JUDGMENT
M.H. Kania, A.C.J.
1. This is a reference under section 39(1) of the Maharashtra Agricultural Income-tax Act, 1962, made at the instance of the assessee. It has been wrongly numbered as a sales tax reference.
2. The assessee-company owns certain lands on which it used to raise sugarcane crop and manufacture sugar. The Maharashtra Agricultural Lands (Ceiling on Holdings) Act, 1961 (referred to hereinafter as “the said Ceiling on Agricultural Holdings Act”), came into force on January 26, 1962. A declaration was made under the provisions of section 21 of that Act on February 28, 1963, under which surplus land held by the assessee was declared to have vested in the State of Maharashtra. The assessee challenged the validity of the provisions of the said Ceiling on Agricultural Holdings Act by way of a writ petition filed in this court. At the hearing of that writ petition, the provisions of section 28 of that Act were declared ultra vires, but the challenge to the rest of the provisions failed. Both the assessee as well as the State preferred appeals against the said judgment to the Supreme Court. In 1964, however, the said Ceiling on Agricultural Holdings Act was included in Schedule IX to the constitution of India, with the result that the challenge to the provisions of the said Act came to an end. On May 10, 1965, certain terms of the agreement were entered into between the assessee and the State of Maharashtra. Although the terms of the agreement recorded that an agreement incorporating the said terms would be executed between the parties under section 23(f) of the said Ceiling on Agricultural Holdings Act, it is common ground that no such agreement was executed but both the parties have acted on the terms of the agreement itself and have accepted the same as binding. Clause A(1) of the said terms runs as follows :
“A(1) The companies will pay to the State Government within three months of the date of execution of an agreement under section 23(f) or before the 1st September, 1965, whichever is earlier :
(a) a sum of Rs. 150 (i.e., Rs. 50 per acre as licence fee and Rs. 100 per acre as Government share in the profit) for every acre of land which was under cane crushable during the crushing season of 1963-64;
(b) a sum equal to half of the difference between the net agricultural profit for the accounting year 1963-64 of the companies, i.e., after payment of agricultural income-tax, if any, paid or payable for the accounting year 1963-64, and the amount payable to Government under sub-clause (a);
(c) a sum equal to the net agricultural profit for the accounting year 1964-65 of the companies (i.e., after payment of agricultural income-tax payable for that year);
(d) a sum of Rs. 44,000 (Rupees forty-four thousand) by way of full and final settlement of any claim of Government in respect of the interest charges on the sums referred to in sub-clauses (a) and (b).
Explanation – For the purpose of sub-clauses (b) and (c) above, the net agricultural profit shall be taken at Rs. 10 lakhs (Rupees ten lakhs) whether or not the companies have actually realised that much profit.”
3. Clause (B) of the said terms of the agreement provides that the sugarcane crop that would be standing on the surplus land at the time of taking over possession of the land would be allowed to be harvested by the assessee subject to the conditions set out in that clause.
4. Under this agreement, the assessee was required to pay the sums of money set out therein by way of share of profit and licence fees in respect of the assessment years 1964-65, 1965-66 and 1966-67 corresponding to the previous year ending on March 31, 1964, March 31, 1965, and March 31, 1966, respectively. Although the exact dates of payments are not available, it is an accepted position that these payments were made by way of adjustments and actual payments between May 10, 1965, and September, 1965. The sugarcane crop which was standing on the land in the relevant period was not sold by the assessee, but utilised in the manufacture of sugar. In the assessment of the assessee in respect of the assessment year 1964-65, that is, corresponding to the previous year ending March 31, 1964, the assessee claimed deductions in respect of Rs. 4,57,350 paid as licence fee, Rs. 2,71,325 paid to the Government as its share of profit and Rs. 44,000 as part of interest. These claims for deductions were made under section 8 and/or sub-section(9) of section 8 of the Maharashtra Agricultural Income-tax Act. The agricultural Income-tax Assessor disallowed the said claims along with some other claims made by the assessee. The assessee preferred an appeal to the Appellate Assistant Commissioner of Agricultural Income-tax. The appellate Assistant Commissioner rejected the appeal of the assessee in so far as it related to the aforesaid claims. The assessee then preferred an appeal against the order of the Appellate Assistant Commissioner to the Sales Tax Tribunal. The said appeal was directed to be placed before a Special Bench or a larger Bench of the Tribunal. The Special Bench of the Tribunal disallowed the said expenditure on the ground that the said expenditure was not admissible under section 8 or sub-section (9) of section 8 of the Maharashtra Agricultural Income-tax Act, 1962. From the said decision of the Tribunal, the following question has been posed to us for our determination :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in disallowing deduction of (i) Rs. 4,57,350 as licence fees, (ii) Rs. 2,71,325 as Government share of profit, and (iii) Rs. 44,000 as part of interest under section 8 or section 8(9) of the Maharashtra Agricultural Income-tax Act, 1962, for the assessment year 1964-65 ?”
5. Before going into the contentions raised by respective counsel, it will be useful to note the relevant provisions of the Maharashtra Agricultural Income-tax Act, 1962. The said Act was enacted to provide for the imposition of tax on agricultural income derived from land situated in the State of Maharashtra. The charge of agricultural income-tax and rates are imposed under sections 4 and 5 of that Act. Sub-section (1) of section 4, inter alia, provides that agricultural income shall be charged at the rates specified in sub-section (2) of that section for each financial year, in accordance with and subject to the provisions of the Act, in respect of the total agricultural income of the previous year or previous years of every person. The relevant portion of section 5 of that Act runs as under :
“5. Subject to the provisions of this Act, the total agricultural income of any previous year of any person comprises all agricultural income derived from land situated within the State, and received by him within or without the State, including any land revenue or any local or education cess payable in respect of such land under any law for the time being in force in the State, but does not include…”
6. Sub-section (13) of section 2, the definition section, runs as follows :
“‘received’ used with reference to the receipt of agricultural income by a person includes –
(a) receipt by an agent or servant on behalf of a principal or master, respectively,
(b) receipts by other persons which are deemed to be his receipts under the provisions of this Act,
and also includes receipts of agricultural income by way of adjustment of accounts with any other person.”
7. Section 8 provides for the computation of agricultural income derived from agricultural land and certain allowances under the head “Agricultural income from agricultural land.” Sub-section (9) of section 8 runs as follows :
“any other expenditure of the assessee (not being in the nature of capital expenditure or personal expenditure) laid out wholly and exclusively for the purpose of deriving agricultural income from such land.”
8. We now come to the submission made by Mr. Dwarkadas, learned counsel for the assessee. The first submission urged by him was that the income received by the assessee was merely as an agent of the Government and the real income of the assessee was only the part of it which it was allowed to retain by the Government. In our view, Mr. Dwarkadas is not entitled to make this submission at all on the basis of the question raised. The question raised merely relates to the disallowing of certain deductions or allowances claimed by the assessee and there is nothing in the question to suggest that the contention of the assessee which was sought to be brought out in the question was that the assessee received the income as an agent of the Government of Maharashtra or that the only income of the assessee was that which it was allowed to retain. We may, moreover, point out that under the terms of the agreement which we have referred to earlier, there is nothing to suggest that the assessee received the income as an agent of the Government or that it utilised the sugarcane crop which it was allowed to harvest as an agent of the Government. The first submission of Mr. Dwarkadas must, therefore, be rejected.
9. The second submission urged by Mr. Dwarkadas was that in respect of the amounts claimed as deductions, there was a diversion of income at source, and hence these amounts could not be held to form part of the income of the assessee at all. Correctly speaking, this contention also cannot be allowed to be raised on the basis of the question referred. If there was a diversion at source in respect of the said amounts, claimed as allowable deductions, the said amounts could not form part of the income of the assessee at all and the question of claiming the same as deductions or allowances under section 8 or sub-section (9) of section 8 would not arise. Moreover, in our opinion, this argument also cannot stand scrutiny, because the terms of the agreement which we have referred to earlier show that under the agreement there is only a liability imposed on the assessee to make payments referred to therein, but there is no charge created in respect of any income. In the present case, the sugarcane crop was utilised by the assessee for the purpose of crushing in its sugar factory plant for being used in the manufacture of sugar. Hence, we fail to see how it could be said that there is any charge created in respect of the aforesaid amounts on the income of the assessee or that there was any diversion of income at source.
10. The third submission made by Mr. Dwarkadas was that under the provisions of the Maharashtra Agricultural Income-tax Act and the scheme thereof, it was only the real income of the assessee which could be taxed and in order to determine the real income of the assessee, the aforesaid amounts would have to be deducted from the same. It was also urged by him that, in any event, the amounts were deductible under sub-section (9) of section 8 of the Maharashtra Agricultural Income-tax Act. As far as this contention of Mr. Dwarkadas is concerned, we find that the question is concluded against the assessee by the judgment of a Division Bench of this court in the case of Commr. of Agrl. I.T. v. Phalton Sugar Works Ltd. [1980] 121 ITR 920 (Bom). In that case, the assessee, a public limited company owned and was also a lessee of several acres of land in the State of Maharashtra. The assessee cultivated these lands mainly for sugarcane crop and partly for food crops and cotton. The assessee also owned a sugar factory on its lands in which it crushed and manufactured into sugar, the sugarcane obtained from its agricultural lands. The assessee’s accounting year was from October, 1, to September, 30, and it was for this accounting period that the assessee was being assessed to income-tax. The assessment in question was in respect of the previous year April 1, 1961, to March 31, 1962, for the assessment year April 1, 1962, to March 31, 1963, under the Maharashtra Agricultural Income-tax Act. The returns filed by the assesses comprised halves of two accounting periods, namely, the second half of the accounting year October 1, 1960, to September 30, 1961, and the first half of the accounting year October 1, 1961, to September 30, 1962. The assessees submitted before the Agricultural Income-tax Officer their profit and loss accounts for these two accounting years, namely, October 1, 1960, to September 30, 1961 and October 1, 1961, to September 30, 1962. In their assessment proceedings, the assessees contended that since their previous year was different from their accounting year and involved parts of two accounting years, the proper method of arriving at their agricultural income for the previous year taxable under the Act was to take the results arrived at in the profit and loss accounts and the statements filed by them for the two accounting years and seeing that their previous year included equal halves of such accounting year to divide the net result of each year by half and total the results so obtained. The result of this method was that certain expenses which had been incurred earlier than the relevant previous year or after the relevant previous year were sought to be included in the deductions claimed for the assessment year. Analysing the provisions of section 4 and 5 of the Maharashtra Agricultural Income-tax Act, Madon. J. (as he then was), on behalf of the Division Bench, observed as follows (at pp. 937 and 938) :
“Further, under section 4, the agricultural income-tax is to be charged in accordance with and subject to the provisions of the Act. The total agricultural income referred to in section 5 is to comprise of agricultural income derived from lands situate within the state and received by the assessee within or without the State. Thus, if we read sections 4 and 5 together bearing in mind the definition of ‘total agricultural income’ given in clause (15) of section 2, the agricultural income-tax is levied not on the total income derived from land but on the total agricultural income derived from land within the State and received by the assessee within or without the State. Thus, what is taxed is not merely the deriving of agricultural income but the deriving and receipt of agricultural income. This is further made clear by the definition of ‘total agricultural income’ which speaks of ‘total amount of agricultural income referred to in section 5 and computed in the manner laid down in this Act’. Chapter III of the Act is headed ‘COMPUTATION OF AGRICULTURAL INCOME-TAX AND ALLOWANCES’. Under section 8, agricultural income-tax is to be paid by an assessee in respect of his income falling under the head ‘Agricultural income from agricultural’, ‘in respect of all agricultural income derived from land…… included in his total agricultural income and received by him in the previous year’, subject to the allowances set out in the said section.”
11. In respect of deductions by way of allowances under section 8 of the Act, the Division Bench, after taking note of the provisions of sections 8 and 9, observed as follows (p. 939 and 940) :
“We have set out the relevant provisions above, but when we look at the whole section we find that, apart from the case of depreciation which is covered by sub-sections (6) and (7) of that section and apart from sub-section (9), every other sub-section speaks of the expenditure incurred in the previous year. The very wording of sub-section (9) would show that it too refers to the expenditure incurred in the previous year. That sub-section uses the expression ‘any other expenditure’. Further, it refers to expenditure which is not in the nature of capital or personal expenditure, that is, it is revenue expenditure of a nature different from that specified in the earlier sub-sections which deal with revenue expenditure…… Under the Act, however, they are entitled to claim a deduction only on the expenditure incurred in that half of their first accounting period as also of their second accounting period which falls within the previous year.”
12. The Division Bench has thus held that for any expenditure to be allowed as deductible expenditure under section 8 and particularly under sub-section (9) of section 8, the expenditure has to be incurred in the relevant previous year, that is, the amount claimed must be expended in the relevant previous year. In the present case, the amounts in question were paid by the assessees after May 10, 1965, whereas the relevant previous year ended on March 31, 1964, and hence these amounts cannot be claimed by way of deductions under section 8 or sub-section (9) of section 8 in the assessment for the assessment year 1964-65. The observations made by the Division Bench also clearly show that the concept of real income which was sought to be expounded by Mr. Dwarkadas is not material in respect of the assessments under the provisions of the Maharashtra Agricultural Income-tax Act. The very fact that in order to form part of total agricultural income, the amounts in question have to be “derived and received” by the assessee within the relevant previous year would clearly negative the idea of the tax being levied on the real income as argued by Mr. Dwarkadas.
13. Mr. Dwarkadas drew our attention to the judgment of a Division Bench of this court in Agricultural Income-tax Reference No. 142 of 1976, Commr. of Agrl. I.T. v. Belvandi Private Ltd., delivered by a Division Bench of this court comprising Madon and Mehta JJ. on November 20, 1979, judgment having been delivered by Mehta J.). In that case, the respondent assessee was assessed under the Maharashtra Agricultural Income-tax Act 1962, for the assessment year 1965-66, the corresponding previous year being from October 1, 1963, to September 30, 1964. Certain amounts were paid by the assessee to the State Government under a tripartite agreement entered into on December 10, 1964, between the Governor of Maharashtra, the Maharashtra State Farming Corporation and the respondent company. The division Bench held that these amounts were liable to be allowed by way of deductions allowable under sub-section (9) of section 8 of the Maharashtra Agricultural Income-tax Act. It was submitted by Mr. Dwarkadas that as the agreement was entered into on December 10, 1964, that is, after the end of the previous year which ended on September 30, 1964, the conclusion in this judgment was inconsistent with the principles laid down in the case of Commr. of Agrl. I.T. v. Phalton Sugar Works Ltd. [1980] 121 ITR 920 (Bom). In our view, there is no force in this contention. We find from the facts which we can gather from the paper book relating to the aforesaid reference that, although the said tripartite agreement was entered into on December 10, 1964, it was made effective from October 1, 1963, and, what is more material, the payments allowed by way of deductions were actually made by the assessee on May 26, 1964, that is well before the close of the relevant previous year. Thus, this case is clearly distinguishable. Moreover, there is nothing in the judgment of the said case which would suggest that a payment made after the end of the relevant previous year could be allowed by way of deduction under section 8(9).
14. In the result, the question referred to us must be answered in the affirmative and against the assessee. The question is answered accordingly.
15. It was submitted by Mr. Dwarkadas that, in any event, the amounts claimed by the assessee as deductions as set out in the said question should be allowed as allowable deductions in the assessment for the year 1966-67, that is, for the relevant previous year ending March 31, 1966. We cannot go into this question in this reference. If it is open to the assessee to make such a claim as aforesaid in the proceedings pertaining to the assessment year 1966-67, the assessee will make the claim and the Tribunal shall determine the same in accordance with law. The assessee to pay to the State the Cost of this reference