2016 (2) TMI 278 - HC - 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 - In Jorehaut Group Ltd. -Vs- Assistant Commissioner of Income-Tax reported in (2006 (12) TMI 98 - GAUHATI High Court) followed the view expressed in Assam Co. Ltd. v. Union of India, 2005 (3) TMI 63 - GAUHATI High Court wherein it was held that the deduction on cess paid on green tea leaves has to be allowed on 100 per cent, of the composite income under the Income-tax Act, 1961, and not on 60 per cent, of the agricultural income - Decided in favour of the assessee.

Summary

Issues:
1. Whether the Tribunal was justified in deleting the addition of cess on green leaf for an amount of Rs. 56,92,991/- when cess is payable only on production of green leaf, which is not an admissible deduction under income chargeable to tax?
2. Whether the judgment reported in 289 ITR 422 supports the addition?

Issue 1:
The High Court of Calcutta dealt with an appeal concerning the deduction of cess on green leaf by an assessee engaged in the tea business for the assessment year 1999-2000. The assessing officer disallowed the expenditure of Rs. 56,92,991/- on account of cess on green leaf, considering it purely an agricultural expenditure not deductible from 60% of composite income. The CIT(A) deleted the addition, relying on a previous court judgment. The Tribunal upheld the CIT(A)'s decision. The main contention was whether the cess should be allowed as a deduction before computing the composite income under Rule 8 of the Income Tax Rules, 1962, or after apportioning the income. The Court analyzed previous judgments, including AFT Industries and M/s. Apeejay Tea Co., to determine that deductions allowable during computation should be allowed, and apportionment should be made after computing the total income. The Court agreed with the assessee's stance that the cess on green leaf should be allowed on 100% of the composite income before applying Rule 8, in line with the judgment in Jorehaut Group Ltd. v. Assistant Commissioner of Income-Tax.

Issue 2:
The Court examined the relevance of the judgment reported in 289 ITR 422, which held that the deduction on cess paid on green tea leaves should be allowed on 100% of the composite income under the Income Tax Act, rather than on 60% of the agricultural income. The Court's decision in this case was consistent with the interpretation in the aforementioned judgment, affirming that the cess should be allowed on 100% of the composite income. Consequently, the Court answered the formulated question of law in the affirmative and in favor of the assessee, leading to the dismissal of the appeal by the revenue.

In conclusion, the Calcutta High Court upheld the Tribunal's decision to delete the addition of cess on green leaf for the assessee, emphasizing that the deduction should be allowed on 100% of the composite income before apportionment, as supported by relevant legal precedents. The judgment aligned with the interpretation in the judgment reported in 289 ITR 422, ultimately resulting in the dismissal of the revenue's appeal.