2003 (5) TMI 19 - HC - Income Tax

Whether, Tribunal is right in law in holding that the tea development allowance under section 33AB, must be in relation to the income of the business of growing and manufacturing tea, rather than to the taxable portion of such income? - We answer the question referred in the affirmative, that is, in favour of the assessee and against the Revenue.

Summary

Issues:
Interpretation of section 33AB of the Income-tax Act, 1961 regarding tea development allowance deduction.

Analysis:
The case involved a question regarding the interpretation of section 33AB of the Income-tax Act, 1961, specifically related to the tea development allowance deduction. The issue was whether the allowance must be in relation to the income of the business of growing and manufacturing tea or to the taxable portion of such income. The respondent-assessee, a limited company engaged in tea cultivation and manufacture, had deposited a sum under section 33AB(1) and claimed it as a deduction. The Assessing Officer considered only 40% of the business profit for taxation purposes, leading to a dispute. The Commissioner of Income-tax (Appeals) held that the entire business profit must be considered for the deduction, while the Department argued for limiting the deduction based on rule 8 of the Income-tax Rules.

The key contention was whether the deduction under section 33AB should be based on the business profit from growing and manufacturing tea or on the taxable portion of such income. The Revenue argued that rule 8 of the Income-tax Rules allowed adopting only 40% of the business profit for taxation, justifying the limitation on the deduction. On the other hand, the assessee's counsel contended that the deduction should be based on the business profit as computed under the head "Profits and gains of business or profession," which both appellate authorities had found to be Rs. 1,06,05,455.

The court analyzed the provisions of section 33AB and rule 8 of the Income-tax Rules to resolve the dispute. Section 33AB allowed a deduction equal to the amount deposited or 20% of the business profits, whichever is less. The profits referred to in this section must be those of the business of growing and manufacturing tea in India. The court emphasized that the deduction should be geared to the profits of the tea business as specified in the Act, rather than the taxable income portion. It differentiated the application of rule 8, stating that it pertained to the computation of income for tax liability and not the deduction under section 33AB.

The court referred to a previous judgment related to a similar provision under section 80HHC of the Income-tax Act to support its interpretation. Drawing parallels, the court held in favor of the assessee, stating that the deduction under section 33AB should be based on the profits of the tea business. Consequently, the court answered the question referred in the affirmative, favoring the assessee and ruling against the Revenue.