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2004 (8) TMI 12 - HC - Income TaxComputation of the composite income held that for computation of the composite income derived from sale of tea grown and manufactured by the seller and exported out of India under section 2(1A) of the Act of 1961 read with rule 8 of the Rules of 1962 the deduction under section 80HHC in respect of profits derived from export of tea out of India would be allowed as permissible deduction before apportionment of non-agricultural income and agricultural income under rule 8 of the Rules of 1962 and thereafter the income so computed as if it is a business income is to be apportioned on the basis of 40 per cent being non-agricultural income and 60 per cent being the agricultural income assessee s appeal is allowed
Issues Involved:
1. Applicability of Section 80HHC before or after Rule 8 of the Income-tax Rules, 1962. 2. Doctrine of Merger concerning the Gauhati High Court and Supreme Court decisions. 3. Computation of income derived from the sale of tea grown and manufactured by the seller. Issue-wise Detailed Analysis: 1. Applicability of Section 80HHC Before or After Rule 8 of the Income-tax Rules, 1962: The core issue was whether the deduction under Section 80HHC of the Income-tax Act, 1961, should be allowed before or after applying Rule 8 of the Income-tax Rules, 1962. The appellants argued that the business income should be computed first, allowing deductions under Section 80HHC, and then Rule 8 should be applied to apportion the income into agricultural and non-agricultural components. The Tribunal, however, held that Rule 8 should be applied first, and then the deduction under Section 80HHC should be allowed on the non-agricultural income portion. The High Court referred to the decision in Assam Co. Ltd. v. State of Assam [1996] 219 ITR 59, which supported the Tribunal's view. However, the appellants contended that this decision had been overruled by the Supreme Court in Assam Co. Ltd. v. State of Assam [2001] 248 ITR 567, thereby invalidating the Tribunal's reliance on it. 2. Doctrine of Merger: The High Court examined whether the Gauhati High Court's decision in Assam Co. Ltd. [1996] 219 ITR 59 had merged into the Supreme Court's decision in Assam Co. Ltd. [2001] 248 ITR 567. The Supreme Court had only addressed the validity of Rule 5 of the Assam Agricultural Income-tax Rules, 1939, and not the specific issue of the stage at which Section 80HHC should be applied. The High Court concluded that the doctrine of merger applied, meaning the entire judgment of the Gauhati High Court merged into the Supreme Court's decision, rendering the former non-binding. 3. Computation of Income Derived from the Sale of Tea: The High Court analyzed the computation of income from tea grown and manufactured by the seller, referencing Rule 8 of the Income-tax Rules, 1962, and Section 80HHC. Rule 8 mandates that income from tea should be computed as business income, with 40% deemed non-agricultural and 60% agricultural. The court cited precedents, including Karimtharuvi Tea Estates Ltd. v. State of Kerala [1963] 48 ITR (SC) 83 and Tata Tea Ltd. v. State of West Bengal [1988] 173 ITR 18, which supported the view that deductions under Section 80HHC should be allowed before applying Rule 8. The court concluded that for computing composite income from the sale of tea, the deduction under Section 80HHC should be allowed before apportioning the income under Rule 8. This method ensures accurate computation of business income, which is then divided into agricultural and non-agricultural components. Conclusion: The High Court allowed the appeals, setting aside the Tribunal's judgments. It held that deductions under Section 80HHC should be applied before Rule 8 apportionment, ensuring accurate computation of business income. The doctrine of merger rendered the Gauhati High Court's earlier decision non-binding, as it merged into the Supreme Court's ruling. The court's decision aligns with precedents ensuring proper computation of income derived from the sale of tea grown and manufactured by the seller.
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