Rule 8 tea-income apportionment limits employees' PF and ESI disallowance to the taxable business-income component only.

Rule 8 apportions composite income from growing and manufacturing tea as 60% agricultural income and 40% taxable business income. An employees' provident fund and ESI contribution disallowance relating to that composite tea income must follow the same apportionment. Including the entire disallowance in taxable income would improperly affect the agricultural component. Accordingly, only 40% of unpaid employees' PF and ESI contributions is includible in taxable income, while the remaining 60% is excluded.

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Issues: Whether disallowance of employees' provident fund and ESI contributions in the case of a tea-growing and tea-manufacturing company must be restricted to the taxable 40% component of its income under Rule 8.

Analysis: Rule 8 apportions composite income from growing and manufacturing tea between 60% agricultural income and 40% taxable business income. Since the impugned employees' PF and ESI disallowance relates to such composite tea income, it must follow the same statutory apportionment; inclusion of the entire disallowance in taxable income would improperly affect the exempt agricultural component.

Conclusion: Only 40% of the unpaid employees' PF and ESI amount is includible in taxable income and the balance 60% must be deleted, in favour of the assessee.

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