TaxTMI 
TaxTMI 
2021 (12) TMI 208
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....is subjected to Rule 8 of the Income Tax Rules? 2. Whether on the facts and in the circumstances of the case, the Learned Income Tax Appellate Tribunal "C" Bench, Kolkata erred in giving relief at 40% of the taxable value of the Fringe Benefit as against 100% by allowing the benefit of Rule 8 of the Income Tax Rules which has no relevance at all in computing the Fringe Benefit Tax? We have heard Mr. P. K. Bhowmik, learned senior standing counsel for the appellant/Revenue and Mr. Asim Chaudhury, learned counsel for the respondent/Assessee. It is not disputed that the identical substantial questions though slightly differently framed decided by this Court in the assesse's own case for the assessment year 2006-07 in ITAT 147 of 2011 and for the assessment year 2007-08 in ITA No. 75 of 2012. The Hon'ble Division Bench followed an earlier decision of this Court in the case of M/S. APEEJAY TEA LTD. -VS- COMMISSIONER OF INCOME TAX, CENTRAL-I & ANR. in ITA No.165 of 2013 dated 3rd July, 2014. The operative portion of the judgement for the assessment year 2007-08 is as follows: The subject matter of challenge in this appeal is a judgment and order dated 26th June, 2013 by which the le....
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....ll be deemed to be income liable to tax. (2) In computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of subsidy which, under the provisions of Clause (30) of Section 10, is not includible in the total income." Mr. Majumdar, learned advocate appearing in support of the appeal submitted that fringe benefit tax is an additional income tax as would appear from Section 115WA. Therefore, the rules applicable for the purpose of assessing income tax would also be applicable for the purpose of arriving at a valuation of the fringe benefits. Before tax can be assessed, taxable income has to be arrived at. Similarly before fringe benefit tax can be assessed the valuation of the fringe benefits has to be arrived at. When the fringe benefit tax is an additional income tax, there can hardly be any doubt, according to him, that Rule 8 shall apply with full force. He, in support of his submission, drew our attention....
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....e income which is derived from the sale of tea which is grown and manufactured by the assessee is to be computed as if it were income derived from business. It needs no line of elaborate reasoning to state the well-settled position in law that once a legal fiction is created by the Legislature or, as in this case, in subordinate legislation, the legal fiction has to be given force and effect so as to operate within the area in which it was intended to operate. In applying a legal fiction, it is trite law that one cannot allow the imagination to boggle. A legal fiction has to be carried to its logical conclusion. In computing the income from the sale of tea as if it was income derived from business, for the purposes of rule 8, it is impossible to comprehend as to how the expenditure incurred by an assessee, wholly and exclusively, for the purposes of business should be disregarded. Obviously, the expenditure cannot be disregarded. The principle which must govern is well-settled and only a brief reference to authority on the subject would be necessary. 14. In CIT v. Harprasad & Co. (P). Ltd. [1975] 99 ITR 118 (SC), the question which came up before the Supreme Court was whether a ....
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....able "only in the case of income" and the claim of the assess to set off 40 per cent of losses against normal business profits could not be allowed. On the basis, the Assessing Officer has formed the opinion that the loss of Rs. 10.84 crores attributable to the business activity of the assessee involving the manufacture and sale of tea was liable to be disallowed. It must be noted here that it is not the contention for the Assessing Officer that the loss which has been computed by the assessee by applying the proportion of 40 per cent is not a fair estimate of the actual loss sustained, by the assessee in its business operations. On the contrary, it is on the basis of rule 8 that the Assessing officer seeks to postulate that the loss attributable to the business activity of the assessee would have to be disregarded on the ground that is not allowable expenditure. The inference which is sought to be drawn by the Assessing Officer is contrary to the plain meaning of the charging provisions of the Act; and to rule 8, besides being contrary to the position in law laid down by the Supreme Court. The assessee was lawfully entitled to adjust the loss which arose as a result of the busines....
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....on 'B' Rs. Income from sale of tea (40% of 1000) 400 Less:Expenses - Depreciation (40) Others (40% of 300) (120) Business Profit subject to charge of 240 Income-tax (40% of 600) 13. Analysing the above two charts, we find that at the end of computation the income chargeable to tax by applying rule 8 comes to Rs. 240. Under Illustration 'A', the normal depreciation is Rs. 100 which is deductible from Rs. 1,000 being the income from sale of tea. On the other hand, under Illustration 'B', we have taken 40 per cent of each of the items, namely, income from sale of tea, depreciation and other expenses. Accordingly, on comparison it may be noted that whereas income from sale of tea is Rs. 1,000 under Illustration 'A', proportionately it comes to Rs. 400 under Illustration 'B'. Similarly, depreciation under Illustration 'A' which is normal depreciation is Rs. 100 whereas in Illustration 'B' at 40 per cent the pro rata depreciation is 40. What is important to be noted is that at the end of computation under both the Illustrations, the Income taxable by applying rule 8 comes to Rs. 240 in both the cases. The only difference is that in Illustration ....