Gauhati High Court
Commissioner Of Income-Tax vs Sudarshan Plywood Industries Ltd. (Now ... on 15 June, 2000
Equivalent citations: [2000]245ITR751(GAUHATI)
Author: Brijesh Kumar
Bench: Brijesh Kumar
JUDGMENT Brijesh Kumar, C.J.
1. The Income-tax Appellate Tribunal, Guwahati, by its order dated June 19, 1998, in compliance with the order passed by the Supreme Court in Civil Appeal No. 7651 of 1996, has referred the following' question under Section 256(2) of the Income-tax Act :
"Whether, on the facts and in the circumstances of the case, the Tribunal has not erred in law in directing the Assessing Officer to allow the benefit of Section 32AB to the assessee after holding' that the income is agricultural income which is exempt from income-tax under Section 10(1) of the Income-tax Act, 1961 ?"
2. The dispute pertains to the assessment year 1988-89. The Assessing Officer disallowed deduction under Section 32AB of the Income-tax Act, 1961, on a sum of Rs. 40,95,058 holding that it was sale proceeds of eucalyptus trees, hence not business income but income from other sources. The Commissioner of Income-tax (Appeals), however, took a different view and allowed benefit of deduction to the assessee under Section 32AB of the Act. The Department feeling" aggrieved, filed an appeal before the Tribunal and the Tribunal held that the activities of the assessee in earning business income and agricultural income had to be construed forming part of the same business activity eligible for deduction under the category of "eligible business" and the deduction to be computed under Section 32AB(1)(ii) to the extent of 20 per cent, according to Section 32AB(3) of the Act. The Tribunal also held that since the accounts have been prepared according to Part II and Part III of the Sixth Schedule to the Companies Act, 1956, as required under Section 32AB(3) of the Act, the assessee would be entitled for benefit of Section 32AB of the Act. The order of the Commissioner of Income-tax (Appeals) on this point was upheld.
3. The brief facts as may be indicated are that during the relevant period of assessment, the assessee-company claimed that it sold agricultural produce (eucalyptus wood) amounting to Rs. 62,61,973 raised from leasehold land in which agricultural expenses to the extent of Rs. 21,66,915 were incurred, thus, earning a profit of Rs. 40,95,058. The said amount was claimed to be exempt under Section 10(1) of the Income-tax Act as agricultural income. As indicated earlier, this contention was not accepted by the assessing authority as the company did not acquire any interest in the land. The income was also not treated as agricultural income, but income from other sources. The contention, however, as raised by the assessee-company was accepted by the Commissioner of Income-tax (Appeals) as well as by the Tribunal. It appears that the applications moved by the Revenue under Section 256(1) and 256(2) had been rejected, hence, the Revenue approached the Supreme Court and in view of the order passed by the Supreme Court, the question, as indicated earlier, has been referred under Section 256(2) of the Income-tax Act.
4. So far the finding of fact as recorded finally is that an amount of Rs. 40,95,058 is agricultural income falling under the head "Profits and gains of business or profession", exempt under Section 10(1) of the Act. It is then held by the Tribunal that the Commissioner of Income-tax (Appeals) was justified in directing the authorities to allow deduction under Section 32AB of the Act. The whole question that falls for consideration is as to whether or not after holding that the income is agricultural income and exempt under Section 10(1), deductions under Section 32AB are still to be made admissible. In this connection, we may have a look at the relevant provisions which are quoted below ;
"10. Incomes not included in total income.--In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--(1) agricultural income ; . . . ."
"32AB. Investment deposit account.--(1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head 'Profits and gains of business or profession', has, out of such income,--
(a) deposited any amount in an account (hereafter in this section referred to as deposit account) maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier ; or
(b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under Clause (a), in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under Section 72) of-
(i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised ; or
(ii) a sum equal to twenty per cent. of the profits of business or profession as computed in the accounts of the assessee audited in accordance with Sub-section (5), whichever is less :
Provided that where such assessee is a firm, or any association of persons or, any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the case may be, any member, of such firm, association of persons or body of individuals :
Provided further that no such deduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 1991, or any subsequent assessment year.
(2) For the purposes of this section,--. . .
(ii) 'new ship' or 'new aircraft' includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India ;
(iii) 'new machinery or plant' includes machinery or plant which before its installation by the assessee was used outside India by any other person, if the following conditions are fulfilled, namely :--
(a) such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India ;
(b) such machinery or plant is imported into India from any country outside India ; and
(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee ;
(iv) Tea Board' means the Tea Board established under Section 4 of the Tea Act, 1953 (29 of 1953).
(3) The profits of business or profession of an assessee for the purposes of Sub-section (1) shall be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of Sub-section (1) of Section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956), as increased by the aggregate of-
(i) the amount of depreciation ;
(ii) the amount of income-tax paid or payable, and provision therefor,
(iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964) ;
(iv) the amounts carried to any reserves, by whatever name called ;
(v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities ;
(vi) the amount by way of provision for losses of subsidiary companies ; and
(vii) the amount or amounts of dividends paid or proposed, if any debited to the profit and loss account ; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account. . ."
5. Learned counsel for the Revenue submits that once the income has been held to be agricultural income exempt under Section 10(1), there would be no occasion for allowing" any deduction under Section 32AB(1)(ii) of the Act, since such income is not included in the total income at all because of the exemption under Section 10(1) of the Act. As a matter of fact, Section 10 falls under Chapter III, namely, "incomes which do not form part of total income". We find that before Section 10 starts there is a heading, "Incomes not included in total income". The section itself provides that in computing the total income, agricultural income shall not be included. It leaves no room for doubt that agricultural income would not form part of the total income. The total income would be after setting" apart profits and gains from the agricultural profession that is the agricultural income. Such being the position, the question of further allowance of deductions as may be admissible under Section 32AB(3) does not arise. A bare perusal of the language of Section 52AB(1) of the Act shows that it is subject to the other provisions of that section and relates to an assessee whose total income includes income chargeable to tax under the head "Profits and gains of business or profession". It is out of such income that deductions are made admissible under different Sub-sections including Sub-section (3). In the present case, the total income would not include the income exempt under Section 10(1), hence on the face of it Section 32AB would not be applicable. It may be indicated that Section 10(1) and Section 32AB are mutually exclusive of each other for the purposes of "total income" and Section 5 of the Income-tax Act is rendered neutral, being subject to the provisions of the Act. There cannot be a situation where both the provisions can be applied as Section 10(1) provides for non-inclusion of agricultural income in computing the total income, whereas Section 32AB applies where the total income includes income chargeable to tax under the head "Profits and gains of business or profession". Section 32AB may be applicable in relation to other income, but the income covered under Section 10(1) of the Income-tax Act.
6. The Appellate Tribunal though found that the income is agricultural income which is exempt from income-tax under Section 10(1) of the Act, but observed that it is part and parcel of the business income. Thereafter referring to the provisions of Section 32AB(1) and the Board's Circular No. 461 (see [1986] 161 ITR (St.) 17), dated July 9, 1986, it is observed that the investment deposit for the purchase of new assets or plant must have come out of the income chargeable to profits and gains of business or profession. According" to the Appellate Tribunal, Sub-section (2)(i) of Section 32AB is wide enough to cover cases like the present one as one of the considerations for deduction under Section 32AB(1)(ii) is the profit of eligible business to the extent of 20 per cent, of the same, computed in the manner laid down under Section 32AB(3) of the Act.
7. Learned counsel for the assessee submits that it is the total income which is to be taken into account and has referred to the definition of total income under Clause (45) of Section 2 of the Act which says that total income means the total amount of income referred to in Section 5. Section 5 provides as follows :
"5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or
(c) accrues or arises to him outside India during such year :
Provided ..."
8. It is submitted that the total income will include all income from whatsoever source derived or received. Then a reference is made to Section 14 of the Act which falls in Chapter IV under the heading "Computation of total income". It then indicates the heads of income and Clause (D) shows profits and gains of business or profession and Clause (F) from other sources. Our attention has then been drawn to Section 28 which provides for profits and gains of business or profession. Section 28 provides the income which is chargeable to income-tax under the head "Profits and gains of business or profession". It may be pertinent to indicate here that it does not indicate the income derived from agricultural operation. Section 32AB which also falls in Chapter IV is under the heading "Investment deposit account". Section 32AB has been quoted in the earlier part of the order. It is submitted that Section 32AB speaks of total income which may come from whatsoever source it may be, as provided under other provisions of the Act. It is further submitted that Section 32AB will be considered first and the deductions as admissible under the said provision will be made first before computation of income, namely, Section 10 will come later on. In a nutshell, the argument is that out of the total income which, according to learned counsel for the assessee, should also include the income, namely, profits and gains of business or profession by agricultural operation would be included in income under Section 32AB and deductions shall be admissible according to Section 32AB and thereafter at the stage of computation of the income, Section 10 will be taken into consideration and the agricultural income shall be excluded thereafter. Thus, exclusion of the agricultural income from the total income for the purpose of computation, would be admissible as well as deduction in accordance with Section 32AB which, it is submitted, would be effective first before Section 10(1) of the Act. Certain decisions have also been referred to, namely, Karanpura Development Co. Ltd, v. CIT [1962] 44 ITR 362 (SC) ; Mazagaon Dock Ltd. v. CIT/EPT [1958] 34 ITR 368 (SC) and Dal Chand and Sons v. CIT [1968] 69 ITR 247 (P & H). In our view, none of these cases are relevant for the purpose of this case.
9. We feel that the argument as advanced on behalf of the assessee is fallacious. First of all it is to be noted that Section 5 which has been relied upon by the assessee for the purposes of the scope of total income itself begins with the words, "subject to the provisions of this Act, the total income of any previous year . . .". Thus, the total income, as generally it would mean under Section 5, shall be subject to the other provisions of the Act. Section 10 of the Act provides that in computing the total income, the agricultural income shall not be included. It will be fallacious to say that Section 32AB shall come first for the purpose of total income and Section 10 later on for the purpose of computation of income, Once the agricultural income is not to be included in the total income, the question of inclusion of the same under Section 32AB does not arise. This is very clear from the opening provisions of Section 32AB where it provides for the total income chargeable to tax. This expression used itself excludes inclusion of agricultural income. There is no occasion to submit that the agricultural income would first be included under Section 32AB as profits and gains of business or profession and deduction as may be admissible shall be given first and then at a later stage at the time of computation, the agricultural income as a whole shall also not be included in the total income. The question of allowing deductions will arise only in case the income is included in the total income chargeable to income-tax and not otherwise. The position under the law and the provisions of the Act are quite clear. In the result the question referred is answered in the affirmative, in favour of the Revenue and against the assessee, that is to say, that the Tribunal erred in law in directing the Assessing Officer to allow benefit of Section 32AB after holding that the income is agricultural income exempt from income-tax under Section 10(1) of the Income-tax Act, 1961.