Law:

Section:

Section 37(1) of the Income-tax Act, 1961 (Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922) - Business expenditure - Allowability of - Assessment year 1947-48 - Whether when once plantation has been laid, that is to say, land has been acquired, made fit for planting and trees actually planted, stage of capital expenditure ceases, and, whatever is spent thereafter upon maintenance, such as weeding, superintendence, etc., would be in nature of revenue expenditure, notwithstanding that trees have not started to yield - Held, yes FACTS The assessee purchased an estate in 1938 and planted it with rubber in 1941. The rubber plants reached maturity only in January, 1947, and started yielding thereafter. During the previous year for the assessment year 1947-48, he incurred certain expenditure on the maintenance of the immature plantation, and claimed it as business expenditure. The ITO, however, disallowed the assessee's claim holding that the estate had not begun to yield and the expenditure would, therefore, be treated as of a capital nature. The Tribunal held that the amount in question was spent prior to the January, 1947 and, as such, there was no reason to interfere with the decision of the department. On reference : HELD The decision of the Tribunal and of the department was wholly erroneous, and the approach to the question they had before them appeared to have proceeded on an entire misconception of what can properly be regarded as revenue expenses in relation to a plantation of this type. In the case of Vallanbrosa Rubber Co. Ltd. v. Farmer [1910] 5 Tax Cas. 529, a clear line of demarcation has thus been drawn between capital expenditure and revenue expenditure in relation to trades of this kind. When once the plantation had been laid, that is to say, the land has been acquired, made fit for planting and trees actually planted, the stage of capital expenditure ceases, and, whatever is spent thereafter upon the maintenance, such as weeding, superintendence, etc. would appear to be in the nature of revenue expenditure, notwithstanding that the trees have not started to yield and will not yield for as long as six years thereafter. The…

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