Commissioner of Sales-tax vs Brihan Maharashtra Sugar Syndicate Ltd.

Mrs. Sujata V. Manohar, J.—In these references, the following three questions are referred to us u/s 39 of the Maharashtra Agricultural Income Tax Act, 1962 :

"Question No. 1 : Whether, on the facts and in the circumstances of these cases, the Tribunal was correct in holding that in respect of agricultural implements, the opponents were entitled to claim depreciation within the meaning of sub-section (6) of section 8 read with clause (b) of sub-section (16) of section 2 of the Act and rule 3 of the Maharashtra Agricultural Income Tax Rules, 1962, on the cost price of their assets and not on the basis of the cost price less depreciation allowable under the Act ?

Question No. 2 : Whether, on the facts and in the circumstances of these ciases, the Tribunal was correct in law in holding that the expens es on guest house, trucks and cars to the extent disallowed by the Income Tax Officer before fixing the common charge were admissible deduc tions under clause (b) of the proviso to section (9)(1) of the Act ?

Question No. 3 : Whether, on facts and in the circumstances of these cases, the Tribunal was correct in law in holding that for the purpose of assessments of the opponent, the previous years would be the years ending on 31st March, and not the relevant accounting years of the opponent ending on 30th June ?"

These references relate to assessment years 1964-65, 1965-66 and 1966-67, respectively. The same questions are raised for our decision in these references. Identical questions raised between the same parties for the assessment years 1962-63 and 1963-64 were answered by us in Sales Tax Reference Nos. 9 of 1980 and 10 of 1980 decided by us today. CST v. Brihan Maharashtra Sugar Syndicate Ltd. [1987] 165 ITR 217 . In view of our judgment in those references, the question which are referred to us are answered as follows :

Question No. 1 in the affirmative and in favour of the assessee.

Question No. 2 in the affirmative save and except that expenses in this connection which were held as personal expenses by the Income Tax Officer cannot be allowed by the Agricultural Income Tax Officer.

Question No. 3 is answered in the affirmative and in favour of the assessee.

At the time when the Department made references applications in respect of the assessment years 1964-65, 1965-66 and 1966-67, it sought to raise an additional question to the following effect :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that litigation expenses incurred by the respondents for contesting the Land Ceiling Act proceedings were revenue expenditure and allowable as a deduction ?"

It seems that during the period covered by the three assessment years in question, the assessees had contested the land ceiling proceedings in respect of the land then held by it for sugarcane cultivation. The expenses so incurred which were claimed as a deduction were Rs. 10,660 for assessment year 1964-65, Rs. 7,976 for assessment year 1965-66 and Rs. 10,968 for assessment year 1966-67. These expenses were held as revenue expenses by the Tribunal and were allowed as a deduction. The application of the Department for referring the question of these deductions to the High Court was negatived by the Tribunal. Thereupon the Department file three applications in this court being Agricultural Income Tax Application Nos. 110 of 1975 and 111 of 1975 and 112 of 1975, asking for a direction that the Tribunal should be directed to refer the said question to us. These applications have been granted and the rule has been made absolute by orders passed by this court in January, 1976. So far, however, the Tribunal has not referred the said question along with the statement of the case to us. Learned counsel appearing for both sides agree that an additional statement of the case is not required for the purpose of answering the said question since the statement of the case and the order of reference in the present three references contain all requisite facts for the purpose of answering the said question. They have applied that the question may be answered by us as if it had been already referred to us by the Tribunal in order to save time. We see no objection to it since the Tribunal is already directed to refer the question to us and an additional statement of case is not necessary. In the case of Amolak Ram Khosla Vs. Commissioner of Income Tax, Delhi II, somewhat similar course was followed by the Supreme Court. Accordingly, the following additional question as per the order in the said three applications under the Agricultural Income Tax Act is framed :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that litigation expenses incurred by the respondents for contesting the Land Ceiling Act proceedings were revenue expenditure and allowable as a deduction ?"

These expenses were incurred for the purpose of preserving the assessee''s capital asset, viz., agricultural land. It is well settled that expenses incurred for the preservation or maintenance of a capital asset are to be considered as revenue expenditure. Such expenditure is deductible as revenue expenditure in contrast to any expenditure which is incurred for improving a capital asset or for acquiring a capital asset. The latter will be capital expenditure. In the case of Ebrahim Aboobaker Vs. Commissioner of Income Tax, Bombay City-I, the expenditure which was incurred by the assessee in order to preserve his immovable properties including his cinema theatre, known as "Imperial cinema" was considered as expenditure incurred for the preservation of the entire business of the assessee. Litigation expenses to defend proceedings to declare the business as evacuee property were considered as revenue expenditure and were held by the Bombay High Court to be deductible under the Indian Income Tax Act, 1922.

In the present case also, the expenditure has been incurred for preserving the capital assets of the assessee and for preventing their loss by virtue of the operation of the land ceiling legislation. The expenses of litigation, therefore, must be considered as revenue expenditure and so deductible. The Tribunal was, therefore, right in allowing this expenditure as a deduction. The additional question, therefore, is answered in the affirmative and in favour of the assessee.

The applicants will pay to the respondents costs of the reference.