TaxTMI 
TaxTMI 
2006 (5) TMI 64
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....es Corporation [1967] 65 ITR 643, unpaid cess under the Land Act has still to be allowed as a deduction from the net agricultural income under the Assam Act, in a situation where the assessee has maintained its/his accounts in the mercantile system? (B) Provisions of law referred to and relied upon: Before delving into the issues under the reference, it would be prudent and necessary to refer to those provisions of law under the related statutes to the extent relevant for the purpose of illumination of the contours of the questions raised herein and those may be noticed hereunder. The Land Act (Assam Taxation (on specified Lands) Act, 1990) Under the Land Act, the specified land is defined in section 2(h) which reads as: "(i) any land used or intended to be used for growing tea and for purposes ancillary thereto or any part of such land, in this Act referred to as 'tea estate' or (ii) any land held for the purpose of obtaining or extracting coal or any part of such land, in this Act referred to as 'coal mine'." Income-tax Act, 1961: The meaning of the expression "agricultural income", being relevant in the present context, as provided under section 2(1A) of ....
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.... 8(1) of the Income-tax Rules, 1962 (for short, "the Central Rules"), envisages as under: "Income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from the business, and forty per cent, of such income shall be deemed to be income liable to tax." The Assam Act (Assam Agricultural Income-tax Act, 1939): The definition of "agricultural income" under the Assam Act is more or less in pari materia with the definition provided in the Central Act aforementioned. Under section 2(a) of the Assam Act "agricultural income" means- "(1) any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land revenue in Assam or subject to a local rate assessed and collected by officers of the Government as such; (2) Any income derived from such land by- (i) agriculture, or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market, or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce rai....
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....ause, if it has already been made under section 7 of this Act or in the assessment under the Income-tax Act, 1961: Provided further that in case of agricultural income from cultivation and manufacture of tea the agricultural income for the purposes of this Act shall be deemed to be that portion of the income from cultivation, manufacture and sale which is agricultural income within the meaning of the Indian Income-tax Act and shall be ascertained by computing the income from the cultivation, manufacture and sale of tea as computed for Indian Income-tax Act from which shall be deducted any allowance by this Act authorised in so far as the same shall not have been allowed in computation for the Indian Income-tax Act." (C) Factual matrix: In the backdrop of the forementioned provisions of law touching the factual background of the whole dispute, the facts in brief, being almost identical and similar in all these writ petitions, necessary for adjudication of the referred issues may be projected. All the writ petitioners herein are engaged in the business of plantation, manufacture and sale of tea. The writ petitioners in W.P.C. Nos. 2784 of 1995, 1456 of 1999 and 1461 of 1999 ....
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....ukenbari Tea Co. P. Ltd. v. Commissioner of Taxes [2000] 242 ITR 366 (Gauhati) set aside the order passed by the Assessing Officer as well as the appellate authority and allowed the related writ petition accordingly. However, while deciding the said case, the amended provision of section 8(2)(f)(vii) of the Assam Act in question was not brought to the notice of the court and the judgment was rendered without taking into account the said amendment which was made effective from December 28, 1989. This fact was noticed by another co-ordinate Bench at the time of signing the final order disposing of the present batch of writ petitions, which was heard and dictated in the open court on March 31, 2005, deciding to allow this batch of writ petitions following Phukenbari's case [2000] 242 ITR 366 (Gauhati) and it was viewed therein necessitating the present reference as follows: "7. Learned counsel for the petitioners, at the hearing, had tried to steer away from the decision of this court in Phukenbari Tea Co. [2000] 242 ITR 366 and have advanced arguments to the effect that notwithstanding the amendment to section 8(2)(f)(vii) of the Assam Act, unpaid cess, though it is not to be a....
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....counsel has contended that although there is no dispute that there is no provision akin to section 43B of the Central Act contained in the Assam Act so as to restrict the availability of deduction on the ground that the amount be deducted only if it is paid within the specified period as contained under the Central Act, both the Revenue authorities below misconstrued the amended provision to section 8(2)(f)(vii) of the Assam Act as the provision added in sub-clause (vii) does not fetter the expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of earning or deriving the agricultural income. The cess, being wholly and exclusively laid out for the purpose of earning or deriving agricultural income, the respondents are not correct that the petitioners were not entitled to such deductions. In the same breath, Dr. Saraf, learned senior counsel has strenuously submitted that by the amendment made in section 8(2)(f)(vii) the scope of the provision has been widened and the same has been put at par with that of section 37 of the Central Act and as such, the legislative intent in making such amendment is very clear. Accord....
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....from the agricultural income by applying the second proviso above-mentioned does not arise because the second proviso intends only to allow as deduction from the agricultural income, the expenses provided for in section 8 of the Act in so far as the same have not been allowed as deductions while computation of income under the Central Act. According to learned senior counsel, a conjoint reading of the second proviso above noted and this amended section 8(2)(f)(vii) makes it explicitly clear that section 8(2)(f)(vii) after its amendment provides for deduction of those expenses which are admissible for deduction under the Central Act. In view of the same, it is forcefully submitted that to give section 8(2)(f)(vii) a contrary meaning will make the second proviso to section 8(2)(h) redundant. In totality, it is strongly contended by both Dr. Todi and Dr. Saraf that the scheme under section 8 of the Assam Act as a whole does not restrict the petitioners' claim for cess laid out or expended wholly or exclusively for the purpose of deriving the agricultural income though the same was not actually paid. (b) Submissions advanced by the Revenue: Refuting categorically the averments....
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....s held therein that there was no provision as such similar to section 43B of the Central Act to refuse the deductions as asserted. Mr. Choudhury, learned senior counsel has submitted that had this amendment in question been taken note of in Phukenbari's case [2000] 242 ITR 366 (Gauhati) the decision ought to have been resulted otherwise; meaning thereby the decision of disallowance of the deduction of unpaid amount of cess by the Revenue authority would have been affirmed without any interference. (E) Reasons for resolution: The resolution of the issue under reference is basically based on the interpretation of the amended provision to section 8(2)(f)(vii) of the Assam Act as already noticed above. While the contention of the petitioners is that the proviso by way of amendment has not placed any embargo on the operation of the preceding provision of the enactment of section 8(2)(f)(vii) itself but suitably has widened the scope of the general enactment reflecting the clear intention of the Legislature to give and provide useful meaning to the provision of section 8(2)(f)(vii) so as to allow a deduction in the expense relating to business income while computing the agricult....
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....round that the claim of deduction in respect of unpaid provision is not an allowable deduction either under section 8(2)(e) or section 8(2)(f)(vii) of the Agricultural Income-tax Act, 1939, for short 'the Act'. Section 8(2)(f)(vii) reads as follows: '(vii) any expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of earning or deriving the agricultural income'. From the above, I find that any accrued liability laid out is an allowable deduction and deduction of payment of cess on green tea leaves is no doubt an accrued liability of the company. Section 8(2)(e) reads as follows: '(e) any tax, or rate paid under any enactment in force in Assam on the cultivation or sale of the crop from which such agricultural income is derived ;' The Assessing Officer as well as the appellate authority laid emphasis on the word 'paid' and drawing reference to section 43B of the Income-tax Act, held that the tax, duty, cess or fee not paid during the accounting year cannot be allowed to be deducted. Section 43B of the Income-tax Act is very specific and provides that only the tax, duty, cess or fee actually paid in the ....
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.... by the Revenue authorities below. Though the matter was moved before the Income-tax Appellate Tribunal as well as the High Court, eventually it reached the Supreme Court on appeal preferred by the Revenue. While allowing the appeal, the Supreme Court maintained the claim of the petitioner though it held to the effect as quoted above as regards the maintenance of the accounts on the mercantile system. However, immediately after the above quoted observation the apex court further opined as follows: "But where the liability is, during the whole of the period that the business is carried on, wholly contingent and does not raise any definite obligation during the time that the business is carried on, it cannot fall within the expression 'expenditure laid out or expended wholly and exclusively' for the purpose of the business." The decision in Phukenbari's case [2000] 242 ITR 366 (Gauhati) was subsequently followed by another single Bench of this court in an unreported judgment in W.P. (C) No. 946 of 1999 (Hollonghabi Tea Estate v. Commissioner of Taxes). Obviously, the decision in Phukenbari's case [2000] 242 ITR 366 (Gauhati) relying on Gemini Cashew's case [1967] 65 ITR 6....
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......" The rule of interpretation of a proviso was succinctly and very aptly dealt with by the Supreme Court in the case of S. Sundaram Pillai v. V. R. Pattabiraman reported in [1985] 1 SCC 591; AIR 1985 SC 582. The aforesaid judicial authority speaking through S.M. Fazal Ali J., in majority view, relying upon a catena of decisions of its own court, laid down the scope of a proviso in paragraph 43, at page 610, which runs as under: "43. We need not multiply authorities after authorities on this point because the legal position seems to be clearly and manifestly well established. To sum up, a proviso may serve four different purposes: (1) qualifying or excepting certain provisions form the main enactment; (2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable; (3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real int....
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....by inserting the amended proviso to the existing provision of section 8(2)(f)(vii). It can be clearly stated that the amended provision does not enlarge the original enactment but has put a restriction to the enacted provision. The scope of admissible deductions is widened. The language used by the Legislature in the proviso is clear and unambiguous. This proviso has intended that such expenditure (not being in the nature of capital expenditure), to be allowable deduction under section 8(2)(f)(vii), if laid out or expended wholly or exclusively for the purpose of earning income chargeable to tax under the Central Act would have been admissible for deduction under that Act. Meaning thereby the deduction expenditure if laid out or expended wholly and exclusively for the purpose of earning or deriving the agricultural income under the Assam Act would be allowable, if the same is actually admissible deduction under the Central Act. In other words the deduction which has not been allowed from the composite income under the Central Act cannot be allowed as a deduction while determining the agricultural income under the Assam Act. In the light of the above cited judicial authorities on....
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....itation. That being so, we are of the considered view that the amended proviso insists on fulfilment of certain mandatory condition to the effect that the cess on green tea leaves is admissible for deduction under the Assam Act subject to the restriction imposed by section 43B of the Central Act providing for deduction of such cess on actual payment basis in order to make the enactment workable. Taxing statute: Besides, a taxing statute, as a general rule, needs to be interpreted strictly. In the case of two views, when one speaks of that the exemption should be liberally construed in favour of the assessee and the other is that since exemption from taxation increases the burden on other members of the society, it should be construed strictly and in the case of doubt, against the assessee. The apex court in J.K. Woollen Manufacturers v. CIT reported in [1969] 72 ITR 612; AIR 1969 SC 609 held as under: "In applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Income-t....