2013 (10) TMI 98 - HC - Income Tax

High Court: Include Various Receipts in Composite Income Before Apportionment

The High Court held that receipts from premium on import license, sale of scrap, miscellaneous garden income, and excise duty rebate should be considered ... Composite income before apportionment under Rule 8 of the Income Tax Rules, 1962 - income derived from the sale of tea grown and manufactured by the seller - application of Section 28(iii a) and Section 28(iii c) in determining composite income - profits and gains of business or profession - distinction between 'income derived from' and 'income attributable to' - ancillary receipts (sale of scrap, insurance proceeds) as part of business incomeApplication of Section 28(iii a) and Section 28(iii c) in determining composite income - composite income before apportionment under Rule 8 of the Income Tax Rules, 1962 - profits and gains of business or profession - Premium on import licence and excise duty rebate are part of the assessee's composite income before apportionment under Rule 8. - HELD THAT: - The Court held that profits on sale of an import licence fall within Clause (iii a) of Section 28 and that excise duty repaid or repayable as drawback falls within Clause (iii c) of Section 28, both being chargeable as 'profits and gains of business or profession'. Where such receipts are chargeable under Section 28 as business income and are connected with export/activity in relation to the tea business, they cannot be excluded from the composite income computed under Rule 8. The Tribunal and the lower authority erred in treating receipts falling under Clauses (iii a) and (iii c) as not constituting composite income; statutory classification under Section 28 mandates their inclusion as income 'derived from' the business of growing, manufacturing and selling tea and therefore as part of the composite income before apportionment under Rule 8. [Paras 20, 21, 26, 29, 30]Allowed; the receipts by way of premium on import licence and excise duty rebate are to be treated as composite income before apportionment under Rule 8.Ancillary receipts (sale of scrap, insurance proceeds) as part of business income - composite income before apportionment under Rule 8 of the Income Tax Rules, 1962 - distinction between 'income derived from' and 'income attributable to' - Receipts from sale of scrap and insurance proceeds (miscellaneous garden income) are part of the assessee's composite income before apportionment under Rule 8. - HELD THAT: - The Court found that sale of scrap generated in the process of growing and manufacturing tea is an ancillary and integral part of the tea business and therefore forms part of the composite income under Rule 8. Likewise, insurance proceeds received in respect of loss to tea bushes and finished plantations arising out of the tea business are connected to the core activities of growing and manufacturing tea and must be treated as composite income. While 'derived from' is a narrower concept than 'attributable to', the material on record established a direct nexus between these receipts and the tea business; consequently the authorities were not entitled to exclude these amounts from composite income. [Paras 22, 24, 25, 29, 30]Allowed; receipts from sale of scrap and the insurance claim (miscellaneous garden income) are to be treated as composite income before apportionment under Rule 8.Final Conclusion: The Tribunal's order is set aside. The receipts claimed as premium on import licence, sale of scrap, miscellaneous garden (insurance) income, and excise duty rebate totaling the amount shown in the return are to be treated as the assessee's composite income before apportionment under Rule 8 of the Income Tax Rules, 1962, and the assessment and appellate orders are quashed. Issues Involved:1. Whether the receipts on account of premium on import license, sale of scrap, miscellaneous garden income, and excise duty rebate form part of the composite income before apportionment under Rule 8 of the Income Tax Rules, 1962, being derived from the sale of tea grown and manufactured.2. Whether the conclusion of the learned Income Tax Tribunal, Guwahati, affirming the determination made by the learned Commissioner of Income Tax (Appeal), Guwahati, that these receipts do not constitute composite income before apportionment under Rule 8, is perverse.Issue-wise Detailed Analysis:1. Premium on Import License:The appellant claimed Rs. 1,20,25,812/- from the premium on import license as part of its composite income. The Tribunal and the Commissioner of Income Tax (Appeal) held that this income was not derived from the sale of tea grown and manufactured by the appellant. However, the High Court noted that Section 28(iii a) of the Income Tax Act, 1961, treats profits on the sale of a license granted under the Imports (Control) Order, 1955, as income derived from business. Thus, the premium on import license should be considered as part of the composite income before apportionment under Rule 8.2. Sale of Scrap:The appellant included Rs. 2,12,218/- from the sale of scrap in its composite income. The Tribunal excluded this, stating it was not derived from the tea business. The High Court disagreed, emphasizing that the sale of scrap generated from the tea estate is an ancillary part of the business of growing and manufacturing tea. Therefore, this income should be included in the composite income before apportionment under Rule 8.3. Miscellaneous Garden Income:The appellant claimed Rs. 1,44,32,310/- as miscellaneous garden income, primarily from insurance claims for losses due to floods and heavy rains. The Tribunal and the Commissioner excluded this from the composite income. The High Court held that such insurance claims are directly connected to the business of growing and manufacturing tea and should be treated as part of the composite income before apportionment under Rule 8.4. Excise Duty Rebate:The appellant included Rs. 6,69,740/- from excise duty rebate in its composite income. The Tribunal and the Commissioner excluded this amount. The High Court noted that Section 28(iii c) of the Income Tax Act, 1961, treats any duty of customs or excise repaid or repayable as income derived from business. Therefore, the excise duty rebate should be part of the composite income before apportionment under Rule 8.Conclusion:The High Court concluded that the refusal to treat the total sum of Rs. 2,73,40,080/- as composite income before apportionment under Rule 8 was illegal. The appeal was allowed, and the orders of the Tribunal, the Commissioner of Income Tax (Appeal), and the Assessing Officer were set aside. The respondents were directed to treat the receipts from the premium on import license, sale of scrap, miscellaneous garden income, and excise duty rebate as part of the composite income before apportionment under Rule 8.