2013 (10) TMI 98 - HC - Income Tax

High Court: Include Various Receipts in Composite Income Before Apportionment

MC LEOD RUSSEL INDIA LTD Versus COMMISSIONER OF INCOME TAX AND ANR

The High Court held that receipts from premium on import license, sale of scrap, miscellaneous garden income, and excise duty rebate should be considered ... Determination of agriculture income - composite income - Rule 8 of the Income Tax Rules - business of growing, manufacturing and selling of tea. - division as 40% as business income and 60% as agriculture income – Premium on import licence, Sale of Scrap, Misc. Garden Income, and Excise duty, etc. - Held that:- Receipts, which the assessee-appellant claimed as composite income before apportionment thereof in terms of Rule 8, had direct nexus with the assessee-appellant’s activities of growing, manufacturing and selling of tea, it was not open to the authority concerned to treat such income as an income, which could not have been described as income derived from the business of growing, manufacturing and selling of tea by the assessee-appellant. Refusal to treat the total sum of Rs. 2,73,40,080/- as composite income of the assessee-appellant, before apportionment thereof, under Rule 8, was wholly illegal and cannot be sustained – Revenue is directed to treat the receipts of Premium on import licence, amounting to Rs. 1,20,25,812/-, Sale of Scrap, amounting to Rs. 2,12,218/-, Misc. Garden Income amounting to Rs. 1,44,32,310, and Excise duty amounting to Rs. 6,69,740/-, as the assessee-appellant’s composite income before apportionment thereof in terms of Rule 8 of the Rules - Decided in favor of assessee. 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.