2015 (9) TMI 1409 - HC - Income Tax

High Court clarifies Income Tax Act on tea income deductions, upholding some, favoring appellant on others.

The High Court ruled in favor of the revenue regarding the deduction under Section 80HHC of the Income Tax Act for computing mixed income from tea. The ... Interpretation of Section 80 HHC - Whether Tribunal was justified in not allowing the deduction under section 80HHC in computing the mixed income derived from the tea grown and manufactured by the assessee and thereafter in proceeding under Rule 8 of the Income Tax Rules, 1962 to apportion the said income between non-agricultural income and agricultural income on 40:60 basis ? - Held that:- In view of the judgment of the Supreme Court of India in the case of Commissioner of Income Tax vs. Williamson Financial Services & Ors., reported in [2007 (12) TMI 16 - Supreme Court of India ], the question is covered against the assessee confirming the denial of assessee claim of deduction of 80HHC before the apportionment under rule 8(1)on the ground that the deduction allowable only on that part which is includible in the GT - Decided against assessee Interpretation of the scope of Section 33AB and Ruel 8 of the Income Tax Rules, 1962 - whether the deduction under section 33AB is to be allowed while computing the income derived from sale of tea grown and manufactured by the seller which form the composite income from sale of tea grown and manufactured by the seller and the apportionment in terms of Rule 8 of the Income Tax Rules, 1962 between agricultural income and nonagricultural income should be made after the said deduction is allowed in the computation of composite income ? - Held that:- As relying on Goodricke Group Ltd. vs. Commissioner of Income Tax-II, Kolkata [2011 (5) TMI 166 - CALCUTTA HIGH COURT ] wherein held where the assessee is involved in the business of growing and manufacturing tea, on the question of deduction in terms of Section 33AB of the Act, the answer to the same depends upon the interpretation of the phrase “a sum equal to twenty per cent of the profits of such business (computed under the head “Profits and gains of business or profession” before making any deduction under this section), whichever is less - 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 permissible deductions under the Act - Decided in the favour of the assessee Issues:1. Interpretation of Section 80 HHC of the Income Tax Act regarding deduction for mixed income derived from tea.2. Application of Section 80HHC (4B) in determining composite income from the sale of tea.3. Interpretation of Section 33AB of the Act and Rule 8 of the Income Tax Rules for deduction in computing income from the sale of tea.Analysis:Issue 1:The appeal was admitted to determine whether the Tribunal was correct in not allowing the deduction under Section 80HHC of the Income Tax Act for computing mixed income from tea, and instead apportioning the income between non-agricultural and agricultural income. The appellant argued citing a Supreme Court judgment that favored the revenue on this issue. Consequently, the Court answered in favor of the revenue, denying the deduction under Section 80HHC for the appellant.Issue 2:The second question revolved around the Tribunal's application of Section 80HHC (4B) in determining the composite income from the sale of tea for allowing the deduction under Section 80 HHC on profits from tea exports. The Court, guided by legal precedents, answered in favor of the revenue, supporting the Tribunal's decision in applying Section 80HHC (4B) and rejecting the appellant's claim.Issue 3:Regarding the interpretation of Section 33AB of the Act and Rule 8 of the Income Tax Rules for allowing deductions in the computation of income from tea sales, the Court referred to an unreported judgment that favored the appellant. Consequently, the Court ruled in favor of the appellant, allowing the deduction under Section 33AB before apportioning the income between agricultural and non-agricultural sources as per Rule 8 of the Income Tax Rules.In conclusion, the High Court disposed of the appeal, with costs not awarded to either party. The judgment clarified the interpretation of various sections of the Income Tax Act concerning deductions for income derived from the sale of tea, balancing legal precedents and specific case circumstances to deliver a comprehensive decision.