C. N. Ramachandran Nair, J.
1. A plantation company owning rubber plantation and an assessee under the Kerala Agricultural Income Tax Act, 1991, was amalgamated with the assessee in this case under a scheme of amalgamation approved by the High Court of Kerala. The amalgamation was made effective from 01/01/2006 and consequently amalgamating company’s first assessment under the Kerala Agricultural Income Tax Act, 1991 was made for the assessment year 2006-2007 covering income for three months for the financial year ending 31/03/2006. Besides very little income from minor crops, the main income earned by the assessee on acquisition of estate from the amalgamated company is income from rubber in the form of field latex which was processed in assessee’s factory and sold as centrifuged latex. Even though the income from centrifuged latex was being assessed exclusively as agricultural income under the State Act until the assessment year 2001-2002, from the next year onwards by virtue of introduction of R.7A to the Income Tax Rules with effect from 01/04/2002, income from manufactured rubber was determined as if it is income assessable under the Central Act and thereafter 35% of the income so computed was subject to tax under the Central Act and 65% was assessed under the Agricultural Income Tax Act of the respective State. Following R.7A, the assessee computed income from manufacture of rubber and offered 65% for assessment under the AIT Act and balance 35% for assessment under the Central Act. Even though the Assessing Officer under the AIT Act accepted the computation of income under R.7A, assessee’s claim for carry forward and set off of huge unabsorbed loss of Rs.48,930,939/- was rejected by the Assessing Officer for the reason that the relevant provision in the AIT Act namely, S.12 does not authorise set off of carried forward unabsorbed loss of the amalgamated company in the assessment of the amalgamating company namely, the assessee. Two level appeals filed against the assessment were rejected and consequently assessee has filed this OTC under S.78 of the Kerala Agricultural Income Tax Act, 1991 before us. We have heard Senior Counsel Sri. Sarangan appearing along with Adv. Sri. P. Balakrishnan for the assessee and Government Pleader Sri. Mohammed Rafeeq for the State.
2. There is no dispute that income from manufactured rubber is partially agricultural income and partially business income by virtue of R.7A(1) of the Income Tax Rules, 1962 which is as follows:
“Income from the manufacture of rubber.
7A. (1) Income derived from the sale of centrifuged latex or cenex or latex based crepes (such as pale latex crepe) or brown crepes (such as estate brown crepe, remilled crepe, smoked blanket crepe or flat bark crepe) or technically specified block rubbers manufactured or processed from field latex or coagulum obtained from rubber plants grown by the seller in India shall be computed as if it were income derived from business, and thirty - five per cent of such income shall be deemed to be income liable to tax.”
65% of the income computed as above which was subjected to tax under the Kerala AIT Act for the year is Rs.17,20,404/-. The assessee received exclusive agricultural income from minor crops at Rs.1,30,434/-. By adding this, the Assessing Officer computed the total income assessable for Agricultural Income Tax at Rs.18,23,837/- on which assessee has no dispute. Controversy, however, cropped up when the assessee claimed set off of Rs.4.893 crores being carried forward losses from AIT assessments of the amalgamated company which was exclusively a plantation company engaged in rubber cultivation. The Assessing Officer under the AIT Act noticed that there is no provision similar to S.72A of the Income Tax Act, 1961 in the AIT Act and the only provision which provides for carry forward and set off of unabsorbed loss is S.12 which is as follows:
“12. Carrying forward of loss. -- Where any person sustains a loss as a result of computation of agricultural income any year, the loss shall be carried forward to the following year and set off against the agricultural income of that year and if it cannot be wholly set off, the amount of loss not so set off, shall be carried forward to the following year and so on, but no loss shall be carried forward for more than eight years.”
The Assessing Officer held that assessee’s claim is not tenable under the above provision of the AIT Act because in the first place, loss is of the amalgamated company and secondly, the loss pertains to the period beyond 8 years and lastly, the scheme of amalgamation approved by the High Court does not provide for any set off of carried forward loss of the amalgamated company in the computation of agricultural income of the amalgamating company under the AIT Act. Both the appellate authorities including the Tribunal accepted the view taken by the Assessing Officer and declined relief claimed, the correctness of which is challenged before us. Senior Counsel appearing for the assessee did not make an effort to convince us that the claim is allowable under S.12 of the AIT Act. Obviously the claim is not tenable under S.12 because it does not provide for set off of unabsorbed carried forward loss of the amalgamated company against the agricultural income of the amalgamating company. The section only deals with set off of carried forward loss against the income of the very same assessee. Even though scheme of amalgamation was approved by the High Court, there is nothing to indicate that the assessee ever claimed such a benefit from the Company Court and, therefore, the Court had no occasion to consider whether the carried forward loss under AIT Act of the amalgamated company could be permitted to be carried forward for set off against income of the amalgamating company under the scheme of amalgamation, no matter the AIT Act does not provide for it. Further, the time limit under S.12 for set off of carried forward loss is only upto 8 years and in this case the Tribunal has clearly stated that the loss carried forward is to the 9th year. So much so, the claim was rightly rejected as one not tenable under S.12 of the AIT Act.
3. Senior Counsel appearing for the assessee raised the contention that by virtue of R.7A of the Income Tax rules and S.72A of the Income Tax Act, the assessee is entitled to the benefit because income assessable partially as agricultural income and partially as business income should be computed as if the income is derived from business. Government Pleader appearing for the State opposed the claim stating that neither R.7A of the Income Tax Rules nor S.72A provides for set off of carried forward loss against agricultural income computed under the AIT Act.
4. After hearing both sides, we are unable to accept the contention of the assessee because under the scheme of R.7 and R.7A even though income partially assessable under the AIT Act and partially assessable under the Central Act have to be determined by applying the provisions of the Central Act, set off of carried forward loss is to be done after computation of income and allocation of the same for assessment both under the Central Act and under the State Act. In our view, the procedure to be followed for assessment of income from manufactured rubber, coffee or tea covered by R.7A, R.7B and R.8 respectively of the Income Tax Rules which are partially agricultural income assessable under the AIT Act and partially business income assessable under the Central Act is as follows:
i) First compute the assessable income as if the gross income is business income by granting all eligible deductions, rebates and incentives allowed under the Central Income Tax Act and Rules.
ii) The income so determined as above is to be bifurcated between agricultural income and business income in the proportion provided in the Rules. In the case of rubber under R.7A, R.65% of the income computed has to be allocated for assessment under the Agricultural Income Tax Act.
iii) If assessee has any claim of set off of carried forward loss in the computation of agricultural income from any of the previous years, it has to be set off only in the course of AIT assessment against the 65% income allocated as above and that is to be done only under the provisions of the AIT Act i.e. S.12.
5. From the above we conclude that set off of carried forward loss in the agricultural income tax assessments of previous years cannot be done in the course of computation of income by the Assessing Officer under the Central Act under R.7A of the Income Tax Rules. On the other hand, any claim for set off of carried forward loss in the computation of agricultural income has to be done only by the Agricultural Income Tax Officer in the course of assessment under the AIT Act which is to be done against 65% of the income computed by the Assessing Officer under the Central Act and allotted for assessment under the AIT Act. Since the provision applicable is only S.12 of the Kerala Agricultural Income Tax Act, 1991, which does not authorise set off in this case, assessee was rightly found to be ineligible for the benefit by the Tribunal.
6. Assessee’s contention that S.72A of the Central Income Tax Act applies to assessee’s case is not acceptable because the said section does not deal with amalgamation of a plantation company assessed under the AIT Act with a company assessable only under the Central Act. In any case in view of our finding above that set off of carried forward loss in the computation of agricultural income is a process which is exclusively within the domain of the Assessing Officer under the AIT Act, the assessee’s claim has to be rejected and we do so. Further, it is to be noted that the assessee did not make the claim before the Central Income Tax Officer in the computation of income from manufacture of rubber under R.7A and the Officer had no occasion to consider the tenability of the claim.
In view of the findings above, we dismiss the OTC.