THE VELIMALI RUBBER CO. LIMITED V. THE ASSISTANT COMMISSIONER OF INCOME TAX

ITA/281/2019

AI Insights

The case involves M/s. Velimali Rubber Co. Ltd, the appellant, challenging the decision of the Income Tax Appellate Tribunal, Cochin, regarding the deductibility of expenses related to the maintenance and replantation of rubber trees for the assessment year 2011-12. The primary legal questions revolved around the interpretation of Rule 7A(2) of the Income Tax Rules and its application under Section 37 of the Income Tax Act. The Full Bench's prior decision in a related matter set a precedent that the costs for replacing dead and useless rubber trees and the upkeep of immature plants are allowable deductions. The High Court's decision aligned with this precedent, overturning the lower authorities' rulings and remanding the case for reassessment.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 684886 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 03-08-2022
• Assessment Year: misc
• Other Referred Cases: Rehabilitation Plantations vs CIT
• Laws Referred To: Income Tax Act, Income Tax Rules
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: P K MENON; JOSE JOSEPH
• Assessee Lawyers: JOSEPH MARKOS; V MARKOS; ABRAHAM MARKOS; ISAAC THOMAS; ALEXANDER MARKOS; VIPIN H M; SHARAD KODANTHARA
• Keywords: Deduction; Income Tax; Maintenance cost; Revenue expenditure; Rubber trees; Replantation Cost
• Section: 37; 8(2); 10(31); 7A(2)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 3RD DAY OF AUGUST 2022 / 12TH SRAVANA, 1944 ITA NO. 281 OF 2019 AGAINST THE ORDER ITA 381/COCH/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT: THE VELIMALI RUBBER CO. LIMITED K.K.ROAD,KOTTAYAM-686001. BY ADVS. JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SHRI.ALEXANDER JOSEPH MARKOS SHRI.VIPIN ANTO H.M. SHRI.SHARAD JOSEPH KODANTHARA RESPONDENT/S: THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, KOTTAYAM-686001. BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.) SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 03.08.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA NO. 281 OF 2019 -2- J U D G M E N T S.V.Bhatti, J. Heard Senior Adv. Joseph Markos for the appellant and Mr Navaneeth. N. Nath holding for Mr Jose Joseph, Standing Counsel for parties. 2. M/s. Velimali Rubber Co. Ltd, Kottayam/assessee is the appellant. The Assistant Commissioner of Income Tax, Kottayam/ Revenue is the respondent. 3. Assessee challenges the order of Income Tax Appellate Tribunal, Cochin in I.T.A No.381/Coch/2018. The subject matter of the appeals relates to the assessment year 2011-12. The appeals are filed and admitted on the following substantial questions of laws: 1) Whether, on the facts and circumstances of the case, the Appellate Tribunal is right in holding that the cost of maintenance of rubber trees already planted cannot be allowed as a deduction from the income in view of Rule 7A(2) of the Income Tax Rules? 2) Whether, on the facts and circumstances of the case, the cost of maintenance of rubber trees already planted is revenue expenditure allowable under Section 37 of the Income Tax Act? 3) Whether, on the facts and circumstances of the ITA NO. 281 OF 2019 -3- case, Appellate Tribunal is right in holding that the cost of replantation of rubber trees in replacement of old and useless rubber trees in a previously planted area cannot be allowed under Rule 7A(2) of the Income Tax Rules? 4) Whether, on the facts and circumstances of the case, Appellate Tribunal is right in holding that the deduction under Rule 7A(2) is allowable only for the cost of infilling of rubber trees and not for cost of in replacement of old and useless rubber trees in a previously planted area? 5) Whether on the facts and circumstances of the case and in the light of the Memo Explaining the provisions in Finance Bill 1995 that the deduction under Rule 8(2) is allowed in lieu of depreciation, the deduction under Rule 7A(2) is also to be considered similarly? 6) Whether in the light of the Memo Explaining the provisions in Finance Bill 1995 that the deduction of cost of replantation of tea bushes under Rule 8(2) is allowed in lieu of depreciation, the deduction under similar Rule 7A(2) is to be allowed for the cost of replantation of useless rubber trees and the decision of this Hon'ble Court in the case of Rehabilitation Plantations vs CIT, reported in 251 CTR 343 CTR requires reconsideration? 4. The learned counsel appearing for the parties state that the questions of law framed in instant appeals are covered by the Full Bench order dated 01.08.2022 in I.T.A No.201/2013 and batch. The question considered by the Full Bench reads thus: “Whether the assessee/Plantation Companies under Rule 7A(2) of the Rules are entitled to an allowance ITA NO. 281 OF 2019 -4- towards replanting expenses and a further deduction towards upkeep and maintenance expenses incurred by the assessee for the immature plants till the age of maturity in the computation of income under the Act and Rules.” The Full Bench answered the question as follows: “In the computation of business income under Rule 7A of the Rule 1962, the assessee under Rule 7A(2) is entitled to an allowance in respect of the cost of replacement of dead and useless rubber trees in the rubber plantation in an area not abandoned, subject to Section 10(31) of Act 1961. The upkeep and maintenance expenses incurred by the assessee till the maturity of rubber trees are revenue expenditures eligible for deduction under Section 37 of Act 1961.” 5. The questions framed in the instant appeals by following the order of the Full Bench in I.T.A No.201/2013 and batch are answered in favour of the Assessee and against the Revenue for statistical purposes. Consequent thereto the orders of: a) the Assessing Officer dated 31.01.2014, b) the Commissioner of Income-tax (Appeals) dated 12.06.2018, and c) the Income Tax Appellate Tribunal dated 01.08.2019 are set ITA NO. 281 OF 2019 -5- aside, d) matter remitted to the Assessing Officer for consideration and making the assessment order afresh by keeping in view the ratio of the Full Bench order in I.T.A No.201/2013 and batch. Appeals are allowed as indicated above. S.V.BHATTI JUDGE BASANT BALAJI JUDGE JS ITA NO. 281 OF 2019 -6- APPENDIX OF ITA 281/2019 PETITIONER’S ANNEXURES ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 31.01.2014 PASSED BY THE RESPONDENT FOR THE ASSESSMENT YEAR 2011-12 ANNEXURE B TRUE COPY OF THE APPELLATE ORDER DATED 12.06.2018 PASSED BY THE COMMISSIONER OF INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH. ANNEXURE C TRUE COPY OF I.T.A.N.381/C0CH/2018 FILED IN JULY,2018 BY THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH. ANNEXURE D TRUE COPY OF THE ADDITIONAL GROUNDS OF APPEAL FILED BY THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH ANNEXURE E TRUE COPY OF THE DECISION DATED 21.02.2012 OF THE HONOURABLE HIGH COURT OF KERALA IN THE CASE OF REHABILITATION PLANTATIONS LTD IN I.T.A.NOS.126,128 TO 132 OF 2011. ANNEXURE F TRUE COPY OF THE RELEVANT PROVISIONS OF MEMO EXPLAINING PROVISIONS OF FINANCE BILL,1995 ANNEXURE G IMPUGNED ORDER DATED 01.08.2019 OF THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH,COCHIN IN I.T.A.NO.381/COCH/2018. "