Venkataswami, J.
1. In all these tax revision cases arising out of the Tamil Nadu Agricultural Income-tax Act, 1955 (hereinafter called 'the Act'), common questions of law arise for consideration and the assessee is also the same and common arguments were addressed. Hence, all these tax cases are disposed of by this common order.
2. The points that arise for consideration in all these cases are : (1) whether the subsidy received from the Rubber Board is to be treated as revenue derived from land and, as such, exigible to agricultural income tax, as held by the Tribunal, or, is not to be treated as agricultural income derived from the land but to be treated as a capital receipt, and as such not exigible to agricultural income-tax, as contended by learned counsel for the petitioner; and (2) whether the expenditure incurred on ammonia gas for conservation of latex is to be allowed to the full extent or to be restricted with reference to the income derived in a particular accounting year?
3. The Tribunal, applying the ratio laid down by the Supreme Court in V. S. S. V. Meenakshi Achi v. CIT : [1966]60ITR253(SC) and following its own orders in ITA Nos. 106 and 1980 dated September 9, 1980, held that the subsidies received from the Rubber Board are exigible to tax as revenue receipts. On the second question, the Tribunal held that the expenditure on ammonia gas for conservation of latex for the accounting year in question being far excessive compared to the previous accounting year, and, in the absence of any corresponding increase in the income, the proportionate disallowance by the Agricultural Income-tax Officer was justified. Aggrieved by the above two views taken by the Tribunal, these tax revision cases are filed.
4. We may, at the outset point out that the first question arises for all these years, but the second question arises only in respect of two assessment years, namely, assessment years 1976-77 and 1977-78.
5. Mr. K. C. Rajappa, learned counsel appearing for the petitioner, submitted that the view taken by the Tribunal that the ratio laid down by the Supreme Court in Meenakshi Achi's case : [1966]60ITR253(SC) applies to the facts of the present cases is wrong and cannot be sustained in law. According to learned counsel, the circumstances under which the Supreme Court laid down the law in Meenakshi Achi's case : [1966]60ITR253(SC) , are entirely different as explained in detail by the Full Bench of the kerala High Court in the case of CIT v. Ruby Rubber Works Ltd. : [1989]178ITR181(Ker) . He also submitted that the Supreme Court, in the case of S. S. Rajalinga Raja v. State of Madras : [1967]63ITR617(SC) , has clearly held that tax on agricultural income can be levied only on the income derived from the land and not on the amount/amounts received otherwise than by way of income from agricultural land. He also brought to our notice the fact that a Division Bench of the Karnataka High Court, in Writ Appeals Nos. 355 to 357 of 1975, dealing with an identical question has taken the view that subsidies received from the Rubber Board are not includible in the taxable agricultural income. In other words, the Division Bench of the karnataka High Court, in that case, has taken the view that subsidies received from the Rubber Board cannot be treated as agricultural income derived from the land and, as such, exigible to agricultural income-tax. He also pointed out that the Full Bench of the Kerala High Court in CIT v. Ruby Rubber Works Ltd. : [1989]178ITR181(Ker) , overruling the Division Bench judgments of the said court in CIT v. Malayalam Plantations Ltd. : [1987]168ITR63(Ker) , has also taken a view that the subsidies received from the Rubber Board cannot be included in the taxable income under the provisions of the Kerala Agricultural Income-tax Act. Apart from placing reliance on the above decision, he also took us through the relevant clauses of the scheme relating to subsidy granted the Rubber Board.
6. On the second point, learned counsel for the petitioner, Mr. K. C. Rajappa, submitted that the Agricultural Income-tax Officer, having given a finding accepting the accounts maintained by the assessee relating to the expenditure incurred on ammonia gas for conservation of latex, erred in disallowing a portion of the expenditure on the ground that the income was not proportionate to the expenditure, forgetting that, under section 5(e) of the Act, no such condition is prescribed.
7. Mr. R. Karuppan, learned Addl. Government Pleader, in meeting the contentions of learned counsel for the petitioner, while reiterating the views taken by the Revenue, confirmed by the Tribunal, further submitted that the ratio laid down by the Supreme Court in Meenakshi Achi's case : [1966]60ITR253(SC) , will squarely apply to the facts of this case and that the distinction made on facts is not correct.
8. We have carefully considered the rival submissions. before actually going to the contentions, it will be useful to make a note of the relevant clauses in the Development Replanting Subsidy Scheme under which subsidies were given by the Rubber Board. They read as follows :
'It is well recognised that, for increasing production and productivity of the existing plantations on a long-term basis, the vast areas which are already under old, low-yielding and uneconomic rubber trees should be cleared and replanted systematically with modern high-yielding plant material. As an incentive for this, a subsidy of Rs. 2,471 per hectare is being paid to rubber growers to undertake the replanting work in all earnestness. The subsidy is paid in seven annual instalments, the first instalment being Rs. 1,000 per hectare, the second instalment Rs. 246 and the subsequent five instalment Rs. 245 each and the disbursement is made only after completion of the stipulated items of work each year.
Sunsidy will be granted for replanting low-yielding uneconomic rubber tress planted in or prior to 1962 and registered with the Board.
There is also a provision for replanting in alternative ares provided the areas selected for planting are considered suitable by the Board in every respect. This is to enable rubber growers to destroy rubber plantations situated in areas having poor soil or areas with unsuitable climatic conditions such as those in high altitudes, considered unfit for rubber cultivation, and to replant an equivalent extent of suitable alternative land which they own elsewhere in the country. Each such application will be considered only on individual merit.
Progress of the schemes : The replanting subsidy was put into operation in 1957. Since then, a total amount of Rs. 6,96,09,031 has been disbursed till September 30, 1974, for replanting an area of 33,481 hectares. The year wise details are given separately.
Additional assistance to small holders :
Under the replanting subsidy scheme, permit holders owning not more than 6-07 hectares of rubber area, are supplied with manure half the cost of which so supplied is recovered from the subsidy instalments falling due for payment subsequently. Manure is obtainable against the coupons issued from the Regional/Sub-officer, from the fertilizer firms who participate in the Board's manure supply scheme or through sub-depots and agents of such firms. Permit holders desirous of availing this concession should contact the concerned Regional or sub-officer in advance'
Likewise, the relevant provisions of the Act may also now be noted. Section 2(a) of the Act defines 'agricultural income' as follows :-
'2. In this Act, unless the context otherwise requires-
(a) 'Agricultural income' means-
(2) any income derived from such land in the State 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 raised or received by him, in respect of which no process has been performed other than a process of the nature prescribed in sub-clause (ii);
Explanation.-Agricultural income derived from such land by the cultivation of any crop means that portion of the income derived from the cultivation, manufacture and sale of the produce of that crop is defined to be agricultural income for the purposes of the enactments relating to Indian Income-tax and if it has not been so defined, the whole of the income.
(3) any income derived from any building owned and occupied by the receiver of the rent or 5revenue of any such land or occupied by the cultivator or the receiver of rent-in-kind of any land with respect to which or the produce of which any operation mentioned in sub-clauses(ii) and (iii) of clause (2) is carried on :
Provided that the building is on or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue or the cultivator or the receiver of the rent-in-kind, by reason of his connection with the land, requires as a dwelling house or as a store-house or other outbuilding :' Section 2(nnn) defines 'Land' as follows :
''land' means agricultural land, that is to say, land which is used for agricultural purposes or purposes subservient thereto and is either assessed to land revenue in the State or is subject to a local rate assessed and collected officers of the Government as such and includes horticultural land, forest land, garden land and plantations, but does not include house site, or land used exclusively for pasture.' Section 2(r) defines 'plantation' as follows :
''Plantation' means any land used for growing all or any of the following, namely, are canut, tea, coffee, rubber or cloves or cardamom.' Section 3(1) is the charging section and it reads as follows :
'Agricultural income-tax at the rate or rates specified in Part I of the Schedule to this Act shall be charged for each financial year commencing from April 1, 1955, in accordance with and subject to the provisions of this Act, on the total agricultural income of the previous year of every person :
Provided that the agricultural income or any part of it derived from land other than any land used for growing tea, coffee, rubber, cinchona or cardamom shall be subject to assessment of agricultural income-tax only from the financial year commencing from the April 1, 1958 :
Provided further that the agricultural income or any part of it derived from land in the added territory shall be subject to assessment of agricultural income-tax only from the financial year commencing from the 1st April, 1961 :
Provided also that the agricultural income or any part of it derived from land in the transferred territory shall be subject to assessment of agricultural income-tax under this Act, only from the financial year commencing from the 1st April, 1972.
Section 4 defines what is total agricultural income. It reads as follows :
'Subject to the provisions of this Act, the total agricultural income of any previous year of any person comprises all agricultural income derived from land situated within the State which is received by him or which accrues to him within or without the state, but does not include-
(a) any agricultural income derived from land situated without the State;
(b) any agricultural income derived from property held under trust, wholly or partly for charitable or religious purposes, to the same extent to which income derived from property held under trust wholly or partly for charitable or religious purposes, is not included in the total income for purposes of the Income-tax Act, 1961 (Central Act 43 of 1961);
(c) any agricultural income derived from property held by any co-operative society registered or deemed to be registered under the Madras Co-operative Societies Act, 1932 (Madras Act VI of 1932).
With this background, we will now look into the decisions, in particular the Full Bench decision of the kerala High Court in CIT v. Ruby Rubber Works Ltd. : [1989]178ITR181(Ker) , and the Division Bench judgment of the Karnataka High Court.
10. In CIT v. Ruby Rubber Works Ltd. : [1989]178ITR181(Ker) , the Full Bench of the Kerala High Court had occasion to consider the nature of the subsidies received by planters from the Rubber Board, and also the correctness of a Division Bench judgment of the same court in CIT v. malayalam Plantations ltd. : [1987]168ITR63(Ker) . The Full Bench while considering the applicability of the ratio of the decision of the Supreme Court in meenakshi Achi v. CIT : [1966]60ITR253(SC) to the question whether the subsidy received from the Rubber Board by the assessee is income of the assessee liable to be taxed, held as follows (at p. 185) :
'Learned counsel for the assessee very frankly submitted before us that if the ratio of the decision in V. S. S. V. Meenakshi Achi v. CIT : [1966]60ITR253(SC) is applicable to the case, the question referred has to be answered in favour of the Revenue. Assuming that the question referred in the case reported in CIT v. Malayalam Plantations Ltd. : [1987]168ITR63(Ker) is identical with the question that arose in Meenakshi Achi's case : [1966]60ITR253(SC) , this court has held that the subsidy paid to the assessee would swell the profits of the assessee, and so, the amount of subsidy is not a capital receipt and is only a revenue receipt which can be included in the taxable income. It is clear and plain that in coming to the above conclusion, the Division Bench proceeded on the stereobate that the question decided in Meenakshi Achi's case : [1966]60ITR253(SC) was an identical question.
Learned counsel submits that an analysis of the facts of the case in Meenakshi Achi's case : [1966]60ITR253(SC) would plainly show that the facts and particularly the scheme of subsidy are quite different from the scheme of subsidy involved in the case decided by the Division Bench in CIT v. malayalam Plantations Ltd. : [1987]168ITR63(Ker) .
After considering the provisions of the Rubber Act, 1947, and also the relevant clauses in the scheme, the learned judge of the Full Bench observed as follows (at pages 188, 189) :
'In Meenakshi Achi's case : [1966]60ITR253(SC) , the assessee owned rubber plantations in the Federation malay States outside Penang. Out of a fund into which ceases collected under the Rubber Industry (Replanting) Fund Ordinance, 1952, on rubber produced in penang and rubber exported from the federation other than Penang, were paid,. proportionate parts of the ceases so collected, after defraying expenses, were credited to the accounts of the assessee, corresponding to the amount of rubber produced by them, and payments were made to the assessees from the amounts so credited against expenditure incurred on the maintenance of the plantations. from the above facts, it is clear that the amounts from the fund were earmarked for the assessees on the basis of the rubber produced by them and were paid against the expenditure incurred by them for maintaining the rubber plantations and producing rubber. It has to be noted that the amounts paid were particularly earmarked for maintaining the rubber plantation and for producing rubber. There is no reference regarding the replantation or plantation of rubber tress. The amounts were paid with reference to the production of rubber and so, the court held that the amounts received by the assessee were revenue receipts. The following observation of Subha Rao J., as he then was, makes this aspect of the matter clear (at page 259) :
'Briefly stated, the basis of the High Court's judgment is that the assessees contributed to the Fund by paying duty on the 4export of rubber and, therefore, the repayment made to them from out of the Fund must be correlated to the production of rubber. It was clear from the facts narrated above that the assessees were only planters and they were not exporters and, therefore, they did not pay any duty under the Ordinance to the Government. Mr. Sastri, learned counsel for the Revenue, did not support the principle accepted by the High Court that the source of payment was material and not the nature of the expenditure. Indeed, his argument was contrary wise, namely, that the expenditure was revenue expenditure and, therefore, the amounts paid to recoup it partook of that character. Further, the judgments makes it clear on the facts that the amounts received by the assessees from the fund earmarked for payment to the assessees was on the basis of the rubber produced by them and so the court found that the receipts by the assessee during the accounting year were revenue receipts and, therefore, liable to be included in their assessable income. Significantly, in Meenakshi Achi's case : [1966]60ITR253(SC) , the cardinal point to be noted is that it was a case of an assessment of income-tax on the global income received by the assessee from outside India. It is foreign(agricultural) income that was subjected to income-tax. Section 2(1) (a) of the Act defines agricultural income with special emphasis on income derived from land which is situated in India. These vital distinctions are the peculiar features which supported the ratio of the decision in Meenakshi Achi's case : [1966]60ITR253(SC) .'
Ultimately, the learned judges held as follows (at. 195) :
'It is difficult for us to say that the subsidy given to the rubber growers for replanting is not for a beneficial purpose, we feel certain that it is for the definite purpose to encourage rubber growers to undertake replanting of old and uneconomic plantations and for that the Board is offering them assistance under its replanting subsidy scheme. This economic assistance is offered by the Board under stringent conditions for implementing a scheme designed to achieve development of the rubber plantation industry on efficient and economic lines. It is done to promote public interest. We find it difficult to hold that the replantation subsidy given to the rubber growers is to swell the profits of the assessees. In this view, with great respect, we are unable to concur with the Division Bench decision reported in CIT v. Malayalam Plantations ltd. : [1987]168ITR63(Ker) .
In the result, we hold that the replantation subsidy paid to the assessee is not a revenue receipt and cannot be included in the computation of the profits or income of the assessee.'
The Division Bench of the Karnataka High Court in Writ Appeals Nos. 355 to 357 of 1975 dated February 24, 1978, while considering the nature of the subsidy received from the Rubber Board, has held as follows :
'It appears to us that the submission made on behalf of the appellant are well-founded. The scheme, by itself, does not provide for any reimbursement or recompense of the expenses actually incurred by a rubber plantation owner. It merely provided that in respect of certain work, if they were carried out to the satisfaction or the Board and the prescribed authority, certain sums of money would be paid. The payment is not in any way correlated to the actual expenditure that may be incurred for such work. The scheme does not say that a certain percentage of the expenditure would be reimbursed. It also provides that if certain conditions prescribed in the scheme were violated, the Board would be entitled to recover the whole or part of the subsidy that had been paid. In view of the contents of the scheme, it is difficult to infer that the payment of the subsidy is in any way related to the expenditure incurred by the assessee in regard top replanting or maintenance of immature plants or that it is a payment by way of reimbursement or recompensation for the expenses. The Income-tax Officer himself did not say that it is direct reimbursement. He was of the opinion that indirectly, to some extent, the assessees would have been reimbursed of the expenses. Therefore, there was no basis to assume and proceed on the basis that the subsidy given was specifically to meet the expenditure for replantation. There is no specific provision that any subsidy received from the Government or other public authority is to be deducted in ascertaining the expenditure which is to be considered for purposes of allowance. The scheme of the Agricultural Income-tax Act is to bring to tax the agricultural income which is defined in section 2(1) (a) and which means, inter alia, rent or revenue derived from land which is and which means, inter alia, rent or revenue derived from land which is used for growing all or any of the commercial crops (as it stood prior to Act 29 of 1976). Further, the land should be either assessed to land revenue in the State or subject to a local rate assessed and collected by the officers of the State Government and, as such, primarily, it is the income derived from such land that is exigible to tax and the expenditure that would have to be allowed would generally be in the process of realisation of such income. Receipts of other nature would prima facie not be within the purview, for the purposes of computing the agricultural income under the Act, and cannot readily be considered to cut down the expenditure.'
In this connection, the argument of learned counsel for the petitioner that the revenue derived from the land alone is exigible tot ax under the Act is supported by the decision of the Supreme Court reported in Rajalinga Raja v. State of Madras : [1967]63ITR617(SC) . The Supreme Court, that case, had occasion to consider section 3 of the Madras Plantations Agricultural Income-tax Act, 1955 (5 of 1955)
The Supreme Court held as follows (headnote) :
'Merely because the produce of his plantation was received in the earlier years, income derived from sale of that produce in the year of account was not exempt from tax under the Act in that year.'
Section 3 of the Act read with the definition of 'agricultural income' charges to tax the monetary return either as rent or revenue or agricultural produce from the plantation. The expression 'income', in its normal connotation, does not mean mere production or receipt of a commodity which may be converted into money. Income arises when the commodity is disposed of by sale, consumption or use in the manufacture or other processes carried on by the assessee qua that commodity. It is not necessary, however, for income to accrue that there must be a sale of the commodity. Consumption or use of a commodity in the business of the assessee from which the assessee obtains benefit of the commodity may be deemed to give rise to income.
This also, having regard to the provisions of the Act extracted above, supports the contention advanced by learned counsel for the petitioner. We are in respectful agreement with the view expressed in the Full bench judgment of the Kerala High Court in CIT v. Ruby Rubber Works Ltd. : [1989]178ITR181(Ker) . Consequently, we are of the opinion that the view taken by the Tribunal, and the contention of the learned Additional Government Pleader applying the ratio laid down by the Supreme Court in Meenakshi Achi's case : [1966]60ITR253(SC) that the subsidies received from the Rubber Board should be treated as revenue receipts, cannot be accepted.
On the second question, namely, neither the Agricultural Income-tax Officer nor the Tribunal has given nay reason for disallowing the portion of the expenditure on ammonia gas for preservation of latex. It is common ground that the Agricultural Income-tax Officer had accepted the accounts maintained by the assessee regarding expenses incurred for ammonia gas to preserve lates. The only reason given by the Agricultural Income-tax Officer and accepted by the Tribunal for disallowing a portion of the expenditure was that the expenditure incurred in the accounting years in question compared to the expenditure incurred during the previous years was excessive without proportionate increase in the income. As rightly pointed out by learned counsel for the petitioner, the expenditure incurred for annomia gas can be brought under section 5(e) of the Act and, if so, by learned counsel for the petitioner on the scope of section 5(e) of the Act can be usefully referred to. In Kil Kotagiri Tea and Coffee Estates Co. ltd. v. Government of Madras : [1974]96ITR165(Mad) , a Division Bench of this court, while considering the scope and extent of section 5(e) of the Act, held as follows (headnote) :
'Section 5(e) of the Madras Agricultural Income-tax Act, 1955, is in the nature of a residuary clause and would take in not only the expenditure incurred for the purpose of earning the agricultural income but also very many expenses involved in carrying on the agricultural activity as an occupation. The expression for the purpose of the land' is much wider in scope than the expression for the purpose of deriving the agricultural income from the land'. It covers a wide range of expenses taking in not only the expenses incurred actually for deriving agricultural income but also expenses which are not directly incurred for deriving agricultural income but have been expended in connection with the lands which do not have any relationship to the agricultural income derived in the previous year. If the expenses are reasonably connected with the holding of the land and using it for the purpose of agriculture those expenses will come under the expression 'for the purpose of the land'.'
In Puthutotam Estates (1943) Ltd. v. State of Tamil Nadu : [1984]148ITR341(Mad) , again a Division bench of this court, while considering the scope of section 5(e) and (k) of the Act, held as follows (headnote) :
'Section 5(e) and 5(k) of the Tamil Nadu Agricultural Income-tax Act, 1955, operate in different areas. Section 5(e) applies to any expenditure laid out or expended wholly and exclusively for the purpose of the land, not being in the nature of capital expenditure or personal expenses of the assessee. Section 5(k) applies only to interest paid on the amounts borrowed and actually spent on the existing crop on the land from which income is derived and will not apply to any interest payments on amounts borrowed for maintaining the other areas or plants from which agricultural income is not derived in the assessment year. The distinction made by the statute between lands in general and lands from which agricultural income is derived cannot be overlooked. Consequently, the interest payments made on the amounts borrowed and actually spent on the maintenance of the crop which yielded agricultural income will fall under section 5(k), while the interest paid on the amounts borrowed for maintaining immature plants not yielding any income will fall under section 5(e). There is no question of a restriction in respect of a deduction to be made under section 5(e) as contemplated under section 5(k).
The assessee carrying on business, inter alia, in coffee plantation claimed deduction of the interest on borrowings from bank in computing its agricultural income. This claim was allowed in part subject to the limitation provided in section 5(k) of the Tamil Nadu Agricultural Income-tax Officer. This was confirmed on appeal by the Appellate Assistant Commissioner. The Tribunal held that the interest on the amount borrowed for maintaining the immature coffee plants on the replanted area could not be excluded from the purview of section 5(k) even though the interest on the amounts borrowed on the plantations in general would fall under section 5(e). In this view, the Tribunal remitted the matter to the Income-tax Officer for further consideration in the light of its directions that the amount of the interest paid in respect of loans for maintaining immature plants could only be considered under section 5(k) and not under section 5(e). On revision petitions filed by the assessee against the order of the Tribunal :
Held, that the expenditure incurred on immature coffee plants was a revenue expenditure and not a capital expenditure; and interest paid on the borrowings made for maintaining the immature plants would clearly fall under section 5(e) and not under section 5(k).'
Bearing in mind the ratio laid down in the above two cases and having regard to the fact that both the Revenue and the Tribunal allowed the expenditure but only restricted the same on the ground that the expenditure was not proportionate to the income, that view cannot be sustained when the expenditure is brought under section 5(e) of the Act.
Therefore, we find that the disallowance of a portion of the expenditure on ammonia gas is not justified.
11. In the result, the tax cases are allowed. However, there will be no order as to costs.