George Oommen Vs. State of Kerala - Court Judgment

Gopalan Nambiyar, C.J.

1. The Agricultural Income-tax AppellateTribunal, Trivandrum, has referred the following question of law for theopinion of this court, viz.:

' Whether, on the facts and in the circumstances of the case, the wealth-tax paid by the assessee on his agricultural lands is an allowable deduction under Clause (n)(ii) or any other Clause of Section 5 of the Kerala Agricultural Income-tax Act, 1950 '

2. The question arises with respect to the assessment to agricultural income-tax of the assessee for the year 1973-74. The assessee claimed deduction in respect of an amount of Rs. 6,573 paid as wealth-tax in respect of the property from which agricultural income was derived. The claim for deduction of the amount was disallowed by the Agricultural Income-tax Officer whose order was confirmed on appeal by the Appellate Assistant Commissioner. The relevant portion of the Appellate Assistant Commissioner's order reads as follows :

' 1. Wealth-tax.--The appellant would claim deduction for Rs. 6,573 paid under wealth-tax and the assessing authority would reject it as not spent for earning the agricultural income. The appellant would contend that this being levied and paid only in respect of the lands from which the income--now the subject-matter of assessment--is derived, it should, therefore, be allowed as a legitimate expenditure. I am unable to agree. I find this only a capital tax levied on the net wealth and on the owner of the assets and not on any agricultural operations. For reasons discussed in my proceedings in I.T.A. No. 311/73, disposed of today in respect of the appeal filed by the appellant's wife and raising the identical contentions, I reject the contention and confirm the disallowance.'

3. The Appellate Tribunal again dealt with the matter shortly as follows :

' 2. The only question that arises for our decision in this appeal is whether wealth-tax levied by the Government in respect of the agricultural lands is an item liable for reduction under Section 5(n)(ii) of the Agricultural Income-tax Act in computing the assessable income of the appellant. Under Section 5(n)(ii) any tax, cess or rate paid in the cultivation or sale of the crop from which such agricultural income is derived is an allowable deduction. Wealth-tax is a tax on the capital assets including agricultural lands but it is not in any case a tax paid on the cultivation or sale of the crop from which agricultural income is derived. We, therefore, answer the question in the negative and against the assessee.'

4. Counsel for the assessee invited our attention to the pronouncement of the Supreme Court in Indian Aluminium Co. v. Commissioner of Income-tax : [1972]84ITR735(SC) . While discussing the claim for deduction of wealth-tax under Section 10(1)/(2)(xv) of the Income-tax Act, 1961, more or less similarly worded, the Supreme Court after an exhaustive survey of the authorities, overruled its previous decision in Travancore Titanium Products' case : [1966]60ITR277(SC) and held that the amount incurred by way of expenditure for wealth-tax was deductible for the purpose of the Income-tax Act. Counsel for the assessee strongly urged before us that the principle of the said decision should govern this case. We are inclined to think that it should. But counsel for the revenue raised two objections. In the first place, he submitted that the question of law whether the amount is deductible under Section 5(j) of the Act does not arise out of the order of the Tribunal as no reference to the said section can be found in the course of the discussion of the order of the Tribunal. We cannot agree. The question considered and dealt with by the Tribunal was regarding the deductibility of the expenditure incurred for payment of wealth-tax. The fact that the same was canvassed with reference to a different provision of law is not, in our opinion, material. Particularly, is this so, when the question sent up for our determination refers to ' any other clause of Section 5 of the Agricultural Income-tax Act, 1950'. We, therefore, hold that the question referred does arise out of the order of the Tribunal.

5. The second objection of counsel for the revenue was that Section 5(j) of the Agricultural Income-tax Act, 1950, is not in pari materia with Section 10(1)/(2)(xv) of the Indian Income-tax Act, 1922, or Section 37 of the Act of 1961, and that the question requires to be considered whether the payment of wealth-tax can be said to represent ' expenditure wholly and exclusively incurred for the purpose of deriving agricultural income '. As this aspect of the matter has neither been investigated nor found by any of the taxing authorities, counsel for the revenue submitted that the matter should go back for investigation and finding before the Tribunal. We do not wish to foreclose any possible investigation that might be necessary in regard to this aspect of the matter. We, therefore, answer the question of law as follows :

The wealth-tax paid by the assessee on his agricultural lands is an allowable deduction under Section 5(j) of the Kerala Agricultural Income-tax Act, 1950, provided the expenditure was wholly and exclusively incurred for the purpose of deriving agricultural income. Whether the expenditure was so incurred or not, is a matter to be found by the Tribunal for which purpose the Tribunal will take back the Agricultural Income-tax Appeal No. 243 of 1974 to its file and proceed to dispose of it in accordance with law. We answer the question of law to the extent indicated, in favour of the assessee and against the department. No costs.

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