I am a rubber planter. I cleared an old unproductive block and replanted it, and claimed the cost under rule 7A(2). The Assessing Officer has disallowed it. Is there anything I can do?
Not in Kerala. The Cochin Tribunal dismissed both appeals, holding itself bound by the Kerala High Court in Rehabilitation Plantations Ltd v CIT, which construed rule 7A(2) as covering only infilling — the replacement of dead or useless trees within an existing yielding area — and not the replanting of an area after cutting and removing an old plantation, and held that expenditure on planting and developing a plantation up to maturity must be capitalised. Rule 7A itself makes 35 per cent of the income from the specified rubber products taxable as business income and leaves 65 per cent as agricultural income for the State.
Decided by the ITAT (Chandra Poojari, Accountant Member and George George K, Judicial Member (Cochin Bench)) on 2019-08-01, reported as ITA No. 239/Coch/2018 (assessment year 2014-15) and ITA No. 381/Coch/2018 (assessment year 2011-12); date of hearing 22 July 2019. It bears on section Rule 7A, section Rule 7B, section Rule 8, section 10(30), section 10(31), section 37, section 43(3), section 32 of the Income Tax Act 1961, in Deductions & Disallowances, Capital Gains Exemptions and Appeals matters.
Two things a rubber or plantation practitioner must have. First, the fraction, stated with its rule: rule 7A, 35 per cent taxable, 65 per cent agricultural — not the tea figure. For completeness the neighbouring fractions are rule 7B for coffee, 25 per cent taxable where the coffee is grown and cured and 40 per cent where it is grown, cured, roasted and ground, and rule 8 for tea, 40 per cent taxable. Second, the trap: rule 7A(2), rule 7B(2) and rule 8(2) are drafted in identical terms — an allowance for the cost of planting in replacement of plants that have died or become permanently useless in an area planted, if the area has not previously been abandoned — and the natural reading is that it covers replanting a worked-out block. The Kerala High Court has held otherwise for rubber, on the physical reasoning that new saplings cannot grow under the shade of a yielding rubber plantation so infilling within such an area is never done, and on the further ground that allowing the claim would conflict with the scheme of the State Agricultural Income-tax Act, which permits only a replantation allowance under its own rules. The assessee's written submission, set out at length in the order, is the best available compilation of the contrary argument — the Supreme Court decisions in Travancore Rubber & Tea and Karimtharuvi Tea Estates on maintenance of immature plants being revenue expenditure, the 1995 amendment to s.43(3) excluding tea bushes from 'plant' on the footing that the rule 8(2) deduction is allowed in lieu of depreciation, and the difference between 'an area already planted' and 'an area previously abandoned'. The Tribunal did not engage with any of it; it held the High Court binding and stopped. Outside Kerala that argument is still available and is worth running.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The Plantation Corporation of Kerala Limited, wholly owned by the Government of Kerala, processes latex into value added forms including centrifuged latex, part of the income from which is chargeable under the Income-tax Act. For assessment year 2014-15 it returned income of Rs 14,38,15,260 after claiming Rs 6,75,49,321.16 under rule 7A(2) towards replanting and maintenance expenditure, of which Rs 2,47,38,874.24 was replantation and Rs 4,28,10,446.92 maintenance of immature areas. The Assessing Officer disallowed the claim following the Kerala High Court in Rehabilitation Plantations Ltd v. CIT (2012) 251 CTR 343 (Ker.), recording that the assessee had no case of infilling in a yielding area and that the expenditure was for planting in an area cleared of an existing unproductive plantation, and computing the addition to the centrally assessable income at 35 per cent of the disallowed sum, Rs 2,36,42,262. The Commissioner (Appeals) confirmed on 28 March 2018, holding that the High Court had held in unequivocal terms that expenditure on planting and development up to maturity must be capitalised. The Velimalai Rubber Co. Limited's appeal for assessment year 2011-12, from an order of the Commissioner (Appeals) dated 12 June 2018, raised the identical issue. Before the Tribunal the assessee argued that maintenance expenditure falls outside rule 7A(2) altogether and is deductible under s.37; that rule 7A(2) is drafted on the same lines as rule 8(2) for tea and rule 7B(2) for coffee, that the rule 8(2) deduction has always been allowed for replacement of useless bushes over an entire area and not merely for infilling, and that the Finance Act 1995 amendment to s.43(3) excluding tea bushes from 'plant' proceeded on the footing that the rule 8(2) deduction is allowed in lieu of depreciation; and that the High Court had not considered the difference between 'an area already planted' and 'an area previously abandoned'.
Both appeals were dismissed. The assessee had no case that the replanting and maintenance expenses were for infilling through replacement of dead or useless trees; on the contrary it was admitted that they were incurred for planting a new area of rubber and not an area already planted with yielding rubber. The finding of the Kerala High Court being clear and categorical, the judgment was binding on the lower authorities (paras 9, 9.1, 10 and 11).
The Tribunal set out the operative passage from Rehabilitation Plantations Ltd v. CIT and treated it as concluding the matter. In that passage the High Court held that expenditure covered by rule 7A(2) does not extend to expenditure incurred for replantation of an area but provides only for deduction of expenditure for infilling through replacement of dead trees or other trees that have become useless; that rule 7A(2) is in the same line as rule 7B(2) for coffee and rule 8(2) for tea; that a yielding healthy rubber plantation does not admit replacement of dead plants within such an area because new saplings cannot grow under shade and no planter does it; that the Central Income-tax Officer determining income under rule 7A should keep in mind the principles of computation of agricultural income under the State Agricultural Income-tax Act, which prohibits deduction of expenditure on replantation of an area and provides only a replantation allowance under its own rules; that expenditure on replantation of an area from which no income is derived is not to be reckoned in computing income from the yielding area; and that investment in planting and developing a plantation up to maturity must be capitalised and is not allowable as revenue expenditure. Applying that, the Tribunal recorded the admitted position that the expenditure was for planting a new area rather than infilling, held the High Court's finding binding on the lower authorities, and dismissed the appeal without adjudicating the assessee's arguments on parity with rule 8(2), on the s.43(3) amendment, or on the separate treatment of maintenance expenditure.
The assessee does not have a case that the expenses incurred under the head replanting and maintenance are for infilling through replacement of dead trees or other trees that have become useless.
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Handle my notice → Ask a CA on WhatsAppNot in Kerala. The Cochin Tribunal dismissed both appeals, holding itself bound by the Kerala High Court in Rehabilitation Plantations Ltd v CIT, which construed rule 7A(2) as covering only infilling — the replacement of dead or useless trees within an existing yielding area — and not the replanting of an area after cutting and removing an old plantation, and held that expenditure on planting and developing a plantation up to maturity must be capitalised. Rule 7A itself makes 35 per cent of the income from the specified rubber products taxable as business income and leaves 65 per cent as agricultural income for the State. This was decided by the ITAT (Chandra Poojari, Accountant Member and George George K, Judicial Member (Cochin Bench)) and bears on section Rule 7A, section Rule 7B, section Rule 8, section 10(30), section 10(31), section 37, section 43(3), section 32 of the Income Tax Act 1961. It is reported as ITA No. 239/Coch/2018 (assessment year 2014-15) and ITA No. 381/Coch/2018 (assessment year 2011-12); date of hearing 22 July 2019. Two things a rubber or plantation practitioner must have. First, the fraction, stated with its rule: rule 7A, 35 per cent taxable, 65 per cent agricultural — not the tea figure. For completeness the neighbouring fractions are rule 7B for coffee, 25 per cent taxable where the coffee is grown and cured and 40 per cent where it is grown, cured, roasted and ground, and rule 8 for tea, 40 per cent taxable. Second, the trap: rule 7A(2), rule 7B(2) and rule 8(2) are drafted in identical terms — an allowance for the cost of planting in replacement of plants that have died or become permanently useless in an area planted, if the area has not previously been abandoned — and the natural reading is that it covers replanting a worked-out block. The Kerala High Court has held otherwise for rubber, on the physical reasoning that new saplings cannot grow under the shade of a yielding rubber plantation so infilling within such an area is never done, and on the further ground that allowing the claim would conflict with the scheme of the State Agricultural Income-tax Act, which permits only a replantation allowance under its own rules. The assessee's written submission, set out at length in the order, is the best available compilation of the contrary argument — the Supreme Court decisions in Travancore Rubber & Tea and Karimtharuvi Tea Estates on maintenance of immature plants being revenue expenditure, the 1995 amendment to s.43(3) excluding tea bushes from 'plant' on the footing that the rule 8(2) deduction is allowed in lieu of depreciation, and the difference between 'an area already planted' and 'an area previously abandoned'. The Tribunal did not engage with any of it; it held the High Court binding and stopped. Outside Kerala that argument is still available and is worth running. If it applies to you, the first step is this: State rule 7A with its fraction — 35 per cent business, 65 per cent agricultural — in any submission. Do not import the tea figure of 40 per cent from rule 8, and do not import rule 7B's coffee figures.
The Plantation Corporation of Kerala Limited, wholly owned by the Government of Kerala, processes latex into value added forms including centrifuged latex, part of the income from which is chargeable under the Income-tax Act. For assessment year 2014-15 it returned income of Rs 14,38,15,260 after claiming Rs 6,75,49,321.16 under rule 7A(2) towards replanting and maintenance expenditure, of which Rs 2,47,38,874.24 was replantation and Rs 4,28,10,446.92 maintenance of immature areas. The Assessing Officer disallowed the claim following the Kerala High Court in Rehabilitation Plantations Ltd v. CIT (2012) 251 CTR 343 (Ker.), recording that the assessee had no case of infilling in a yielding area and that the expenditure was for planting in an area cleared of an existing unproductive plantation, and computing the addition to the centrally assessable income at 35 per cent of the disallowed sum, Rs 2,36,42,262. The Commissioner (Appeals) confirmed on 28 March 2018, holding that the High Court had held in unequivocal terms that expenditure on planting and development up to maturity must be capitalised. The Velimalai Rubber Co. Limited's appeal for assessment year 2011-12, from an order of the Commissioner (Appeals) dated 12 June 2018, raised the identical issue. Before the Tribunal the assessee argued that maintenance expenditure falls outside rule 7A(2) altogether and is deductible under s.37; that rule 7A(2) is drafted on the same lines as rule 8(2) for tea and rule 7B(2) for coffee, that the rule 8(2) deduction has always been allowed for replacement of useless bushes over an entire area and not merely for infilling, and that the Finance Act 1995 amendment to s.43(3) excluding tea bushes from 'plant' proceeded on the footing that the rule 8(2) deduction is allowed in lieu of depreciation; and that the High Court had not considered the difference between 'an area already planted' and 'an area previously abandoned'. The matter was decided on 2019-08-01 by the ITAT (Chandra Poojari, Accountant Member and George George K, Judicial Member (Cochin Bench)). On those facts the ITAT held as follows. Both appeals were dismissed. The assessee had no case that the replanting and maintenance expenses were for infilling through replacement of dead or useless trees; on the contrary it was admitted that they were incurred for planting a new area of rubber and not an area already planted with yielding rubber. The finding of the Kerala High Court being clear and categorical, the judgment was binding on the lower authorities (paras 9, 9.1, 10 and 11).
The Tribunal set out the operative passage from Rehabilitation Plantations Ltd v. CIT and treated it as concluding the matter. In that passage the High Court held that expenditure covered by rule 7A(2) does not extend to expenditure incurred for replantation of an area but provides only for deduction of expenditure for infilling through replacement of dead trees or other trees that have become useless; that rule 7A(2) is in the same line as rule 7B(2) for coffee and rule 8(2) for tea; that a yielding healthy rubber plantation does not admit replacement of dead plants within such an area because new saplings cannot grow under shade and no planter does it; that the Central Income-tax Officer determining income under rule 7A should keep in mind the principles of computation of agricultural income under the State Agricultural Income-tax Act, which prohibits deduction of expenditure on replantation of an area and provides only a replantation allowance under its own rules; that expenditure on replantation of an area from which no income is derived is not to be reckoned in computing income from the yielding area; and that investment in planting and developing a plantation up to maturity must be capitalised and is not allowable as revenue expenditure. Applying that, the Tribunal recorded the admitted position that the expenditure was for planting a new area rather than infilling, held the High Court's finding binding on the lower authorities, and dismissed the appeal without adjudicating the assessee's arguments on parity with rule 8(2), on the s.43(3) amendment, or on the separate treatment of maintenance expenditure. In the words reproduced by the source cited on this page: "The assessee does not have a case that the expenses incurred under the head replanting and maintenance are for infilling through replacement of dead trees or other trees that have become useless." The decision followed or applied M/s. Rehabilitation Plantations Ltd v. CIT (2012) 251 CTR 343 (Ker.) — followed as binding; The Travancore Rubber & Tea Co. Ltd v. Commissioner of Agricultural Income Tax AIR 1961 SC 604 / 41 ITR 751 — relied on by the assessee, not adjudicated; Karimtharuvi Tea Estates v. State of Kerala AIR 1963 SC 760 / 48 ITR 83 — relied on by the assessee, not adjudicated.
It was decided by the ITAT on 2019-08-01 and is reported as ITA No. 239/Coch/2018 (assessment year 2014-15) and ITA No. 381/Coch/2018 (assessment year 2011-12); date of hearing 22 July 2019. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section Rule 7A, section Rule 7B, section Rule 8, section 10(30), section 10(31), section 37, section 43(3), section 32, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. Both appeals were dismissed. The assessee had no case that the replanting and maintenance expenses were for infilling through replacement of dead or useless trees; on the contrary it was admitted that they were incurred for planting a new area of rubber and not an area already planted with yielding rubber. The finding of the Kerala High Court being clear and categorical, the judgment was binding on the lower authorities (paras 9, 9.1, 10 and 11). It arises in Deductions & Disallowances, Capital Gains Exemptions and Appeals matters, on section Rule 7A, section Rule 7B, section Rule 8, section 10(30), section 10(31), section 37, section 43(3), section 32 of the Income Tax Act 1961, and was decided by Chandra Poojari, Accountant Member and George George K, Judicial Member (Cochin Bench). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Separate maintenance expenditure on immature areas from replanting cost, and claim maintenance under s.37 rather than rule 7A(2). The assessee here made that distinction in argument and it was never adjudicated, so the point is open. Where the expenditure really is infilling — replacement of individual dead or useless plants within an area already planted and not previously abandoned — document it as such, with block-wise records. That is the only category the Kerala High Court left open. Outside the Kerala jurisdiction, run the parity argument from rule 8(2) and the memorandum to the Finance Act 1995 amendment of s.43(3), which explains the rule 8(2) deduction as allowed in lieu of depreciation. The Tribunal here refused it only because the jurisdictional High Court bound it. Do not rely on the dismissal of a special leave petition against Rehabilitation Plantations as leaving the point open, but do not concede it either; the assessee's own submission recorded the dismissal and correctly noted that a dismissal of an SLP declares no law.
Overruled. This order has been REVERSED by the Kerala High Court and must not be left standing as good law. In The Plantation Corporation of Kerala Ltd v ACIT (Kerala High Court, 4 August 2022, indiankanoon doc 129590247) the Court identifies the order under appeal as 'ITA No. 239/COCH/2018 dated 1 August 2019 (Income Tax Appellate Tribunal, Cochin Bench)' — this very order — records that 'The Tribunal disallowed both claims — replanting allowance and maintenance expense deductions — relying on the Rehabilitation Plantations Ltd precedent', and reverses it, answering the questions in the assessee's favour on the authority of the Kerala High Court FULL BENCH decision of 1 August 2022. The Full Bench held: 'In the computation of business income under Rule 7A of the Rules 1962, the assessee under Rule 7A(2) is entitled to an allowance in respect of the cost of replacement of dead and useless rubber trees in the rubber plantation in an area not abandoned, subject to Section 10(31) of Act 1961. The upkeep and maintenance expenses incurred by the assessee till the maturity of rubber trees are revenue expenditures eligible for deduction under Section 37 of Act 1961.' The matter was remitted to the Assessing Officer. A companion judgment of the same date (doc 153054908, AY 2013-14) reverses the Cochin Bench order of 2 March 2020 on the same footing. The Rehabilitation Plantations reasoning on which this order rested has been superseded by that Full Bench. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read in full from the indiankanoon print view. The indiankanoon heading for this document names the Velimalai Rubber Co. appeal, but the order itself is a consolidated order in which ITA No. 239/Coch/2018 (Plantation Corporation of Kerala, assessment year 2014-15) is the lead matter and ITA No. 381/Coch/2018 (Velimalai Rubber, assessment year 2011-12) is disposed of in one line at para 10 as identical; both are named in the entry. The order carries a further internal inconsistency: para 1 says the Plantation Corporation appeal arises from a Commissioner (Appeals) order 'concerning assessment year 2014-2015' while the header of that appeal reads 'Asst.Year 2014-2015' — consistent — but the assessee's own submission at para 7(3)(i) tabulates expenditure by calendar years 2005 to 2013, which does not map onto the year in appeal without further material. The 35 per cent figure appears in the order twice, once inside the Assessing Officer's finding quoted at para 5 and once inside the assessee's written submission at para 7(3)(ii); it is NOT stated in the Tribunal's own words, which is why it has been independently corroborated against the Income-tax Department's published page on rule 7A. Paragraph numbering in the assessee's submission is defective in the source — '4 (i)' appears twice with the same text, and sub-paragraph (iv) of the first appears before it. The extract from the Kerala High Court judgment set out at para 9 was read only as reproduced in this order; the Rehabilitation Plantations judgment itself was not retrieved. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Both appeals were dismissed. The assessee had no case that the replanting and maintenance expenses were for infilling through replacement of dead or useless trees; on the contrary it was admitted that they were incurred for planting a new area of rubber and not an area already planted with yielding rubber. The finding of the Kerala High Court being clear and categorical, the judgment was binding on the lower authorities (paras 9, 9.1, 10 and 11).
TaxSphere, “M/s. The Plantation Corporation of Kerala Ltd and M/s. The Velimalai Rubber Co. Ltd v ACIT, Kottayam”, https://taxnotice.vittsphere.com/caselaw/case/plantation-corporation-of-kerala-rule-7a-replanting-is-only-infilling/ (validity last checked 2026-09-08)
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Our client grows tea and manufactures it in its own factory. What proportion of the composite income is taxable under the Income-tax Act, and what does sub-rule (2) allow for replanting?
My client grows rubber and my other client grows and cures coffee. What percentage of the income is business income in each case, and does it change if the coffee is also roasted and ground?
We grow coffee, cure it in our own concern and also buy coffee from other planters. The Assessing Officer has applied Rule 7B and taxed forty per cent. We say Rule 7 applies. Who is right?
We grow our own raw material and process it in our own factory. How is the business profit computed, and can we also claim the cultivation expenses?
