TaxTMI 
TaxTMI 
2018 (1) TMI 788
X X X X Extracts X X X X
X X X X Extracts X X X X
....keepers. i) Rejection of claim for deduction under section 80IA of the Act 3.2 The assessee had claimed deduction under section 80IA of the I.T. Act for the income from distribution of electricity. The claim was negative by the Assessing Officer The view taken by the Assessing Officer was confirmed by the CIT(A). The CIT(A) denied the benefit of deduction under section 80IA of the I.T. Act for the reason that ITAT in assessee's own case for the assessment year 2008-09 had disallowed the claim of the assessee. 3.3 Before us, the Ld. AR submitted that the issue in question is squarely covered in favour of assessee by the judgment of the Hon'ble High Court of Kerala in assessee's own case for the assessment year 2008-09 (ITA No. 48/2015, judgment dated 16/11/2017). A copy of the judgment of the Hon'ble High Court is placed on record. The Ld. DR was unable to controvert the submission of the Ld. AR. 3.4 We have heard the rival submissions and perused the material on record. The issue in question is squarely covered by the judgment of the Hon'ble Jurisdictional High Court in assessee's own case for the assessment year 2008-09 (supra). Since the facts in the current assessment year ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sions and perused the material on record. Tea plantation is very labour intensive industry. In order to attract the workers/employees of the assessee to work in its tea estate, the employees were allowed to rear their cattle in the specified areas of the assessee's estates. To take the cattle for grazing, the assessee had engaged cattle keepers and incurred expenditure. There were minor recoveries from the employees. However, since the cattle keepers were paid more than the recoveries made from the employees, the net expenditure was claimed as deduction under Rule 8 from the tea business. Allowing the employees to rear their cattle in assessee's estate in order to attract them to work in its estate, is purely a labour welfare measure and the same is in tune with the accepted plantation practice. This labour welfare measure has been approved by the Plantation Labour Committee of Kerala and a copy of the resolution of the Plantation Labour Committee is placed at pgs. 106 to 115 of the paper book filed by the assessee. On a perusal of the resolution of the Plantation Labour Committee, it is very discernable that the scheme of cattle grazing in various estates is an accepted norm in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from Tea Board of India taxed 100% under the IT Act. 7.2 The brief facts in relation to the above issue are as follows: The subsidy given by Tea Board was treated as exempt under section 10(30) of the IT Act. Alternatively, it was contended before the Assessing Officer that the subsidy is to be treated as capital receipt. The Assessing Officer disallowed the claim of the assessee stating that the subsidy scheme details were not notified under section 10(30) of the Act and hence, was not eligible for the claim u/s. 10(30) of the Act. 7.3 Aggrieved, the by the disallowance of the claim made by the assessee, an appeal was preferred to the first appellate authority. The CIT(A) held that the term 'subsidy' notified in sec. 10(30) of the Act is only directive and not mandatory and therefore, the assessee was entitled to exemption u/s. 10(30) of the Act in respect of the subsidy received from the Tea Board. The alternative ground of the assessee to treat the subsidy received from Tea Board as capital receipt was not adjudicated by the CIT(A). 7.4 Aggrieved by the order of the CIT(A), the Revenue has filed the present appeal before us. 7.5 We have heard the rival submissions and perus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ke a "separate Gazette Notification in lieu of the existing gazette notification" (to employ the phraseology of the Tea Board)". 7.6 We do not see any infirmity in the finding of the CIT(A) to take a contrary view. Even if the provisions of sec. 10(30) of the I.T. Act is not applicable, since the subsidy is given for replantation, replacement planting and rejunevation planting of the tea bushes, it can only be termed as a capital receipt and not as a revenue receipt. For the aforesaid reasons, we confirm the order of the CIT(A) and reject the ground No. 1 raised by the Revenue in I.T.A. No. 131/Coch/2017. 8. The second issue that is raised in the Revenue's appeal in I.T. A. No. 131/Coch/2017 is additions made by the A.O. towards disallowance of expenditure incurred in relation to exempt income u/s 14A read with Rule 8D of the Income-tax Rules, 1962. The A.O. made additions towards expenditure in relation to exempt income u/s 14A by invoking Rule 8D(2)(ii) and (iii) on the ground that the assessee has made huge investments in shares and securities which yield exempt income. However, no disallowance has been made towards expenditure incurred in relation to exempt income. According....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 8D(2)(ii). Similarly, the A.O. has worked out disallowance of expenditure at the rate of 0.5% of average value of investment. According to the A.O., the disallowances contemplated u/s 14A is mandatory in nature with effect from assessment year 2008-2009 and such disallowances shall be worked out as per the prescribed method provided under Rule 8D(2)(ii). The A.O. has relied upon various judicial pronouncements including the decision of the Hon'ble Supreme Court in the case of CIT v. Rajendra Prasad Mody (115 ITR 519) to hold that even if no dividend income is earned, the provision would still be applicable. It is the contention of the assessee that the A.O. was erred in disallowing expenditure incurred in relation to exempt income u/s 14A by invoking Rule 8D(ii) without establishing the nexus between the expenditure incurred and exempt income. The assessee further contended that its investments are covered out of its own interest free funds in the form of share capital and reserves and no part of interest bearing funds has been used in investment which yield exempt income, which is evident from the fact that its interest expense relates to term loans availed for taking over bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... towards expenses incurred in relation to exempt income by invoking Rule 8D(2)(iii). We further observed that though the A.O. was right in disallowing expenses under Rule 8D(2)(iii), disallowance contemplated u/s 14A can in any case swallow the entire exempt income earned by the assessee. The window for disallowance for invoking the provisions of section 14A is only to the extent of disallowing expenditure incurred by the assessee in relation to the exempt income. This proportion or portion of the tax exempt income surely cannot swallow the entire amount. In other words, the disallowance contemplated u/s 14 A shall not exceed exempt income earned by the assessee. On perusal of the details available on record, we find that the assessee has earned exempt income of Rs. 55,00,000. The disallowance worked out by the A.O. under Rule 8D(2)(iii) at the rate of 0.5% of average value of investment works out to Rs. 2,27,440. Therefore, we are of the view that the disallowance worked out by the A.O. under Rule 8D(2)(iii) is less than the exempt income earned by the assessee for the relevant period and hence we are of the view that the A.O. was right in disallowing expenditure at the rate of 0.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t year 2009-10 (supra), the CIT(A) had deleted the addition. Therefore, we see no reason to interfere with the order of the CIT(A) and we confirm the same. Thus ground No. 3 raised by the Revenue in I.T.A. No. 131/C/2017 is dismissed. 10. The fourth issue raised in the Revenue's appeal is regarding taxation of income from sale of import license. 10.1 The brief facts in relation to the above issue are as follows: On export of tea leaves, the assessee is entitled to certain benefits such as duty drawback, import licenses etc. The income from the sale of import license received on account of export of tea was claimed by the assessee to be inextricably linked to tea business and hence is to be treated as taxable under Rule 8 of I.T. Rules. Assessing Officer treated such income as taxable under Central income. The CIT(A) following the judgment of the Hon'ble High Court of Guwahati in the case of McLeod Russel India Ltd. vs. CIT 260 CTR 337 deleted the addition made by the Assessing Officer. 10.2 Aggrieved by the order of the CIT(A), the Revenue has filed the present appeal before the Tribunal. 10.3 We have heard the rival submissions and perused the material available on record. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... quantity of scrap materials arise from the field and factory operations of the Company especially of stores and materials consumed in tea operations and manufacture. Therefore cost of such stores/materials was borne by Tea Operations and treated as expenses. Being a recovery of such items it is to be treated as tea business. v) Income from electricity operations by way of penalties for delayed payments, replacement of wires etc. Included in income from electricity operations and treated as combined income. vi) Other sundry receipts which are connected to its main business being tea. 11.4 We have heard the rival submissions and perused the material on record. The CIT(A), after considering each of the incomes received by the assessee had held that these are incidental and directly connected with the operation of tea business and the same is to be treated as income under Rule 8 of the I.T. Rules. The finding of the CIT(A) which are from pgs. 51 to 54 for the assessment year 2010-11 are very categoric and no interference is called for and we confirm the same. Thus ground No. 5 raised by the Revenue in I.T.A. No. 131/Coch/2017 is dismissed. 12. The sixth issue that is raised for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the Revenue has been rendered infructuous and same is dismissed as infructuous. In the result, the appeal of the Revenue in I.T.A. No. 131/Coch/2017 is partly allowed as indicated above. 14. The issues raised in Revenue's appeals in I.T.A. Nos. 163 & 164/Coch/2017 are identical to the issues raised in I.T.A. No. 131/Coch/2017. In I.T.A. No. 163/Coch/2017, the issues raised are as follows: 1) Disallowance of claim under section 10(30) for subsidy received from Tea Board of India and taxed 100% under Income Tax Act. 2) Disallowance under section 14A. 3) Computation of profit on sale of green leaves. 4) Taxation of Income from sale of import license. 5) Taxability of miscellaneous income 6) Disallowance of foreign agents commission and expense reimbursement for non deduction of tax. 14.1 In I.T.A. No.164/Coch/2017, the following issues are raised: i) Disallowance of claim under section 10(30) for subsidy received from Tea Board of India and taxed 100% under Income Tax Act. ii) Disallowance under section 14A. iii) Taxation of Income from sale of import license. iv) Taxability of miscellaneous income v) Disallowance of foreign agents commission and expense ....