V.V. Kamat, J.
1. The following four questions came to be referred to this court by the order under reference :
'1. Whether, on the facts and circumstances of the case, was the Commissioner right in law, in holding that Rs. 55,078 being a portion of the expenditure on Data Processing Centre should be disallowed in view of the presence of the immature area in the assessee's plantation ?
2. Whether, on the facts and circumstances of the case, and especially in view of the nature of the expenditure is not the entire expenditure on Data Processing Centre an allowable deduction ?
3. Whether the expenses for audit of the company's accounts as provided under the provisions of the Companies Act being a part of the management expenses, is an allowable deduction ?
4. Whether the compensation received by the assessee from the, Kerala State Electricity Board for cutting their rubber trees in the plantation is agricultural income assessable under the Agricultural Income-tax Act ?'
2. However, the reference came to be placed before the Full Bench by an order of reference dated June 4, 1992. Accordingly, the Full Bench answered the first two questions, question No. 1 in the negative being against the Revenue and in favour of the assessee, whereas question No. 2 in the affirmative--in favour of the assessee and against the Revenue. The Full Bench left questions Nos. 3 and 4 for our decision and for this purpose, the questions are required to be settled.
3. As far as question No. 3 is concerned, the expenses for audit of the company's accounts being a part of the management expenses would obviously be an allowable deduction. In fact, we had an occasion to consider the position in our earlier judgment in Income-tax References Nos. 224 to 226 of 1987 (Rajagiri Rubber and Produce Co. Ltd. v. State of Kerala : [1996]219ITR366(Ker) ) dictated by my brother placing reliance on the decision of the Supreme Court in the case of E.S. Shivakantappa v. Commr. of Agrl. I. T. : [1993]204ITR349(SC) relating to the true and correct meaning of the words 'for the purposes of deriving agricultural income', which refers to its position in Section 5(j) of the Kerala Agricultural Income-tax Act, 1950. In regard to this case, it is already observed that it will not be different from the words used in Section 37 of the Income-tax Act, 1961, where the phrases 'for the allowance of business expenses' in connection with which the apex court observed that the situation would be governed by the same principles. In view of our decision, what is required to be done in this reference is to follow the same. The question is with regard to the expenses for audit of the company's accounts, which will have to be accepted as expenses being a part of the management expenses and as such would be an allowable deduction. We answer question No. 3 accordingly in the affirmative--in favour of the assessee and against the Revenue.
4. We regard to question No. 4, the question is with regard to the compensation received by the assessee from the Kerala State Electricity Board for the requirement of cutting of the rubber trees in the plantation area. The question is as to whether it would be an agricultural income. In the process we must note that the Department, placing reliance on the decision of the Calcutta High Court in CIT v. All India Tea and Trading Co. Ltd. : [1978]113ITR545(Cal) has held it as an agricultural income.
5. It must be stated that what is received is an amount of compensation with regard to the cutting of the trees. It must be seen that as far as the commodity collected as a result of the cutting, the assessee has received compensation and has lost possession of the said property which was collected by the Board. It has to be appreciated that as far as the propertyfor which the assessee received compensation, the property is lost and it is, therefore, compensation is paid and received for the said loss. We have carefully gone through the decision of the Calcutta High Court and we could not be persuaded by the reasoning, only on the strength of the observation that the source of compensation is the land itself and as far as the payment of compensation is concerned, it is directly associated with the land itself.
6. It is necessary to state that in spite of the difficulty in accepting the reasoning of the Calcutta High Court, additionally, it is necessary to consider that this court in the case of Malankara Rubber and Produce Co. Ltd v. Commr. of Agrl. I. T. : [1993]203ITR226(Ker) had already chosen not to accept the dictum of the Calcutta High Court (CIT v. All India Tea and Trading Co. Ltd. : [1978]113ITR545(Cal) ). This was a case of receipt of compensation on acquisition of land. The present case before us is relating to compensation with regard to the branches of trees cut in the rubber estate. The court has taken into consideration the aspect of divesting of the title, which is the basis for consideration of payment of compensation. The amount so received is held to be a capital asset of the owner. The basis of the reasoning is that the owner made lost the use and control with regard to the property in question, which is the consideration for award of compensation. The court on the basis of the aforesaid of reasoning has reached the conclusion that the same would be a capital receipt and will not be a revenue receipt.
7. Apart therefrom, even earlier, the question appeared directly before the Supreme Court in the case of Commr. of Agrl I.T. v. Kailas Rubber and Co. Ltd : [1966]60ITR435(SC) . When the assessee-company after the purchase of the rubber estate cut the rubber trees which had ceased to yield and sold them rendering themselves liable to tax and the question that was taken up for consideration and consequent decision was as to whether the sale proceeds of old and unyielding rubber trees grown and used for obtaining income as latex therefrom are capital receipts The question is already answered that the sale proceeds of the old and unyielding rubber trees were capital receipts and not taxable as agricultural income under the Kerala Agricultural Income-tax Act, 1950.
8. In view of the above decision, this question also will have to be understood as a closed chapter requiring answer question No. 4 in the negative--in favour of the assessee and against the Revenue.
9. For the above reasons, questions Nos. 3 and 4 are answered as above, which requires a consequential deduction.
10. A copy of this judgment under the seal of this court and the signature of the Registrar shall be sent to the Commissioner of Agricultural Income-tax, Trivandrum, to dispose of the matter in confirmity with the above judgment. Ordered accordingly.