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TMI Blog2011 (4) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... good quality of final product of tea will be required to blend some other type of tea enriched with liquor content to have a good quality of the said final product - The requirement of the Section 33AB is that the assessee must grow tea leaves and will also convert those leaves into final product by way of processing - Thus, the profit arising out of selling its grown tea to others without processing and bringing it into final form of “manufactured tea” will not be eligible for deduction under the Section 33AB of the Act - 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 - Held that: assessees who grow and manufacture different varieties of tea and consequently, do not require purchase of any tea for blending with the final product, can only get the benefit of Section 33AB - Decided in favor of the assessee - I.T.A. No.537 of 2004, I.T.A. No.538 of 2004 - - - Dated:- 29-4-2011 - Mr. Justice Bhaskar Bhatta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guest house and the expenditure in respect thereof was to be disallowed as expenditure on the maintenance of guest house within the meaning of the said provisions? b) Whether on a true and proper interpretation of section 33AB of the Act, the Tribunal was justified in law in holding that the activities of sale of tea manufactured out of bought green leaves and sale of purchased tea after blending with the tea manufactured by the appellant were other business activities or were not part and parcel of the business of growing and manufacturing tea and the profits arising out of such activities were to be excluded for the purpose of computation of the quantum of deduction under section 33AB? c) Whether the Tribunal was justified in law in upholding the disallowance under sub-section (4) of the Section 37 of the expenditure incurred by the appellant in respect of the holiday home maintained by its for the exclusive use of its whole time employees numbering more than one hundred while on leave without taking into consideration the second proviso to the sub-section according to which the sub-section according to which the sub-section did not apply to the holiday home? 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a guest house within the meaning of sub-sections (4) and (5) of Section 37 and disallowed the expenditure relating thereto. i) The assessee preferred an appeal before the Commissioner of Income-tax (Appeals) for the Assessment Year 1988-89 and succeeded but in subsequent years, the disallowances were upheld. j) On further appeal, the Tribunal upheld the treatment of transit flat as guest house within the meaning of sub-sections (4) and (5) of Section 37. The Tribunal, however, limited the nature of expenses which could be subjected to disallowance and according to the Tribunal, the disallowance could be made only in respect of depreciation and rent and any other expenditure which was covered by the provisions of Sections 32 to 36 of the Act, could not be disallowed under Section 37(4). k) During the previous year relevant to the Assessment Year 1994-95, the assessee deposited a sum of Rs.2, 10, 00,000/- under Section 33AB. As per return of income, 20% of the profit of business of growing and manufacturing tea which included the profit in respect of tea manufactured out of bought leaves and the profit in respect of purchased tea sold after blending with the tea grown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by order dated March 10, 2003 rejected the said rectification application. s) The Commissioner of Income-tax (Appeals) decided the appeal of the assessee against order under Section 143(3) dated March 29, 1996 by another order dated December 9, 2002 and upheld the order of the Assessing Officer in respect of the transit flat expenditure. t) With regard to the assessee s claim for deduction of Rs.2.10 crore under Section 33AB, the Commissioner of Income-tax Appeals referred to his order dated December 9, 2002 passed in respect of the order dated August 29, 1997 under Section 154 and directed the Assessing Officer to regulate the admissible deduction while giving effect to his appellate order by taking 20% of the revised profit out of composite activity of growing and manufacturing tea or Rs.2.10 crore whichever is less. u) Against the order dated December 9, 2002 passed by the Commissioner of Income-tax (Appeals) in appeal arising out of the order of assessment dated March 29, 1996, the assessee preferred an appeal before the Income-tax Appellate Tribunal and the Tribunal by an order dated March 19, 2004 upheld the disallowance of the transit flat expenditure under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said provision because the smaller of the above two amounts should be deducted as the benefit. According to Mr. Khaitan, if an assessee has his own garden where he grows tea and in the process of manufacturing such tea, in order to bring it to a final product mixes some other tea grown in different gardens for the purpose of blending, the profit arising out of the additional tea for blending acquired from other gardens cannot be excluded. According to Mr. Khaitan, blending is an important part of manufacturing of tea and in order to have maximum profit by selling the manufactured tea of good quality, different types of tea are required to be blended and for that purpose, blending of tea from other gardens are also required to be added to the tea grown by the assessee. In such circumstances, according to Mr. Khaitan, the profit arising out of the purchased tea from outside cannot be excluded. Mr. Khiatan, therefore, prays for setting aside the order passed by the authorities below and for giving deduction of 20% of the profit earned by his client out of the business of manufactured and grown tea including the tea bought from outside for blending. 10. In support of his contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintained by the Assessee. 14. Therefore, in order to appreciate the question of applicability of Section 33AB of the Act, it will be profitable to refer to the said provision as it stood at the relevant point of time and the same is quoted below: 33AB. (1) Where an assessee carrying on business of growing and manufacturing tea in India has, before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier, deposited with the National Bank any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with the Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Tea Board, the assessee shall, subject to the provisions of this section, be allowed a deduction (such deduction being allowed before the loss, if any, brought form earlier years is set off under section 72) of- (a) a sum equal to the amount or the aggregate of the amounts so deposited; or (b) a sum equal to twenty per cent of the profits of such business (computed under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head Profits and gains of business or profession of any one previous year: (d) any new machinery or plant to be installed in an industrial under taking for the purposes of business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule. (5) Where any amount, standing to the credit of the assessee in the special account or in the Tea Deposit Account, is withdrawn during any previous year by the assessee in the circumstances specified in clause (a) or clause (d) of sub-section (3), the whole of such amount shall be deemed to be the profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year, as if the business had not closed or, as the case may be, the firm had not been dissolved. (6) Where any amount standing to the credit of the assessee in the special account or in the Tea Deposit Account is utilised by the assessee for the purposes of any expenditure in connection with such business in accordance with the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll apply only where (i) all the properties of the firm relating to the business or profession immediately before the succession become the properties of the company; (ii) all the liabilities of the firm relating to the business or profession immediately before the succession become the liabilities of the company; and (iii) all the shareholders of the company were partners of the firm immediately before the succession. (9) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, direct that the deduction allowable under this section shall not be allowed after such date as may be specified therein. Explanation. In this section, (a) National Bank means the National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981). (b) Tea Board means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953). 15. So far as the second question formulated in these appeals is concerned, in our opinion, the answer to the same depends upon the interpretation of the following phrase appearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains the tea substantially grown in the garden of the assessee. If in the final product marketed by the assessee, it contains tea substantially purchased from outside and only an trivial amount grown by him, in such a case, the final product cannot be said to be the outcome of the business of tea grown and manufactured by the assessee because he basically is found to be dealing with the tea manufactured by others . 21. The requirement of the Section 33AB is that the assessee must grow tea leaves and will also convert those leaves into final product by way of processing. Therefore, the moment the substantial amount of tea, thus, manufactured in the form of final product is grown in the garden of the assessee and such amount of grown tea is converted into the final form by blending with insignificant amount of other tea purchased from outside, such purchased tea from outside for the purpose of blending forms part of the process of manufacture of the final product of tea grown and manufactured by the assessee and thus, the requirement of the Section is fully complied with. But if in the final product, there is very insignificant amount of tea grown by the assessee in its garden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit of Section 33AB of the Act. 23. In the case of Brooke Bond India Ltd. Vs. C. I. T (Supra), relied upon by Mr. Bhowmick, the assessee made a claim for investment allowance in respect of a new machinery purchased put to use and its contention was that it was not merely a blender of tea but it produced a new and distinct type of tea having a predetermined quality in terms of taste, liquor and aroma and hygienically packed through mechanical contrivances which the assessee marketed in packets and under different brand names and therefore, the assessee should be treated to be not only a blender but also a manufacturer or at least the producer of tea in packed condition. The Assessing Officer held that at best the assessee could be considered to be engaged in processing for which deduction for investment allowance under Section 32A of the Act would not be available. The Division Bench of this Court approved the views of the Assessing Officer. We fail to appreciate how the said decision can be of any help to the Revenue for interpretation of Section 33AB of the Act where the question is whether the fact that some amount of tea has been blended with the tea grown by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphletor the like published by a political party. (3) Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31 day of March,1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guesthouse or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed. (4) Notwithstanding anything contained in sub-section (1) or subsection (3), (i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28 day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest-house (such residential accommodation being hereafter in this sub-section referred to as guest-house ); day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowed the claim of the assessee on a different ground but the Tribunal for the first time having applied Section 37(4) of the Act, it was its duty to consider whether the second proviso to the said section quoted above is attracted. If the second proviso is attracted Section 37(4) will have no application and the appellant should be entitled to the claim. 27. We, thus, answer the third point formulated in the I.T.A. No. 538 of 2004 in the negative and in favour of the assessee and remand the matter to the Tribunal to consider whether the second proviso to Section 37(4) of the Act is attracted in this case and to act accordingly. 28. We, therefore, partly allow I.T.A. No. 537 of 2004 by answering the first point in the affirmative against the assessee by following the Division Bench decision of this Court in the case of Keshoram Industries and Cotton Mills Limited (supra), and the second point in the negative against the Revenue by setting aside the part of the finding of the authorities below on the second question and hold that the assessee is entitled to the benefit of the entire profit arising out of the business of growing and manufacturing the tea and the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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