Income Tax Act | Upkeep & Maintenance Expenses For Rubber Replantation Are Revenue Expenditure, Deductible U/S 37: Kerala High Court

The Kerala High Court held that expenditure incurred on the upkeep and maintenance of rubber trees, including expenses relating to replantation and replacement, is revenue in nature and therefore allowable as a deduction under Section 37 of the Income Tax Act, 1961. Section 37 of the Income Tax Act, 1961, provides that expenses incurred by businesses for raising loans are eligible for deduction. Justices A. Muhamed Mustaque and Harisankar V. Menon were examining the issue regarding the entitlement of the assessee for deduction of the expenditure incurred by it for replantation/ replacement of rubber trees as well as their upkeep with reference to the provisions of the AIT Act, read with the provisions of Rule 7A of the Income Tax Rules,1962. The Tribunal, in the first set of appeals, rejected the claim made as above, essentially following the principles laid down by a Division Bench of the Kerala High Court in M/s. Rehabilitation Plantations Ltd. v. Commissioner of Income Tax [(2012) 251 CTR 343 (Ker.)]. The assessee contended that the judgment of the Kerala High Court in Rehabilitation Plantation (supra) was doubted by another Division Bench of the Kerala High Court, on account of which, the matter was referred for consideration by a Full Bench. The Full Bench of Kerala High Court, in Rehabilitation Plantations Ltd. v. Commissioner of Income-Tax [(2023) 450 ITR 626 (Ker) [FB]], found that upkeep as well as maintenance expenditure were revenue in nature and hence eligible for deduction with reference to the provisions of Section 37 of the Income Tax Act,1961. The Full Bench also held that the dictum laid down by this Court in Rehabilitation Plantation (supra) is not good law. The assessee, in such circumstances, instituted the review petitions, essentially relying on the Full Bench judgment as above. The Tribunal, by the second set of orders, rejected the review petitions, holding that no ground for seeking review has been made out even with reference to the judgment of the Full Bench referred to above. The bench found that the Tribunal had rejected the claim of the assessee with reference to the principles laid down in Rehabilitation Plantation (supra). The bench noticed that the Full Bench has held that the earlier Division Bench judgment does not lay down the correct proposition. Thus, it was held by the Full Bench that upkeep and maintenance expenditure were revenue expenditure and hence entitled to deduction under Section 37 of the Act. In view of the above, the bench allowed the petition. Case Title: Rehabilitation Plantations Ltd. v. State Of Kerala Case Number: OTC NO.1 OF 2025Citation: 2025 LiveLaw (Ker) 828 Counsel for Petitioner/Assessee: Kuryan Thomas, M.Gopikrishnan Nambiar, K. John Mathai, Joson Manavalan, Paulose C. Abraham, Raja Kannan, Varsha S. Nambiar, Rini Anna Kurian Counsel for Respondent/Department: Dr. Thushara James Click Here To Read/Download Order

Income Tax Act | Upkeep & Maintenance Expenses For Rubber Replantation Are Revenue Expenditure, Deductible U/S 37: Kerala High Court

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Income Tax Act | Upkeep & Maintenance Expenses For Rubber Replantation Are Revenue Expenditure, Deductible U/S 37: Kerala High Court

Mehak Dhiman

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