Plantation Corporation of Kerala Ltd. v. Deputy Commissioner of Income Tax Circle 1 & Commissioner of Income Tax, Kerala

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI THURSDAY, THE 4[TH] DAY OF AUGUST 2022 / 13TH SRAVANA, 1944 ## ITA NO. 8 OF 2021 AGAINST THE ORDER ITA 2/2020 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT: THE PLANTATION CORPORATION OF KERALA LTD MUTTAMBALAM P.O., KOTTAYAM-686004. BY ADV RAMESH CHERIAN JOHN RESPONDENTS: - 1 THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1, O/O. THE ADDITIONAL COMMISSIONER OF INCOME TAX, PUBLIC LIBRARY BUILDING, SHASTHRI ROAD, KOTTAYAM-686001. - 2 THE COMMISSIONER OF INCOME TAX, O/O. THE COMMISSIONER OF INCOME TAX, PUBLIC LIBRARY BUILDING, SHASTHRI ROAD, KOTTAYAM-686001. BY ADVS. JOSE JOSEPH, SC, INCOME TAX DEPARTMENT, KERALA NAVNEETH N NATH, P.K.RAVINDRANATHA MENON (SR.) THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 04.08.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **I.T.A. No.8/2021** **-2-** ## J U D G M E N T S.V. Bhatti, J. Heard Mr Ramesh Cherian John, learned counsel for the appellant and Mr Navneet holding for Mr Jose Joseph, learned Standing Counsel for the respondent. 2. The Plantation Corporation of Kerala Ltd. is the appellant. The Deputy Commissioner of Income Tax, Circle 1/Revenue and another are the respondents. The present appeal arises from the order dated 02.03.2020 in ITA No.2/COCH/2020 before the Income Tax Appellate Tribunal, Cochin Bench. The subject matter of appeal relates to Assessment Year 2013-14 and the controversies relate to the allowance claimed by the assessee towards the replantation of rubber plants in an area where rubber trees were planted and have become unproductive and are not in an abandoned area as **I.T.A. No.8/2021** **-3-** required by Rule 7A(2) of the Income Tax Rules 1962 and the deduction of expenditure incurred towards upkeep and maintenance of rubber saplings till maturity or the trees yield. 3. The Assessing Officer disallowed both the claims. The assessee has been unsuccessful before the first and the second appellate authorities/Tribunal. The Tribunal while dismissing the appeal followed the Division Bench judgment of this Court in _Rehabilitation Plantations Ltd. v. Commissioner of Income Tax_[1] case. A Division Bench of this Court referred the issues arising under Rule 7A(2) of the Income Tax Rules and also the deduction towards the upkeep and maintenance expenses by the assessee. The question referred to the Full Bench reads thus: “ Whether the assessee/Plantation Companies under Rule 7A(2) of the Rules are entitled to an allowance > 1 (2012) 251 CTR 343 (Ker.) **I.T.A. No.8/2021** **-4-** towards replanting expenses and a further deduction towards upkeep and maintenance expenses incurred by the assessee for the immature plants till the age of maturity in the computation of income under the Act and Rules.” The Full Bench answered the question referred to it by order dated 01.08.2022 and the operative portion is excerpted for ready reference. “The answers to the two facets of the question referred to the Full Bench are that: “In the computation of business income under Rule 7A of the Rule 1962, the assessee under Rule 7A(2) is entitled to an allowance in respect of the cost of replacement of dead and useless rubber trees in the rubber plantation in an area not abandoned, subject to Section 10(31) of Act 1961. The upkeep and maintenance expenses incurred by the assessee till the maturity of rubber trees are revenue expenditures eligible for deduction under Section 37 of Act 1961.” **I.T.A. No.8/2021** **-5-** ## 4. The assessee raises the following substantial questions of law: “i. Whether on the facts and circumstances of the case the Tribunal was justified in confirming the orders of the authorities below disallowing the deduction/allowance of Rs. 1,74,39,892/- claimed under rule 7A (2) of the Income Tax Rules 1962 for the relevant assessment year. ii. Whether on the facts and circumstances of the case the Tribunal was justified in confirming the orders of the authorities below by merely relying on the judgment of this Hon'ble Court in the case of M/s. Rehabilitation Plantations Ltd. Vs. CIT reported in 251 CTR 343 without application of mind and adjudicating on the contentions raised by the appellant. iii. Whether on the facts and circumstances of the case the Tribunal was justified in coming to an incorrect finding that it is an admitted position that the re-planting expenses and maintenance expenses are incurred for planting new area of rubber and not an area already planted with yielding rubber and whether the said finding is contrary to the undisputed finding of the assessing authority in the order of assessment **I.T.A. No.8/2021** **-6-** that the expenditure incurred is for planting in an area which had been cleared off an existing plantation that had become unproductive and hence is not the said finding contrary to facts, incorrect and perverse. iv. Whether on the facts and circumstances of the case the Tribunal was justified in coming to a finding that Rule 7A (2) of the Income Tax Rules deals with infilling expenses and not replanting expenses and is not the finding of the Tribunal contrary to the object and purport of Rule 7A (2) of Income Tax Rules 1962. v. Whether on the facts and circumstances of the case the Tribunal was justified in merely relying on the judgment of this Hon'ble Court in the case of Rehabilitation plantation Ltd. and coming to the illegal and incorrect finding that the expenditure incurred for planting and development of plantation up to maturity has to be necessarily capitalized and it cannot be allowed as Revenue Expenditure and is not the said finding against the purport and object of Rule 7 A (2) of Income Tax Rules, which grants an allowance/deduction towards expenses incurred for replanting of rubber plants. vi. Whether on the facts and circumstances of the case the Tribunal was justified in sustaining the orders of the **I.T.A. No.8/2021** **-7-** authorities below disallowing the deduction claimed under Rule 7A (2) of the Rules when deduction of replanting expenses is allowed to assessees deriving income from manufacture of coffee and tea under Rule 7B and Rule 8 of the Income Tax Rules 1962 respectively. vii. Whether on the facts and circumstances of the case the Tribunal was justified in not allowing the claim of maintenance expenses incurred on immature area which is allowable in the light of the decisions of the Hon'ble Supreme Court. 5. Learned counsel appearing for the parties state that question nos.(i), (ii), (iv), (v), (vi) and (viii) are covered by the order of Full Bench dated 01.08.2022. Questions are to be answered in favour of the assessee for statistical purposes and remitted to Assessing Officer for consideration and disposal in accordance with law. Hence are answered accordingly and questions remitted to Assessing Officer for disposal afresh. 6. Question no.(iii) deals with whether the replanting expenses claimed by the assessee are in an area already planted **I.T.A. No.8/2021** **-8-** with yielding rubber and over years became unproductive or is the replanting expenses claimed in a new area brought under rubber plantation. In the Full Bench, the aspect on the entitlement of replantation allowance was considered and it was made clear that subject to satisfying the conditions, namely that the replantation of rubber saplings takes place in an area where already rubber trees were planted and have become unproductive and the area is not abandoned. The findings recorded in this behalf are not consistent and are not in line with the material brought on record by the assessee. 6.1 We have answered question Nos.(i), (ii), (iv), (v), (vi) and (viii) in favour of the assessee and remitted the matter to the Assessing Officer for consideration and making fresh assessment order. Having regard to the view already taken on the questions referred to above, we are of the view that for comprehensive consideration and claim covered by question **I.T.A. No.8/2021** **-9-** no.(iii) is also re-examined by the Assessing Officer along with other issues. Question no.(iii) accordingly is answered in favour of the assessee and against the Revenue. 7. Question no.(vii) deals with claim of maintenance expenses incurred on the immature area. The finding of fact recorded by the Tribunal reads as follows: 8. We have heard the rival submissions and perused the material on record. The Hon'ble Kerala High Court in the case of M/s.Rehabilitation Plantations Ltd. (supra) had categorically held that the expenditure incurred for planting and development of plantation up to maturity has to be necessarily capitalized and it cannot be allowed as revenue expenditure. The relevant finding of the Hon'ble High Court reads as follows: "After hearing both sides, we are unable to accept the case of the assessee for more than one reason. In the first place, expenditure covered by Rule 7A(2) does not cover expenditure incurred for replantation of an area. On the other hand, Rule 7A(2) only provides for deduction of expenditure for infilling through replacement of dead trees or other trees that have become useless, which is not the case here. As already stated by us, Rule 7A(2) is in the **I.T.A. No.8/2021** **-10-** same line as Rule 78(2), which provides for replacement of dead or old or unyielding coffee plants in yielding coffee plantation, and Rule8(2) which provides for replacement of dead or useless tea bushes in tea plantation. Yielding healthy rubber plantation does not admit replacement of dead plants within such area as new saplings cannot grow under shade and is never done by any planter. So much so, expenditure for replantation of an area is not covered by Rule 7A(2) and in our view the lower authorities Including the Tribunal rightly rejected the claim. We also feel that the Central Income Tax Officer while determining Income in the nature of agricultural as well as business income under Rule 7A should keep in mind the principles of computation of agricultural Income under the State AIT Act and as far as possible, assessment should be made without violating the provisions of the State AIT Act. If the appellant's claim is allowed, certainly so much of the portion of the agricultural income determined by the Central Income Tax Officer will be in direct conflict with the Scheme of assessment of agricultural income under the State AIT Act which prohibits deduction of expenditure on replantation of an area and only an Incentive is provided by way of replantation allowances under Rule 3 of the State Agricultural Income Tax Rules as **I.T.A. No.8/2021** **-11-** stated above. We are of the view that the Tribunal rightly held that the expenditure on replantation of an area wherefrom no income is derived by the assessee is not to be reckoned or considered in the computation of income from yielding area. Expenditure incurred for planting and development of the plantation up to maturity has to be necessarily capitalised and is not allowable as a revenue expenditure. Since the assessee has no case that they have incurred any expenditure for Infilling the yielding area and the expenditure incurred is only for replantation after cutting and removing old plantation, there is no question of considering or allowing the claim under Rule 7A(2). The assessee's claim is thoroughly misconceived and the lower authorities Including the Tribunal rightly held so. Consequently, we dismiss all the appeals." 8.1 The assessee does not have a case that the expenses incurred under the head replanting and maintenance are for infilling through replacement of dead trees or other trees that have become useless. On the contrary, it is an admitted position that the replanting expenses and maintenance expenses are incurred for planting new area of rubber and not an area already planted with yielding rubber. The finding of the Hon'ble Kerala High Court being very clear and categorical, the judgment is binding on the lower authorities. Hence, the appeal **I.T.A. No.8/2021** **-12-** filed by the assessee in ITA No.1/Coch/ 2020 is dismissed.” 8. The assessee failed to make out a case under Section 260A of the Act inviting our examination as a substantial question. Having regard to the findings recorded by the authorities and the Tribunal, we are of the view that question no.(vii) does not warrant interference and hence answered in favour of the Revenue and against the assessee. The I T Appeal is allowed as indicated above. S.V.BHATTI JUDGE BASANT BALAJI JUDGE jjj **I.T.A. No.8/2021** **-13-** ## APPENDIX OF ITA 8/2021 PETITIONER ANNEXURES ANNEXURE A TRUE COPY OF THE ORDER OF ASSESSMENT DATED 31.3.2016. ANNEXURE B TRUE COPY OF THE ORDER OF CIT (A) DATED 30.10.2019. ANNEXURE C TRUE COPY OF THE FORM OF APPEAL AND GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL DATED 27.12.2019. ANNEXURE D TRUE COPY OF THE SUMMARY OF ARGUMENTS (WITHOUT ANNEXURES MENTIONED THEREIN) FILED BEFORE THE TRIBUNAL BY THE AUTHORISED REPRESENTATIVE/CHARTERED ACCOUNTANT OF THE APPELLANT. ANNEXURE E TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 1.8.2019 WHICH IS A COMMON ORDER FOR THE AY 201213 AND 2013-14.