Kilkotagiri Tea and Coffee Estate Ltd. Vs. Commissioner of Income-tax - Court Judgment

Gopalan Nambiyar, C. J.

1. The question of law referred for our opinion by the Income-tax Appellate Tribunal, Cochin Bench, under Section 256(1) of the Income-tax Act is :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to development allowance at 50% on the sum of Rs. 71, 500 being a part of the expenditure incurred during the assessment years 1966-67 and 1967-68 on tea clearing under the provisions of section 33A of the Income-tax Act for the assessment year 1971-72 ?'

2. The statement of facts sent up by the Tribunal shows that the assessee is a company having income from tea and coffee estates. The accounting year in question ended on March 31, 1971. The preliminary clearing of the land and planting with tea bushes was done in July, 1967, during the accounting period for the year ended October 31, 1967. The expenses for that year and for the subsequent year ended October 31, 1968, could have been considered for development allowance under Section 33A(1)(a) of the Act in the second assessment year, i.e,, 1969-70. In the succeeding two years, i.e., the third and fourth year of clearing and planting, the claim for development allowance would again come up for consideration. The statement of the case discloses that the relevant figures relating to the claim for development allowance are as follows :

' 1967 Teaclearing--Planting July, 1967 (13.63 Hectares)

Rs.

1st year 1966-67

44,525

2nd year 1967-68

45,275

89,800

Less cost of clearing to beconsidered in the 4th year, i.e., a.y. 71-72.

71,500

18,300

Rs.

50% thereof

9,150

Balance of expenses for whichno. claim was made

71,500

For the year 1971-72, thefourth year of 1967 clearing, the further expenses incurred were :--

3rd year

26,832

4th year

35,172

62,004

3. To this was added the expenditure of 1st and 2nd year not covered by the claim in that year of Rs. 71,500. In 1969, there was another clearing of 3.59 hectares for which 1971-72 would be the 2nd year. The expenses incurred were Rs. 33,861. In that year the company claimed development allowance on the following figures :

1967 clearing :

Rs.

Unclaimedexpenses of 1967 & 1968

71,500

Expensesof 1969 and 1970

62,004

1969 clearing :

1st and2nd year expenses

33,861

1,67,365

50%thereof

83,682

The company had created a reserve of Rs. 70,000.'

4. The Income-tax Officer allowed the claim in respect of the year 1969 clearing, i.e., in respect of the first and the second year. For 1967 clearing, he took into consideration, the expenses in respect of the third and fourth years. The assessee's claim included a part of the expenses of the first and the second year. This was not admitted by the Income-tax Officer as, according to him, the necessary reserve for claiming the expenses had not been provided for by the assessee. The assessee chose to carry forward this expenditure claiming the development allowance in the assessment year 1971-72. This, the officer disallowed. The Appellate Assistant Commissioner concurred on appeal, observing, that the expenditure incurred in the first two years should be claimed deduction of in the second year, and only the balance of expenditure, not taken into account in the first two years, could be claimed in the fourth year. He was of the view that if the assessee chose to make a claim only for a portion of what he was entitled to, in the first two years, instead of the whole which he ought to have claimed, he would be precluded from claiming the omitted portion in the fourth year. The claim for development allowance, according to him, had to be made and allowed in the particular assessment year to which it relates. On further appeal, the Tribunal agreed with the view of the Appellate Assistant Commissioner. The reasons are given by the Tribunal in paragraphs 9 to 14 of its judgment. It recognised that the reason for recomputation of the actual cost of planting in the fourth year arose because the said cost could be known only in that year. 'Actual cost' has been denned in section 33A(7). Under that provision, the entire four years' expenditure is totalled up to get at the actual cost. Actual cost till then is a notional figure 'representing the actual expenditure for a period of four years on the items mentioned in Section 33A(7). This is reduced by the subsidies received from the Tea Board or other authority, either directly or indirectly, subject to a maximum of Rs. 10,000 per hectare for lands in hilly areas and Rs. 12,500 per hectare for lands in other areas. All the ingredients which enter into the 'actual cost' of planting can be known only at the end of the fourth year. The Tribunal recognised that that was the reason why the computation is to be made in the fourth year. It noted that no provision had been made to recall the excess amount of the subsidies in cases where there was such excess ; and was of the view that section 33A(1)(b) does not give a further opportunity to the assessee to get the allowance comprehended under section 33A(1)(a). In paragraph 13 of its judgment, the Tribunal noticed that the granting of the development allowance under Section 33A(1)(a) was mandatory, if the necessary conditions had been established. The income-tax proceedings for each year being separate proceedings, the Tribunal was of the view that the allowance which can be claimed in one year cannot be claimed in another year, merely because the assessee did not make his claim which he could have made in the first year. Equally, the Tribunal was clear that the Income-tax Officer cannot assess in any one year what he forgot or omitted to assess in an earlier year.

5. Section 33A of the Act may well be quoted ;

'Development allowance.--(1) In respect of planting of tea bushes on any land in India owned by an assessee who carries on the business of growing and manufacturing tea in India, a sum by way of development allowance equivalent to-

(i) where tea bushes have been planted on any land not planted at any time with tea bushes or on any land which had been previously abandoned, fifty per cent, of the actual cost of planting; and

(ii) where tea bushes are planted in replacement of tea bushes that have died or have become permanently useless on any land already planted, thirty per cent. of the actual cost of planting,

shall, subject to the provisions of this section, be allowed as a deduction in the manner specified hereunder, namely :--

(a) the amount of the development allowance shall, in the firstinstance, be computed with reference to that portion of the actual cost of planting which is incurred during the previous year in which the land is prepared for planting or replacing, as the case may be, and in the previ- ous year next following, and the amount so computed shall be allowed as a deduction in respect of such previous year next following ; and

(b) thereafter, the development allowance shall again be computed with reference to actual cost of planting, and if the sum so computed exceeds the amount allowed as a deduction under Clause (a), the amount of the excess shall be allowed as a deduction in respect of the third succeeding previous year next following the previous year in which the land has been prepared for planting or replanting, as the case may be :

Provided that no deduction under clause (i) shall be allowed unless the planting has commenced after the 31st day of March, 1965, and no deduction shall be allowed under clause (ii) unless the planting has commenced after the 31st day of March, 1965, and been completed before the 1st day of April, 1970.

(2) Where the total income of the assessee assessable for the assessment year relevant to the previous year in respect of which the deduction is required to be allowed under Sub-section (1) [the total income for this purpose being computed after deduction of the allowance under subsection (1) or Sub-section (1A) or Clause (ii) of Sub-section (2) of section 33, but without making any deduction under Sub-section (1) of this section or any deduction under Chapter VIA or section 280-0] is nil or is less than the full amount of the development allowance calculated at the rates and in the manner specified in sub-section (1)-

(i) the sum to be allowed by way of development allowance for that assessment year under sub-section (1) shall be only such amount as is sufficient to reduce the said total income to nil ; and

(ii) the amount of the development allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the development allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the development allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the development allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year in which the deduction was first allowable,

Explanation.--Where for any assessment year development allowance is to be allowed in accordance with the provisions of sub-section (2) in respect of more than one previous year, and the total income of the assessee assessable for that assessment year [the total income for this purpose being computed after deduction of the allowance under Sub-section (1) or Sub-section (lA) or Clause (ii) of Sub-section (2) of Section 33, but without making any deduction under Sub-section (1) of this section or any deduction under Chapter VIA or Section 280-O] is less than the amount of the development allowance due to be made in respect of that assessment year, the following procedure shall be followed, namely :--

(i) the allowance under clause (ii) of sub-section (2) of this section shall be made before any allowance under clause (i) of that sub-section is made; and

(ii) where an allowance has to be made under clause (ii) of subsection (2) of this section in respect of amounts carried forward from more than one assessment year, the amount carried forward from an earlier assessment year shall be allowed before any amount carried forward from a later assessment year.

(3) The deduction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely :--

(i) the particulars prescribed in this behalf have been furnished by the assessee;

(ii) an amount equal to seventy-five per cent. of the development allowance to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than-

(a) for distribution by way of dividends or profits; or

(b) for remittance outside India as profits or for the creation of any asset outside India ; and

(iii) such other conditions as may be prescribed.

(4) If any such land is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which the deduction under sub-section (1) was allowed, any allowance under this section shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of sub-section (5A) of section 155 shall apply accordingly :

Provided that this sub-section shall not apply-

(i) where the land is sold or otherwise transferred by the assessee to the Government, a local authority, a corporation established by a Central, State or Provincial Act, or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); or

(ii) where the sale or transfer of the land is made in connection with the amalgamation or succession referred to in Sub-section (5) or Subsection (6).

(5) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any land in respect of which development allowance has been allowed to the amalgamating company under sub-section (1),--

(a) the amalgamated company shall continue to fulfil the conditions mentioned in sub-section (3) in respect of the reserve created by the amalgamating company and in respect of the period within which such land shall not be sold or otherwise transferred and in default of any of these conditions, the provisions of Sub-section (5A) of Section 155 shall apply to the amalgamated company as they would have applied to the amalgamating company had it committed the default; and

(b) the balance of development allowance, if any, still outstanding to the amalgamating company in respect of such land shall be allowed to the amalgamated company in accordance with the provisions of subsection (2), so, however, that the total period for which the balance of development allowance shall be carried forward in the assessments of the amalgamating company and the amalgamated company shall not exceed the period of eight years specified in sub-section (2) and the amalgamated company shall be treated as the assessee in respect of such land for the purposes of this section.

(6) Where a firm is succeeded to by a company in the business carried on by it as a result of which the firm sells or otherwise transfers to the company any land on which development allowance has been allowed, the provisions of Clauses (a) and (b) of Sub-section (5) shall, so far as may be, apply to the firm and the company.

Explanation.--The provisions of this sub-section shall apply if the conditions laid down in the Explanation to Sub-section (4) of Section 33 are fulfilled.

(7) For the purposes of this section, 'actual cost of planting ' means the aggregate of-

(i) the cost of preparing the land ;

(ii) the cost of seeds, cutting and nurseries;

(iii) the cost of planting and replanting ; and

(iv) the cost of upkeep thereof for the previous year in which the land has been prepared and the three successive previous years next following such previous year,

reduced by that portion of the cost, if any, as has been met directly or indirectly by any other person or authority :

Provided that where such cost exceeds twelve thousand five hundredrupees per hectare in respect of land situate in a hilly area or exceeds tenthousand rupees per hectare in any other area, then the excess shall beignored.

(8) The Board may, having regard to the elevation and topography, by general or special order, declare any areas to be hilly areas for the purposes of this section and such order shall not be questioned before any court of law or any other authority,

Explanation.--For the purposes of this section, an assessee having a leasehold or other right of occupancy in any land shall be deemed to own such land and where the assessee transfers such right, he shall be deemed to have sold or otherwise transferred such land.'

6. From the section, it is clear that the development allowance is granted for the process of planting or replanting any land with tea bushes. The process is a continuous one, spread over a length of time, and involving alteration and readjustment of ideas and operations from time to time. The reckoning of the 'actual cost' incurred for planting and replanting must, in the nature of things, await the finalisation of the plans and ideas and termination of the process of planting and replanting. It is only thereafter that an allowance can be given for 'the actual cost of planting' as defined in section 33A(7). Any cost worked out till the final evolution of ideas and their execution must, in the nature of things, be only tentative. This aspect, we think, is sufficiently indicated by the terms of the section itself. Section 33A(1)(a) speaks of the computation 'in the first instance' (underlining ours) of the development allowance, meaning and implying that such computation is not to be final and decisive. Sub-clause (b) accordingly provides that 'the development allowance shall again be computed with reference to the actual cost of planting', etc. The sub-clause thus contemplates a recomputation of the actual cost of planting ; and we see nothing on the terms of the section why the recomputation should not cover the entire gamut of the planting operations, but should stop short of what could and should have been claimed, to state it broadly, in the first two years. Whether it should be so confined, on any acceptable principle, apart from the terms of the section, we shall examine presently. There is again the further indication in sub-clause (b) that if, after recomputation, the recomputed amount exceeds the amount allowed as deduction under Clause (a), 'the excess shall be allowed' as a deduction, etc. The provision to allow excess deduction is mandatory, once the condition visualised is satisfied.

7. Apart from the terms of the section we find it difficult to sustain the conclusion of the Tribunal on any general considerations of legal principle, or the scheme of the taxing statute. The Tribunal seems to think that each assessment year is a separate unit for purposes of assessment, and if a deduction or allowance which could have been claimed in the course of one assessment year is not so claimed, the assessee is precluded from making the same claim for the next year. This appears reminiscent of the doctrine of constructive res judicata embodied in Section 11 of the Civil Procedure Code, and known to the civil law--what is generally referred to as the doctrine of 'might and ought'. Even in that region, the position is well settled that before a party's mouth is shut on considerations of constructive res judicata, the plea omitted to be taken should have been one which not only 'might' have been raised in the previous proceeding, but 'ought' to have been so raised. We doubt whether this doctrine of constructive res judicata in all its rigour and severity can be applied to a taxing statute, on the ground that each assessment year is a separate unit of assessment. Without finally pronouncing on that question, we think, there is sufficient indication in the terms of Section 33A, from the provisions we have already adverted to, to show that even if the claim here in question might have been made in the first and the second year of planting, it was not one which 'ought' to have been so made.

8. We answer the question referred in the negative, that is, in favour of the assessee and against the revenue. We make no order as to costs.

9. A copy of this judgment under the seal of the court and the signature of the Registrar will be sent to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.