Coffee income computation follows the specific rule for processed coffee; purchased coffee processing needs segregation and verification.

Income from coffee grown, cured and processed by the assessee is governed by Rule 7B of the Income-tax Rules, not the general Rule 7, because the specific coffee provision overrides the general agricultural-income rule. Under Rule 7B(1A), the relevant income is split between taxable business income and agricultural income as prescribed. Income derived from coffee purchased from other planters and then processed does not automatically qualify as agricultural income, since it is not traceable to the assessee's own cultivation. The matter therefore requires segregation of home-grown and purchased coffee income and fresh verification for correct computation.

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Issues: (i) Whether income from coffee grown, cured and processed by the assessee was to be computed under Rule 7 or Rule 7B of the Income-tax Rules, 1962. (ii) Whether income arising from coffee purchased from other planters and processed by the proprietary concern could be treated as agricultural income, and the matter required segregation and fresh verification.

Issue (i): Whether income from coffee grown, cured and processed by the assessee was to be computed under Rule 7 or Rule 7B of the Income-tax Rules, 1962.

Analysis: Rule 7 is the general provision for agricultural income other than coffee and rubber, whereas Rule 7B specifically governs income from the manufacture and sale of coffee. Where the assessee was engaged in growing coffee and curing or processing that coffee, the specific rule for coffee income had to be applied instead of the general rule. On the facts, the activity fell within Rule 7B(1A), which deems 40% of such income as taxable business income and treats the balance as agricultural income.

Conclusion: Rule 7B, and not Rule 7, applied to coffee grown and processed by the assessee.

Issue (ii): Whether income arising from coffee purchased from other planters and processed by the proprietary concern could be treated as agricultural income, and the matter required segregation and fresh verification.

Analysis: Income derived from coffee purchased from outside planters and processed for sale did not contain any agricultural element attributable to the assessee's own cultivation. The record also required identification of the coffee grown by the assessee and the coffee purchased from others so that the income could be properly bifurcated under the applicable rule. Since the segregation had not been satisfactorily verified, the issue was restored to the assessing officer for fresh examination.

Conclusion: The matter was remitted for segregation of income and fresh computation, and outside-purchase processing income was not entitled to agricultural treatment.

Final Conclusion: The appeals were not finally decided on merits in entirety and were disposed of by sending the matter back for limited fresh verification, while affirming the applicability of the coffee-specific computation rule.

Ratio Decidendi: A special computation provision governing a particular category of agricultural produce overrides the general agricultural-income rule, and income from processing purchased produce cannot be treated as agricultural income unless it is traceable to the assessee's own cultivation.

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