2015 (8) TMI 1260 - SC - Income Tax

Addition of cess on green leaf - whether production of green leaf which is 100% agricultural activity and not an admissible deduction under income chargeable ? - Held that - Expenditure on cess should be allowed as a deduction before computing the composite income under Rule 8 and the apportionment is to be made after the income is so computed.

Summary

Issues:
- Deduction of cess paid on green leaf under Assam Taxation (On Specified Land) Act, 1990 in income tax return.

Analysis:
The Supreme Court addressed the issue of whether the deduction of cess paid on green leaf under the Assam Taxation (On Specified Land) Act, 1990 in the income tax return was valid. The respondent-assessee had claimed this deduction, which was allowed by the High Court. The Tribunal had held that the deduction is eligible after computing the income under Rule 8 of the Income Tax Rules, 1962. Rule 8 requires the computation to be made as if the entire income out of the tea grown and manufactured is assessable under the Income Tax Act, 1961. The income so computed is then apportioned 60:40, of which 40% is assessable to tax under the Act. The High Court, in line with various judgments of the Supreme Court, interpreted Rule 8 correctly. It concluded that the 60% income computed under Rule 8 is exposed and becomes exigible to tax under the Agricultural Income Tax Act without needing to be assessed under that Act separately. Therefore, the cess paid was rightly excluded while computing the income under Rule 8.

The Supreme Court affirmed the High Court's interpretation of Rule 8 of the Income Tax Rules, 1962. It found no merit in the appeal and dismissed it accordingly. The Court reiterated that the income computed under Rule 8 is to be apportioned as per the specified ratio and is subject to tax under the relevant Acts. The judgment emphasized the correct application of the provisions and the exclusion of the cess paid on green leaf while computing the income derived from tea grown and manufactured. The decision provided clarity on the treatment of such deductions and upheld the High Court's understanding of the legal framework governing the computation of income in this context.