Case: V.S.S.V. Meenakshi Achi and Ors Vs. Commissioner of Income Tax, Madras

distributed in terms of the Second Schedule. Both the funds were divided again into Fund A and Fund B. Fund A was established on behalf of owners of property of which an area of not less than Ac. 100 - 00 was planted and Fund B on behalf of owners who owned an area of less than Ac. 100 - 00."9. In this case, though Mr. Sastri contended to the contrary, as we have pointed out earlier, the whole proceedings were conducted on the basis that there was a scheme embodying the principles of the First Schedule. It was not disputed that the property of the appellants was not planted entirely with high-yielding rubber trees within the meaning of clause 6. If so, the only question is, what was the nature of the payments made.10. Advertising to the First Schedule of the Ordinance, under clause (4) the cesses collected on rubber produced in Penang and rubber exported from the Federation other than Panang were credited to the accounts of the appellants in such proportions corresponding to the amount of rubber produced by them in the period during which the said cesses were collected. Thereafter, the said amounts were paid to the appellants against expenditure actually incurred since 1st January, 1946, by the appellants on the maintenance of the plantations.On what basis the amounts were paid from the fund to the assesses, there is dearth of material. We have to proceed only on the terms of clauses (4) and (5) of the First Schedule and the admissions recorded by the Tribunal. The Tribunal recorded in its order the concessions made by the assessee to the following effect :"The assessee has conceded before us that it did not have any high- yielding rubber trees. So next position is it is based upon expenditure incurred after 1st January, 1946. It is also admitted that he has claimed such expenses and had them allowed. But these expenses, we find from the records, are based on the production and not on actual expenses shown as having been incurred by the assessee. So it will be difficult, in our opinion, to hold that this is a reimbursement of any expenditure outlay. The assessee might have incurred more or less than the expenses reimbursed to it on the basis of production."11. The following facts therefore emerge. The assessees owned rubber plantations before 1st January, 1946; the assessees being only planters did not pay any duty for rubber exported; the cess or cesses were collected only on rubber produced in Penang and on rubber exported from the Federation other than Penang; the amounts were credited against the appellants corresponding to the amount of rubber produced by them and payments were made from the said amounts to the assessees against expenditure incurred on the maintenance of the plantations.12. The High Court held the said payments were revenue receipts on the following reasoning :"It is perfectly clear that the source of the amounts was the production or the export of the rubber itself by the owners of the plantations. If the money had been paid over as a deduction or an abatement of duty at the stage of production or export, it would not be possible to urge, as the assessees purport to do, that it was anything other than a trading receipt. The mere fact that the statue intervened, collected all of these amounts together in the shape of a fund in which the sums were undeniably earmarked to each and every one of the plantation owners and made payable on the fulfillment of certain conditions does not affect the character of the source of the receipt. It would still remain a trading receipt and the condition that the sums should not be utilised or were to be paid against the sums expended for replanting would not affect the nature of the receipt itself."13. Briefly stated, the basis of the High Courts judgment is that the assessees contributed to the Fund by paying duty on the export of rubber and therefore the repayment made to them from out of the Fund must be correlated to the production of rubber. It was clear from the facts narrated above that the assessees were only partners and they were not exporters and therefore they did not pay any duty under the Ordinance to the Government. Mr. Sastri, the learned counsel for the revenue, did not support the principle accepted by the High Court that the source of payment was material and not the nature of expenditure. Indeed his argument was contrariwise, namely, that the expenditure was revenue expenditure and therefore the amounts paid to recoup it partook of that character.14. The decision in Higgs v. Wrightson is rather apposite. There the appellant was a dairy farmer, the greater part of whose land was, before the war, permanent pasture. Under the Agricultural Development Act, 1939, and the Agriculture (Miscellaneous War Provisions) Act, 1940, he received grants in respect of the ploughing and bringing into a state of cleanliness and fertility land previously under grass for a period of seven years or more. The court held that the ploughing grant was a revenue receipt. Macnaghten J. observed :"Since the amount of the grant depends on the area ploughed, it would seem to be a grant towards the expense of the ploughing...."15. So too, in the instant case, the payments to the planters were made against the expenditure incurred for maintaining the rubber plantations.16. Having regard to the aforesaid facts, we must hold that the amounts from the fund earmarked for the appellants on the basis of the rubber produced by them were paid against the expenditure incurred by them for maintaining the rubber plantation and producing the rubber. If so, it follows that the receipts by the assessees during the accounting year were revenue receipts and, therefore, liable to be included in their assessable income. We therefore hold, though the different reasons, that the High Court has rightly answered the questions against the assessees.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]At the outset, it would be convenient to clear the ground. Throughout the proceedings, it was assumed that a scheme was framed embodying the principles laid down in the first Schedule to the Ordinance and that the payments were made in terms of the scheme. We cannot, therefore, permit the learned counsel for the revenue to change his ground and base his case on the Second Schedule. It may also be made clear that the assessees were only planters and were maintaining the plantations : they were not carrying on any business in rubber; the said amounts in their hands were assessed as income derived from plantations.In this case, though Mr. Sastri contended to the contrary, as we have pointed out earlier, the whole proceedings were conducted on the basis that there was a scheme embodying the principles of the First Schedule. It was not disputed that the property of the appellants was not planted entirely withrubber trees within the meaning of clause 6.Briefly stated, the basis of the High Courts judgment is that the assessees contributed to the Fund by paying duty on the export of rubber and therefore the repayment made to them from out of the Fund must be correlated to the production of rubber. It was clear from the facts narrated above that the assessees were only partners and they were not exporters and therefore they did not pay any duty under the Ordinance to the Government. Mr. Sastri, the learned counsel for the revenue, did not support the principle accepted by the High Court that the source of payment was material and not the nature of expenditure. Indeed his argument was contrariwise, namely, that the expenditure was revenue expenditure and therefore the amounts paid to recoup it partook of that character.So too, in the instant case, the payments to the planters were made against the expenditure incurred for maintaining the rubber plantations.16. Having regard to the aforesaid facts, we must hold that the amounts from the fund earmarked for the appellants on the basis of the rubber produced by them were paid against the expenditure incurred by them for maintaining the rubber plantation and producing the rubber. If so, it follows that the receipts by the assessees during the accounting year were revenue receipts and, therefore, liable to be included in their assessable income. We therefore hold, though the different reasons, that the High Court has rightly answered the questions against the assessees.