M. P. Menon J. - In these three references made by the Kerala Agricultu-tural Income-Tax Apellate Tribunal, under s. 60(1) of the Agrl. I.T. Act, 1950, the common referred is the following :
'Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that expenses like police expenses, litigation expenses incurred for conducting encroachment cases, assault and theft cases, industrial disputes, etc., and expenditure towards batta, T.A. and wages to witnesses, are allowable deductions under s. 5 of the Agrl. I.T. Act, 1950 ?'
The assessee is the same in all the cases. It was deriving agricultural income from tea and rubber. It claimed deduction under s. 5 of the Act in respect of various items like police expenses, litigation expenses, expenses by way of wages and T.A. to witnesses, expenses for sending cumbly to the inspector of plantations, and under other miscellaneous heads. The assessing officer disallowed their claims, and on appeal, the Deputy Commissioner concurred. The Appellate Tribunal took a different view and allowed the claims. The references have been made at the instance of the Commissioner of Agricultural Income-Tax.
Police expenses were incurred for stationing police force in the assesses estates to maintain law and order during strikes and other disturbances. Litigation expenses were incurred in connection with encroachment cases, assault cases and industrial disputes, and the claims represented advocates fee, court expenses, etc. Amounts were also spent towards wages and T.A. of the assessees employees who were witnesses in courts in cases relating to theft of rubber and assault cases. Samples of the cumblies to be distributed among the workers under the Plantations Labour Act had to be approved by the inspector of plantations, and expenses had been incurred for sending these cumblies to the inspector. These were generally the nature of the expenses in dispute; there were also some miscellaneous items of a similar nature.
The Appellate Tribunal held that these were permissible deductions under s. 5(j) of the Act, as the amounts had been spent wholly and exclusively for the purpose of deriving the agriculture income. In so holding, it relied on certain decisions rendered under the I.T. Act, 1922, and expressed the view that s. 5(j) of the Agrl. I.T. Act corresponding to s. 10(2)(xv) of the former. The revenue challenges this view, and the contention is that the scope of the two provisions are different.
s. 10(2)(xv) of the Indian I.T. Act, 1922, reads :
'10. Business.... - (2) Such profits or gains shall be computed after making the following allowances, namely :-... (XV) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business profession or vocation.
s. 5(j) of the Agrl. I.T. Act reads :
'5 Computation of agricultural income. - The agricultural income of a person shall be computed after making the following deductions, namely :- ...
(j) any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly any exclusively fot the purpose of deriving the agricultural income.'
The argument is that in the context of the word 'deriving' used in the Kerala Act, the scope of the deductions in cl. (j) of s. 5 is narrower than the allowance referred to in cl.(xv) of sub-s. (2) under s. 10 of the I.T. Act.
The very same question was considered by a Division Bench of this court on Commr. of Agrl. I.T. v. Nilambur Rubber Co. Ltd. : [1969]71ITR686(Ker) , and it was observed (page 689) :
'The learned counsel for the revenue submitted that the provisions of the two statutes are not the same in this respect. He submitted that under cl. (j) of s. 5 of the Agrl. I.T. Act, the expenditure must be one laid out or expended for the purpose of deriving the agriculrural income, While under cl.(xv) of s. 10(2) of the Indian I.T. Act, it is enough if it is laid out or expended for the purpose of such business, profession or vocation. He submitted that the expression the purpose of such business has got a far wider range than the expression for the purpose of deriving the agricultural income. In the former case, the expenditure need not have any relation to the deriving of the income. We do not agree with this contention. Though there is difference in the words employed in the two statutory provisions, we think that their effect is the same. It is not necessaty that there must be income for claiming the allowance under cl.(j) of s. 5 of the Agrl. I.T. Act. All that is required is that it should have been expended for the purpose of deriving the income, whether the adventure results in profits or gains. The same is the position under the Indian I.T. Act. The purpose of a business is derving profits and gains; and, in our opinion, an expenditure for the purpose of business is one for the purpose of deriving income therefrom.'
Faced with this clear pronouncement, counsel for the revenue made a courageous attempt to canvass its correctness by learning heavily on the decision of the Judicial Committee of the Privy Council in CIT v. Kamarhaya Narayan Singh [1948] 16 ITR 325, where the meaning of the term 'derived was considered. The question there was whether interest on arrears of rent payable in respect of land used for agriculture was agriculture income within the meaning of s. 4(3)(vii) of the I.T. Act, 1922. 'Agricultural income' was defined in s. 2 of the I.T. Act as 'rent or revenue derived from land' used for agricultural purpose. Their Lordships held that 'derived' was not a term of art and that its use in the definition demanded an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source wa discovered. So approached, land was held to be in the second degree in the genealogical tree of interest. In other words, the connection between 'interest' and 'land' was not sufficiently proximated, and the interest was not rent or revenuse from land so as to constitute 'agricultural income' as defined. The decision illustrates what would not consitiute agricultural income; but is not of much assistance in deciding what should be the outgoings thereform, under a statutory scheme essentially different.
The Supreme Court considered the scope of s. 5(j) in the Travancore Rubber and Tea Co. Ltd. v. Commr. of Agrl. IT : [1961]41ITR751(SC) , a case which had gone up from this court. The assessees estate in that case contained mature yielding trees and also immature rubber plants, and the question was whether the expenses incurred for the maintenance and upkeep of the non-yielding trees constituted a permissible deduction. This court had taken the view that s. 5(j) permitted deduction only in respect of expenses incurred for deriving the income, i.e., the income of the accounting year, and that expeneses. But the Supreme Court reversed the decision and held the expenses on superintendence, weeding, etc., of the whole estate should have been allowed. Expenses for superintendence and for upkeep of non-yielding plants are not expenses directly incurred for 'deriving' income, if the word is narrowly construed as contended for by the revenue; and such a narrow construction was not favoured by the Supreme Court.
It is unnecessary to refer to the many decisions cited on behalf of the assessee. What s. 5(j) provides for is a deduction from the agricultural income in respect of expemditure laid out wholly and excusively for the purpose deriving the income. To confine this provision to cover only those expenses which are directly and immediately relatable to the derivation of income will be to import limitations which are not there, either in the language or in the context, and to hold that what is contemplated is only 'agricultural expenses' considered as an antithesis of 'agricultural income'. It APPLICANTears that s. 5(j) of the Agrl. I.T. Act and s. 10(2)(xv) of the I.T. Act, 1922, reperesent conceptions which are kindred though distinct. No doubt there should be connection between the item of expenditure and the earning or ensuring of income; and the connection should not be remote, indefinite or fanciful. Whether there is such connection in a given case will be a question of fact, once the proper approach is seen to have been made. The Tribunal has found, in the case on hand, that the expenses were laid out by the assessee for one or other of the following purposes :
(i) obstructing encroachment into the lands used for agriculture;
(ii) protecting the plants and trees from destruction;
(iii) preventing theft and pilferage of the produce;
(iv) resisting exorbitant demands of labour and maintaining discipline;
(v) complying with the requirements of law relating to welfare of the labour force.
On these findings, the conclusion seems to be possible that the expenditure was wholly and exclusively laid out for preserving the land and trees and for maintaining, if not augmenting, the income thereform.
In the result, we answer the question in the affirmative, i.e., in favour of the assessee and against the revenue. The parties will bear their own costs.
A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Tribunal as required by s. 60(6) of the Act.