9911796707
TMI Blog1998 (9) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... "Abbreviated profit and loss account Rs. Rs. Expenses 1,200 Domestic sales 1,000 Profits 300 Exports (FOB) 500 ------ ------ &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd") is not in consonance with the provisions of section 80HHC read with rule 8. Dr. Pal, learned senior counsel appearing on behalf of the petitioner, submits that in terms of rule 8 framed under the said Act legal fiction has been created in terms whereof the agricultural income and the non-agricultural income is to be treated as a composite income out of which 60 per cent. thereof would be treated as an agricultural income and 40 per cent. thereof would be treated as non-agricultural income and, in that view of the matter, the proper stage for grant of such deduction would be when the allocation chargeable under the said Act in terms of rule 8 is being made. The learned Additional Solicitor-General, appearing on behalf of the Revenue, on the other hand, submitted that the aforementioned circular letter is merely clarificatory in nature which the Board was entitled to issue in terms of section 295(2)(b) and hardly there exists any difference in the matter of computation of profits so far as that part of business of the petitioner relating to sale of tea leaves within or outside India is concerned and the difference, if any, would be only in respect of computation of agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise : Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be), issues a certificate referred to in clause (b) of sub-section (4A) that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods." Sub-section (3A) of the said provision which is also relevant for the purpose of this case reads thus : "(3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amalai Tea and Produce Co. Ltd. [1972] 84 ITR 643, Veeraswami C. J., speaking for a Division Bench of the Madras High Court, while considering the question of interpretation of rule 8 in the light of the Agricultural Income-tax Act enacted by the Legislature of Madras held as follows: "The forty per cent. contemplated by the rule is the chargeable income and that means, before applying the forty per cent. rule, the income should have been computed in accordance with the provisions of the Act, that is to say, after allowing the deductions including those under Chapter VI-A of the Income-tax Act. If that has not been done, and the Income-tax Officer, for the purpose of the Income-tax Act, has, before applying section 80-I determined the forty per cent. of the income from which he deducted the eight per cent. under section 80-I, the balance of the income could not be taken to be 60 per cent. of the income for the purposes of agricultural income-tax. The Agricultural Income-tax Officer, in order to ascertain 60 per cent. of the income for the purpose of levy under the Agricultural Income-tax Act, should have to deduct eight per cent. under section 80-I in order to ascertain the true i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into consideration the other deductions which are permissible under section 80HHC falling under Chapter VI-A of the Act. For the purpose of granting deductions in terms of the aforementioned provisions it is not necessary that the assessee must carry on business only of export or only of sale of tea leaves within India as also outside India but it may have several other businesses. It also applies to a case of the present nature where apart from sale of tea leaves, and the assessee is engaged in growing tea. Section 80HHC and in particular the words "total income" has to be considered from that angle. As indicated hereinbefore, rule 8 creates a legal fiction. But for creation of such legal fiction, it would not have been possible for an Income-tax Officer appointed under the provisions of the Income-tax Act, to assess an assessee, who not only carries on business in selling tea but also grows the same. With a view to give a go-by to the anomalies, a legal fiction was created in rule 8. Asquith J., in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1951] 2 All ER 587 (HL), stated the law in the following terms : "If one is bidden to treat an imaginary state of affair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turing, the agricultural income derived therefrom shall be deemed to be that portion of the income computed under the Indian Income-tax Act, 1922, on which income-tax was not payable under the said Act of 1922. In 1979, sub-section (2A) was inserted in section 8 of the said Bengal Agricultural Income-tax Act, 1944, providing for assessment in cases where assessments under the Income-tax Act had not been completed or had been annulled or set aside." The Division Bench noticed Tata Tea Ltd.'s case [1988] 173 ITR 18 (SC) and upon doing so it held thus: "Thus, deductions under the Income-tax Act which were in the nature of expenses incurred for the purpose of earning income derived from sale of tea grown and manufactured by the seller were only to be allowed in the computation of such income before application of rule 8 of the Income-tax Rules, 1962, and allowances which were not really in the nature of expenses were not to be deducted from the computation of such income before application of rule 8. This view is further reinforced by the provision of section 29 of the Income-tax Act to the effect that income from profits and gains of business shall be computed in accordance with sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved from export has to be made with a view to give full effect to the aforementioned provision. Keeping in view the intention of the law maker I am of the opinion that the stage at which such deduction has to be given is when the net profit is to be calculated and not at a later stage as was directed by the Board of Direct Taxes in its impugned circular. For the purpose of interpretation of such a provision, the interpretation which is beneficial to the assessee has to be taken recourse to. According to the petitioner, keeping in view the illustrations of the Board of Direct Taxes itself, the computation of income should be done in the following manner : Rs. Rs. Expenses 1,200 Domestic sales 1,000 Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Non-agricultural income being 40 per cent of Rs. 200 80 ------ Agricultural income being 60 per cent of Rs. 200 120 Thus, the deduction for the purpose of sub-section (1) of section 80HHC in terms of the provisions of sub-section (3A) thereof should be given by way of benefit of export before apportioning the income and not thereafter. The learned Additional Solicitor-General, however, has placed before this court another chart to show that even if the contentions of the writ petitioners are accepted the same does not make any difference now which is as follows: Example : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1. Profit of business 300 Profit of business 300 2. Income chargeable under IT Act, Less : 80HHC 100 being 40 per cent of the above 120 300 x 500 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 1,500 ---- Taxable income 80 ---- The learned Additional-Solicitor General would urge that from the aforementioned example it would appear that income chargeable to Central income-tax is Rs. 80 in both the cases. However, as per the circular the agricultural income would be Rs. 120 whereas as per the writ petitioners, the agricultural income would be Rs. 180. The said contention does not appear to be correct. The said submission is of no moment in the matter of interpretation of the provision of the Act and the Rules framed thereunder. This court is also of the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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