(Delivered by Srinivasan, J.)

The question that arises in this revision is, whether the Appellate Tribunal was right in holding that the expenditure incurred by the assessee which is a tea and coffee plantation, for the upkeep of the immature tea and coffee plants is not allowable under S. 5 of the Madras Agricultural Income-tax Act.

It is common ground that the tea plantation consisted of an extent of over 1000 acres of mature tea bushes and of 123 and odd acres of immature plants. The coffee plantation consisted of nearly 2500 acres of mature plants as against roughly 300 acres of immature plants. Luring the year of assessment 1955-1956, a revenue expenditure of Rs. 13,37,553 was allowed, but the claim of Rs. 52,420 and Rs. 8176 respectively, spent on the upkeep of immature tea and coffee clearings, was disallowed. The Agricultural Income-tax Officer rejected the claim on the basis that it was capital expenditure, observing, “All expenditure on new clearings till they come to bearing is capital expenditure.” This view was accepted in appeal by the Assistant Commissioner, and also by the Appellate Tribunal, which held that the expenditure could not be deducted either under S. 5 (e) or under S. 5 (g) of the Act.

It seems to us that this conclusioa of the Tribunal is erroneoss. The Appellate Tribunal thought that what is taxed under the Act is agricultural income which is derived from the mature coffee or tea plantations, and that the allowance under S. 5 (g) in like manner is limited to the expenses incurred in cultivating the crop from which the agricultural income is derived. Such income, in the view of the Tribunal could not be derived from the immature plants. Nor could S. 5 (e) apply in the opinion of the Tribunal for the reason that this provision, read with the definition of “plantation “in the Act, would refer to expenditure incurred in growing the plants which yield the produce. In any case, the Tribunal thought that the expenditure in the present case was of a capital nature which stands excluded from the scope of either S. 5 (e) or S. 5 (g).

The decision in Vallambroza Rubber Co., Ltd. v. Parmer(1), was referred to by the Tribunal and distinguished on the basis that in a case arising under the Agricultural Income-tax Act, what is dealt with is income derived from the land which is used for a plantation and not profits and gains of trade, manufacture, adventure, or concern. The reason upon which the Tribunal purported to distinguish this decision and hold that it was inapplicable to the present case does not appear to be sound. In that case, the assessee was a company, and its profits were derived from the cultivation and sale of rubber. A sum of Rs. 2022 was claimed as a proper deduction being the expenses incurred in superintendence, allowances, weeding and so on. Revenue objected to this deduction on the ground that the rubber tree would commence to yield only in the seventh year, and that, therefore, only one-seventh of these expenses would be deductible expenses as relating to trees which actually yielded rubber; that is to say, the expenses of maintenance and upkeep of the immature trees was thought not to be a proper deduction on the ground that the expenses should be solely referrable to the profit which was reaped within the year. This proposition was characterised by the learned Judges as absurd. They noticed (at p. 535):

“It would mean this that if your business is connected with a fruit which is not always ready precisely within the year of assessment, you would never be allowed to deduct the necessary expenses without which you could not raise that fruit. This very case which deals with a class of thing that takes six years to mature before you pluck or tap it is a very good illustration, but, of course, without any ingenuity one could multiply cases by the score. Supposing a man conducted a milk business, it really comes to the limits of absurdity to suppose that he would not be allowed to charge for the keep of one of his cows because at a particular time of the year, towards the end of the year of assessment, that cow was not in milk, and therefore the profit which he was going to get from the cow would be outside the year of assessment ……But when you come to think of the expenses in this particular case that is incurred for instance for the weeding which is necessary in order that a particular tree should bear rubber, how can it possibly be said that is not a necessary expense for the rearing of the tree from which alone the profit eventually comes? And the Crown will not really be prejudiced by this, because when the tree comes to bear, the whole produce will go to the credit side of the profit and loss account……”

Dealing with the aspect relating to whether it was in the nature of a capital or income expenditure, they said at page 536:

“……But in a rough way I think it is not a bad criterion of what is capital expenditure as against what is income expenditure to say that capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing that is going to recur every year. Therefore, prima facie weeding which does occur once a year seems to me to be an income expenditure.” This decision is in clear support of the view that in the case of income derived from plants or trees, the expenses of maintenance and upkeep of immature trees before they come to bear is not capital expenditure.

This aspect of the matter has also been considered in a decision of the Kerala High Court in Commissionr of Agricultutural Incometax, Kerala v. Pullangode Rubber and Produce Co., Ltd..

The view taken by the Tribunal that the Yellambroza Case(2) is distinguishable on the ground that it related to a business and not to agricultural income is answered by the observations contained in that very definition, where the learned Judges say (at page 536):

‘'It appears to me that, as at present worked, the trade, manufacture, adventure or concern of the Company is the cultivation and production for sale at profit of rubber and other tropical products. For this purpose land had to be acquired, cleared and drained, roads made, and buildings erected, before the cultivation began. What was expended for these purposes was I think capital expenditure, and not, in the sense of the Incometax Act, money laid out and expended for the purposes of the trade etc. But once the cultivation began with the planting, expenditure on cultivation, production and marketting was I think revenue expenditure for the purposes of the trade, etc.”

In like manner it was held in Ponnuswami Pillai v. Commissioner of Incometax(3), that the income derived from the tea estate attributable purely to agricultural operations, such as cultivating and plucking of the leaf, Constituted profits and gains of a business within the meaning of S. 4 (2) of the Act. Though this decision proceeded on the principles of the Incometax Act, it is clear that a business like that of the assessee in the present case, though it related to agricultural income, is nonetheless income from a business. The applicability of the Vallambroza decision in so far as the deduction of expenses relating to immature tea and coffee plants is concerned is not affected by reason of this agricultural income being derived from a business, that is the business of running the plantation.

This should be sufficient to dispose of the present revision petition. We, therefore, however, feel that it is necessary to decide whether this expenditure could properly fall within the scope of S. 5 (a) or S. 5 (g) of the Act. In a similar case where the question of the deduction of the amount spent on the upkeep and maintenance of immature rubber trees arose, the Kerala High Court in the decision cited above came to the conclusion that the deduction was properly allowable under S. 5 (e) of the Act. With great respect to the learned Judges who decided that case, we are inclined to hold that S. 5 (g) would be the more appropriate provision under which such expenses would fall. S. 5 (g) runs thus:

“The Agricultural income of a person shall be computed after making the following deductions, viz, (g) expenses other than capital expenditure incurred in the previous year of cultivating the crop from which the Agricultural income is derived and of transporting such crop to market, including the maintenance of agricultural implements and cattle required for such cultivation and transport or both.”

It is followed by a proviso to the following effect:

“Provided that in any particular year the total replanting expenditure shall not exceed the amount necessary for replanting 2½ per cent of the acreage if the crop is rubber or coffee, 1-2/3 per cent if the crop is arecanut or tea and 8-1/3 percent if the crop is cardamom, and 10 per cent if the crop is cinchona.”

According to this proviso, the assessee is entitled to a deduction of expenditure with regard to the amount spent for replanting within certain limits. The obvious inference flowing therefrom is that since the main part of the provision excludes capital expenditure, the allowance contained in this proviso cannot possibly be in the nature of a capital expenditure. Here is an indication in the Act itself that the cost of replanting trees is not capital expenditure. Where a plantation is for the first time laid out, the various items of expenses which go to bring the plantation into being, including the initial planting thereof, would obviously be capital expenditure. But, in a case where trees which have ceased to yield have to be replaced, the proviso to S. 5 (g) clearly states that such expenses of replanting shall be regarded as revenue expenditure allowable, of course, within certain limit. If that be the case, then it should necessarily follow that the subsequent upkeep or maintenance of those replanted trees till they come to bearing would also be within the scope of the expression contained in S. 5 (g), viz, “of cultivating the crop from which the agricultural income is derived”. It is impossible for any plantation in the very nature of things to isolate the expenditure of each and every tree according as the tree is bearing or not bearing. In cases where replanting of one or more trees in an existing plantation is in question. The view of the Tribunal that the expression “cultivating the crop from which the agricultural income is derived” is intended to indicate that the expenses should relate directly to the income seems to us to be opposed to the inference that is naturally derivable from the proviso to which we have referred. The learned Judges who decided Commissioner of Agricultural Incometax, Kerala v. Pullangode Rubber and Produce Co., Ltd,, do not appear to have considered the impact which the proviso has upon the main provision. We accordingly hold that the expenditure incurred upon the clearings containing immature plants would properly be includable in the expenses of cultivating the crop. The crop in the context is not merely with reference to the particular tree from which the yield is derived but the entire plantation consisting of both mature and immature crops.

The petition is accordingly allowed. The assessment is directed to be revised in the light of what has been stated above. The petitioner will be entitled to its costs. Counsel's fee Rs. 100/—

V.C.S