The question before the Full Bench was “ Whether the assessee-plantation companies under rule 7A(2) of the Rules are entitle to an allowance towards replanting expenses and further deduction towards upkeep and maintenance expenses incurred by the assessee for the immature plants till the age of maturity in the computation of income under the Act and Rules ?”

Court held that  Rule 7A of the Income-tax Rules, 1962 is structured in such a way keeping in perspective the very nature of a rubber plantation, time to yield produce, the normal produce yield period, etc. Replantation allowance is a straight allowance available to an assessee subject to satisfying the other two conditions: viz., (i) replantation cost is claimed in the area where rubber trees were planted and are cut, or the rubber trees have become useless or unproductive, (ii) the replanting must be a continuous act upon felling the rubber trees in the rubber plantation. The language ensures continuity of rubber plantation by providing for the allowance of replantation costs. The concept of infilling is not attracted to the nature of allowance. Under rule 7A of the Rules in computing the income to tax under the Act, the allowance shall be made in respect of the cost of replanting rubber plants that have died or become permanently useless in an area already planted if the area has not been abandoned. In determining the cost of replanting or replacement, no deduction of the amount of any subsidy under the provisions of clause (31) of section 10 is includible in the total income. In the computation of business income under rule 7A of the Rules, 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 the Act. 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 the Act. (AY. 2011-12)