COMMISSIONER OF INCOME-TAX VS JUTE AND STORES LTD,, 1993 PTD-CALCUTTA-HIGH-COURT-INDIA 1281 (1989)

Income-tax---

----Business expenditure---Year in which expenditure is deductible---Tea estate---Acquisition of tea estates by State Government in 1955---Erstwhile owners of tea estate to continue as lessees of the State Government-- Enhancement of lease rent with retrospective effect from 1955---Dispute regarding enhancement---Agreement between erstwhile owners of tea estate and State Government in May, 1972---Provision made for additional liability as per agreement---Provision deductible in assessment year 1973-74.

The assessee, which owned tea estates followed the mercantile system of accounting. By a notification issued by the State Government under section 4 of the West Bengal Estates Acquisition Act, 1953, agricultural lands forming part of different tea gardens situated throughout the State of West Bengal vested in the State Government with effect from April 15, 1955. The lands forming part of the tea gardens were, however, allowed to be retained by the respective tea garden-owners who were in possession of such lands on the date of vesting. These persons were allowed to continue their business of cultivation and manufacture of tea as lessees of the Government of West Bengal in respect of the agricultural lands forming part of such tea estates. The Revenue Officer of the State Government sought to re-determine the lease rent payable by the owners of the tea garden with retrospective effect from 1955. This attempt was made some time in 1967. Doubts were raised as to the power of the Revenue Officer to enhance the lease rent retrospectively. The State Government inserted amendments in the West Bengal Estates Acquisition Act stating that the rent determined would be deemed to have taken effect from the date of vesting. The tea industry, however, continued to dispute the right of the Revenue Officers to re-determine the lease rent at an enhanced figure with retrospective effect. Various types of disputes were raised by the tea garden- owners and no payments were made at the enhanced rate to the State Government. Faced with this situation, the Government initiated a dialogue with the tea industry through the Indian Tea Association for settlement of the disputes. A formula was finally arrived at. The State Government also drew up a form of agreement to be executed by each one of the tea garden owners. This decision of the State Government alongwith a format of the agreement was circulated by the Indian Tea A5soclation to its members. On receipt of the aforesaid communication from tae Indian Tea Association, several tea garden owners accepted the formula and executed necessary agreements. The assessee-company claimed dedication of Rs.41,046 in the assessment year 1973-74 as it accepted the Government's formula and made provision in its books of account in the calendar yea' 1972 based on the letter, dated May 10, 1972, received from the Deputy Commissioner, Government of West Bengal. This letter was received during the calendar year 1972 corresponding to the assessment year 1973-74. The I12come-tax Officer did not allow deduction in respect of the aforesaid amount On the ground that the provision for expenses related to the earlier years but the Tribunal allowed the deduction. On a reference:

Held, that from the letter May 10, 1972, received by the assessee -company from the office of the Deputy Commissioner, Government of West Bengal, it appeared that the qua0tum of additional rent and cess payable by the assessee-company was determined and quantified and the assessee-company was asked to execute the agreement. The assessee-company accepted such liability, executed the agreement with the Government of West Bengal and made provision in its books of account in respect of this additional liability in the accounting year relevant to the assessment year 1973-74. The liability accrued and arose in the real Sense in the accounting year relevant to the assessment year 1973-74 and w.4s an allowable deduction in the assessment year 1973-74.

CIT v. Teesta Valley Co, Ltd. (1991) 187 ITR 657 (Cal.) fol.

JUDGMENT

AJIT K. SENGUPTA, J.---In this reference made under section 256(1) of the Income Tax Act, 1961, made at the instance of the Revenue, the following question has been referred for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the provision for land revenue of Rs.41,046 was correctly treated as an allowable deduction for the assessment year 1973-74?"

The facts which are admitted and/or found by the Tribunal are as under:

The assessee-company carries on the business in the manufacture and sale of tea and plywood. It owns two tea gardens, which are situated in the State of West Bengal. The assessee-company follows the mercantile system of accounting. The previous year of the assessee relevant to the assessment year 1973-74, which is now in reference before this Court is the calendar year 1972.

In the course of the assessment proceedings for the said year, the assessee-company claimed deduction in respect of rent and cess for the earlier year aggregating in all to Rs.41,046 payable to the Government of West Bengal for its Mahalderam and Jungpara Tea Gardens in terms of the settlement arrived at between the Indian Tea Association and the Government of West Bengal.

By a notification issued by the State Government under section 4 of the West Bengal Estates Acquisition Act, 1953, agricultural lands forming part of different tea gardens situated throughout the State of West Bengal vested in the State Government with effect from April 15, 1955. The lands forming part of the tea gardens were, however, allowed to be retained by the respective tea garden owners who were in possession of such lands on the date of vesting.

These persons were allowed to continue their business of cultivation and manufacture of tea as lessees of the Government of West Bengal in respect of the agricultural lands forming part of such tea estates.

Under subsection (2) of section 42 of the West Bengal Estates Acquisition Act, 1953, which was inserted by the Amendment Act, 1964, it was, inter alia, provided that whereas an intermediary is entitled to retain possession of any land comprised in a tea garden, the Revenue Officer shall determine the rent payable in respect of such land in the manner as laid down in the said section. The Revenue Officers of the State Government sought to re-determine the lease rent payable by the owners of the tea gardens with retrospective effect from 1955. This attempt was made some time in 1967. Doubts were raised as to the power of the Revenue Officer to enhance the lease rent retrospectively. In view of these doubts, subsections (3) and (4) were inserted in section 42 of the West Bengal Estates Acquisition Act, 1953, by the Amendment Act of 1969. Subsection (4) made it clear that, notwithstanding anything to the contrary in any judgment, decree or order of any Court or Tribunal or in any other law, the rent determined under subsection (2) or subsection (3) shall take effect and shall be deemed always to have taken effect from the date of vesting.

The tea industry, however, continued to dispute the right of the Revenue Officers to re-determine the lease rent at an enhanced figure with retrospective effect. Various types of disputes were raised by the tea garden owners and no payments were made at the enhanced rate to the State Government. Faced with this situation, the Government initiated a dialogue with the tea industry through the Indian Tea Association for settlement of the matter. Several meetings took place between the representatives of the Government of West Bengal as well as the Consultative Committee of the Plantation Association. In May, 1971 Mr. Abdus Sattar, the then Minister for Land and Land Revenue, Government of West Bengal, put forward several proposals for settlement of the matter. These proposals were considered by the Consultative Committee of the Plantation Association. The Government of West Bengal, in its letter, dated December 23, 1971, advised the Consultative Committee of the Plantation Association that they had accepted the formula suggested by the Minister and intended to implement it without delay. The relevant portion of this letter read as under:

"With reference to your Letter No. 12169, dated December 14, 1971, I am directed to inform you that the question of realisation of revised rents from the tea gardens has been under consideration of the Government for some time. In May, 1971, the representatives of your association had met the then Minister for Land and Land Revenue Department and the Member, Board of Revenue, when the following formula was considered:

(a)The rent as determined under section 42(2) will be realised from the date of vesting, i.e. April 15,1955.

(b)From now on, every year, a garden should pay the current rent plus one year's arrear rent for as many years as it would take for the arrears to be wiped out.

(c)As a concession to the tea industry, the Government will not charge any interest on arrears of rent up to April 1,1971, provided the annual payment is made regularly as at (b) above.

The Government have accepted the formula and intend to implement it without any further delay. On execution of the agreement with individual tea estates on the lines of the aforesaid decisions, fresh leases in Form I (appended to Schedule F of the Estate Acquisition Rules) will be issued."

The State Government also drew up a form of agreement to be executed by each of the tea garden-owners. This decision of the State Government alongwith the format of the agreement was circulated by the Indian Tea Association to its member gardens by letter, dated February 25, 1972. In this letter, the Indian Tea Association stated, inter alia, as under:

"Members may use their discretion now to decide whether or not they should execute the agreement and accepted the new lease in Form I appended to Schedule F of the West Bengal Estates Acquisition Rules. It is understood that the leases will be given from the date of the order under section 6(3) or from the date of determination of rent under section 42 of the Act, whichever is later."

On receipt of the aforesaid communication from the Indian Tea Association, several tea garden-owners accepted the formula and executed necessary agreements. Some, however, continued to dispute the right of the Government to demand enhanced rent and cess with retrospective effect.

The assessee-company claimed deduction of Rs.41,046 in this year as it accepted the Government's formula and made provision in its books of account in the calendar year 1972 based on the letter, dated May 10, 1972, received from the Deputy Commissioner, Government of West Bengal. This letter was received during the calendar year 1972 corresponding to the assessment year 1973-74, and as such the said deduction was claimed by the assessee-company in this year. A copy of this letter was not printed in the paper book filed by the Revenue. But, in the course of hearing before this Court, a copy of this letter alongwith other correspondence between the Government and the tea industry were filed by counsel appearing for the assessee. In the letter, dated May 10, 1972, addressed to the assessee-company, the Deputy Commissioner, Darjeeling, intimated the assessee-company the actual rent and cess as determined to be payable by it and the assessee company was also requested to pay the same and execute necessary agreement in the prescribed format, a copy whereof was also enclosed.

The Income-tax Officer did not allow deduction in respect of the aforesaid amount on the ground that the provision for expenses related to the earlier years. The Appellate Assistant Commissioner, however, allowed the assessee's appeal and held that since the liability arose and was ascertained during the year under appeal, the deduction was rightly allowable in this year. On further appeal by the Revenue, the Income-tax Appellate Tribunal, inter alia, held and observed that since the liability for enhanced rent and cess was all along under dispute and was settled during the previous year under appeal in terms of the letter, dated May 10, 1972, received from the Deputy Commissioner by which the assessee-company was informed of the determination of rent and was asked to execute the agreements, it qualifies as a revenue deduction in the relevant year. The Tribunal, following its earlier decision in the case of Singtons Tea Co. (1946) Ltd., dismissed the Revenue's appeal and directed the Income-tax Officer to allow deduction of the said sum of Rs. 41,046 as business expenditure relating to the assessment year 1973-74. We have considered a similar question in I.T. Reference No.131 of 1983 (CIT v. Teesta Valley Co. Ltd. (1991) 187 ITR 657 (Cal.), where the judgment has been rendered today. There we have held that, under the agreement entered into by and between the assessee and the Government, the liability to pay rent and cess at the enhanced rate from the date of vesting was fastened on the assessee and made enforceable for the first time. Therefore, the liability accrued and arose and became real and enforceable in the previous year under reference when the agreement was executed.

In this case, the Tribunal, however, has not found as to when the agreement between the assessee company and the Government of West Bengal in respect of rent and cess payable from the date of vesting at the enhanced rate was executed. But, from the letter, dated May 10, 1972, received by the assessee-company from the office of the Deputy Commissioner, Government of West Bengal, Darjeeling Touzi Department, it appears that the quantum of additional rent and cess payable by the assessee-company was determined and quantified and the assessee-company was asked to execute the agreement. The assessee-company accepted such liability, executed the agreement with the Government of West Bengal and made provision in its books of account in respect of this additional liability in the year under reference. It was on this basis that the liability to pay rent and cess at the enhanced rate from the date of vesting was fastened on the assessee-company during the relevant previous year and the assessee-company made provision for such liability in its books and claimed the deduction. Therefore, the liability accrued and arose in the real sense in the previous year under reference.

For the reasons aforesaid and in view of the decision in Teesta Valley C o. Ltd. (1991) 187 ITR 657 (Cal.), where judgment has been delivered today, the question raised in this reference is answered in the affirmative -and in favour of the assessee.

There will be no order as to costs.

BHAGABATI PRASAD BANERJEE, J.--- I agree.

M.BA./2340/TQuestion answered.