Rule 7B applies to income from sale of cured coffee seeds, with estate expenditure remitted for fresh recomputation.

Sale of sun-dried coffee seeds is covered by Rule 7B of the Income-tax Rules, 1962, because income from coffee grown and cured in India must be split into agricultural and business components, with 75% treated as agricultural income and 25% as business income. The view that further processing was necessary for Rule 7B to apply was not accepted. A disallowance of expenditure linked to coffee estate income also required reconsideration after recomputation of the estate's income, since the proper tax treatment depended on the revised figures and the underlying material.

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Issues: (i) Whether income from sale of coffee seeds was to be computed under Rule 7B of the Income-tax Rules, 1962; (ii) Whether the disallowance of expenditure of Rs. 11,90,535 required fresh examination in view of the recomputation of coffee estate income.

Issue (i): Whether income from sale of coffee seeds was to be computed under Rule 7B of the Income-tax Rules, 1962.

Analysis: The assessee was selling sun-dried coffee seeds and not coffee powder or a fully processed coffee product. On those facts, the income from sale of coffee grown and cured in India fell within Rule 7B(1), under which 75 per cent of such income is treated as agricultural income and 25 per cent as business income. The view that Rule 7B did not apply merely because the assessee was not engaged in further processing was not accepted.

Conclusion: The issue was decided against the assessee and the matter was remitted for recomputation by applying Rule 7B.

Issue (ii): Whether the disallowance of expenditure of Rs. 11,90,535 required fresh examination in view of the recomputation of coffee estate income.

Analysis: The disallowance was linked to the computation of income from the coffee estate and it was unclear whether the expenditure had been claimed against agricultural income or taxable income under the Act. Since the first issue was sent back for fresh computation, the expenditure issue also required reconsideration on the basis of the recomputed figures and the material on record.

Conclusion: The disallowance was set aside and remitted for fresh decision.

Final Conclusion: The Revenue succeeded to the extent that the earlier appellate relief was set aside and both issues were sent back for fresh adjudication, leaving the substantive tax computation open before the appellate authority.

Ratio Decidendi: Where coffee income is derived from sale of cured coffee seeds, Rule 7B of the Income-tax Rules, 1962 applies and the income must be apportioned between agricultural and business components accordingly.

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