1998 (4) TMI 155 - AT - Income Tax

Summary

Issues:
- Interpretation of deduction under section 80HHC on profits from tea before apportionment as per rule 8 of IT Rules.

Analysis:
The appeal in this case challenges the order of the CIT(A) regarding the deduction under section 80HHC on profits from tea before the apportionment as per rule 8 of the IT Rules for the assessment year 1990-91. The assessee, a company substantially interested by the public, derived income from manufacturing tea from its estates and trading in tea purchased from others. The AO contended that the apportionment at 40% should be made on the tea profits before allowing the deduction under section 80HHC. However, the CIT(A) allowed the deduction on the entire profit of Rs. 83,63,410, stating that the deduction under section 80HHC should be applied first, followed by apportionment as per rule 8. The Department appealed to the Tribunal, arguing against the deduction allowed by the CIT(A.

During the proceedings, the representatives of both the Department and the assessee presented their arguments. The CIT(A) based the decision on the Madras High Court case of CGT vs. Periakaramalai Tea & Produce Co. Ltd., where it was held that income from tea should be computed first according to the IT Act provisions, including deductions under Chapter VI-A, before apportioning 40% as per rule 8 of the IT Rules. Rule 8(1) specifies that income from the sale of tea grown and manufactured in India should be computed as business income, with 40% deemed as income liable to tax. The CIT(A) correctly determined that the deduction under section 80HHC should precede the apportionment under rule 8, as per the Madras High Court decision and the provisions of the IT Rules. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.

In conclusion, the Tribunal affirmed the CIT(A)'s decision, emphasizing that the deduction under section 80HHC should be allowed before the apportionment under rule 8 of the IT Rules for income from tea. The case highlights the importance of following statutory provisions and judicial precedents in determining tax liabilities and deductions, ensuring a fair and consistent application of tax laws.