The agricultural development allowance under Section 35c of the Income-tax Act, 1961, is available only to companies that incur expenditure to provide goods, services, or facilities to cultivators, growers, or producers in India, distinct from the assessee company.

( 1 ) THIS reference under Section 256 (1) of the I. T. Act, 1961, at the instance of the assessee relates to the assessment year 1973-74, for which the previous year ended on 31st August, 1972. The assessee in the year under consideration was carrying on agricultural activity of growing sugarcane, manufacturing sugar and selling the same, etc. In respect of the sugarcane unit the claim of the assessee for allowing agricultural development allowance under Section 35c of the Act was disallowed by the ITO on the ground that the conditions laid down therein had not been fulfilled. The amount claimed was Rs. 3,16,855.

( 2 ) THE said disallowance was also upheld by the AAC.

( 3 ) AGGRIEVED by the said order of the AAC the assessee came in further appeal before the Tribunal. It was urged on behalf of the assessee that the agricultural, development allowance was available to the assessee even if the assessee itself was a cultivator, grower or producer of the products as mentioned in Section 35c of the Act and the provision of the goods, services or facilities was by the assessee-company to the assessee-company itself. This view of the assessee was controverted by the departmental representative by urging that the agricultural development allowance stipulated in Section 35c would cover only that expenditure which had been incurred to provide goods, services or facilities to certain classes of persons, viz. , cultivators, growers or producers in India, persons distinct from the assessee-company. In support of such view reference was made to the language used in Clause (a) and (b) of Sub-section (1) of Section 35c of the Act and also to the language used in the Explanation thereto. The Tribunal upheld the order of the AAC by observing as under :"a perusal of this provision shows that the following conditions must co-exist before the agricultural development allowance stipulated therein can be allowed: (1) The assessee should be a company. (2) The company must be utilising any product of agriculture, animal husbandry or dairy or poultry farming. Such product may be utilised by the assessee as raw materials in its manufacture or processing. (3) It applies to expenditure incurred after 29th February, 1968, whether directly by the assessee or through an approved association or body, by the prescribed authority. (4) The expenditure covered by the section should have been incurred to provide goods, services or facilities to certain classes of persons and should be of the types mentioned in Clause (b) of Sub-section (1 ). (5) The class of persons contemplated by the provision, to assist whom the expenditure is to be incurred, is the class of 'cultivators, growers or producers in India' of the agricultural product in question, but he should not be one of the persons closely connected with the assessee within the meaning of Section 40a (2) (b) of the Act, and (6) The relief available is the deduction of 120 per cent, instead of 100 per cent, of the expenditure in question incurred during the previous year. "

( 4 ) THEREAFTER, looking to the language used in Clause (a) of Sub-section (1) as also in Clause (b) thereof, it was opined by the Tribunal that it was apparent, though the provision of Section 35c should be interpreted liberally, that the person who was a cultivator, grower or producer of such products in India had to be a person distinct from the company itself. With reference to the Explanation it was observed that in computing the expenditure with reference to which deduction under the said provision was to be allowed, the amount, if any, received by the company in consideration of or as compensation for such goods, services or facilities should be deducted.

( 5 ) NEXT, it was observed by the Tribunal that the mere fact that the person to whom the provision of any goods, services or facilities are to be provided for by the company should not be a person referred to in Clause (b) of Sub-section (2) of Section