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TMI Blog2013 (10) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... of tea, the appellant's income is, accordingly, required to be computed as if the income is an income derived from business and 40% of such income is, in terms of the Rule 8 of the Income Tax Rules, 1962, is deemed to be income subject to the Income Tax Act, 1961; whereas the balance 60% of the income is treated as the agricultural income for the purpose of levy under the Assam Agricultural Income Tax Act, 1939. In the assessment year, 2004-05, the appellant submitted its return of income claiming a sum of Rs. 2,73,40,080/- as part of composite income before apportionment thereof under the Rule 8 of the Income Tax Rules, 1962. The income, as reflected by the appellant, included as under: Heads Amount (Rs) Premium on import Licence 1,20,25,812/- Sale of Scrap 2,12,218/- Misc. Garden Income 1,44,32,310/- Excise duty 6,69,740/- (ii) During the course of assessment proceeding, the appellant, vide its letter, dated 01-12-2006, replied to the questionnaires for the assessment proceeding and gave details of the aforesaid receipts. However, the assessing officer, vide order of assessment, dated 29-12-2006, excluded the said miscellaneous receipts amounting to Rs. 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held the assessment order. In his order, dated 14-02-2008, aforementioned, while upholding the order of assessment, the Commissioner, Income Tax (Appeals), took the view that Rule 8 provides for computation of only those income, which have been derived from the sale of tea that are grown and manufactured by the seller, and, therefore, the miscellaneous receipts, in the present case, cannot be said to have been derived from the sale of tea grown and manufactured by the appellant. The Commissioner also took the view that the miscellaneous receipts, in the present case, might be 'attributable to' the tea business, but it cannot be treated as income 'derived from' the tea business. The miscellaneous expenses, which the appellants had shown in the income tax return, were, according to the Commissioner, not income derived from the activity of growing and manufacturing of tea and do not, therefore, bear direct nexus with the sale of the tea grown or manufactured by the appellant. The appellate authority further took the view that the composite income, referred to in Rule 8, shall arise out of the core activity of growing and manufacturing of tea and must, therefore, directly relate to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is thus perverse?" 5. Both the above questions, which have been formulated for hearing in this appeal are, in effect, one and the same. 6. Submissions: Presenting the appeal, on behalf of the appellant, Ms. Hawelia, learned counsel for the appellant, points out that the learned Tribunal failed to notice that the appellant, as an assessee, had claimed four kinds of receipts as composite income before apportionment thereof under Rule 8 of the Income Tax Rules, 1962, these four receipts being, Premium on import licence, amounting to Rs. 1,20,25,812/-, Sale of Scrap, amounting to Rs. 2,12,218/-, Misc. Garden Income, arising out of receipts of insurance claim, amounting to Rs. 1,44,32,310, and Excise duty amounting to Rs. 6,69,740/-. The learned Tribunal, further points out Ms. Hawelia, learned counsel, has committed manifest error of law in refusing to treat the income 'derived by' the assessee-appellant from the sale of import licence, amounting to Rs. 1,20,25,812/-, as the appellant's composite income before apportionment thereof under Rule 8 of the Income Tax Rules, 1962, inasmuch as the learned Tribunal failed to appreciate the fact that, as per Section 28 (iii a) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said sum of Rs. 1,44,32,310/-, being insurance claim realised by the appellant on account of loss caused due to flood and heavy rains to tea bushes, finished plantations, etc., is directly connected to the business of the growing and manufacture of tea and the same, therefore, formed part of the composite income before apportionment under Rule 8 of the Income Tax Rules, 1962. 10. As regards exclusion of a sum of Rs. 6,69,740/-, on account of excise duty rebate, from the composite income before apportionment under Rule 8 of the Rules, Ms. Hawellia, learned counsel, submits that the exclusion of the said sum of Rs. 6,69,740/-, from being treated as composite income, is wholly illegal and not tenable in law inasmuch as the learned Tribunal failed to note that the said sum of Rs. 6,69,740/- related to excise duty rebate, which was deductible in computing the composite income paid by the appellant in terms of Section 28(iii c) of the Income Tax Act, 1961, whereunder any duty of customs or excise, repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, is chargeable to income tax under the head 'profits and gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n so shown, ought to have been treated by the respondents as the composite income, before apportionment thereof under Rule 8 of the Income Tax Rules, 1962, derived from the business of sale of tea grown and manufactured by the assessee-appellant. 14. The moot question, therefore, which arises for consideration is: Whether the various receipts of income, which the assessee-appellant has claimed to be its composite income, are, in law, composite income and fall within the ambit of Rule 8 of the Income Tax Rules, 1962? 15. For the purpose of correct appreciation and clarity, what needs to be pointed out, at the very outset, is that the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules'), having taken note of the fact that an assessee may derive income partially from agriculture and partially from business, introduced a mechanism for the purpose of making assessment of income as 'derived from business' vis-a-vis income, which is treatable as agricultural income. Part-II of the Rules deals with the determination of income derived from various sources. Under the heading, 'D - Special cases', various incomes have been taken into account in order to show as to how they are to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant for the purpose of deciding this appeal, both these Rules are reproduced below: "28. The following income shall be chargeable to income-tax under the head 'Profits and gains of business or profession' - (iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947. *** *** *** *** *** *** (iiic) any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971." 19. From a bare reading of Section 28 (iii a), it becomes clear that the profits on sale of a licence, granted under the Customs and Central Excise Duties Drawback Rules, 1971, are to be treated as income derived from the sale of tea grown and manufactured. Similarly, Section 28 (iiic) provides that duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971, has to be treated as an income chargeable, under the Income Tax Act, within the purview of the head of 'profits and gains of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re procured from time to time in course of running of the business of growing and manufacturing of tea and that the expenses, incurred from such items, formed composite income before apportionment thereof under Rule 8. 23. Neither, therefore, the receipts of premium on import of licence, amounting to Rs. 1,20,25,812/-, nor the receipt, amounting to Rs. 2,12,218/-, realized from the sale of scraps, could have been refused to be treated as composite income of the assessee-appellant before apportionment thereof in terms of Rule 8 of the Rules. 24. Turning to the assessee-appellant's claim of miscellaneous garden income, amounting to Rs. 1,44,32,310/-, arising out of the amount received from insurance claim, lodged with the insurer on account of loss caused to the business of tea, finished plantation, etc., due to flood and heavy rains, it is noteworthy that the amount paid, in terms of the insurance claims, in the circumstances as indicated hereinbefore, and in respect of the items, as mentioned hereinbefore, ought to be treated as part of the composite income of the assessee-appellant before apportionment thereof under Rule 8. 25. What surfaces from the above discussion that that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tea, it was not open to the authority concerned to treat such income as an income, which could not have been described as income derived from the business of growing, manufacturing and selling of tea by the assessee-appellant. 29. Situated thus, we are clearly of the view that the refusal to treat the total sum of Rs. 2,73,40,080/- as composite income of the assessee-appellant, before apportionment thereof, under Rule 8, was wholly illegal and cannot be sustained. 30. In the result and for the reasons discussed above, this appeal succeeds. The impugned order, dated 16.11.2010, passed by the learned Tribunal, is hereby set aside and quashed and, in consequence thereof, the assessment order, dated 29.12.2006, as well as the order, dated 14.02.2008, passed by the learned Commissioner, Income Tax (Appeal) II, Guwahati, shall accordingly stand set aside and quashed. The respondents are hereby directed to treat the receipts of Premium on import licence, amounting to Rs. 1,20,25,812/-, Sale of Scrap, amounting to Rs. 2,12,218/-, Misc. Garden Income amounting to Rs. 1,44,32,310, and Excise duty amounting to Rs. 6,69,740/-, as the assessee-appellant's composite income before apportionment ..... 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