TaxTMI 
TaxTMI 
TaxTMI 
2016 (3) TMI 325
X X X X Extracts X X X X
X X X X Extracts X X X X
....r and the apportionment in terms of Rule 8 of the Income Tax Rules between agricultural income and non-agricultural income should be made after the said deduction is allowed in the computation of composite income? Briefly stated the facts and circumstances of the case are as follows:- The assessee is a company engaged inter alia, in the business of growing, manufacturing and selling of tea in India and abroad. The assessee claimed a deduction at the rate of 20% on the composite income of Rs. 25,54,855/-. But the assessing officer by his order dated 27th March, 2003 passed under Section 143 (3) of the Act held that any deduction under Section 33AB has to be allowed only from the non-agricultural component of the composite income determined under Rule 8 of the Income Tax Rules, 1962. To be precise the assessing officer held as follows:- "The assessee has claimed deduction u/s 33AB on the basis of composite income before apportionment under Rule 8. The apportionment of agricultural income and non- agricultural income for taxation purposes is provided in Rule 8. Therefore, any deduction in computation of income under the head "Profits and gains of business or profession" has to be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red by the said order of the Tribunal dated 28.2.2005. The Tribunal in that case after a detailed discussion on the issue and after analyzing several case laws on the subject decided the issue in favour of the department. The relevant portion from that order is reproduced below:- '25. Be that as it may, the correct and rationale meaning to later clause (b) of section 33AB is that the amount of deduction under section 33AB is to be restricted to a sum equal to twenty per cent of the profits of business of growing and manufacturing tea in india as computed under the head 'Profits and Gains of Business or Profession" before making any deduction under section 33AB and before the loss, if any, brought forward, from earlier year is set off under section 72 of the Act. In other words, the sum equal to twenty per cent is to be computed on the amount of 40% of composite income before making any deduction under section 33AB of the Income Tax Act and set off any loss under section 72 of the Act is made inasmuch as only 40% of composite income comes within the ambit of profit computed under the head 'Profits and Gains of Business or Profession' under the IT Act. The expression head 'Profits....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a scheme framed by the Tea Board (hereafter in this section referred to as the deposit scheme) with the previous approval of the Central Government, the assessee shall, subject to the provisions of this section;] be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under Section 72) of- (a) a sum equal to the amount or the aggregate of the amounts so deposited; or (b) a sum equal to forty per cent of the profits of such business (computed under the head "Profits and gains of business or profession" before making any deduction under this section), whichever is less:" It is to be noted that in the instant case the allowable deduction u/s.33-AB of the Act for the relevant assessment year would be a sum equal to the amount or the aggregate of the amounts deposited in a special account or in a tea deposit account, or a sum equal to 20% of the profits of such business whichever is lesser. The allowable deduction u/s.33-AB was increased to 40% with effect from 1st April 2002 prior to that and in the relevant year admissible deduction was 20%. The relevant portion of Rule 8 of the Income Tax Rules, 1962 r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....merated heads for the purpose of charge of income-tax and computation of total income. As stated hereinabove, "exempted income" is different from "tax-free income". In the present case, we are concerned with both these types of income. "Agricultural income" falls in the category of exempted income. It is neither chargeable nor includible in the total income. On the other hand, deduction under Chapter VI-A is for "income" which forms part of total income but which is tax-free. In the present case, we have to balance both these types of income, namely, exempted income vis-àvis tax-free income. Thus, it is clear that "income", covered under section 10 and section 11 which is not chargeable to tax, does not fall under section 14 and under various computation sections from section 15 to section 59. However, on account of legal fiction built into rule 8(1), which applies to composite income, a part of the composite income/integrated income is agricultural income and the balance is business income. The object of rule 8(1) is to disintegrate the two. If the income from agriculture cannot be computed under the 1961 Act then the income from agriculture has to be arrived at in a normal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... allowed only from the taxable income which is determined after apportionment of the income from tea under rule 8(1). The Supreme Court while holding that s.80-HHC was not part of the provisions of the Act which deals with computation under the head "Profits and Gains from Business" observed as follows:- "In Section 80-HHC a part of the provisions of the 1961 Act which deals with computation under the head "Profits and Gains from Business"? 42...As stated above, Rule 8(1) provides for the method in which composite income is to be computed. Rule 8(1) says that income shall be computed as if it were income derived from business. Rule 8(1) uses the word "income" and not "total income". The 1961 Act contains provisions for computation of income under the head "Business". The question is whether Section 80-HHC is part of the provisions in the 1961 Act which deals with computation of income under the head "Profits and gains from business"? If it is, then apportionment prescribed by Rule 8(1) can be applied only after deducting the allowance under Section 80-HHC from the composite income as contended by the assessees. However, in our view computation in Rule 8(1) in respect of compos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....composite income. Sub-section (1) of section 33AB states as follows:- "Where an assessee carrying on business of growing and manufacturing tea...the assesse shall...be allowed a deduction...of (a)... (b) a sum equal to twenty per cent of the profits of such business (computed under the head "Profits and gains of business or profession" before making any deduction under this section)..." Hence the expression "profits of such business" in clause (b) as aforesaid relates to the expression "business of growing and manufacturing tea" as appearing in the beginning of subsection (1) of section 33AB of the Act. In CIT -Vs- Mahavir Plantations Ltd. reported in (2004) 269 ITR 552, the following issue arose for consideration:- "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the tea development allowance under section 33AB of the Income-tax Act, 1961, must be in relation to the income of the business of growing and manufacturing tea, rather than to the taxable portion of such income?" The Kerala High Court held as follows:- "Admittedly, the assessee had deposited a sum of Rs. 18 lakhs during the previous year relevant t....