Gauhati High Court
Williamson Magor And Co. Ltd. vs Assistant Commissioner Of Income-Tax ... on 12 May, 2000
Equivalent citations: [2000]244ITR291(GAUHATI)
Author: Brijesh Kumar
Bench: Brijesh Kumar
JUDGMENT D.N. Chowdhury, J.
1. Three questions are referred to the High Court by the Assam Board of Revenue under Sub-section (2) of Section 28 of the Assam Agricultural Income-tax Act, 1939, hereinafter referred to as the Act, 1939, at the instance of the assessee in the following circumstances.
2. The assessee/applicant, Williamson Magor and Company Ltd., was engaged in cultivation, manufacture and sale of tea and is an assessee under the Assam Agricultural Income-tax Act, 1939. It filed its returns for the assessment years 1979-80 and 1980-81, claiming deduction under Section 8(2) of the Act of 1939, for items, viz., entertainment expenses, perquisites, advertisement expenses, transit flat. The Income-tax Officer disallowed the deductions. The assessee preferred an appeal before the Assistant Commissioner of Taxes (Appeals) against the disallowance. The Assistant Commissioner found that the income-tax authority disallowed the claim of deduction to the tune of Rs. 1,07,295 and Rs. 3,75,052 for the assessment years 1979-80 and 1980-81, respectively, under the heads entertainment perquisites, advertisement and transit flat expenses, 60 per cent. of which, amounting to Rs. 64,377 and Rs. 2,25,031 for the assessment year 1979-80 and 1980-81, respectively, being claimed by the appellant under Section 8(2) of the State Act and rule 2(2) of the State Rules. The appellate authority in conformity with the earlier decision of the Assam Board of Revenue in Case No. 24/AIT in respect of the same appellant, set aside the assessment order and remanded back the matter to the Agricultural Income-tax Officer, Assam, to make reassessment in conformity with the directions set out in the judgment and the order of the appellate order dated January 31, 1992. The appellate authority/Assistant Commissioner of Taxes (Appeals) disallowed the deduction of entertainment, perquisites and advertisement expenses. The appellate authority in remanding the matter, adhered to the observations made by the Revenue Board in the case mentioned above wherein the Revenue Board noted :
"The expenses on entertainment are not relatable to exclude expenses wholly incurred for the purpose of deriving agricultural income. If, however, such entertainment expenses included expenses of refreshment as part of working conditions of employees engaged in agricultural operation and if such expenses were scientifically and properly apportioned by the appellant-company, the expenses could be treated as expenses incurred for the purpose of earning or deriving of agricultural income. The expenses for such deduction must be wholly and exclusively made in connection with agricultural operations in the tea estates. We, therefore, hold that if the appellant-company is able to convince the assessing authority with credible evidence that the expenses of entertainment including expenses on refreshment as a working condition in these tea estates, the primary assessing authority would be justified to allow deduction on this count under Section 8(2)(f)(vii) of the Assam Agricultural Income-tax Act, 1939. . . .
The guest house maintenance expenses would fall under the category expenses incurred on maintenance of capital assets. The question involved is whether the maintenance of guest house is to be deemed required for the purposes of deriving agricultural income from the land. These expenses would be admissible for deduction under Section 8(2)(f)(ii) provided the guest house is to be maintained for the purpose of deriving agricultural income from land. This is very much a controversial issue and the onus of showing that the expenses in regard to guest house are required for the purpose of deriving agricultural income from the garden land. It is left to the primary assessing authority to be satisfied on this count and the burden of satisfying the primary assessing authority shall lie on the appellant-company. The issue is, therefore, remanded to the Agricultural Income-tax Officer, Guwahati, for further enquiry and necessary order if convincing materials as required are placed by the appellant-company before him."
3. The assessee thereafter preferred an appeal before the Assam Board of Revenue which by its judgment and order dated July 30, 1996, passed in Case No. 4-5 AITA/92, rejected the appeal. On an application under Section 28(2) of the Act of 1939, the Assam Board of Revenue referred the following" questions of law for decision by this court :
"(1) Whether the Board in deciding the appeals was right in relying solely on the provisions of Section 8(2)(f)(vii) of the Assam Agricultural Income-tax Act [as it stood prior to its amendment by the Assam Taxation Laws (Third Amendment) Act, 1989], without considering the implication of the second proviso to Section 8(2) of the said Act and the provisions of Rule 5 of the Assam Agricultural Income-tax Rules, 1939 ?
(2) On the facts and in the circumstances of the cases whether the Board was right in holding that sixty per cent. of the expenses disallowed in computing hundred per cent. of the composite income from cultivation, manufacture and sale of tea for the purposes of the Income-tax Act, 1961, would not be deductible from sixty per cent. of the composite income from tea business as determined under the Income-tax Act, 1961, as such sixty per cent. of such composite income could not be said to be agricultural income ?
(3) Whether the Board was right in distinguishing sixty per cent. of income derived from cultivation, manufacture and sale of tea from agricultural income?"
4. Hence, this reference.
5. Mr. R. Gogoi, learned senior counsel appearing on behalf of the applicant-company, assisted by Mr. H. Roy, Mr. R. K. Joshi, Mr. D. Baruah, advocates, submitted that the authorities including the Board of Revenue fell into serious error in interpreting the scheme of the Act, 1939, in determining and construing the allowable deduction. Referring to the various provisions of the Act, 1939, and the rules framed thereunder as also the findings arrived at by the Board of Revenue, Mr. R. Gogoi, learned senior counsel submitted that the Board of Revenue was not justified in its finding that the deduction under the Act of 1939, is permissible only to the expenses which are wholly incurred for deriving agricultural income alone. Learned senior counsel for the applicant-company submitted that the expenditure incurred though laid out or expended wholly or exclusively for the purposes of its business, was disallowed in computing the income under the Income-tax Act in view of the statutory provisions as contained in the Income-tax Act for allowance of expenditure, but in the absence of any restriction in the Act, 60 per cent. of the amount disallowed in computing 100 per cent. of the composite income from different business is allowable against 60 per cent. of the income allowable under the Income-tax Act. Mr. Gogoi, learned senior counsel, finally submitted that the questions referred are already adjudicated upon by this court in the case of George Williamson (Assam) Ltd. v. Asst. Commissioner of Taxes (Appeals) [1997] 223 ITR 468.
6. Mr. A. K. Goswami, learned counsel appearing on behalf of the Revenue, supported the assessment order.
7. Section 2(a) of the Act of 1939, defines agricultural income. Rule 7 of the Income-tax Rules, 1962, provides for computation of income which is partially from agriculture and partially from business. Rule 8(1) of the Income-tax Rules, 1962, provides that the 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. Rule 8(2) of the Income-tax Rules, 1962, provides that in computing such income, an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of Clause (30) of Section 10, is not included in the total income. Again the Explanation to Section 2(a)(2) of the Act of 1939, provides that "agricultural income derived from such land 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. "Total agricultural income" is defined in Section 2(p) of the Act of 1939, as the aggregate of amounts of agricultural income referred to in Clause (a) of Section 2 and determined in the manner laid down in or under the said Act of 1939. Chapter II of the Act of 1939, contains the scheme of charge of agricultural income-tax. Section 3 is the charging section. Section 4 of the Act of 1939, speaks about the exemptions from assessment. Section 6 sets out the limit of taxable income and the rate of tax, and determination-of agricultural income after making certain deductions, is set out in Section 7 of the Act of 1939. Under Section 8 of the Act of 1939, the agricultural income as mentioned in Sub-clause (2) of Clause (a) of Section 2 shall be assessed on the net amount of such income determined in the prescribed manner. The relevant provisions of Section 8 of the Act of 1939, are reproduced below :
"8. (2) Rules prescribing the manner of determining the net amounts of agricultural income for the purpose of this clause shall provide that the following deductions shall be made from the gross amounts of such income, namely : . . .
(f) (i) any expenses incurred on the maintenance of any irrigation or protective works constructed from the benefit of the land from which agricultural income is derived.
(ii) any expenses incurred on the maintenance of the capital asset, if such maintenance is deemed to be required for the purpose of deriving such agricultural income from such land, . . .
(vii) any expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of earning or deriving the agricultural income, provided that such expenditure, if laid out or expended wholly and exclusively for the purpose of earning" income chargeable to tax under the Income-tax Act, 1961, would have been admissible for deduction under that Act. . .
Provided always that no deduction shall be made under this clause, if it has already been made under Section 7 of this Act or in the assessment under the Indian Income-tax Act :
Provided further that in case of agricultural income from cultivation and manufacture of tea the agricultural income for the purposes of this Act shall be deemed to be that portion of the income from cultivation, manufacture and sale which is agricultural income within the meaning of the Indian Income-tax Act and shall be ascertained by computing the income from the cultivation, manufacture and sale of tea as computed for the Indian Income-tax Act from which shall be deducted any allowance by this Act authorised in so far as the same shall not have been allowed in computation for the Indian Income-tax Act."
8. Rules are framed under Section 50 of the Act of 1939, known as the Assam Agricultural Income-tax Rules, 1939. Rule 5 of the Assam Agricultural Income-tax Rules, 1939 (hereinafter referred to as "the Rules, 1939") is set out herein below :
"5. In respect of agricultural income from tea grown and manufactured by the seller in the province of Assam the portion of net income worked under the Indian Income-tax Act and left unassessed as being agricultural, shall be assessed under this Act after allowing such deductions under the Act and the rules made thereunder, so far as they have not been allowed under the Indian Income-tax Act in computing the net income from the entire operation :
Provided that the computation made by the Income-tax Officer shall be ordinarily accepted by the Assam Agricultural Income-tax Officer who may, for his satisfaction under Section 20 of the Assam Agricultural Income-tax Act, obtain further details from the assessee or from the Indian Income-tax Officer, but shall not without the previous sanction of the Deputy Commissioner of Taxes or when there is no Deputy Commissioner of Taxes, the Assistant Commissioner of Taxes empowered by the Commissioner of Taxes in this behalf require under the proviso to Section 49 the production of account books already examined by the Indian Income-tax Officer for determining the agricultural income from tea grown and manufactured in Assam or refuse to accept the computation of the Indian Income-tax Officer :
(1) The Act applies to income from sale of tea grown and manufactured in Assam irrespective of whether the sale is made within or outside the province of Assam.
(2) The deductions referred to above are specified in Sub-section (2) of Section 8 and Sub-rule (2) of Rule 2 :
Provided that all agricultural income mentioned in Sub-clause (1) of Clause (a) of Section 2, or Sub-clauses (2)(i), (ii) and (iii) of Clause (a) of Section 2 raised or received by the grower of tea from lands not used for tea but used for cultivation of produce other than tea shall be liable to agricultural income-tax under the Act :
Provided also that the agricultural income derived from cultivation by labour force of land attached to a tea garden as ancillary to it from which the garden derives no direct benefit in the shape of rent either in cash or in kind shall not be liable to agricultural income-tax."
9. Under the statutory scheme as laid down in the Income-tax Act, 1961, vis-a-vis, the Agricultural Income-tax Act of 1939, the Agricultural Income-tax Officer in computing the agricultural income or making assessment of agricultural income under the Act, 1939, is under an obligation to accept the assessment of the income which has already been made by the Central income-tax authorities under rule 8 of the Income-tax Rules, 1962. Income from sale of tea grown and manufactured by the seller is derived partly from business and partly from agriculture. The income has to be computed as if it were income from business under the Income-tax Act and the rules framed thereunder and forty per cent. of the income so computed is deemed to be income derived from business and assessable to non-agricultural income-tax. The Explanation to Section 2(a)(2) of the Act of 1939, adopts this rule of computation and the balance sixty per cent. of the income so computed is agricultural income within the meaning of the Agricultural Income-tax Act of 1939 [Ref. Section 2(b) of the Act of 1939]. The agricultural income taxable under the Act of 1939, is sixty per cent. of the income so computed after deducting therefrom the allowances admissible under the Act in so far as the same has not been allowed in the assessment under the Central Income-tax Act. Accordingly, the Agricultural Income-tax Officer has no other option in making" the assessment of the agricultural income, but to accept the computation of the audited income already made by the Central income-tax authorities and assess only sixty per cent. of the income so computed less the allowable deductions as agricultural income taxable under the State Act. Under the State Act, expenditure (not being in the nature of capital expenditure) undertaken or expended wholly and exclusively for the purpose of earning or deriving agricultural income after providing for allowable deduction by the income-tax authority in making the assessment, the net amount of the agricultural income is to be determined. This court in George Williamson [1997] 223 ITR 468, held that the expenditure incurred for the purpose of earning agricultural income after giving allowable deductions by the Income-tax Officer while making" the assessment, whatever amount is left out of the genuine expenses are to be deducted in accordance with law. The court held that the Act as well as the Rules did not specify any methodology for ascertaining physically the real amount spent on agricultural activities. Mr. D. N. Baruah J., speaking on behalf of the court reflecting on the statutory scheme, observed (page 474) : "The Legislature thought it fit to prescribe the percentage for determining the income both agriculture and business. It is the legislative wisdom not to prescribe any percentage for the purpose of ascertaining" the expenses". It was accordingly held that whatever amount has been disallowed by the Income-tax Officer can be allowed by the Agricultural Income-tax Officer that are relatable to plantation, manufacture and sale of tea. Really and truly, we do not find any good reason to take a contrary view from George Williamson [1997] 223 ITR 468 (Gauhati).
10. Comity guides us to defer. It is not a rule of law, but one of practice and expediency. Apart from civility, such practice sustains uniformity of decision and law as well besides discouraging repeated litigation on the same question. This legal policy is embedded in our legal system.
11. In the facts and circumstances set out above, our answers to all the three questions are in the negative, in favour of the assessee and against the Revenue.
12. This reference is answered accordingly.