Neyveli Lignite Corporation Ltd. vs State of Tamil Nadu

Dr. A.S. Anand, C.J.—For the sake of convenience, all these nine tax cases, which involve common points and have filed by the same

assessee, i.e., Neyveli Lignite Corporation Ltd., relating to assessment years 1971-72 to 1979-80, are being disposed of together.

Though the dispute that was raised before the Tamil Nadu agricultural Income Tax Appellate Tribunal and in the grounds of revision revolves

round the apportionment of expenditure between non-agricultural activity and agricultural activity of the assessee with regard to cashew tope,

agricultural farm (supervisory staff), direct wages labourers and ex- gratia bonus, retrenchment compensation to workers, sewage channel and V.

Pattu Channel relatable to different assessment years, Mr. U. N. R. Rao, learned counsel appearing for the assessee-petitioner in all these cases,

has given up the challenge to the disallowed expenditure relating to the sewage channel for the assessment years 1977-78 and in respect of V.

Pattu channel for the assessment year 1978-79 and 1979-80. The challenge to the disallowance of retrenchment compensation to workers for the

assessment year 1976-77 has also not been pressed before us. The findings of the authorities with regard to the apportionment of the expenditure

have been questioned before us only in respect of the pay and allowances of the staff employed as estate guards in the cashew tope, the pay and

allowances of the agricultural farm supervisory staff and the wages of the labourers. We are, therefore, relieved of the necessity us, except the

three points mentioned hereinabove. Before considering the submissions raised and the validity of the order of the Tribunal, a brief reference to the

salient facts is desirable.

The petitioner, Neyveli Lignite Corporation Ltd., is a Government of India undertaking. It acquired lands for the purpose of extracting lignite and

for establishing industrial units like thermal power station, a fertilizer factory, B & C plant and the township. Somewhere in 1964, the petitioner

decided to run a demonstration farm in the vacant lands, which allegedly were not required for the industrial projects so as to make use of the

existing cultivable lands and the water which was pumped from the mining operations. According to the petitioner, to undertake this activity which

was agricultural in nature, it employed supervisory staff, viz., agronomists, agricultural supervisor and field assistants besides labour and other staff

and estate guards for the security of the cashew tope. According to the petitioner, nearly 400 to 500 agricultural farm workers were employed on

casual basis and keeping in view the extent of the land, which was about 500 to 600 acres, the estate guards, the labour and the supervisory staff

as employed was necessary. Since the petitioner was deriving agricultural income from this activity, in the agricultural Income Tax returns filed, it

claimed certain expenditure, including (i) the pay and allowances of the supervisory staff; (ii) direct wages paid to agricultural farm workers and (iii)

the salaries, etc., of the estate guards engaged for cashew tope. It appears that the returns filed by the assessee till about 1968-69 disclosed petty

loss only. These returns, including the expenditure claimed, had been accepted by the Agricultural Income Tax Officer. In December, 1972, the

Commissioner of Agricultural Income Tax, Madras, on his own motion, revised the orders of the Agricultural Income Tax Officer for the

assessment years 1968-69 to 1970-71 and directed the Agricultural Income Tax Officer, Cuddalore, to re-examine the claim for expenditure

during the concerned assessment years. The Agricultural Income Tax Officer, Cuddalore, made reassessment for the three years in question and

also made the original assessment for the year 1971-72. In the assessment thus made, the assessee''s claim to have the benefit setting off of the

previous carried forward loss was rejected. The petitioner, thereupon, filed an appeal before the Appellate Assistant Commissioner, Vellore, and

thereafter, to the Agricultural Income Tax Appellate Tribunal. The Tribunal set aside the orders of assessment for the years 1968-69 to 1971-72

and directed fresh assessment in the light of the observations made by the Tribunal. In the reassessment proceedings, the expenditure as claimed by

the Corporation as regards pay and salary of staff, etc., was disallowed by the Agricultural Income Tax Officer, Cuddalore, on the ground of

unreasonableness. The expenditure was, however, restricted and allowed on proportionate basis as 1/3, 1/2 and 2/3, etc., for the different years

under various heads. On appeal to the Appellate Assistant Commissioner, the proportion of expenditure was revised and some more relief was

granted to the assessee, though not to the extent claimed by it. The claimed in respect of the expenditure, allegedly incurred, wholly and exclusively

for deriving agricultural income, was apportioned by the Appellate Assistant Commissioner. In the mean time, assessment for the subsequent years

were also made by the assessing authority on the same basis. The challenge before the first appellate authority did not yield the result desired by

the assessee as regards the expenditure. Aggrieved, the petitioner filed appeals before the Tamil Nadu Agricultural Income Tax Appellate Tribunal

u/s 32 of the Tamil Nadu Agricultural Income Tax Act. The appeals were heard together and, by a common order dated January 22, 1981, the

same were disposed of, against which the present revision have been filed.

T. C. No. 1586 of 1981 relates to the assessment year 1971-72 and the grievance is as regards the disallowance to the extent of 2/3rds of the

claimed expenditure in respect of salaries, etc., of the estate guards for the cashew tope. T. C. No. 1583 of 1981 pertains to the assessment year

1972-73 and the grievance concerns the disallowance of the expenditure to the extent 2/3rds in respect of salaries, etc., of the estate guards for

the cashew tope, 1/4th of the salaries of the supervisory staff and 1/3rd relating to the direct wages paid to the labourers. T. C. No. 1582 of 1981

relates to the assessment year 1973-74 where, once again, the disallowance is to the extant of 2/3rds in respect of the expenditure relating to

estate guards for the cashew tope, 1/4th relating to the agricultural farm supervisory staff and 1/3rds as regards the direct wages of the labourers.

T. C. No. 1574 of 1981 relates to the assessment year 1974-75 and the grievance is identical to the one projected in T. C. No. 1582 of 1981. T.

C. 1587 of 1981 is relatable to the assessment years 1975-76. The disallowance in respect of the salary of the estate guards of the cashew topes

was maintained at 2/3rds; so also was the disallowance in respect of the agricultural farm supervisory staff at 1/4th, but the direct wages for the

labourers were disallowed to the extant of 1/2. For the assessment year 1976-77, T. C. No. 1593 of 1981 has been filed and the grievance

relates to the cashew tope and 1/2 in respect of salary, etc., of the estate guards for the cashew tope and 1/2 in respect of the direct wages of the

labourers. T. C. Nos. 1610 of 1981, 1588 of 1981 and 1575 of 1981 are relatable to the assessment years 1977-78, 1978-79 and 1979-80 and

the only grievance which has been projected before us relates to the disallowance to the extent of 3/8ths of the claimed expenditure in respect of

each of the assessment years for the wages of the estate guards for the cashew tope. The other grievances projected in the three cases, as already

noticed, were given up by learned counsel.

Mr. U. N. R. Rao, learned counsel for the petitioner, submitted that the expenditure claimed by the assessee before the Appellate Assistant

Commissioner as also before the Tribunal in respect of salary, etc., of the estate guards was essential and unavoidable to protect the estate and the

trees and that the wages of the supervisory staff and the labourers were also incurred exclusively for the agricultural activity of the petitioner and the

authorities could not have appointed the expenditure and the entire expenditure should have been allowed as a deduction.

The case of the Revenue, on the other hand, is that the expenditure on pay and allowances of the staff and security personal was not only not

necessary and superfluous but that the assessee failed to establish that the expenditure was incurred for the purpose of deriving agricultural income

of that staff, including the security staff, were exclusively employed for the purpose of agricultural activity of the assessee and it was asserted that

the expenditure was not relatable to the agricultural activity alone and the authorities had rightly apportioned the expenditure and limited the relief.

That some expenditure was incurred by the petitioner for the agricultural activity has not been doubted by any of the statutory authorities and has

not been questioned by the Revenue before us either. It is only the apportionment between the agricultural activity and the non-agricultural activity

of the petitioner which has given rise to the filing of these cases. The Tribunal, on the basis of the data submitted before the authorities and peculiar

facts and circumstances of the case, found that, up to the assessment year 1976-77, the assessee had claimed some expenditure not wholly within

the gross agricultural income, whereas for the assessment years 1977-78, 1978-79 and 1979-80, the assessee''s gross income was somewhat

more than the claimed expenditure. It was noticed that there had been a lease of a substantial portion of the agricultural land by the assessee to the

Tamil Nadu State Farm Corporation Ltd. subsequent to 1975 at the rate of Rs. 100 per acre per annum. The Tribunal accepted the findings of the

Appellate Assistant Commissioner as well as the Assessing Officer that, as regards the apply and allowances of the estate guards, a part of the

expenditure was relatable to the non-agricultural activity of the assessee also, viz., guarding the township and industrial structures and that the

guards were not exclusively engaged for the agricultural activity of the assessee. Same was the view of the Tribunal in respect of the wages paid to

the supervisory staff and labourers. The Assistant Commissioner of Agricultural Income Tax, Vellore, after a careful appraisal of the entire material

placed before him and giving his thoughtful consideration to the submissions raised and the evidence produced by the petitioner, opined as follows :

... No evidence was produced to show that the staff was exclusively employed for agricultural operations. The argument of counsel was

hypothetical in nature. The stipulation in condition 12 of the lease deed that, in the event of a dispute regarding the yield from the cashew tope, the

decision of the Superintending Engineer and Township Commissioner will be final is suggestive that the expenditure related to the common

establishment intended for other items of work relating to Township Administration as well, part of whose work might have been to attend to

realisation of agricultural income.

When counsel was required to show proof at the time of hearing, all that he produced did not clinch the issue and there was nothing to show

that the expenditure incurred was for the specific purpose of establishment solely employed for earning exclusively the agricultural income. The

factum of incurring the expenditure was not, therefore, sought to be questioned. The assessing authority did his best and has, perhaps, been liberal

in having allowed 1/3rd of the expenditure on a reasonable assumption that it would perhaps be fair to quantity the cost of the services involved at

1/3rd. As a matter of fact, it is ironical that an August body of a public sector undertaking should be helpless to show that the expenditure incurred

was exclusively for the earning of the agricultural income. The points urged by counsel were of general nature such as (1) that, in the nature of

things and in the industrial atmosphere set up of Neyveli Lignite Corporation, the agricultural labourers or other staff could not have been used for

the other purposes and (2) that in the trade union atmosphere, no employee would have allowed himself to do any other work. This argument of

counsel does appear that it is fallacious and cannot be accepted. Far from discharging the onus that lies on the assessee to prove that the

expenditure was solely referable to the earning of the agricultural income, these points are at once seen to be categorical assertions and

hypothetical statements. As a matter of fact, I am inclined to the view that the agricultural Income Tax Officer was perhaps more liberal in having

allowed even 1/3rd of the expenditure, and I should think that, in having allowed this, he should have been solely guided by the mere fact, that after

all, the foregoing discussion and having regard to the observations of the Appellate Tribunal, it is impossible to evolve a better method of arriving at

the quantum of expenditure on establishment, relating to the earning of the agricultural income, than the way in which the assessing authority has

done in this case.

No documentary evidence or record was produced before the statutory authorities to establish that the expenditure claimed by the assessee by

way of deduction was relatable exclusively to the agricultural activity of the assessee. In the absence of any such evidence, the only course

available to the statutory authorities was to make estimates on the basis of the available material and determine the expenditure which could be

relatable to the agricultural activity of the assessee. The Tamil Nadu Agricultural Income Tax Act is a special enactment and an assessee claiming

deductions has to fall within the four corners of the Act. The assessee in these cases did not lead any evidence to prove that the expenditure

claimed by it with regard to the salary, etc., of the estate guards, supervisory staff and the labourers was exclusively relatable to the agricultural

activity of the assessed. It did not produce any material to show the estate guards, the supervisory staff and the labourers were exclusively

employed for the agricultural activities. With a view to claim deduction, it was essential for the assessee to establish that the staff was employed

and deployed exclusively for the agricultural activity and since it failed to establish that by producing any material or evidence, the statutory

authorities had the option either to reject the claim in toto or to do substantial justice and arrive at an estimate and they fairly adopted the latter

course. The assessee did not produce any attendance register, expenditure register, or any like record to substantiate its claim, but supported the

same through oral submissions made by its counsel which were considered by the authorities to be of a ""hypothetical"" nature. In the absence of any

evidence or proof led by the assessee, no fault can be found with the apportionment of the expenditure by the statutory authorities. Whether the

expenditure, deduction whereof is claimed by the assessee, is attributable to agricultural and to agricultural and could have been actually incurred

was a matter which required verification by the statutory authorities. The onus was on the assessee to produce material by way of evidence in

support of its plea and since the assessee failed to discharge that onus, this court, in exercise of its revisional powers, would not interfere with the

findings recorded by the authorities as regards the apportionment of the expenditure claimed which, in the estimation of the authorities, could alone

be relatable to the agricultural activity of the assessee. We are not impressed with the submission of learned counsel for the Revenue either that

since the cashew tope had been leased out, there was no keep any watch and engage any estate guards. The statutory authorities found, on the

basis of whatever material was available before them, that the expenditure was incurred parly for the agricultural activity and we see no reason to

interfere with that finding on a hypothetical assumption that no estate guards could have required to guard the cashew tope when the statutory

authorities found that part of the expenditure for engaging the estate guards was certainly relatable exclusively to the agricultural activity of the

assessee. The estimation of the apportionment of the expenditure by the authorities below is rational and since the assessee had failed to

satisfactorily prove that the staff was engaged wholly and exclusively on agricultural farms throughout the year for its agricultural activity,

apportionment was only logical method of dealing with the claim of the assessee for deduction. The assessee has been unable to produce any

material even before us from which any conclusion may be possible that the apportionment made by the statutory authorities defies either logic or

reason or is otherwise perverse. The impugned order does not, therefore, warrant any interference in exercise of the revisional jurisdiction.

Consequently, all the nine tax revision cases fail and are dismissed. No costs.