2004 (7) TMI 81 - HC - Income Tax

Deduction allowed on full cess amount for tea income; both agri & business parts considered

Commissioner of Income Tax Versus AFT Industries Ltd.

The court ruled that the entire amount paid as cess on green leaf in the process of growing and manufacturing tea is eligible for deduction for income tax ... Deduction of the cess paid on green leaf in the process of growing and manufacturing tea since assessed to income-tax – Tribunal had held that the deduction is eligible after computing the income under rule 8 and the apportionment is to be made only after the income is so computed. Such apportionment cannot be made before the deduction. Rule 8 of the Income-tax Rules, 1962, requires that the computation is to be made as if by fiction the entire income out of the tea grown and manufactured as income assessable under the Income-tax Act, 1961 – Held that entire amount paid as cess on green leaf seems to be eligible for deduction – Petition by revenue is dismissed Issues:Deduction of cess paid on green leaf in the process of growing and manufacturing tea for income tax assessment.Analysis:The case involved a dispute regarding the deduction of cess paid on green leaf in the process of growing and manufacturing tea for income tax assessment. The appellant argued that only 60% of the cess paid should be eligible for deduction as it relates to agricultural income. Reference was made to a previous decision, but the court found that the said decision did not support the appellant's contention. The Tribunal had allowed the deduction after computing the income under rule 8, emphasizing that apportionment should be made only after such computation. Rule 8 of the Income-tax Rules, 1962, mandates the computation as if the entire income from tea grown is assessable under the Income-tax Act, with a 60:40 apportionment. The court clarified that the 60% of income computed under the Act is exposed to tax under the Agricultural Income-tax Act without requiring separate assessment. Therefore, the cess paid was rightly excluded from the income calculation under rule 8.The Commissioner of Income-tax (Appeals) highlighted previous judgments explaining the concept of agricultural income under the Income-tax Act and its interpretation with reference to rule 8 of the Income-tax Rules, 1962. The Tribunal's decision in similar cases favored the assessee, indicating consistency in approach. The court referred to a previous judgment to emphasize the creation of a fiction for assessing both agricultural and business components of tea income together under the Income-tax Act. All deductions applicable during computation were to be allowed, ensuring a holistic assessment. The court concluded that allowing deductions from the 60% agricultural income would contradict the purpose of the fiction created, leading to a foreign concept. Hence, the entire amount paid as cess on green leaf was deemed eligible for deduction.In the final analysis, the court found no substantial question of law involved in the case and dismissed the petition. The judgment was agreed upon by both judges, and all parties were instructed to act on a Xerox copy of the order.