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2016 (3) TMI 325 - CALCUTTA HIGH COURT

2016 (3) TMI 325 - CALCUTTA HIGH COURT - [2016] 382 ITR 537 - Determination of agriculture income - Interpretation of Section 33AB and Rule 8 of the Income Tax Rules - allowance under Section 33AB from the composite income - applicability of deduction under Section 33AB while computing the income derived from sale of tea grown and manufactured by the seller - Held that:- Deduction u/s.33AB of the Act is to be allowed from the total composite income derived from growing and manufacturing tea and .....

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or the Respondent : Mr. S.B. Saraf, Adv ORDER Girish Chandra Gupta J. The assessee has come up in appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) against an order of the Income Tax Appellate Tribunal, A- Bench, Kolkata dated 28th June, 2005 in ITA 1626/KOL/2004 for the assessment year 2000-01. By the order dated 17th November, 2005 a Division Bench of this Court admitted this appeal on the following substantial question of law:- I) Whether on a true an .....

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e computation of composite income? Briefly stated the facts and circumstances of the case are as follows:- The assessee is a company engaged inter alia, in the business of growing, manufacturing and selling of tea in India and abroad. The assessee claimed a deduction at the rate of 20% on the composite income of ₹ 25,54,855/-. But the assessing officer by his order dated 27th March, 2003 passed under Section 143 (3) of the Act held that any deduction under Section 33AB has to be allowed on .....

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fession" has to be allowed from the nonagricultural component as computed under Rule 8 the deduction being allowed from agricultural income, which is not subjected to 1. Tax as provided u/s 10(1). Hence, computation of deduction u/s 33AB is made with respect to twenty percent of the profit from non-agricultural component as ascertained from Rule 8. So the deduction of ₹ 5,10,971/-is added back to the composite income of ₹ 20,43,884/- and is to be considered for allowance on dete .....

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decision in the cases of Tata Tea Ltd. vs. State of West Bengal and McLeod Russel (India) Ltd. vs. State of West Bengal reported in 173 ITR 18 that in order to determine income derived from business under Rule 8(1), the deduction allowable under the Act in respect of business income would have to allowed. Rule 8 of the IT Rules also states that the income derived from sale of tea grown and manufactured by the seller in India shall be computed as if it were income from business. In the light of .....

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nal by its order dated 28th June, 2005 partly allowed the appeal of the revenue. The Tribunal relied on an earlier order dated 28th February, 2005 in the case of M/s. Empire Plantation India Ltd. in ITA No.1600/KOL/2004 for the assessment year 2000-01 and held as follows:- Now coming to ground No.2 relating to allowance of deduction u/s.33AB from the composite income, we find that this issue is also is squarely covered by the said order of the Tribunal dated 28.2.2005. The Tribunal in that case .....

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s and Gains of Business or Profession before making any deduction under section 33AB and before the loss, if any, brought forward, from earlier year is set off under section 72 of the Act. In other words, the sum equal to twenty per cent is to be computed on the amount of 40% of composite income before making any deduction under section 33AB of the Income Tax Act and set off any loss under section 72 of the Act is made inasmuch as only 40% of composite income comes within the ambit of profit com .....

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lantations Ltd. (2005) 142 Taxman 538 where the view similar to the view taken by the Division Bench of that Court in CIT -Vs- C.W.S. (India) Ltd. (2000) 246 ITR 278 was taken, is also of no help to the present assessee as the Hon ble jurisdictional Calcutta High Court in the case of Union of India and Others Vs- Warren Tea Ltd. and Others (2004) 266 ITR 227 has observed that we are unable to agree with the ratio decided in the decision in CIT -vs- C. W.S. (India) Ltd. [2000] 246 ITR 278 (Ker.) .....

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appreicate the rival contentions advanced by the Advocates for the parties it is necessary to set out the relevant provisions of the Act. The relevant portion of Section 33AB of the Act reads as follows:- 33-AB. Tea development account.-(1) Where an assessee carrying on business of growing and manufacturing tea in India has, before the expiry of six months from the end of the previous year or before furnishing the return of his income 1[whichever is earlier,- (a) deposited with the National Bank .....

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amed by the Tea Board (hereafter in this section referred to as the deposit scheme) with the previous approval of the Central Government, the assessee shall, subject to the provisions of this section;] be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under Section 72) of- (a) a sum equal to the amount or the aggregate of the amounts so deposited; or (b) a sum equal to forty per cent of the profits of such business (comput .....

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to 40% with effect from 1st April 2002 prior to that and in the relevant year admissible deduction was 20%. The relevant portion of Rule 8 of the Income Tax Rules, 1962 reads as follows:- Income from the manufacture of tea. 8. (1) Income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax. Mr. Saraf, learned Advocate appearing for the .....

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ricke Group Ltd. -vs- Commissioner of Income Tax II, Kolkata, [ITA No.651 of 2004, vide order dated 19th May 2011], wherein the following view was taken:- We find that the Tribunal below erroneously held that the deduction under Section 33AB of the Act would be made after the taxable amount will determine under Rule 8 of the Rules. The question of application of Rule 8 does not come so long the profit or loss from the business of growing and manufacturing tea is determined after deduction of all .....

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ing the total income a deduction, to the extent of profits derived by the assessee from exports has to be taken into account. The important words are profits derived from the export. The word derived would mean derived from the source . That source has to be in section 14. Income covered by section 10(1), i.e. agricultural income, which is not chargeable to tax, does not fall in section 14 and, therefore, it will not fall under various computation sections commencing from section 15 to section 5 .....

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but which is tax-free. In the present case, we have to balance both these types of income, namely, exempted income vis-àvis tax-free income. Thus, it is clear that income , covered under section 10 and section 11 which is not chargeable to tax, does not fall under section 14 and under various computation sections from section 15 to section 59. However, on account of legal fiction built into rule 8(1), which applies to composite income, a part of the composite income/integrated income is a .....

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This position emerges in a case where we have to deal solely with agricultural income. However, as stated above, in this case we are concerned with the composite income. Therefore, we have to interpret rule 8(1) of the 1962 Rules. * * * 41. In this case, however, we are concerned with composite income which is partly agricultural and partly business. Therefore, Rule 8(1) segregates agricultural income which is exempted income from business income which is chargeable to tax. For that purpose we n .....

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ereof which is ₹ 20 lakhs. Similarly, in the other example, Section 80-HHC deduction can be claimed not against composite income of ₹ 16.05 crores, it can be claimed only against the composite income of ₹ 6.42 crores. For the above reasons, we are of the view that Section 80-HHC deduction cannot be allowed against the entire tea income. Mr. Khaitan submitted that the judgment in the case of CIT -vs- Williamson Financial Services (supra) has no manner of application in deciding .....

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owed against the entire tea income before applying Rule 8(1) of Income Tax Rules, 1962. The Supreme Court held that deduction u/s.80-HHC was to be allowed only from the taxable income which is determined after apportionment of the income from tea under rule 8(1). The Supreme Court while holding that s.80-HHC was not part of the provisions of the Act which deals with computation under the head Profits and Gains from Business observed as follows:- In Section 80-HHC a part of the provisions of the .....

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ch deals with computation of income under the head Profits and gains from business ? If it is, then apportionment prescribed by Rule 8(1) can be applied only after deducting the allowance under Section 80-HHC from the composite income as contended by the assessees. However, in our view computation in Rule 8(1) in respect of composite income, by reason of legal fiction inbuilt in Rule 8, cannot be read in entirety into computation of income under the head Business . If the contention of the asses .....

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ions are allowed only from gross total income . The object of making such provision is to limit the amount of Section 80-HHC deduction. It is true that Section 80-HHC provides for deduction of a percentage of the export profits. The percentage is calculated with reference to the export profits, but the deduction is only from gross total income as defined under Section 80-B(5) of the 1961 Act. Therefore, the very scheme of the 1961 Act is to treat the deductions under Chapter VI-A as deductions o .....

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mputation of income under the head of Profits and gains of business or profession . Section 28 is the charging provision which identifies the income chargeable to income tax under the head Profits and gains of business or profession . Furthermore section 29 states that income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D. Therefore section 33AB is a part of the provisions under the Act which deals with computation of income under th .....

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omputed under the head Profits and gains of business or profession before making any deduction under this section)… Hence the expression profits of such business in clause (b) as aforesaid relates to the expression business of growing and manufacturing tea as appearing in the beginning of subsection (1) of section 33AB of the Act. In CIT -Vs- Mahavir Plantations Ltd. reported in (2004) 269 ITR 552, the following issue arose for consideration:- Whether, on the facts and in the circumstance .....

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ecifies the provisions of clause (a) of section 33AB(1) of the Act. Further, the deduction available under the section can be ascertained only after ascertaining the amount provided under clause (b) of the said sub-section. Under clause (b), a deduction of a sum equal to 20 per cent, of the profits of such business computed under the head Profits and gains of business or profession is profit before making any deduction under this section. The profits of such business referred to in clause (b) mu .....

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b-section is the lesser of the two amounts provided under clauses (a) and (b). In that view of the matter, since the assessee had deposited only ₹ 18 lakhs under the scheme, the deduction must be confined to ₹ 18 lakhs only. The only further question to be considered is regarding the scope of rule 8(1) of the Income-tax Rules extracted above. The rule clearly provides that the income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it .....

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