2023 (4) TMI 897 - HC - Income Tax

Deductions clarified for rubber tree maintenance expenses under Income Tax Act

THE VELIMALI RUBBER CO. LIMITED Versus THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, KOTTAYAM

The Full Bench clarified that under Rule 7A(2), maintenance expenses of rubber trees are revenue expenditures eligible for deduction under Section 37 of ... Deduction from the income in view of Rule 7A(2) of the Income Tax Rules - cost of maintenance of rubber trees already planted - Whether Plantation Companies under Rule 7A(2) of the Rules are entitled to an allowance 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? - HELD THAT:- Questions of law framed in instant appeals are covered by the Full Bench order [2022 (10) TMI 851 - KERALA HIGH COURT] wherein held 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 u/s 37. Issues:1. Interpretation of Rule 7A(2) of the Income Tax Rules regarding the deduction for the cost of maintenance of rubber trees.2. Determining whether the cost of maintenance of rubber trees is a revenue expenditure allowable under Section 37 of the Income Tax Act.3. Application of Rule 7A(2) in relation to the replantation of rubber trees.4. Clarification on whether the deduction under Rule 7A(2) is only allowable for the cost of infilling of rubber trees.5. Consideration of the deduction under Rule 7A(2) in light of the provisions in the Finance Bill 1995.6. Reevaluation of the decision in the case of Rehabilitation Plantations vs CIT regarding the allowance for the cost of replantation of rubber trees.Analysis:1. The appellant, M/s. Velimali Rubber Co. Ltd, challenged the order of the Income Tax Appellate Tribunal regarding the deduction for the cost of maintenance of rubber trees under Rule 7A(2) of the Income Tax Rules for the assessment year 2011-12. The substantial question of law was whether the cost of maintenance of rubber trees already planted can be allowed as a deduction from income. The Full Bench order dated 01.08.2022 clarified that under Rule 7A(2), the assessee is entitled to an allowance for the cost of replacement of dead and useless rubber trees and that upkeep and maintenance expenses till the maturity of rubber trees are revenue expenditures eligible for deduction under Section 37 of the Income Tax Act.2. The judgment addressed the issue of whether the cost of maintenance of rubber trees already planted is a revenue expenditure allowable under Section 37 of the Income Tax Act. The Full Bench's ruling confirmed that such maintenance expenses are considered revenue expenditures eligible for deduction under Section 37, providing clarity on the treatment of these expenses for the appellant.3. The judgment also discussed the application of Rule 7A(2) concerning the replantation of rubber trees. The Full Bench's decision stated that the assessee is entitled to an allowance for the cost of replacement of dead and useless rubber trees in a rubber plantation, subject to certain conditions, emphasizing the eligibility for such deductions under specific provisions of the Act.4. Further, the judgment analyzed whether the deduction under Rule 7A(2) is limited to the cost of infilling of rubber trees or if it extends to the cost of replacing old and useless rubber trees in a previously planted area. The Full Bench's interpretation allowed for the deduction of expenses related to the replacement of dead or useless rubber trees, providing a broader scope for allowable deductions under Rule 7A(2).5. The judgment considered the deduction under Rule 7A(2) in light of the provisions in the Finance Bill 1995, addressing the appellant's argument regarding the similarity in treatment with other provisions. The decision reaffirmed the eligibility of the appellant for deductions under Rule 7A(2) based on the specific provisions and interpretations provided in the Finance Bill.6. Lastly, the judgment revisited the decision in the case of Rehabilitation Plantations vs CIT and its implications on the allowance for the cost of replantation of rubber trees. The Full Bench's ruling indicated that the appellant's case should be reconsidered in line with the provisions and interpretations set forth in the Finance Bill and previous judicial decisions, providing a basis for the reassessment of the appellant's claims.