Commissioner of Agricultural Income Tax vs Malabar Industries Company Limited

V.P. Gopalan Nambiyar, C.J.—The Agricultural Income Tax Appellate Tribunal, Trivandrum, has sent up its statement of the case and formulated the following question of law for our determination, namely :

"Whether, on the facts and in the circumstances of this case, the Tribunal is correct in law in allowing legal expenses amounting to Rs. 6,423-54."

The assessee owns two estates, Skinnerpuram Estate and K.M. Estate. The assess: lent year with which we are concerned is 1970-71, i.e., the accounting year which ended on February 28, 1970. The assessee admitted a loss of Rs. 2,31,993. The books of account were verified by the assessing officer and it was found that various receipts had not been included in the accounts and some items of expenses were wrongly debited under revenue heads. The books of account were, therefore, rejected and the assessment was completed by fixing the net loss at Rs. 14,434. On appeal to the Appellate Assistant Commissioner, Agricultural Income Tax and Sales-tax, that Officer made some modifications in the items of expenses disallowed by the assessing officer. A further appeal was preferred to the Tribunal. One of the items disallowed by the officer and by the Appellate Assistant Commissioner was a sum of Rs. 7,623''64 claimed by the assessee as legal expenses. Following its prior ruling in T.A. Nos. 129 to 134 of 1970, the Tribunal observed that legal charges are expenses incurred for the preservation and protection of an assessee''s business interests and that it was an allowable deduction u/s 5(j)''of the Kerala Agricultural Income Tax Act. The claim for deduction was, therefore, allowed. Actually the Tribunal allowed deduction only in respect of a sum of Rs. 6,423.54, i.e., it excluded a sum of Rs. 1,200 paid to the director, and granted deduction only for the rest of the expenses claimed.

A Division Bench of this court recently had occasion to consider the scope of the deduction allowed by Section 5(j) of the COMMISSIONER OF AGRICULTURAL Income Tax Vs. MALAYALAM PLANTATIONS LTD., . This court pointed out that to confine the proviso to cover only those expenses which are directly and immediately relatable to the derivation of income will be to import limitations which are not there, either in the language or in the context, and, to hold that what is contemplated is only "agricultural expenses" considered as an antithesis of agricultural income. It was pointed out that Section 5(j) of the Agricultural Income Tax Act and Section 10(2)(xv) of the Indian Income Tax Act, 1922, represent conceptions which are allied, though distinct ; and, while there should no doubt be a connection between the incurring of the expenditure and the earning of the income, that connection should not be remote or indefinite or fanciful. Whether the connection was sufficient and adequate is a question of fact depending on the facts and circumstances of each case. In the light of the above exposition of the law, we feel that a fresh look by the Tribunal at the facts and circumstances disclosed is necessary. We would accordingly decline to answer the question of law referred for our determination and would direct the Tribunal to rehear the appeal in accordance with law and in the light of the observations made in this judgment and pass appropriate orders. There Will be no order as to costs.