1997 (12) TMI 44 - HC - Income Tax

Court decision: Deduction allowed for domestic inquiry expenses, disallowance of soil conservation expenses upheld.

Hariharaputhra Plantations Ltd. Versus State Of Tamil Nadu

The court upheld the disallowance of the claims for soil conservation expenses and commission on sales of latex. However, it directed the Assessing ... Agricultural Income Tax, Deductions Issues Involved:1. Deduction of expenses for soil conservation.2. Deduction of expenses for domestic inquiry.3. Deduction of commission paid on sales of latex.Issue-wise Detailed Analysis:1. Deduction of Expenses for Soil Conservation:The primary issue was whether the assessee-company could claim a deduction for soil conservation expenses amounting to Rs. 1,32,043. The authorities, including the Tribunal, disallowed this claim. The court noted that the assessee-company made only a budgetary allocation for soil conservation and did not actually incur the expenditure during the relevant assessment year. The court emphasized that under the mercantile system of accounting, a liability must be created and the actual expenditure incurred, which was not the case here. The precedents cited by the assessee's counsel, such as Indermani Jatia v. CIT and Morvi Industries Ltd. v. CIT, were distinguished as they involved actual liabilities created during the relevant assessment year. Consequently, the court upheld the disallowance of the soil conservation expenses.2. Deduction of Expenses for Domestic Inquiry:The second issue pertained to the disallowance of Rs. 750 incurred for holding a domestic inquiry. The court found that the assessee-company held a domestic inquiry instead of lodging a police report for petty thefts committed by an employee. The court reasoned that managing agricultural operations necessitates employing staff and incurring related expenses, including those for domestic inquiries. The court held that such expenses have a nexus with agricultural operations and are allowable as they prevent thefts that could adversely affect agriculture. Therefore, the court allowed the deduction of Rs. 750 for the domestic inquiry.3. Deduction of Commission Paid on Sales of Latex:The third issue involved the disallowance of Rs. 11,140 as commission paid on sales of latex. The court noted that the commission paid for the sale of agricultural produce does not qualify as an expenditure incurred wholly and exclusively for the purpose of the land under Section 5(e) of the Tamil Nadu Agricultural Income-tax Act. The court clarified that such expenses pertain to the sale transaction rather than the agricultural operations themselves. Additionally, the assessee-company failed to produce any vouchers or evidence of payment to the commission agent. Consequently, the court upheld the disallowance of the commission paid on sales of latex.Conclusion:The court concluded that the authorities rightly disallowed the claims for soil conservation expenses and commission on sales of latex. However, the court directed the Assessing Officer to allow the deduction for the expenses incurred on the domestic inquiry. The revision was dismissed in other respects, with no order as to costs.