2006 (7) TMI 197 - HC - Income Tax

The income from tea estate is computed applying sections 28 to 43C, and when computing the income, depreciation of 100 per cent. is allowed under section 32. Profit derived from export is to be computed for the purpose of the relief under section 80HHC in accordance with clause (a) of sub-section (3) on Assam tea without taking into account the turnover of tea from other estates. On the issue of determination of nature of loss on the sale of UTI, matter remanded back.

Summary

Issues Involved:
1. Classification of loss on sale of units of the Unit Trust of India (UTI).
2. Entitlement to depreciation on fluid bed tea drier.
3. Entitlement to claim deduction under sections 80HHC and 80-I before applying rule 8 of the Income-tax Rules.
4. Entitlement to claim deduction under sections 80HHC and 80-I on 60% of the agricultural income.
5. Computation of profit derived from export for the purpose of relief under section 80HHC.
6. Determination of written down value of assets in the tea business.
7. Deduction of contribution to provident fund in the year of actual payment.

Detailed Analysis:

1. Classification of Loss on Sale of Units of UTI:
The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) that the loss incurred on the sale of units of UTI was a capital loss and not a speculation loss. The Tribunal followed the decision in CIT v. Appollo Tyres Ltd. [1999] 237 ITR 706. The Revenue's argument that the loss was speculation loss was not accepted. The court directed the assessing authority to re-examine whether the loss on the sale of units of UTI is a capital loss that should be set off against business income.

2. Entitlement to Depreciation on Fluid Bed Tea Drier:
The Assessing Officer disallowed depreciation on the ground that the machinery was not put to use during the assessment year. The assessee claimed the machinery was received and installed on January 31, 1991, but developed defects and was returned to the seller, with the final invoice issued on May 15, 1991. The Commissioner of Income-tax (Appeals) and the Tribunal allowed the claim based on the assessee's books of account. However, the court found that further evidence was necessary to determine the actual date of installation and ownership and directed the Assessing Officer to re-examine the claim.

3. Entitlement to Claim Deduction under Sections 80HHC and 80-I Before Applying Rule 8:
The Commissioner of Income-tax (Appeals) directed the deduction to be worked out before applying rule 8, following the decision in Commissioner of Agricultural Income-tax v. Periakaramalai Tea and Produce Co. Ltd. [1972] 84 ITR 643. The Tribunal upheld this decision, and the court affirmed it, referencing CIT v. C. W. S. (India) Ltd. [2000] 246 ITR 278, which held that special deductions under section 80HHC must be granted before applying rule 8.

4. Entitlement to Claim Deduction under Sections 80HHC and 80-I on 60% of Agricultural Income:
The court followed the same reasoning as in issue 3, affirming that deductions under sections 80HHC and 80-I should be computed before the application of rule 8, which apportions income from tea business into agricultural and non-agricultural components.

5. Computation of Profit Derived from Export for Relief under Section 80HHC:
The Tribunal held that profit derived from export should be computed based on the turnover of tea from the Assam estate without considering turnover from other estates. The court affirmed this, referencing its previous judgments in I. T. A. No. 103 of 1999 (CIT v. Parry Agro Industries Ltd. [2002] 257 ITR 41) and I. T. A. No. 115 of 1999, thus answering the questions in favor of the Revenue.

6. Determination of Written Down Value of Assets in Tea Business:
The court referenced CIT v. C. W. S. (India) Ltd. [2000] 246 ITR 278, holding that depreciation of 100% is allowed under section 32 for computing income, though rule 8 apportions income for tax purposes. The court concluded that the written down value should consider 100% depreciation, answering the questions in favor of the Revenue.

7. Deduction of Contribution to Provident Fund in the Year of Actual Payment:
The court referenced CIT v. South India Corporation Ltd. [2000] 242 ITR 114 (Ker), ruling that the deduction for provident fund contributions should be allowed in the year of actual payment, answering the question in favor of the Revenue.

Conclusion:
All appeals were disposed of as detailed above, with directions to the Income-tax Appellate Tribunal, Cochin Bench, for further action based on the court's findings.