose of disposal of this writ appeal, the facts may briefly be stated as under :

(3.) DR . Paul, learned senior counsel assisted by Dr. A.K. Saraf, learned counsel appearing on behalf of the appellant, submitted before us that the authorities as well as the learned single judge committed a manifest error in holding that the appellant -petitioner was not entitled to get the benefit of allowance of the amount spent in the welfare activities mentioned above solely on the ground that the expenditure was not wholly agricultural. In this connection, Dr. Paul drew our attention to Section 2(a)(2) of the Assam Agricultural Income -tax Act, 1939 (for short, 'the Act'),, which provides that agricultural income derived from the land which is used for agricultural purposes by the cultivation of tea means that portion of the income derived from the cultivation, manufacture and sale of tea as is defined to be agricultural income for the purposes of the enactments relating to Indian income -tax. Dr. Paul also drew our attention to Section 2(1) of the Income -tax Act, 1961, which defines 'agricultural income' and Rule 8 of the Income -tax Rules, 1962, which provides that income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business and forty per cent. of such income shall be deemed to be income liable to tax under the Income -tax Act, 1961, and the balance 60 per cent. is to be regarded as agricultural income under the Act. Referring to Rule 5 of the Assam Agricultural Income -tax Rules, 1939 (for short, 'the Rules'), Dr. Paul submitted that the said rule laid down that in respect of agricultural income from tea grown and manufactured by a seller in Assam, the portion of the net income worked out under the Income -tax Act and left unassessed being agricultural income should be assessed under the Act, According to him, the Act provided that while assessing such income under the Act, deduction should be allowed for the expenditure under the Act and the Rules in respect of which deduction had not been allowed under the Income -tax Act in computing the net income from the entire operation. Dr. Paul submitted that the assessee claimed deduction under Section 8(2)(f)(vii) of the Act in respect of the expenses incurred exclusively for earning agricultural income. Dr. Paul further submitted that under Section 37 of the Income -tax Act, 1961, any expenditure not being an expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee expended wholly or exclusively for the purposes of the business or profession was to be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. As such, certain expenditure although might be allowable in computing the income chargeable under the head 'Profits and gains of business or profession', but the same would not be deductible under certain circumstances. Any expenditure which was disallowed as deduction under Section 40A(9) must necessarily fall under Section 37 of the Income -tax Act, 1961. Section 40A(9) would come into operation only when expenditure was otherwise allowable under Section 37 of the Income -tax Act. Dr. Paul, relying on a Supreme Court decision in H.S. Shivakantappa v. Commr. of Agrl I. T. : [1993]204ITR349(SC) submitted that the principles that apply to the interpretation of Section 37 of the Income -tax Act will also apply to Section 8(2)(f)(vii) of the Act inasmuch as the words 'for the purpose of deriving agricultural income' appearing in Section 8(2)(f)(vii) of the Act do not mean anything very different from the words 'for the purpose of business' appearing in Section 37 of the Income -tax Act.