Hail damage insurance for growing tea leaves was treated as agricultural income in full, with no rule 8 apportionment.

Compensation received under an insurance policy for hail damage to growing tea leaves was held to be agricultural income in its entirety, because the receipt was referable to loss at the agricultural stage and not to the sale or manufacture of tea. The fact that the valuation was expressed by reference to made-tea did not make the receipt a mixed one or justify apportionment under rule 8 of the Income-tax Rules, 1962. The full insurance amount was therefore treated as agricultural income, with no part apportioned to business income, in favour of the assessee.

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Issues: Whether the hail damage insurance claim receivable in respect of damage to growing tea leaves constituted agricultural income in full, or whether it was a mixed receipt liable to apportionment under rule 8 of the Income-tax Rules, 1962.

Analysis: The insurance policy covered damage to the growing tea crop attributable to hail and the amount received was referable to damage to the crop at the agricultural stage. The earlier decision dealing with an identical policy clause held that compensation for damage to growing tea leaves represented receipt from agricultural operations and not income from the sale or manufacture of tea. Applying that principle, the receipt could not be split into agricultural and business components merely because valuation was expressed in terms of made-tea.

Conclusion: The entire insurance receipt was agricultural income and no part of it was apportionable under rule 8 of the Income-tax Rules, 1962; the answer was in favour of the assessee.

Ratio Decidendi: Compensation received under an insurance policy for hail damage to growing tea leaves is agricultural income in its entirety and cannot be treated as a mixed receipt for apportionment under rule 8.

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