Composite tea income computation allows green leaf cess deduction; revision fails absent independent finding of error and prejudice.

Green leaf cess paid by a tea company was treated as deductible in computing composite income under rule 8 of the Income-tax Rules, because the income from growing and manufacturing tea is first computed as business income before apportionment, and the later split into agricultural and business components does not permit a fresh disallowance at the agricultural stage. The revisional action under section 263 also failed because the Commissioner did not independently record that the assessment order was both erroneous and prejudicial to the interests of the Revenue. The earlier contrary ruling was distinguished on its facts and on the different Assam agricultural income-tax regime, with emphasis that judicial observations must be read in context.

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Issues: Whether green leaf cess paid by a tea company was allowable as a deduction in computing composite income under the Income-tax Act, and whether revision under section 263 was valid on the footing that the assessment order was erroneous and prejudicial to the interests of the Revenue.

Analysis: The income from growing and manufacturing tea is required to be computed under rule 8 of the Income-tax Rules, 1962 as business income before apportionment. The deduction permissible under the Income-tax Act in computing such business income is to be allowed at the stage of composite computation, and the subsequent apportionment does not permit a fresh disallowance merely because the balance income is treated as agricultural income. The earlier decision relied upon by the revisional authority was distinguished because it turned on its own facts and dealt with deduction from agricultural income under the Assam agricultural income-tax regime. The decision also applied the principle that a judgment must be read in context and that isolated observations cannot be lifted from their factual setting. The revisional order was further unsustainable because the Commissioner had not independently recorded the essential conclusion that the assessment order was both erroneous and prejudicial to the interests of the Revenue.

Conclusion: The green leaf cess was allowable as a deduction in the central income-tax computation, and the revision under section 263 could not be sustained.

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