2006 (12) TMI 98 - HC - Income Tax

Cess on green tea leaves shall be allowed on 100 per cent. composite income under the Income-tax Act, 1961, before applying rule 8 of the Income-tax Rules.

Summary

Issues:
1. Disallowance of cess paid on green tea leaves.
2. Justification of Income-tax Appellate Tribunal's decision.
3. Compliance with High Court judgments.
4. Correctness of the impugned judgment by the Tribunal.

Analysis:
1. The primary issue in this appeal is the disallowance of cess paid on green tea leaves. The court considered whether the Income-tax Appellate Tribunal was correct in upholding this disallowance. The court referred to previous judgments, including one where it was held that the deduction on cess paid on green tea leaves should be allowed on 100% composite income under the Income-tax Act, 1961, rather than on 60% of agricultural income.

2. The court noted that the issue had been previously addressed in judgments where it was held that the deduction on cess should be allowed on composite total income. The Tribunal had failed to follow these judgments, despite being bound by the decisions of the jurisdictional High Court. The court emphasized the importance of judicial propriety in obeying decisions of the High Court unless there is a contrary judgment from a higher court.

3. The court examined the impugned judgment by the Tribunal and found that although the Tribunal had referred to the relevant judgments, it had not acted upon the ratio provided in those judgments. The court believed this omission was due to inadvertence and proceeded to correct the judgment by following the ratio established in the previous High Court judgments.

4. Consequently, the court allowed the appeal, set aside the Tribunal's order related to the issue at hand, and ruled in favor of the assessee, stating that the cess on green tea leaves should be allowed on 100% composite income under the Income-tax Act, 1961, without applying rule 8 of the Income-tax Rules. The court emphasized the importance of following established legal precedents and ensuring compliance with High Court judgments.