1993 (8) TMI 51 - HC - Income Tax

Sales Tax Appeal Expenses Deductible under Agricultural Income-tax Act | Revenue Expenditure Clarified

The High Court held that expenses incurred in connection with sales tax appeals are allowable deductions under section 5(n)(ii) of the Agricultural ... Agricultural Income Tax, Deduction Issues:1. Allowability of expenses incurred in connection with sales tax appeals in computing agricultural income.2. Determination of whether expenses incurred for alteration of memorandum of association are allowable deductions in computing agricultural income.Analysis:Issue 1:The Kerala Agricultural Income-tax Appellate Tribunal referred two questions to the High Court for decision. The first question involved the allowability of expenses incurred in connection with sales tax appeals in computing agricultural income. The Tribunal had allowed a sum as a permissible deduction for expenses related to sales tax appeals. The Revenue challenged this decision, arguing that such expenses should not be deductible. The High Court analyzed relevant provisions of the Agricultural Income-tax Act and previous court decisions. It was held that expenses incurred in connection with sales tax appeals are allowable deductions under section 5(n)(ii) of the Act. The Court referred to various judgments to support this conclusion. Consequently, the first question was answered in favor of the assessee and against the Revenue.Issue 2:The second question referred to the High Court concerned the allowability of expenses incurred for services in connection with the alteration of the memorandum of association of the company. The Appellate Tribunal had considered these expenses as capital expenditure and disallowed them as deductions. The Court noted that the Tribunal did not adequately analyze the nature of the expenditure and distinguish between revenue and capital expenditure. Referring to landmark Supreme Court decisions and a previous Bench decision, the Court established a test to determine whether such expenses constitute revenue expenditure. Applying this test, the Court concluded that the expenses incurred for the alteration of the memorandum of association were revenue expenditure as they were integral to the profit-earning process of the company. Therefore, the second question was answered in favor of the assessee and against the Revenue.In conclusion, both questions referred by the Appellate Tribunal were decided in favor of the assessee, and against the Revenue. The High Court's judgment clarified the allowability of expenses related to sales tax appeals and the nature of expenses incurred for the alteration of the memorandum of association in computing agricultural income. The references were disposed of accordingly, with a direction to forward a copy of the judgment to the Kerala Agricultural Income-tax Appellate Tribunal.