TMI Blog2016 (12) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... red as part of composite income for the purpose of Rule 8 - Held that:- The reasoning given while deciding Gr.No.1 & 3 in the earlier part of this order will equally apply to this ground also. As far as this ground of appeal is concerned, we also find that the CIT(A) has observed that the income in question was assessed as business income. In such circumstances, there is no reason why this income should not be considered as part of the composite income before apportionment between income from agriculture and income from nonagricultural income. We therefore direct the AO to consider the aforesaid receipt also as part of the composite income. - Decided in favour of assessee Disallowance of expenses u/s 14A - Held that:- It can be seen from the computation of total income done by the AO that he has added disallowance u/s.14A of the Act twice. Once while computing adjusted composite income and again while computing Balance business income (as part of the sum of ₹ 1,23,17,727). The quantum of disallowance u/s.14A of the Act is not in dispute. We are of the view that the disallowance has to be made only at the stage of arriving at the composite income and the further addition to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax. 4. For A.Y.2009-10 M/s. Apeejay Tea Ltd filed return of income on 29.09.2009. Consequent to an order of the Hon ble Guwahati High Court dated 22.12.2009 M/s. Apeejay Typhoo Tea Ltd got amalgamated with M/.s. Apeejay Tea Ltd. Thereafter the asessee filed revised returns on 20.09.2010 and 27.09.2010 to give effect to the merger. Subsequently M/s. Apeejay Tea Ltd got merged with M/s. Apeejay Surrendra Corporate Services Pvt. Ltd., Viz., the assessee in this appeal. 5. The AO noticed that the Assessee had treated ₹ 1,27,24,061/- which was sundry receipts as part of the composite income from growing and manufacturing of tea and only 40% of such composite income was liable to tax. The break-up of such receipt was as follows Particulars Amount (Rs.) 1) Discount received 1,24,330/- 2) Street Removal Charges 7,93,447/- 3) Sale of Sample Tea 56,000/- 4) Tea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 457 (Gau) wherein it was held that Rule 8 was not applicable to income which had no nexus with tea business. 10. Aggrieved by the order of AO the assessee preferred an appeal before CIT(A). Before CIT(A) the Assessee submitted that all the items of income had nexus with the growing and manufacturing of tea and had to be regarded as part of the composite income before apportionment. The Assessee contended that maintaining warehouse is part and parcel of tea manufacturing business and its temporary letting out was incidental to the business activity. The rental receipts from such letting are therefore part of the composite income. Similarly, rent receipts for providing temporary generator services to Hindustan Lever were incidental to the business of the Assessee. It was argued that the Assessee provided hospital and market area for staff welfare and recovery from them for use of hospital and bazaar to sell their other products was nothing but relatable to growing and manufacture of tea and was to be regarded as part of the composite income. 11. The CIT(A) did not find force in the submission made by the Assessee he held that by no stretch of imagination, renting out of warehou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Rs.46,26,553/- 9.3. From the aforesaid list it could be seen that Items A to J , were only arising out of tea business totalling to ₹ 14,02,968/- and accordingly to be treated as income from business. Since no details could be filed regarding the sundry receipts before us, the same is considered as the income from other sources. Interest on income-tax refund could definitely be construed only as income from other sources. We direct the Assessing Officer to re-compute accordingly. Accordingly, Ground No. 4 of the Revenue is partly allowed. 14. The ld. DR however supported the orders of the revenue authorities and placed reliance on the decision of the Hon ble Supreme Court in the case of Liberty India Ltd. 317 ITR 218 (SC). 15. We have given a careful consideration to the rival submissions. In CIT Vs. Kothari Plantations Industries Ltd. 203 ITR 547 (Cal) the Hon ble Calcutta High Court had to examine the provisions of Rule 8 of the rules in the context of the action of the revenue in taxing receipt by an Assessee to which Rule 8 applies of a sum which fell within the description of receipts taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arise out of cultivation of tea leaves and/or manufacture of tea is not correct in view of the statutory fiction created under s. 41(2) r/w the Explanation thereto and the provisions of s. 29. To sum up, by virtue of the fiction under s. 41(2), profit, though in the nature of a capital gains, is treated as income of the business, though not in existence, where profit arises on sale of depreciable assets of the business after being used for the purpose of the business. The business in the present case being business of growing and manufacturing tea, the fictional profit of the business so arising under s. 41(2) cannot but be a profit of the same composite business. Thus, the apportionment of the prescribed percentage as between growing tea and manufacturing tea under r. 8(1) is unavoidable. The statute as also the rules framed there under consistently accept the business of growing tea and the business of manufacturing tea as one indivisible composite business calling for apportionment of its income under all circumstances. Secondly, depreciation of the assets, even though used exclusively for manufacturing tea, also gets sliced down to 40 per cent by the operation of the said r. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from sale of tea grown and manufactured by seller, shall be treated as if it were 'income derived from the business'. Therefore whatever income is taxed as business income in the absence of any other source of income except growing and manufactuirng of tea has to be regarded as part of composite income. In fact the AO has also taxed these items of income as business income only but has not considered them as part of the composite income. 18. In the light of the law as laid down in the aforesaid decisions and in the light of the decision of the Tribunal rendered in Assessee s own case, we shall now examine each of the items of income that were regarded by the Revenue as not forming part of the composite income. All incomes (including DEPB receipts ) excluded by the AO from the composite income but taxed as Income from business separately have to be regarded as part of business income u/s.28 to 44 of the Act. We are also of the view that in the light of interpretation of Rule 8 as laid down in the aforesaid decisions, the ratio laid down by the Hon ble Supreme Court in the case of Liberty India (supra) which was rendered in the context of Sec.80IA which speaks of a direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o held that there was no denying the fact that the receipts are business receipts, but then, they have been assessed as such by the AO but he was in agreement with the AO that these receipts cannot be treated as part of the composite income from tea business for the purposes of Rule 8. Aggrieved by the order of the CIT(A), the Assessee has raised Gr.No.2 before the Tribunal. 22. We have considered the rival submissions. The ld. Counsel for the assessee submitted that the subsidy in question is relatable to the business of the Asessee of growing as well as manufacturing of tea and therefore it had to be included in the composite income before segregation of such income which is liable to tax. The ld. DR relied on the orders of the revenue authorities. 23. We have given a very careful consideration. The reasoning given while deciding Gr.No.1 3 in the earlier part of this order will equally apply to this ground also. As far as this ground of appeal is concerned, we also find that the CIT(A) has observed that the income in question was assessed as business income. In such circumstances, there is no reason why this income should not be considered as part of the composite income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,99,53,090(3) Less: (i) Addition made by the Assessee u/s.14A in its computation of composite business income, since this disallowance is to be made from expenditures not related to business of growing and manufacturing of tea 17,97,238 (ii) Interest Subsidy (to be taxed fully) 22,64,023 (iii) Other receipts (to be taxed fully) 77,09,180 (iv) Sale proceeds of DEPB Scheme 5,47,286 Total of (i) to (iv) 1,23,17,727(4) Adjusted Computed Composite Income [(3)-(4)]: 9,76,35,363 (5) 40% of the above (5) Rs.3,90,54,145 Add: Profit on sale of Purchased black tea ₹ 16,37,459 Add: Profit on sale of tea manufactured from Purchased green leaf Rs.1,54,63,246 Add: Items discussed above to be taxed fully Rs.1,23, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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