The
Commissioner of Income Tax, Kerala Vs. The Kilkotagiri Tea & Coffee Estate
Co. Ltd. [1996] INSC 240 (13 February 1996)
Sen,
S.C. (J) Sen, S.C. (J) Jeevan Reddy, B.P. (J) Sen, J.
CITATION:
JT 1996 (2) 349 1996 SCALE (2)242
ACT:
HEAD NOTE:
This
case relates to the assessment year 1970-71 for which the relevant accounting
period was the year ended 31.3.1971. The following question of law was referred
to the High Court under section 256(1) of the Income Tax Act:
"Whether,
on the facts and in the circumstances of the case, the Tribunal was entitled to
Development Allowance at 50% on the sum of Rs.71,500/- being a part of the
expenditure incurred during the assessment year 1966/68 on 1967 Tea clearing
under the provisions of Section 33A of the Income-tax Act for the assessment
year 1971-72?" Section 33A of the Income Tax Act, 1961 provides for
development allowance for clearing land and planting of tea bushes by a tea
company. In this case, the clearing of land and planting of the tea bushes was
done in July, 1967 (within the accounting year ended on 31.10.1967). The
expenses for that year and the subsequent year ended on 31.10.68 were taken
into consideration in the assessment for the assessment year 1969-70 for the
purpose of computation of development allowance under Section 33A(1)(a). The
Tribunal found :- "The Company chose to claim the allowance in respect of
1965 clearing fully, i.e., Rs.30,846/- and in respect of 1967 clearing although
they had incurred an expenditure of Rs.89,800/- and entitled to Rs.44,900/-,
they restricted the claim to the difference between Rs.40,000/- the total claim
for which they had provided reserve and Rs.30,846/- the claim of 1965 clearing.
The figures are as follows:- 1967 Tea clearing - Plantation July, 1967 (13.63
Hectares) Ist year 1966/67 Rs. 44,525 2nd year 1967/68 Rs. 45,275
----------------- Rs. 89,800 Less cost of clearing to be considered in the 4th
year, i.e., A.Y. 71-72 Rs. 71,500 ------------------ Rs. 18,300 50% thereof Rs.
9,150 Balance of expenses for which no claim was made Rs. 71,500
5. For
the year 71-72, the fourth year of 1967 clearing the further expenses incurred
were:- 3rd year Rs.26,832 4th year Rs.35,172 -------------------- Rs.62,004
===================== To this was added the expenditure of Ist and 2nd year not
covered by claim in that year of Rs.71,500/-. In 1969, there was another
clearing of 3.59 hectares for which 71-72 would be the 2nd year. The expenses
incurred were Rs.33,861/-. In that year, the company claimed development
allowance on the following figures:- 1967 clearing:
Unclaimed
expenses of 67 & 68 Rs. 71,500 Expenses for 69 and 70 Rs. 62,004 1969 clearing
:
Ist
and 2nd year expenses Rs. 33,864 -------------- Rs. 167,365 50% thereof Rs.
83,682 The company had created a reserve of Rs. 70,000/-." For the
assessment year 1971-72, the Income Tax Officer allowed the claim in respect of
1969 clearing, i.e., the expenses in respect of the first and second year at
that clearing. For the 1967 clearing, the assessee claimed that a part of the
expenses of the first and second year (1967 and 168) which was neither claimed
nor allowed in the earlier assessment years should be taken into consideration.
The Income Tax Officer disallowed the claim. The Appellate Assistant
Commissioner agreed with the Income Tax Officer and observed that in respect of
the expenses actually incurred in the first two years, the assessee had to
claim deduction in the second year and only in respect of the expenses incurred
thereafter and not taken into account earlier, extra allowance could be claimed
in the fourth year. If the assessee chose to claim only a part of what he was
actually entitled to in the first year, he could not claim the balance in the
fourth year.
On
further appeal, the Tribunal upheld the order of the Appellant Assistant
Commissioner. The Tribunal was of the view that development allowance for the
first two years should have been claimed in the year 1969-70. The Tribunal
pointed out that the amount allowable under clause (a) of Section 33A(1) was
not limited to the amount which either the Income Tax Officer cared to allow or
the assessee cared to claim. The amount which was allowable depended upon the
expenses incurred in the first and second year.
The
High Court held that Section 33A(1)(a) dealt with "computation at the
first instance" of the development allowance. This implied that
computation was not final. Sub- clause (b) provided that "development
allowance shall again be computed with reference to the actual cost of
planting".
Thus,
sub-clause (b) contemplated recomputation of actual cost of planting. The High
Court was of the view that if after the computation, it was found that
recomputed amount exceeded the amount allowed as deduction under clause (a),
the excess will have to be allowed as deduction. This provision, according to
the High Court was mandatory. The High Court, therefore, concluded that the
claim of the assessee should have been allowed by the Tribunal. The question
referred to it was answered in the negative and in favour of the assessee. The
Commissioner of Income Tax has now come in appeal against the decision of the
High Court.
Section
33A(1) provides:- "33A. Development allowance.-(1) In respect of planting
of tea bushes on any land in India owned by an assessee who carries on business
of growing and manufacturing tea in India, a sum by way of development
allowance equivalent to- (i) where tea bushes have been planted on any land not
planted at any time with tea bushes or on any land which had been previously
abandoned, fifty per cent of the actual cost of planting; and (ii) where tea
bushes are planted in replacement of tea bushes that have died or have become
permanently useless on any land already planted, thirty per cent of the actual
cost of planting, shall subject to the provisions of this section, be allowed
as a deduction in the manner specified hereunder, namely :- (a) the amount of
the development allowance shall, in the first instance, be computed with
reference to that portion of the actual cost of planting which is incurred during
the previous year in which the land is prepared for planting or replanting, as
the case may be, end in the previous year next following, and the amount so
computed shall be allowed as a deduction in respect of such previous year next
following, and (b) thereafter, the development allowance shall again be
computed with reference to the computed exceeds the amount allowed as a
deduction under clause (a), the amount of the excess shall be allowed as a
deduction in respect of the third succeeding previous year next following the
previous year in which the land has been prepared for planting or replanting,
as the case may be:
Provided
that no deduction under clause (i) shall be allowed unless the planting has
commenced after the 31st day of March, 1965, and no deduction shall be allowed
under clause (ii) unless the planting has commenced after the 31st day of
March, 1965, and been completed before the Ist day of April, 1970.
Sub-section
(2) provides for set-off and carry forward of unadjusted development allowance
to the following assessment years. Sub-section (3) provides that the deduction
under sub-section (1) shall be allowed only if the prescribed particulars had
been furnished by the assessee and a reserve was created of an amount equal to
75 per cent of the development allowance to be actually allowed. Having regard
to the object and clear language of Section 33A, we are of the view that the
High Court has come to a correct decision in this case. The scheme of
development allowance was to encourage tea industry to expand. Unlike some
other provisions of the Income Tax Act, for expenditure incurred for planting
tea bushes in one particular year, allowance under section 33A may be given in
a subsequent year. In view of the specific provisions of Section 33A, the grant
of the allowance cannot be limited only to the year in which the expenditure
was actually incurred or the immediate next year thereafter. This allowance is
given "in respect of planting of tea bushes on any land on which tea
bushes had not been planted at an time earlier or on any abandoned land".
Development
allowance is also permissible where fresh tea bushes are planted in replacement
of useless tea bushes or tea bushes that have died. The basis for calculation
of the allowance is a percentage of "actual cost of planting" of tea
bushes which has been defined by Section 33A(7) to mean the aggregate of
(i) the
cost of preparing the land;
(ii) the
cost of seeds, cutting and nurseries;
(iii) the
cost of planting and replanting; and
(iv) the
cost of upkeep thereof for the previous year in which the land has been
prepared and the three successive previous years next following such previous
year. The aggregate amount of the costs on the aforesaid heads has to be
reduced if any of these costs have been met directly or indirectly by any
person or authority.
In
other words, if any financial assistance or subsidy or any other form of aid is
received from the Government. or any other agency or person. that will go to
reduce the amount of costs which will form the basis of calculation of
development allowance . All these things may not take place in one particular
year.
The
very definition of "actual cost of planting" indicates that a span of
four years has to be taken into account for the purpose of computation of
development allowance. Section 33A(1)(a) and (b) makes it clear that deduction
on account of development allowance will be granted in two stages. The first
stage is under clause (a) under which the development allowance will have to be
computed "in the first instance" and will be limited to that portion
of actual costs of planting which was incurred during the previous year in
which the land was prepared for planting or replanting, as the case may be. In
computing the income of the previous year following the previous year in which
the land was first prepared for planting or replanting, the actual costs will
be calculated and in the assessment of the second year's income, development
allowance will be granted to the assessee provided he has taken the other steps
for claiming the allowance including creation of sufficient reserves. In the
instant case, the assessee had made sufficient reserves for the claim he had
made under clause (a) of Section 33A. But merely because, the assessee had not
claimed the full amount of development allowance in the first instance, will
not disentitle him from claiming the outstanding amount at the second stage
under clause (b). Development allowance under clause (b) has to be given by
computing the actual costs of landing once again. Clause (b) states that
"development allowance shall again be computed with reference to the
actual cost of planting....". That means, notwithstanding the computation
made under clause (a) and grant of development allowance on the basis of that
computation, the assessee will be entitled to compute the allowance once again
on the basis of actual costs of planting tea bushes at the second stage in the
assessment of the third succeeding previous year reckoned from the previous
year in which the land was prepared for planting or replanting. There is
nothing in Section 33A to suggest that development allowance for expenditure
incurred in respect of first two years must be calculated and claimed at the
very first stage, i.e., at the stage of the second year of assessment after
planting of tea bushes. Because of the protracted work involved in preparation
of the land, planting of seeds, cutting and nurturing nurseries and also the
cost of planting and replanting of tea bushes as well as the cost of upkeep
thereof besides various other factors like setting off of subsidies or other
grants from the Government or any other agencies, an assessee has been
permitted to claim the deduction even upto the third succeeding year next
following the previous year in which the land has been prepared for planting or
replanting, as the case may be. The High Court was right in pointing out the
significance of the phrase "development allowance shall again be
computed" which means the actual costs that had been computed under clause
(a) will have to be computed afresh. This is what the assessee has done in the
instant case.
We are
of the view that the High Court had come to a correct decision in answering the
question referred by the Tribunal in the negative and in favour of the assessee.
The Civil Appeal is, therefore, dismissed. Each party will pay and bear its own
costs.
Back
Pages: 1 2
