Veerarajendra Estate Ltd. Vs. Agricultural Income-tax Officer - Court Judgment

S. R. Rajasekhara Murthy, J.

1. The orders passed by the respondent, the Agricultural Income-tax Officer, Virajpet, under section 37 of the Karnataka Agricultural Income-tax Act, 1957 (hereinafter referred to as 'the Act'), for the assessment years 1976-77 and 1977-78, are challenged in these writ petitions.

2. The assessments for the two years were completed on June 20, 1978. On June 27, 1980, notices under section 37 of the Act were issued by the respondent proposing to rectify the two assessment orders for the reasons stated in the notices, annexures 'C' and 'D'. To these notices, the petitioner-assesses replied as per annexures 'E' and 'F'. The respondent, not agreeing with the replies, proceeded to rectify the assessment orders as per his orders, annexures 'G' and 'H'.

3. Notices issued under section 37 of the Act indicate three mistakes relating to the assessment year 1976-77 and four mistakes relating to the assessment year 1977-78.

4. Learned counsel for the petitioners concedes that so far as item 3 in the notice for the assessment year 1977-78, namely, 'depreciation allowance claimed is allowed twice', is concerned, he does not challenge the order.

5. As regards the other items which are proposed to be rectified, learned counsel's contentions are :

'Re : (i) Expenditure for the earlier years.'

6. It is contended that the expenses incurred during the two years in question, namely, Rs. 345 and Rs. 2,006, were actually incurred during the previous years in question. This is also the assertion made by the petitioners in their replies filed before the respondent. The respondent has, notwithstanding the said replies, added these items of expenditure for the purpose of assessment for the two years in question.

7. The respondent has not been able to demonstrate that these two items were not actually incurred during the two assessment years, i.e., 1976-77 and 1977-78, or were not shown in the expenditure statement. Therefore, the rectification, in so far as this item is concerned, has to be set aside and the expenditure allowed in the original assessment orders should stand restored.

8. Item (ii) : Depreciation in respect of power tiller.

9. The respondent sought to rectify the allowance of depreciation on the power tiller on the ground that 35% of the depreciation was allowed on it treating it as a tractor under rule 3 read with item 17 of Chapter II of the Rules.

10. The case of the respondent is that the correct depreciation that should have been allowed on power tiller was only 10% and not 25% as allowed in the assessment orders. The power tiller falls under item 27 : 'General machinery implements, plant and other assets not provided specifically in items (1) to (26). There can be no argument on the question that a power tiller cannot be treated as a 'tractor' and that the two are different. The allowance of depreciation treating the power tiller as a tractor was undoubtedly a mistake apparent on the face of the record.

11. It was argued by Sri Ramabhadran, learned counsel, for the petitioner, that the power tiller can also be construed as a tractor, having regard to the use to which it is put for the purpose of allowing depreciation. The considerations for allowing depreciation under the Act depend upon the nature of the machinery, horse-power, etc., and not merely on the capability of its being used for similar purposes. Therefore, the order of rectification in so far as it relates to this item is concerned, has to be confirmed. It is ordered accordingly.

12. Item (iii) : Expenditure incurred under section 5(2) (b) (iii) of the Act.

13. The ground for rectification referred to by the respondent in the notice as well as in the assessment orders in question is that no reserve was created as required under section 5(2) (b) (iii) of the Act and that, therefore, the expenditure was not admissible in the current year. The expenditure was meant for meeting replanting expenses and other expenses referred to therein to be incurred during the current year and for this purpose, the assessee should have created a reserve in the previous year, out of the income of the previous year. Hence, the two sums of Rs. 18,015 and Rs. 19,692 allowed as expenses under section 5(2) (b) (iii) of the Act have to be disallowed, there being no reserve created for this purpose, out of the income of the previous year.

14. It was argued by learned counsel for the petitioner that the respondent has proceeded on a misreading of the provisions in rectifying the assessment orders under this head. It was also submitted by learned counsel for the petitioner that for claiming the expenditure on various items of expenses like replanting, maintenance, for new cultivation, etc., under the said provision, no reserve need be created. It is pointed out that what is required under the said provision is to exercise an option in writing that the assessee would opt for allowance of expenditure in the manner provided in sub-clause (iii) in lieu of sub-clauses (i) and (ii) which provide the mode for claiming the expenses incurred. After exercising such an option, an assessee, during any year, can claim the expenses in the manner provided under the said provision. The only requirement for allowing the claim is that the said expenditure should have been incurred during the relevant year.

15. However, the benefit of carry over for a period of 5 years is available to the assessee if the expenditure is not incurred during any year or years as provided under the said provision. The amount so set apart shall be treated as income of the year succeeding the fifth year, if it is not spent for the purpose for 5 years or is spent for any other purpose.

16. It is not in dispute that the assessee in these cases did exercise the option in writing. The assessment orders also disclose that the expenses incurred under this head had been allowed in the original assessment orders. Therefore, no reserve need be created by the assessee for claiming the expenditure if it is actually incurred and spent during the year. Hence, there was no justifiable reason for the respondent to rectify the assessment orders in question under this head and it was not a case of an error apparent on the record but was a case of error of understanding by the respondent.

17. Accordingly, these writ petitions are allowed in part and the orders of rectification except as regards depreciation on power tiller are set aside.