High Court Of Kerala
CIT vs. Mahavir Plantations Ltd.
Section 33AB, Rule 8
Asst. Year 1986-87
G. Sivarajan & J.M. James, JJ.
IT Ref. No. 28 of 1998
22nd May, 2003
Counsel Appeared
P.K.R. Menon & George K. George, for the Revenue : Anil D. Nair & Antony Dominic, for the Assessee
JUDGMENT
G. Sivarajan, J.
The Tribunal, Cochin Bench, has referred the following question of law, for decision by this Court at the instance of the Revenue, pursuant to the direction issued by this Court in OP No. 2033 of 1996 :
“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 s. 33AB of the IT 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 brief facts necessary for decision of the above question are as follows. The respondentassessee is a limited company engaged in the cultivation and manufacture of tea. During the accounting period relevant to the asst. yr. 1986-87, the assessee had deposited a sum of Rs. 18 lakhs under s. 33AB(1) of the IT Act, 1961, for short “the Act”, and claimed the entire deposit as deduction. The AO while taking the profits of the assessee considered only 40 per cent of the business profit, amounting to Rs. 43,00,846 and did not take into account 60 per cent of the business profit of Rs. 63,63,273, and trading receipt of Rs. 65,195. Being aggrieved by the said order, the assessee filed appeal before the CIT(A), who by his order dt. 13th Oct., 1989 (Annex. B) held that the entire business profit from growing and manufacture of tea amounting to Rs. 1,06,05,455 has to be reckoned for the purpose of deduction under s. 33AB of the Act, and since 20 per cent of the profit worked out to Rs. 21,21,090, it was held that the deduction must be restricted to the amount of Rs. 18 lakhs deposited by the assessee.
The first appellate authority has not reckoned the trading profit of Rs. 65,195 for the purpose of deduction under s. 33AB of the Act. Though the Department has filed appeal against this order before the Tribunal, it was dismissed. Sri George K. George, learned standing counsel appearing for the Revenue, submitted that by virtue of the provisions of r. 8 of the IT Rules, which provides for adopting only 40 per cent of the business profit from growing and manufacturing of tea, for the purpose of taxation under the Act, the assessing authority was well within its jurisdiction in limiting the deduction under s. 33AB(1)(a) of the Act to 20 per cent of the amount arrived at in accordance with the provisions of r. 8 of the IT Rules. Learned counsel, Sri Anil D. Nair, appearing for the assessee, on the other hand, submits that going by the provisions of s. 33AB of the Act is geared to the business profit from the growing and manufacturing of tea computed under the head “Profits and gains of business or profession” and that both the appellate authorities have rightly found that the deduction allowable under s. 33AB of the Act must be geared to the business profit of Rs. 1,06,05,455.
5. In order to appreciate the rival contentions, it is necessary to refer to the provisions of s. 33AB of the Act and r. 8 of the IT Rules. Sec. 33AB of the Act reads as follows : “33AB. (1) Where an assessee carrying on business of growing and manufacturing tea in India has, during the previous year, deposited with the National Bank any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that bank in accordance with a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Tea Board, the assessee shall, subject to the provisions of this section, be allowed a deduction of— (a) a sum equal to the amount or the aggregate of the amounts so deposited during the previous year, or (b) a sum equal to twenty per cent of the profits on such business (computed under the head ‘Profits and gains of business or profession’ before making any deduction under this section), whichever is less.” Rule 8(1) of the IT Rules reads as follows :
“Income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax.”
Admittedly, the assessee had deposited a sum of Rs. 18 lakhs during the previous year relevant to the assessment year under the scheme referred to in s. 33AB(1) of the Act. It specifies the provisions of cl. (a) of s. 33AB(1) of the Act. Further, the deduction available under the section can be ascertained only after ascertaining the amount provided under cl. (b) of the said sub-section. Under cl. (b), a deduction of a sum equal to 20 per cent of the profits of such business computed under the head “Profits and gains of business or profession” is profit before making any deduction under this section. The profits of such business referred to in cl. (b) must necessarily be the profits of the business referred to in the main part of sub-s. (1), namely, “business of growing and manufacturing of tea in India”. The assessing authority in the instant case has worked out the profits of the business of growing and manufacturing tea in India at Rs. 1,06,05,455. If the deduction as provided under s. 33AB(1), cl. (b), is computed, it will come to Rs. 21,21,090. However, the sub-section provides that the deduction permissible under the sub-section is the lesser of the two amounts provided under cls. (a) and (b). In that view of the matter, since the assessee had deposited only Rs. 18 lakhs under the scheme, the deduction must be confined to Rs. 18 lakhs only.
The only further question to be considered is regarding the scope of r. 8(1) of the IT Rules extracted above. The rule clearly provides that the income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business. But, for the purpose of liability to tax under the Act, it is provided that only 40 per cent of such income shall be deemed to be income liable to tax. According to us, this rule has nothing to do with the deduction provided under s. 33AB(1) of the Act, which in clear terms provides that the deduction must be geared to the profits of the business of growing and manufacturing tea in India. In fact, a similar provision contained in s. 80HHC was considered by a Division Bench of this Court in CIT vs. C.W.S. (India) Ltd. (2000) 158 CTR (Ker) 529 : (2000) 246 ITR 278 (Ker), where the Division Bench while construing the provisions of s. 80HHC of the IT Act and r. 8 of the IT Rules, has taken a similar view. In these circumstances, we answer the question referred in the affirmative, that is, in favour of the assessee and against the Revenue.
[Citation : 269 ITR 552]
