High Court Of Madras
New Ambadi Estate (P) Ltd. vs. State Of Tamil Nadu
Section TN Agrl. IT 5(e), TN Agrl. IT Rule 9
Asst. Year 1993-94
N.V. Balasubramanian & K. Raviraja Pandian, JJ.
T.C. (Rev) No. 388 of 1997
18th December, 2002
Counsel Appeared :
P.H. Aravind Pandian, for the Petitioner : T. Ayyasamy, for the Respondent
JUDGMENT
K. Raviraja Pandian, J. :
The petitioner, a private limited company, derives agricultural income from its plantation and also income from investments in shares and deposits. For the asst. yr. 1993-94, the petitioner-company filed a return under the Tamil Nadu Agrl. IT Act, disclosing a net income of Rs. 1,10,323. The Agrl. ITO, while completing the assessment, after disallowing certain expenses, finally determined the net assessable income at Rs. 32,22,175. On appeal, the Asstt. CIT allowed the appeal in part and while rejecting the petitioner’s claim for deduction of expenditure pertaining to purchase of drums, he remanded the issue to the assessing authority to determine the value of the raw rubber as according to him a sum of Rs. 2,13,84,603 represented sale value of chemically processed rubber which was inclusive of the cost of chemical and cost of empty drums. The petitioner-company carried the matter on further appeal to the Tamil Nadu Agricultural Income-tax Appellate Tribunal, objecting to the disallowance of expenditure such as wages, common expenses, etc., and also questioning the remand order made by the Asstt. CIT.
The Tribunal, except allowing the contribution to SSLAP and temple expenses and remanding the claim under “wages”, sustained the disallowance of other expenditure including the claim under “common expenses” and sustained the remand order of the Asstt. CIT in respect of cost of empty drums. That order is put in issue in the present tax case revision.
Mr. P.H. Aravind Pandian, learned counsel appearing for the petitioner, disputed the disallowance of the expenditure incurred under livestock maintenance, rejection of claim for allowances of common expenses and disallowance of managerial expenditure. Though in the memorandum of revision, the order of remand by the Asstt. CIT which has been upheld by the Tribunal has also been taken as one of the questions of law, learned counsel appearing for the petitioner has not pressed that issue in the revision. I. Livestock expenses in a sum of Rs. 53,373 :
In respect of livestock expenditure claimed in a sum of Rs. 53,373, learned counsel for the petitioner submitted that maintenance of livestock is necessary for obtaining natural manure for the crops and further the milk of the livestock was used in the workers’ canteen and hence the expenses towards the maintenance of livestock had to be allowed since such expenses have direct nexus with the agricultural operation of the estate. The fact-finding authority has found that the petitioner-company was having 1,320 acres of rubber estate and the company could not get the required quantity of natural manure from the livestock, the petitioner-company maintained, and they further found that there was no chance of utilizing the natural manure to the rubber crop. For rubber crops chemical manure only is being used not only in the petitioner’s estate but also in several other rubber estates and further found that the natural manure from livestock was used for the non-plantation crops in the estate.
The further contention of the petitioner that the milk from the livestock was used in the workers’ canteen has also been rejected on the ground that in the workers’ canteen coffee and tea were sold for a price to the workers and the canteen was run with a business motive, not as a welfare measure. As the natural manure obtained from the livestock was found to be used for non-plantation crops and the milk obtained from the livestock was found to be used in the workers’ canteen for commercial and business purpose to earn profit, the expenses expended towards maintenance of livestock are not an allowable deduction since there is no connection between the expenses incurred and the agricultural income derived from the plantation crops. Hence, we are of the view that there is absolutely no irregularity in the orders of the authorities below in disallowing the expenses claimed in a sum of Rs. 53,373. II. Common expenses in a sum of Rs. 14,37,274
It is contended by learned counsel for the petitioner that the abovesaid expenses related to salaries and other allowances incurred for the staff of the head office at Madras. The Agrl. ITO allowed only a portion of Rs. 6,02,133. It is evident from the records that the office of the petitioner at Madras is looking after two companies, one the petitioner herein and the other “New Ambadi Investment”, an investment company. The Agrl. ITO apportioned the expenses relating to the two companies and allowed 1/3rd of the expenses as expenses incurred for the purpose of the petitioner-company. The AO has given reasons for disallowing the 2/3rds of expenses to the effect that the common expenses represented the salaries and other allowances incurred for the staff at the head office at Madras. During the previous asst. yr. 1992-93 the total expenses for the head office at Madras were Rs. 21,05,970 and out of that total amount, the petitioner-company themselves claimed 32.5 per cent of the expenses towards the expenses incurred for the petitioner-company. The AO followed the very same ratio for the present assessment year also. That has been confirmed by the Asstt. CIT as well as the Tribunal.
Learned counsel for the petitioner contended that as in the assessment year in question, there was no income from the investment company, the entire expenses expended for the head office at Madras have to be allowed from and out of the total income of the petitioner-company. He further contended that the disallowance is directly opposed to r. 9 of the Tamil Nadu Agril. IT Rules. According to him, the expenses should be allocated in proportion to the income assessable to the agricultural income-tax and the Central Income-tax. During the relevant assessment year, the Central Income-tax assessment resulted in a loss and since there was no Central Income-tax, the entire expenses have to be allowed under the Agrl. IT Act. We are afraid to accept the contention of the learned counsel for the petitioner since we are of the view that r. 9 cannot be construed as contended by learned counsel to the facts of the present case. Rule 9 provides that where a deduction in respect of any item, admissible under s. 5 or under rr. 3, 4 or 5 is a common charge incurred for the purpose of deriving both agricultural income assessable under the (State) Act and income chargeable under the Indian IT Act, the deduction allowable under the Act shall be such proportion of the common charge. The petitioner is engaged only in rubber plantation assessable under the Tamil Nadu Agrl. IT Act (and) not engaged in tea or coffee plantation so as to consider the petitioner as assessable under the agricultural income-tax as well as the Indian IT Act so as to invoke r. 9 of the Tamil Nadu Agrl. IT Rules. The decisions which were cited in CIT vs. Manjushree Plantations Ltd. (1979) 13 CTR (Mad) 10 : (1981) 130 ITR 908 (Mad) and Consolidated Coffee Ltd. vs. State of Karnataka (2002) 176 CTR (SC) 98 : (2001) 248 ITR 432 (SC) were all rendered in respect of the assessees, who were liable to be assessed under the Agrl. IT Act as well as the Central IT Act in respect of the income derived from tea and coffee plantation.
8. It is an admitted fact that the expenses had been incurred for the head office at Madras in respect of both the companies. Whether the investment company for which the expenses incurred earned profit or not is not a matter for consideration in apportioning the expenses incurred for that company also. In the absence of any materials adduced by the petitioner to show that the expenses incurred towards the petitioner-company are more in proportion than the one incurred in the previous year, the adoption of the ratio as adopted to the previous year by the authorities cannot be found faulty. Hence, in this head also the finding arrived at by the authorities below has to be confirmed, since there is no irregularity in apportioning the expenses as claimed by the petitioner itself in respect of the earlier assessment year. III. Managerial remuneration Rs. 1,05,000 :
The petitioner-company claimed a sum of Rs. 1,05,000 towards managerial remuneration under common expenses. The Agrl. ITO has disallowed 1/3rd share relating to the New Ambadi Estate (P) Ltd. on the ground that the expenses has commercial orientation and no relevance to agriculture, which finding have been confirmed by the Asstt. Commr. of Agrl. IT and on appeal by the Tribunal.
Learned counsel contended that the said amount represents the commission paid to the general manager as per the terms of appointment and it was purely in the nature of salary for the services rendered by the general manager since he was responsible for all the activities relating to the cultivation of rubber and marketing of the produce and, therefore, the entire claim made by the petitioner was wholly allowable in the computation of the agricultural income. However, learned counsel for the petitioner fairly admitted on instructions from the petitioner that the said amount has been expended as commission in respect of seven directors at the rate of Rs. 15,000 each, who are neither in whole-time employment nor managing directors of the petitioner-company. In view of the fairadmission by learned counsel for the petitioner it requires no further consideration except confirming the order of the lower authorities. As stated already in respect of the expenses for empty drums, it has not been seriously disputed by the petitioner.
In view of the above discussion, we are of the view that there is no irregularity or infirmity as to the finding arrived at by the authorities below in respect of the disallowance of abovesaid three expenses as claimed by the petitioner.
In fine, the revision deserves to be dismissed and as such it is dismissed.
[Citation : 265 ITR 543]
