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

1. These appeals, by special leave, raise the familiar but difficult question, whether a "receipt" is a capital or a revenue receipt.2. The appellant in C.A. No. 157/1965, Meenakshi Achi, owns 5/6th share in Sungei Chour Estate in Malaya.3. V.R.K.R.S. Firm, the appellant in C.A. No. 158/1965, owns rubber estates in Kaualakangsar, Malaya. During the Second World War, rubber estates in the Federated Malay States were either destroyed or denuded. In order to encourage planting orof rubber trees, the Government of the Federated Malay states issued an Ordinance styled, The Rubber IndustryFund Ordinance, 1952, whereunder a Board was constituted to administer the funds accumulated in terms of the Said Ordinance. In the accounting year relevant to the assessment yearMeenakshi Achi received $5, 962 ascess from the said board. So too, the firm received $10, 336 in the accounting year corresponding to the assessment yearDuring the assessment proceedings before theOfficer, the appellant claimed the said amounts as capital receipts. TheOfficer treated them as revenue receipts on the ground that the said payments were made to cover theexpenses of theon the facts and in the circumstances of the case, the replantation cess receipt of 5, 962 dollars is income assessable to taxAt the instance of the firm, the following question was referred to the High Courton the facts and in the circumstances of the case, the sum of 10, 336 dollars constitutes income assessable to taxThe High Court answered the two questions in the affirmative. Though it agreed with the conclusion of the Tribunal, it gave different reasons for its conclusions. It held that the source of the amounts was the production or the export of the rubber itself by the owners of the plantations and as the amount was paid back to the producers it was only a trading receipt. Hence the present appeals.

Reasoning:
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.