Case: The Commissioner Of Income Tax, Kerala Vs. The Kilkotagiri Tea &amp; Coffee Estate Co. Ltd

This case relates to the assessment year 1971-72 for which the relevant accounting period was the year ended March 31, 1971. The following question of law was referred to the High Court under section 256(1) of the Income-tax Act, 1961 (pageWhether, 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 per cent. on the sum of Rs. 71, 500 being a part of the expenditure incurred during the assessment years 1966-67 and 1967-68 on 1967 tea clearing under the provisions of section 33A of the Income-tax Act for the assessment year 1971-72 ? "33A of the Income-tax Act, 1961, provides for development allowance for clearing land and planting of tea bushes by a tea company. In this case, the clearing of the land and planting of the tea bushes were done in July, 1967 (within the accounting year ended on October 31, 1967). The expenses for that year and the subsequent year ended on October 31, 1968, were taken into consideration in the assessment for the assessment year 1969-70 for the purpose of computation of development allowance under section 33A(1)(a). The TribunalThe company chose to claim the allowance in respect of 1965 clearing fully, i.e., Rs. 30, 846 and in respect of 1967 clearing although they had incurred an expenditure of Rs. 89, 800 and are entitled to Rs. 44, 900, they restricted the claim to the difference between Rs. 40, 000 the total claim for which they had provided reserve and Rs. 30, 846 the claim of 1965 clearing. The figures are as follows1967 Tea clearing--Plantation July, 1967 (13.65 hectares)Rs1st year 1966-67 44, 5252nd year 1967-68 45, 27589, 800Less : cost of clearing to be considered inthe 4th year, i.e., assessment year 1971-72 71, 50018, 30050 per cent. thereof 9, 150Balance of expenses for which no claim was made 71, 5005. For the year 1971-72, the fourth year of 1967 clearing the further expenses incurred were3rd year 26, 8324th year 35, 17262,this was added the expenditure of the 1st and 2nd years 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 figures1967 clearing : RsUnclaimed expenses of 1967 and 1968 71, 500Expenses for 1969 and 1970 62, 0041969 clearing1st and 2nd year expenses 33, 8611, 67, 36550 per cent. thereof 83, 682The company had created a reserve of Rs. 70,the assessment year 1971-72, the Income-tax Officer allowed the claim in respect of the 1969 clearing, i.e., the expenses in respect of the first and the second year at that clearing. For the 1967 clearing, the assessee claimed that a part of the expenses of the first and the second year (1967 and 1968) which was neither claimed nor allowed in the earlier assessment years should be taken into consideration. The Income-tax Officer disallowed the claim. The Appellate Assistant Commissioner agreed with the Income-tax Officer and observed that in respect of the expenses actually incurred in the first two years, the assessee had to claim deduction in the second year and only in respect of the expenses incurred thereafter and not taken into account earlier, extra allowance could be claimed in the fourth year. If the assessee chose to claim only a part of what he was actually entitled to in the first year, he could not claim the balance in the fourth yearOn further appeal, the Tribunal upheld the order of the Appellate Assistant Commissioner. The Tribunal was of the view that development allowance for the first two years should have been claimed in the year 1969-70. The Tribunal pointed out that the amount allowable under clause (a) of section 33A(1) was not limited to the amount which either the Income-tax Officer cared to allow or the assessee cared to claim. The amount which was allowable depended upon the expenses incurred in the first and the secondHigh Court held that section 33A(1)(a) dealt with "computation at the first instance" of the development allowance. This implied that computation was not final. Sub-clause (b) provided that "development allowance shall again be computed with reference to the actual cost of planting". Thus, sub-clause (b) contemplated a recomputation of the actual cost of planting. The High Court was of the view that if after the computation, it was found that the recomputed amount exceeded the amount allowed as deduction under clause (a), the excess will have to be allowed as deduction. This provision, according to the High Court was mandatory. The High Court, therefore, concluded that the claim of the assessee should have been allowed by the Tribunal, The question referred to it was answered in the negative and in favour of the assessee. The Commissioner of Income-tax has now come in appeal against the decision of the High Court

Reasoning: Having regard to the object and clear language of section 33A, we are of the view that the High Court has come to a correct decision in this case. The scheme of development allowance was to encourage tea industry to expand. Unlike some other provisions of the Income-tax Act, for expenditure incurred for planting. tea bushes in one particular year, allowance under section 33A may be given in a subsequent year. In view of the specific provisions of section 33A, the grant of the allowance cannot be limited only to the year in which the expenditure was actually incurred or the immediate next yearvery definition of "actual cost of planting" indicates that a span of four years has to be taken into account for the purpose of computation of development allowance. Section 33A(1)(a) and (b) makes it clear that deduction on account of development allowance will be granted in two stages. The first stage is under clause (a) under which the development allowance will have to be computed "in the first instance" and will be limited to that portion of the actual cost of planting which was incurred during the previous year in which the land was prepared for planting or replanting, as the case may be. In computing the income of the previous year following the previous year in which the land was first prepared for planting or replanting, the actual cost will be calculated and in the assessment of the second years income, development allowance will be granted to the assessee provided he has taken the other steps for claiming the allowance including creation of sufficientthe instant case, the assessee had made sufficient reserves for the claim he had made under clause (a) of section 33A. But merely because the assessee had not claimed the full amount of development allowance in the first instance, that will not disentitle him from claiming the outstanding amount at the second stage under clause (b). Development allowance under clause (b) has to be given by computing the actual cost of planting once again. Clause (b) states that "development allowance shall again be computed with reference to the actual cost of planting. . . ." That means, notwithstanding the computation made under clause (a) and grant of development allowance on the basis of that computation, the assessee will be entitled to compute the allowance once again on the basis of the actual cost of planting tea bushes at the second stage in the assessment of the third succeeding previous year reckoned from the previous year in which the land was prepared for planting or replanting. There is nothing in section 33A to suggest that development allowance for expenditure incurred in respect of the first two years must be calculated and claimed at the very first stage, i.e., at the stage of the second year of assessment after planting of tea bushes. Because of the protracted work involved in the preparation of the land, planting of seeds, cutting and nurturing nurseries and also the cost of planting and replanting of tea bushes as well as the cost of upkeep thereof besides various other factors like setting off of subsidies or other grants from the Government or any other agencies, an assessee has been permitted to claim the deduction even up to the third succeeding year next following the previous year in which the land has been prepared for planting or replanting, as the case may be. The High Court was right in pointing out the significance of the phrase "development allowance shall again be computed" which means the actual cost that had been computed under clause (a) will have to be computed afresh. This is what the assessee has done in the instantare of the view that the High Court had come to a correct decision in answering the question referred by the Tribunal in the negative and in favour of the assessee.