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

ITA/281/2019HC KeralaKLHC01077819201903 August 2022Author: HONOURABLE MR.JUSTICE S.V.BHATTI,HONOURABLE MR.JUSTICE BASANT BALAJI6 pages
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What were the facts?

The appellant, M/s. Velimali Rubber Co. Ltd., is challenging an order of the Income Tax Appellate Tribunal, Cochin Bench, for the assessment year 2011-12. The dispute concerns the deductibility of expenses related to the maintenance and replantation of rubber trees. The assessee contends that these costs should be allowed as deductions. The revenue, represented by the Assistant Commissioner of Income Tax, Kottayam, disputes this. The procedural history involves orders from the Assessing Officer, the Commissioner of Income-tax (Appeals), and the ITAT, all of which are under challenge. The High Court of Kerala is hearing this appeal.

What did the High Court hold?

The High Court of Kerala noted that the substantial questions of law framed in the present appeals were covered by a Full Bench order dated 01.08.2022 in I.T.A No.201/2013 and batch. The Full Bench had considered whether assessees under Rule 7A(2) were entitled to an allowance for replanting expenses and further deduction for upkeep and maintenance of immature plants. The Full Bench held that under Rule 7A(2), an assessee is entitled to an allowance for the cost of replacement of dead and useless rubber trees in a rubber plantation (not abandoned), subject to Section 10(31). Furthermore, upkeep and maintenance expenses for immature plants until maturity are revenue expenditures eligible for deduction under Section 37. Consequently, the High Court answered the questions in favour of the Assessee and against the Revenue for statistical purposes. The orders of the Assessing Officer, CIT(A), and ITAT were set aside. The matter was remitted to the Assessing Officer for fresh assessment in light of the Full Bench's ratio.

What were the issues?

The Tribunal had to decide six substantial questions of law: 1. Whether the cost of maintenance of already planted rubber trees is deductible under Rule 7A(2) of the Income Tax Rules. 2. Whether the cost of maintenance of already planted rubber trees is revenue expenditure allowable under Section 37 of the Income Tax Act. 3. Whether the cost of replantation of old and useless rubber trees in a previously planted area is deductible under Rule 7A(2). 4. Whether the deduction under Rule 7A(2) is limited to infilling costs and not for replacing old/useless trees. 5. Whether, similar to Rule 8(2) which allows deduction in lieu of depreciation, Rule 7A(2) should be considered similarly. 6. Whether, in light of the Finance Bill 1995 memo regarding Rule 8(2) for tea bushes, Rule 7A(2) should allow deduction for replanting useless rubber trees, potentially requiring reconsideration of the decision in Rehabilitation Plantations vs CIT. Assessee's contentions: The assessee argued that the costs of maintenance and replantation are allowable deductions. They relied on the principle that similar provisions for tea bushes (Rule 8(2)) allow deductions and argued for a similar treatment for rubber trees under Rule 7A(2). They also suggested that the decision in Rehabilitation Plantations vs CIT might need reconsideration. Revenue's contentions: The revenue's arguments are not explicitly recorded in the provided text, other than their opposition to the assessee's claims, leading to the Tribunal's adverse order.

Which sections of the Income-tax Act were involved?

Section 37,Section 10(31)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNE AY, 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

The order continues below.

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