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TMI Blog2016 (12) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in holding sale consideration of Rs. 5,47,286/ - in respect of DEPB license as having no nexus with the business of growing and manufacturing of tea and thereby not applying Rule 8 thereon." 3. The Assessee is a company. It is engaged in the business of growing, manufacturing and sale of tea and packaged tea. Income from growing, manufacturing and sale of tea would be Composite income, which means it comprises agricultural income to the extent of growing tea, which is not chargeable to tax and non-agricultural income to the extent it comprises of income from manufacture and sale of tea, which income is chargeable to tax. Rule 8 of the Income Tax Rules, 1962 provides method of computation for composite income from growing and manufacture of tea. Under Rule 8 (1) of the Income Tax Rules, 1962 (Rules) income derived from sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax. 4. For A.Y.2009-10 M/s. Apeejay Tea Ltd filed return of income on 29.09.2009. Consequent to an order of the Hon'ble Guwahati High Court dated 22.12.2009 M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as income chargeable to tax as per regular tax rate as part of regular income. 9. In coming to the above conclusion, the AO placed reliance on the judgment of the Hon'ble Gauhati High Court in the case of Sookerating Co Ltd.111 ITR 457 (Gau) wherein it was held that Rule 8 was not applicable to income which had no nexus with tea business. 10. Aggrieved by the order of AO the assessee preferred an appeal before CIT(A). Before CIT(A) the Assessee submitted that all the items of income had nexus with the growing and manufacturing of tea and had to be regarded as part of the composite income before apportionment. The Assessee contended that maintaining warehouse is part and parcel of tea manufacturing business and its temporary letting out was incidental to the business activity. The rental receipts from such letting are therefore part of the composite income. Similarly, rent receipts for providing temporary generator services to Hindustan Lever were incidental to the business of the Assessee. It was argued that the Assessee provided hospital and market area for staff welfare and recovery from them for use of hospital and bazaar to sell their other products was nothing but relatable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts before us, the same is considered as the income from other sources. Interest on income-tax refund could definitely be construed only as income from other sources. We direct the Assessing Officer to re-compute accordingly. Accordingly, Ground No. 4 of the Revenue is partly allowed." 14. The ld. DR however supported the orders of the revenue authorities and placed reliance on the decision of the Hon'ble Supreme Court in the case of Liberty India Ltd. 317 ITR 218 (SC). 15. We have given a careful consideration to the rival submissions. In CIT Vs. Kothari Plantations & Industries Ltd. 203 ITR 547 (Cal) the Hon'ble Calcutta High Court had to examine the provisions of Rule 8 of the rules in the context of the action of the revenue in taxing receipt by an Assessee to which Rule 8 applies of a sum which fell within the description of receipts taxable u/s.41(2) of the Act. The revenue taxed the said receipt as business income without including the same in the composite income before apportionment between agricultural and business income. The Hon'ble Calcutta High Court held Rule 8 provides that the income derived from the sale of tea grown and manufactured by the seller in India shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in existence, where profit arises on sale of depreciable assets of the business after being used for the purpose of the business. The business in the present case being business of growing and manufacturing tea, the fictional profit of the business so arising under s. 41(2) cannot but be a profit of the same composite business. Thus, the apportionment of the prescribed percentage as between growing tea and manufacturing tea under r. 8(1) is unavoidable. The statute as also the rules framed there under consistently accept the business of growing tea and the business of manufacturing tea as one indivisible composite business calling for apportionment of its income under all circumstances. Secondly, depreciation of the assets, even though used exclusively for manufacturing tea, also gets sliced down to 40 per cent by the operation of the said r. 8(1). It is illogical to say that the same rule of apportionment shall not apply to the fictional profit arising under the circumstances described under s. 41(2). The fiction is that the capital profit under s. 41(2) is to be treated as profit of the pre-existing business of growing and manufacturing tea. 16. In McLeod Russel India Ltd. V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these items of income as business income only but has not considered them as part of the composite income. 18. In the light of the law as laid down in the aforesaid decisions and in the light of the decision of the Tribunal rendered in Assessee's own case, we shall now examine each of the items of income that were regarded by the Revenue as not forming part of the composite income. 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 as laid down in the aforesaid decisions, the ratio laid down by the Hon'ble Supreme Court in the case of Liberty India (supra) 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal. 22. We have considered the rival submissions. The ld. Counsel for the assessee submitted that the subsidy in question is relatable to the business of the Asessee of growing as well as manufacturing of tea and therefore it had to be included in the composite income before segregation of such income which is liable to tax. The ld. DR relied on the orders of the revenue authorities. 23. We have given a very careful consideration. 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. Gr.No.2 raised by the Assessee is accordingly allowed. 24. Ground no.4 raised by the assessee reads as follows :- "4. That on the facts and in the circumstances of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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