2023 (6) TMI 561 - AT - Income Tax

Delayed employees contribution to PF u/s 36(1)(va) r.w.s 2(24)(x) - As admitted by the assessee to have been paid beyond the due date under respective Act but was made before the due date of filing of return - HELD THAT - As in view of the decision of Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT holding that explanation 2 to Section 36(1)(va) to be retrospective and explanation 5 of Section 43B of the Act are not applicable any more, the assessee withdrew the claim to the extent of Rs. 19,28,127/- - set aside the order of Ld. CIT(A) and direct the AO to allow the claim of the assessee. Computation of income of the assessee engaged in growing and manufacturing of tea - HELD THAT - Rule 8(1) of Income Tax Rules, 1962 which provides for manner of computing taxable income in the assessee is engaged in tea plantation business provides that the total income arrived at shall be apportioned in the ratio of 60 40 and 60% would be treated as agricultural income and remaining 40% would be business income. Therefore we find merit in the arguments of the ld counsel that the disallowance of EPF has to be first added to the income of the assessee and only thereafter 40% would be taxed as business income. Thus the income of Rs. 6,92,424/- is be treated as business income being 40% of income of manufacturing of tea as per Rule 8 of Rules, 1962 instead of Rs. 23,43,506/- assessed as per intimation u/s 143(1). Decided in favour of assessee.

Summary

Issues:
1. Challenge of addition of employees' contribution to PF
2. Application of Rule 8(1) of Income Tax Rules, 1962 in tea plantation business

Issue 1: Challenge of Addition of Employees' Contribution to PF
The appeal was against the Ld. Commissioner of Income Tax (Appeals) confirming the addition of Rs. 25,40,572 as employees' contribution to PF. The assessee contended that the payment was made before the due date of filing the return. Initially, the grounds of appeal were dismissed as the counsel did not press them. Later, the assessee raised additional grounds, arguing that a portion of the contribution was made within the due date. The Tribunal observed the payment details and cited a Supreme Court decision to allow the claim for the amount paid before the due date, setting aside the Ld. CIT(A)'s order.

Issue 2: Application of Rule 8(1) in Tea Plantation Business
The second issue involved the application of Rule 8(1) of Income Tax Rules, 1962 in a tea plantation business. The assessee argued for the apportionment of income between agricultural and business components as per the rule. The Ld. A.R. emphasized the 60:40 split ratio for agricultural and business income. The Tribunal examined the computation of business income, considering the disallowance of EPF contribution. Relying on relevant decisions, including a High Court ruling, the Tribunal directed the AO to tax only 40% of the total income as business income, setting aside the Ld. CIT(A)'s decision.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the AO to assess the business income accordingly. The judgment was pronounced on 17th February 2023.