The Judgment of the Court was delivered by
Velu Pillai, J.:— This is a reference under Section 66(1) of the Indian Income-tax Act, 1922, and the question referred for decision is—“Whether the sums of Rs. 7,009/- and £ 3,341/- granted by the assessee to the Employees' Deposit and Retirement Fund, constituted as aforesaid, in the years ended 31-3-1946 and 31-3-1948 are deductible under Section 14 of the Travancore Income-tax Act in the assessments of 1122 and 1124 M.E”
2. The assessee is a public limited company registered in England which owned tea, rubber and cardamom estates in Travancore and other places. In its books, it had an account entitled Employees' Deposit and Retirement Fund, which may be referred to as the Fund, and into which were periodically credited, contributions from the assessee to its employees who are its members, and also from such employees themselves. For the assessment year 1122 M.E relating to, the accounting year ended 31st March, 1946, the assessee claimed a deduction of Rs. 7,009/- out of its agricultural income from cardamom and rubber by way of contributions it had made to the Fund, and for the assessment year 1124 M.E relating to the accounting year ended 31st March, 1948, it claimed a similar deduction of £ 3,341/-. The deductions were disallowed by the Income-tax Officers and in appeal by the Appellate Assistant Commissioners for the relevant years. When, the matter came on appeals before the Income-tax Appellate Tribunal, they were allowed on the ground that the income out of which the contributions were made being agricultural income was not assessable to Income-tax under the Travancore Income-tax Act, 1121, which may be referred to hereafter as the Act-This view was plainly wrong, for agricultural income was assessable under Section 4 of the Act. The contentions on behalf of the assessee were twofold, first, that the deductions fall under Section 14(3)(c) of the Act and second, that they are in the nature of expenses arising out of agricultural operations and incidental to the earning of agricultural income and are therefore admissible, even though they are not provided for in section 14(3) which purports to enumerate the allowances to be made in computing the taxable agricultural income. It was not in dispute, that the deductions claimed were of contributions which were made by the assessee to the Fund out of its agricultural income. The Fund is governed, and the contributions to it both by the assessee and its employees regulated, by rules entitled “Rules of Employees' Deposit and Retirement Fund,” which during the relevant years, were the revised rules dated the 1st December, 1937, a copy of which has been placed in our hands by the learned counsel for the assessee as undertaken before the Income-tax Appellate Tribunal when it made the reference. Rule 3 of the above Rules provides, that the Fund shall vest in a trust called the “Malayalam Plantations Trustee Company Ltd.” Rule 11 defines members of the Fund as members of the European Staff and Indian Superintendents and Assistants of the assessee, who after serving any stipulated probationary period are regarded as members of the Company's permanent Staff in India, and Rule 12 relates to deposits or contributions made by individual members of the Fund, which generally shall be a sum equal to 5 per cent of the total remuneration which each of them receives in the financial year. Rules 13 and 14 which relate to deposits or contributions by the assessee are more pertinent and read as follows:
Rule 13. “The Company will pay to the Trustees as additional remuneration to the members of the Fund in respect of each financial year of the Company a sum equal to five per cent of the total amount of fixed salaries (exclusive of bonus commission or allowances) actually received by all the members of the Fund during such financial year. The sum so paid shall be allocated and credited to the members of the Fund in proportion to the amount of such fixed salary actually received by them respectively in such financial year.”
Fixed salary shall be held to include any additional salary paid for acting appointments.
14. The Company may decide to make to any individual Employee or the Employees generally as additional remuneration special grants out of the profits of the Company of any financial year in which case such special grants shall be credited to the Employees or any one or more of them in such manner and in such proportions as the Company may determine.”
3. Under the above Rules the deposit in the Fund or the contribution to it, made by the assessee to each of the members of the Fund is additional remuneration to him and so the expenses incurred by the assessee on this account, constitute part of the remuneration paid to its employees who are members of the Fund.
4. Section 14(3)(c) of the Act which was relied on, specifies one of the allowances to be made in computing agricultural income, that is, in the present case, the income from cardamom and rubber out of which the assessee has made the contributions to the Fund, and is in the following terms:
“the expenses of cultivating the crop from which such agricultural income is derived, of transporting such crop to market, including the maintenance of agricultural implements and cattle required for the purpose of such cultivation and for transporting the crop to market.”
5. There is great force in the contention for the department, that the allowance specified in Section 14(3)(c) is limited to expenses incurred by the assessee, in actually raising the crop from which agricultural income is derived, e.g, wages paid to labourers and artisans engaged in agricultural operations, in transporting the crop to the market, in maintaining agricultural implements and cattle required for cultivation and for transport to the market. The mention of these specific operations which are more intimately or directly associated with the raising of agricultural produce and its marketing, does support the contention, that clause (c) was not intended to cover other expenses which are not so intimately connected with the process, such as the pay or remuneration of the establishment, which though not connected with the tilling of the land, still exercises control, and supervision over the operations. We are not therefore prepared to hold, that the contributions in question even viewed as additional remuneration to the members of the Fund, can be regarded as falling within the scope of Section 14(3)(c).
6. Passing on to the second contention, it has to be observed that the Supreme Court has more than once held, that the enumeration of allowances in relation to business income in Section 10 of the Indian Income Tax Act, 1922 is not exhaustive. According to counsel for the assessee, there is no reason why a similar view should not be taken of the enumeration of allowances in relation to agricultural income in Section 14 of the Act. The proposition so stated was not disputed on behalf of the department, except for a distinction which was attempted on the basis of Section 14(3)(g), which reads “such other deductions as may be prescribed” and which was contended to be in the nature of a residuary clause. This apart, which will be considered in due course, the principle in relation to business income was stated thus by the Supreme Court in Badridas Daga v. Commissioner of Income Tax (34 I.T.R 10 at page 15):
“The result is that when a claim is made for a deduction for which there is no specific provision in Section 10(2), whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the business and to be incidental to it. If that is established, then the deduction must be allowed, provided of course there is no prohibition against it, express or implied, in the Act.”
7. By parity of reasoning, the pay and expenses of an establishment set up for the management, control, and supervision of agricultural operations, may well be said to arise out of the carrying on of agricultural operations and to be incidental to it and should be recognized as admissible allowance, unless there is any prohibition against it, express or implied, in the Act. Apparently, remuneration paid out of agricultural income to the staff connected with that part of the activity, is deductible without question; the dispute is only about the additional remuneration in the shape of contributions by the assessee to the Fund.
8. This leads to a consideration of the scope of Section 14(3)(g). In our view, this is no residuary clause, but is a delegation of power to the rule-making authority to provide for further allowances. So long as the delegated power is properly exercised, it makes no difference whether the allowances are prescribed by the Act or by the Rules, the latter being but additions to the former. If the allowances prescribed by the Rules are read as additional clauses in Section 14(3), there would still be scope for the application of the principle recognised by the Supreme Court, that the enumeration is not exhaustive. On the contrary, the indication in Section 14(4)(c) of the Act is also the same. Section 14(4)(c) enacts a prohibition against the making of an allowance on account, of “any payment which is chargeable under the head ‘Salaries’ if it is payable without Travancore and tax has not been paid thereon, nor deducted therefrom under Section 22”. This is an implied recognition, that a payment of the kind specified, that is ‘Salaries’ and not excepted, is outside the prohibition enacted in Section 14(4). The term ‘Salaries’ as a head of income is expanded in section 10(1) as follows:
“The tax shall be payable by an assessee under the head ‘salaries’ in respect of any salary or wages, any annuity, pension or gratuity, and any fees, commissions, perquisites, or profits, in lieu of, or in addition to, any salary or wages, which are due to him…………”.
9. Clearly, a contribution or deposit by way of additional remuneration is a payment which in the hands of the recipient is chargeable under the head ‘Salaries’. This is sufficient for holding, that the contribution to the Fund made by the assessee is a permissible deduction in computing the taxable agricultural income, though it is not an allowance specifically enumerated in Section 14(3) or the Rules. Though the appellate tribunal went wrong in thinking that agricultural income was not taxable under the Act, it recognised that the assessee is entitled to the allowance “which in the ordinary course of business and as a matter of profit-making expediency, it has adopted and spent”.
10. Counsel for the department invited our attention to the provision in Section 13(4)(c) of the Act, which lays down a prohibition against allowance on account of contribution or payment to a provident or other fund, unless the employer has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund. This signifies no more than that in the computation of taxable business income, the legislature has imposed a condition for the allowance being made, while it has not done so in the computation of taxable agricultural income. In the absence of express language in Section 14 of the Act, there is no warrant for reading into it, a provision in the nature of Section 13(4)(c) by analogy.
11. It only remains to notice the last contention of the learned counsel for the department, based upon Section 86(1)(e) of the Act. Apart from the condition as to irrevocability postulated, the clause occurs in a provision which pertains to recognition by Government of a Fund, for contributions to a recognised Fund have certain advantages from the point of view of the assessee. We fail to see how this provision has anything to do with the question for decision.
12. In the result, the question referred is answered as follows:
The sums of Rs. 7009/- and £ 3341/- granted by the assessee to the Deposit and Retirement Fund, constituted as aforesaid, in the years ended 31-3-1946 and 31-3-1948 are deductible under Section 14 of the Travancore Income-tax Act in the assessments of 1122 and 1124 M.E, although they do not specifically come; under the enumeration in Section 14(3). We direct that a copy of this judgment under the seal of the court and the signature of the Registrar will be sent to the appellate tribunal. We do not order costs in this reference in the circumstances of the case.