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2016 (12) TMI 1073 - AT - Income TaxComposite income - Sale consideration in respect of DEPB license - nexus with the business of growing and manufacturing of tea - application of rule 8 - Held that - All incomes (including DEPB receipts ) excluded by the AO from the composite income but taxed as Income from business separately have to be regarded as part of business income u/s.28 to 44 of the Act. We are also of the view that in the light of interpretation of Rule 8 the ratio laid down by the Hon ble Supreme Court in the case of Liberty India (2009 (8) TMI 63 - SUPREME COURT ) which was rendered in the context of Sec.80IA which speaks of a direct nexus with the eligible business cannot be applied. As already observed, the tests to be applied while computing composite income under Rule 8, is to see whether the receipts fall within the ambit of receipts under Sec.28 to 44 of the Act. We therefore hold that income set out in Ground No. 1 & 3 have to be included as part of the composite income - Decided in favour of assessee Interest subsidy not considered as part of composite income for the purpose of Rule 8 - Held that - The reasoning given while deciding Gr.No.1 & 3 in the earlier part of this order will equally apply to this ground also. As far as this ground of appeal is concerned, we also find that the CIT(A) has observed that the income in question was assessed as business income. In such circumstances, there is no reason why this income should not be considered as part of the composite income before apportionment between income from agriculture and income from nonagricultural income. We therefore direct the AO to consider the aforesaid receipt also as part of the composite income. - Decided in favour of assessee Disallowance of expenses u/s 14A - Held that - It can be seen from the computation of total income done by the AO that he has added disallowance u/s.14A of the Act twice. Once while computing adjusted composite income and again while computing Balance business income (as part of the sum of ₹ 1,23,17,727). The quantum of disallowance u/s.14A of the Act is not in dispute. We are of the view that the disallowance has to be made only at the stage of arriving at the composite income and the further addition to the balance business income is not warranted. In this regard the conclusions while deciding ground No.1 and 2 above will equally apply to this ground of appeal also. - Decided in favour of assessee
Issues Involved:
1. Whether the receipts aggregating to ?77,09,180 have a nexus with the growing and manufacturing of tea and if Rule 8 should be applied. 2. Whether the sale consideration of ?5,47,286 in respect of DEPB license has a nexus with the business of growing and manufacturing of tea and if Rule 8 should be applied. 3. Whether interest subsidy of ?22,64,023 should be considered as part of composite income for the purpose of Rule 8. 4. Disallowance of expenses of ?17,97,238 under section 14A of the Income Tax Act, 1961 after the application of Rule 8. Issue-wise Detailed Analysis: 1. Nexus of Receipts with Growing and Manufacturing of Tea (?77,09,180): The Assessee, engaged in the business of growing, manufacturing, and selling tea, treated sundry receipts as part of composite income from tea, applying Rule 8 which deems 40% of such income liable to tax. The AO excluded ?77,09,180 from composite income, arguing these receipts had no direct nexus with growing and manufacturing of tea. The CIT(A) upheld the AO's view, stating that renting out warehouses, generators, and hospital recoveries cannot be considered part of tea operations. The Tribunal, referencing the Assessee's own case from AY 2005-06 and decisions in CIT vs. Kothari Plantations & Industries Ltd. and McLeod Russel India Ltd. vs. CIT, held that all receipts taxed as business income should be treated as composite income under Rule 8. Thus, the Tribunal included the ?77,09,180 as part of the composite income. 2. Nexus of DEPB License Sale (?5,47,286): The AO taxed the DEPB license sale proceeds of ?5,47,286 as regular business income, not applying Rule 8, citing no nexus with tea business. The CIT(A) agreed with the AO. The Tribunal, however, applied the same rationale as in the first issue, stating that DEPB receipts, being part of business income, should be included in the composite income under Rule 8. Consequently, the Tribunal included the DEPB license sale proceeds as part of the composite income. 3. Interest Subsidy (?22,64,023): The Assessee received an interest subsidy from the North-Eastern Development Finance Corporation, claimed as part of composite income. The AO excluded it, arguing the working capital was not exclusively used for tea-related activities. The CIT(A) upheld this view. The Tribunal, however, noted that the CIT(A) had acknowledged the subsidy as business income. Given the precedent that business income should be included in composite income, the Tribunal directed the AO to treat the interest subsidy as part of the composite income. 4. Disallowance under Section 14A (?17,97,238): The AO disallowed ?17,97,238 under section 14A, stating it related to income not includible in total income. The Assessee argued this resulted in double taxation as the disallowance was already made in the composite income. The CIT(A) upheld the AO's action. The Tribunal found that the AO had indeed added the disallowance twice: once in the composite income and again in the business income. The Tribunal ruled that the disallowance should only be made at the composite income stage, directing the deletion of the double addition. Conclusion: The Tribunal allowed the Assessee's appeal, directing the inclusion of all disputed receipts as part of the composite income and correcting the double disallowance under section 14A. The decision emphasizes the comprehensive application of Rule 8 for computing composite income from the business of growing and manufacturing tea.
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