AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (4) TMI 863
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....Tax Act, 1961 the Tribunal was justified in law in holding that the transit flat for employees was a guest house and the expenditure in respect thereof was to be disallowed as expenditure on the maintenance of guest house within the meaning of the said provisions? "b) Whether on a true and proper interpretation of section 33AB of the Act, the Tribunal was justified in law in holding that the activities of sale of tea manufactured out of bought green leaves and sale of purchased tea after blending with the tea manufactured by the appellant were other business activities or were not part and parcel of the business of growing and manufacturing tea and the profits arising out of such activities were to be excluded for the purpose of computation of the quantum of deduction under section 33AB?" 4. ITA No.538 of 2004 is also at the instance of the selfsame assessee and is, however, directed against order dated March 19, 2004, passed by the Income-tax Appellate Tribunal, "B" Bench, Kolkata in ITA No.723 (Kol) of 2003 for the Assessment Year 1994-95 by which the Tribunal affirmed the order passed by the Commissioner of Income-tax (Appeals). 5. A Division Bench of this Court....
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....of the said business of growing and manufacturing tea, the assessee is entitled to deduction under Section 33AB of the Act and such deduction is available to the extent of 20% of the profits of such business or the amount deposited by the assessee with the National Bank for Agricultural and Rural Development, whichever is less. e) The assessee has 17 tea gardens and its employees, from time to time, come from the gardens to the headquarters in Calcutta for the purpose of the assessee's business. If the employees were put up in hotels during their stay in Calcutta, the assessee would have incurred a huge expense for such hotel-stay and consequently, the assessee maintains a transit flat in Calcutta for the garden employees who come to the headquarters for official work. f) The transit flat is exclusively used by the employees of the assessee and the assessee also does not pay any allowance to such employees and no recovery is also made from them for their stay in the transit flat. g) Section 37(4) of the Act, at the relevant point of time, provided for disallowance of expenditure incurred on maintenance of any residential accommodation in the nature of a guest house....
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.... the basis of assessee's business income and since the amount of Rs.2,10,00,000/- deposited by it was lower than 20% of the assessee's business income, The entire amount deposited namely Rs.2,10,00,000/- should have been allowed as deduction. o) The Income-tax Officer, however, in the order dated August 29, 1997 under Section 154 of the Act for the first time sought to exclude the profit for sale of tea manufactured by the assessee out of "bought green leaves" as also the profit from purchased tea sold by the assessee after blending with the tea grown and manufactured by it in computing the deduction under Section 33AB of the Act and thereby, reduced the amount of deduction of Rs.1,95,84,766/-. p) Being dissatisfied, the assessee preferred a separate appeal against order dated August 29, 1997 under Section 154 of the Act before the Commissioner of Income-tax (Appeals). q) The Commissioner of Income-tax (Appeals) decided the assessee's appeal against order dated August 29, 1997 under Section 154 by an order dated December 9, 2002 by which he upheld the computation of deduction under Section 33AB made by the Assessing Officer in the order dated August 29, 1997....
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.... 17, 1997 treated the said expenditure of R s.1,24,500/- in respect of the holiday home as capital in nature. w) Being aggrieved, the assessee preferred an appeal before the Income-tax Appellate Tribunal and the Tribunal by order dated March 19, 2004 upheld the disallowance of expenditure on holiday home under Section 37(4) of the Act. x) Being dissatisfied, these two appeals have been preferred by the assessee in respect of the aforesaid three disputes i.e. i) disallowance of expenditure on holiday home, ii) disallowance of maintenance of transit flat and iii) deduction of part of benefit of Section 33AB of the Act in respect of tea bought from outside and blended with the grown and manufactured tea of the assessee. 8. Mr. Khaitan, the leaned senior counsel appearing on behalf of the appellant, has, at the very outset, fairly conceded that so far the first question formulated by the Court in both the appeals is concerned, in view of the decision of this Court in the case of Keshoram Industries and Cotton Mills Limited Vs. C. I. T reported in (1991) 191 ITR 518 holding against his client, he does not press the first question as regard transit flat for the em....
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....into consideration and not the purchased tea from other gardens. According to Mr. Bhowmick, it was the intention of legislature to give benefit only to the extent of tea grown in the garden of the assessee and not to any amount of tea purchased from outside and blended with the tea grown in the garden of the assessee. He, therefore, prays for dismissing the appeal and affirming the order passed by the Tribunal. Mr. Bhowmick, in support of his contention, places reliance upon the decision of the Division Bench of this Court in the case of Brooke Bond India Ltd. vs. Commissioner of Income-tax, reported in (2004) 269 ITR 232. 12. As regards point no. III, according to Mr. Khaitan, the Tribunal below, although held that Section 37(4) of the Act was attracted, did not consider the second proviso to the said provision as it is the specific case of the assessee that the holiday home is maintained for the exclusive use of its employees numbering more than one hundred. Mr. Khaitan submits that the Assessing Officer as well as the Commissioner of Income-tax (Appeals) disallowed the claim on a different ground and thus, the Tribunal for the first time having applied Section 37(4) of th....
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....er sub-section (1) shall not be admissible unless the accounts of such business of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant: Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section. (3) Any amount standing to the credit of the assessee in the special account shall not be allowed to be withdrawn except for the purposes specified in the scheme or in the circumstances specified below:- (a) closure of business; (b) death of an assessee; (c) partition of a Hindu undivided family; (d) dissolution of a fi....
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....ereof which is not so utilised shall be deemed to be profits and gains of business and accordingly chargeable to income-tax as the income of that previous year: Provided that this sub-section shall not apply in a case where such amount is released during any previous year at the closure of the account in circumstances specified in clauses (b), (c) and (e) of sub-section (3). (8) Where any asset acquired in accordance with the scheme or the deposit scheme is sold or otherwise transferred in any previous year by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired, such part of the cost of such asset as is relatable to the deduction allowed under sub-section (1) shall be deemed to be the profits and gains of business or profession of the previous year in which the asset is sold or otherwise transferred and shall accordingly be chargeable to income-tax as the income of that previous year : Provided that nothing in this sub-section shall apply - (i) where the asset is sold or otherwise transferred by the assessee to Government, a local authority, a corporation established by or under a ....
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....wn in his own garden, should be deducted for the purpose of arriving at the figure of profit of such business of growing and manufacturing tea. In the case before us, according to the Assessment Order, the profit of the assessee on tea manufactured out of "bought tea" is Rs.32,347/- whereas the profit on sale of processed tea is Rs.2,68,04,887/-. 18. It is an admitted position that for the purpose of manufacturing tea of good qualities, the process of blending is an important factor as the taste of the final product and consequently, the market value of the same depends upon not only the flavour but also the colour and the quality of liquor contained in such final product. Thus, in a particular garden, the tea grown may contain sufficient amount of flavour but may be lacking in colour or liquor contents. Similarly, some gardens grow tea where liquor content is good but is lacking in flavour. It is impossible to conceive of a final product of tea of excellent quality without the blend of different types of tea. 19. Therefore, if the assessee's garden grows tea enriched with flavour but lacking in liquor contents, the assessee in order to manufacture good qualit....
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....other gardens, he will get benefit of deduction only to that part of profit which he earned by selling the final form of tea after blending provided the final product contains substantial amount of tea grown by the assessee in comparison to the amount purchased from outside; but the profit arising out of the portion of the grown tea sold to others before converting into the form of tea by way of processing will not get the benefit of the Section 33AB. Thus, the profit arising out of selling its grown tea to others without processing and bringing it into final form of "manufactured tea" will not be eligible for deduction under the Section 33AB of the Act. 22. In the case before us, the assessee has utilized his entire tea grown by it in its garden and by blending the same with some other amount of tea purchased from outside has manufactured the final product and thus, the entire profit arising out of such manufacture will get the benefit of Section 33AB notwithstanding the fact that for the purpose of blending, some small amount was purchased from outside. It appears that the purchased amount is very trifling in comparison to the amount grown by the a....
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....ure described in sections 30 to 36 and not being in the nature of capitalexpenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains or business or profession. (2) Notwithstanding anything contained in sub-section (1), any expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year commencing on or after the 1 day of April, 1992 shall be allowed as follows : (a) where the amount of such expenditure does not exceed ten thousand rupees, the whole of such amount; (b) in any other case, ten thousand rupees as increased by a sum equal to fifty per cent of such expenditure in excess of ten thousand rupees. Explanation. - For the purposes of this sub-section, "entertainment expenditure" includes- (i) the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person; (ii) the amount of any expenditure in the nature of entertainment expenditure not being expenditure incurred....
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....se- (a) is maintained by an assessee who has throughout the previous year employed not less than one hundred whole-time employees in a business or profession carried on by him; and (b) is intended for the exclusive use of such employees while on leave. Explanation. - For the purposes of this sub-section, - (i) residential accommodation in the nature of a guest-house shall include accommodation hired or reserved by the assessee in a hotel for a period exceeding one hundred and eighty-two days during the previous year; and (ii) the expenditure incurred on the maintenance of a guest-house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in respect of such accommodation. (5) For the removal of doubts, it is hereby declared that any accommodation, by whatever name called, maintained, hired, reserved or otherwise arranged by the assessee for the purpose of providing lodging or boarding and lodging to any person (including any employee or, where the assessee is a company, also any director of, or the holder of any other office in, the company), on tour or visit to the place at which such a....