2015 (5) TMI 789 - HC - Income Tax

Deduction under Section 33AB - income from tea purchased by the appellant and blended with the tea, manufactured by it - whether AO s order applying claim as erroneous and prejudicial to the interest of Revenue - revision u/s 263 - Held that - As decided in Goodricke Group Ltd. v. Commissioner of Income-tax (No.1) reported in 2011 (4) TMI 863 - CALCUTTA HIGH COURT the assessee has utilized his entire tea grown by it in its garden and by blending the same with some other amount of tea purchased from outside has manufactured the final product and, thus, the entire profit arising out of such manufacture will get the benefit of section 33AB notwithstanding the fact that for the purpose of blending, some small amount was purchased from outside. It appears that the purchased amount is very trifling in comparison to the amount grown by the assessee and thus, it is not a case where it can be alleged that the purpose of maintenance of the garden by growing insignificant amount of tea in comparison to the final product is only a device to get the benefit of the section. In the case before us, assesse submitted that the quantity purchased from outside is 11%. By using the expression trifling what did the Division Bench mean is not very clear to us but 11% is also in a sense nominal compared to balance 89% which was admittedly grown and manufactured by the assessee himself. - Decided in favour of assesse.

Summary

Issues:
1. Interpretation of deduction under Section 33AB of the Income Tax Act, 1961.
2. Inclusion of income from tea purchased and blended in the profit of the business of growing and manufacturing tea.
3. Computation of profit from the activity of purchasing tea for blending.
4. Treatment of income under two different provisions for the same activity.

Analysis:

Issue 1:
The main contention revolved around the deduction under Section 33AB of the Income Tax Act, 1961. The Tribunal had held that the deduction claimed by the appellant was not in accordance with the provisions of the said section, which was upheld by the Commissioner of Income Tax under Section 263. However, the appellant argued that a previous judgment in the case of Goodricke Group Ltd. v. Commissioner of Income-tax supported their claim. The Court referred to the previous judgment where it was stated that the entire profit arising out of manufacturing tea by blending tea grown by the assessee with a small amount purchased from outside would qualify for the benefit of Section 33AB. The Court interpreted the provision purposively rather than literally to avoid frustrating the legislative purpose.

Issue 2:
Regarding the inclusion of income from tea purchased and blended in the profit of the business of growing and manufacturing tea, the appellant contended that the quantity purchased from outside was only 11%, which was nominal compared to the 89% grown and manufactured by the assessee. The Division Bench in the previous case had used the term 'trifling' to describe the purchased amount, creating uncertainty. The Court, however, noted that the quantity purchased being 11% was also relatively small compared to the majority grown by the assessee. The Court answered questions (i) and (ii) in the negative, favoring the assessee.

Issue 3:
The computation of profit from the activity of purchasing tea for blending was also a point of contention. The Tribunal upheld the computation made by the Commissioner of Income Tax without considering the appellant's contentions highlighted in a letter dated March 12, 2003. However, since questions (i) and (ii) were answered in favor of the assessee, questions (iii) and (iv) did not require an answer, and the appeal was allowed.

In conclusion, the judgment favored the appellant on the interpretation of Section 33AB and the inclusion of income from purchased tea in the profit of the business. The Court emphasized a purposive interpretation of the provision to align with the legislative intent.