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TMI Blog2018 (1) TMI 788X X X X Extracts X X X X X X X X Extracts X X X X ..... ure in order to attract labourers which is otherwise scarce. Since the expenditure incurred on cattle keepers is purely a labour welfare measure which is approved by the Plantation Labour Committee, we are of the view that the expenditure incurred is directly relatable to the tea business of the assessee. Therefore, the same shall be treated as expenditure under Rule 8 of the I.T. Rules. Disallowance of the claim under section 10(30) - subsidy received from Tea Board of India taxed 100% under the IT Act - Held that:- If the provisions of sec. 10(30) of the I.T. Act is not applicable, since the subsidy is given for replantation, replacement planting and rejunevation planting of the tea bushes, it can only be termed as a capital receipt and not as a revenue receipt. For the aforesaid reasons, we confirm the order of the CIT(A) and reject the ground No. 1 raised by the Revenue. Disallowance of expenditure incurred in relation to exempt income u/s 14A read with Rule 8D - Held that:- We find merits in the contention of the assessee for the reason that the assessee has demonstrated with evidences that no part of interest bearing funds has been used to make investment in shares whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an integral part of the plantation operations of the company. The assessee company undertakes exports taking into consideration the import license benefits. Therefore the import license benefits are clearly part of the tea income. The assessee company has not claimed the income as exempt income (agricultural income), but as a part of the combined operation and hence the CIT(A) was correct in treating the said income as tea income as per Rule 8. Taxability of miscellaneous income - Held that:- CIT(A), after considering each of the incomes received by the assessee had held that these are incidental and directly connected with the operation of tea business and the same is to be treated as income under Rule 8 of the I.T. Rules. The finding of the CIT(A) which are from pgs. 51 to 54 for the assessment year 2010-11 are very categoric and no interference is called for and we confirm the same. TDS u/s 195 - Disallowance of foreign agents commission and reimbursement of expenses for non deduction of tax at source - Held that:- A perusal of the expenditure incurred by the assessee, we notice that these are payments made as reimbursement of expenditure incurred by the foreign agents pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble High Court is placed on record. The Ld. DR was unable to controvert the submission of the Ld. AR. 3.4 We have heard the rival submissions and perused the material on record. The issue in question is squarely covered by the judgment of the Hon ble Jurisdictional High Court in assessee s own case for the assessment year 2008-09 (supra). Since the facts in the current assessment year are identical to the facts considered by the Hon ble High Court, respectfully following the judgment of the Hon ble High Court, we allow ground no. 1 raised in assessee s appeal in ITA No. 77/Coch/2017. The Assessing Officer is directed to compute deduction u/s. 80IA of the Act in accordance with law. ii) Disallowance of expenditure relating to cost of cattle keepers 4. The brief facts in relation to the above issue are as follows: The assessee is engaged in the business of growing tea in its estate in Munnar. As a labour welfare measure, in line with accepted industry practice, the assesseecompany maintained cattle owned by the employees under the cattle grazing scheme approved by the Plantation Labour Committee, Kerala. The expenditure relating to the maintenance of cattle was consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion practice. This labour welfare measure has been approved by the Plantation Labour Committee of Kerala and a copy of the resolution of the Plantation Labour Committee is placed at pgs. 106 to 115 of the paper book filed by the assessee. On a perusal of the resolution of the Plantation Labour Committee, it is very discernable that the scheme of cattle grazing in various estates is an accepted norm in the plantation industry and it is nothing but a labour welfare measure in order to attract labourers which is otherwise scarce. Since the expenditure incurred on cattle keepers is purely a labour welfare measure which is approved by the Plantation Labour Committee, we are of the view that the expenditure incurred is directly relatable to the tea business of the assessee. Therefore, the same shall be treated as expenditure under Rule 8 of the I.T. Rules. Thus ground no. 2 in I.T.A. No. 77/Coch/2017 is allowed. 4.4 In the result, the appeal filed by the assessee in I.T.A. No. 77/Coch/2017 is allowed. I .T.A. Nos. 78 91/Coch/2017 (Assessee s appeals) : A.Ys 2011-12 2012-13 5. The only issue raised in these appeals is regarding disallowance of expenditure relating to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directive and not mandatory and therefore, the assessee was entitled to exemption u/s. 10(30) of the Act in respect of the subsidy received from the Tea Board. The alternative ground of the assessee to treat the subsidy received from Tea Board as capital receipt was not adjudicated by the CIT(A). 7.4 Aggrieved by the order of the CIT(A), the Revenue has filed the present appeal before us. 7.5 We have heard the rival submissions and perused the material on record. The assessee is in the business of growing tea in its estate in Munnar. The Tea Board which is coming under the Ministry of Commerce, Government of India had given subsidy to the assessee for replanting, replacement planting and rejunevation planting as per the scheme notified by the Central Government through its nodal agency. The Tea Board every year gives subsidy for the above said purpose but the name of the schemes would be different. During the relevant year, the subsidy received was called Special Purpose Tea fund Scheme. A copy of the scheme is enclosed in the paper book filed by the assessee (pg nos. 26 to 56). The CIT(A), after threadbare examination of the scheme of Tea Board providing the subsidy for rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the A.O. towards disallowance of expenditure incurred in relation to exempt income u/s 14A read with Rule 8D of the Income-tax Rules, 1962. The A.O. made additions towards expenditure in relation to exempt income u/s 14A by invoking Rule 8D(2)(ii) and (iii) on the ground that the assessee has made huge investments in shares and securities which yield exempt income. However, no disallowance has been made towards expenditure incurred in relation to exempt income. According to the A.O., from the assessment year 2008-2009 onwards disallowance of expenditure incurred in relation to exempt income is mandatory and such disallowance should be worked out as per the prescribed method provided under Rule 8D(2) of Income-tax Rules, 1962. Accordingly, A,O, has worked out disallowances in respect of interest expenditure under Rule 8D(2)(ii) and other expenses at the rate of 0.5% of average value of investment under Rule 8D(2)(iii) of the Income-tax Rules, 1962. It is the contention of the assessee that its investments in shares and securities is out of its own funds and no part of interest bearing funds has been utilized for investment which yield exempt income. The assessee further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to exempt income u/s 14A by invoking Rule 8D(ii) without establishing the nexus between the expenditure incurred and exempt income. The assessee further contended that its investments are covered out of its own interest free funds in the form of share capital and reserves and no part of interest bearing funds has been used in investment which yield exempt income, which is evident from the fact that its interest expense relates to term loans availed for taking over business as well as bank overdrafts which is used for working capital requirements of the company. The assessee further contended that without there being any observation with regard to the nexus between the interest payment and investment in shares, disallowance of interest paid on regular term loans u/s 14A by invoking Rule 8D is incorrect. 8.2 Having considered both the sides, we find merits in the contention of the assessee for the reason that the assessee has demonstrated with evidences that no part of interest bearing funds has been used to make investment in shares which yield exempt income. The A.O. has not brought on record any reasons for disallowing expenditure incurred by the assessee on term loan a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we find that the assessee has earned exempt income of ₹ 55,00,000. The disallowance worked out by the A.O. under Rule 8D(2)(iii) at the rate of 0.5% of average value of investment works out to ₹ 2,27,440. Therefore, we are of the view that the disallowance worked out by the A.O. under Rule 8D(2)(iii) is less than the exempt income earned by the assessee for the relevant period and hence we are of the view that the A.O. was right in disallowing expenditure at the rate of 0.5% of the average value of investment. In any case, if the disallowance worked out by the A.O. is in excess of exempt income earned by the assessee, such disallowance should be restricted to exempt income earned for the relevant financial year. The CIT(A) without appreciating the fact has simply deleted the addition made by the A.O. towards disallowance of expenditure under Rule 8D(2)(iii) of the Income-tax Rules, 1962. Therefore, we reverse the finding of the CIT(A) and uphold the additions made by the A.O. towards disallowance of expenditure at the rate of 0.5% of average value of investment under Rule 8D(2)(iii) subject to our observations that such disallowance shall not exceed exempt income earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be treated as taxable under Rule 8 of I.T. Rules. Assessing Officer treated such income as taxable under Central income. The CIT(A) following the judgment of the Hon ble High Court of Guwahati in the case of McLeod Russel India Ltd. vs. CIT 260 CTR 337 deleted the addition made by the Assessing Officer. 10.2 Aggrieved by the order of the CIT(A), the Revenue has filed the present appeal before the Tribunal. 10.3 We have heard the rival submissions and perused the material available on record. The import licenses were obtained by the assessee company on account of a scheme for promoting tea exports. The income from sale of import licenses received on account of export of tea, is an integral part of the plantation operations of the company. The assessee company undertakes exports taking into consideration the import license benefits. Therefore the import license benefits are clearly part of the tea income. The assessee company has not claimed the income as exempt income (agricultural income), but as a part of the combined operation and hence the CIT(A) was correct in treating the said income as tea income as per Rule 8. Thus Ground no. 4 of the Revenue s appeal in I.T.A. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. The CIT(A), after considering each of the incomes received by the assessee had held that these are incidental and directly connected with the operation of tea business and the same is to be treated as income under Rule 8 of the I.T. Rules. The finding of the CIT(A) which are from pgs. 51 to 54 for the assessment year 2010-11 are very categoric and no interference is called for and we confirm the same. Thus ground No. 5 raised by the Revenue in I.T.A. No. 131/Coch/2017 is dismissed. 12. The sixth issue that is raised for our consideration is with regard to disallowance of foreign agents commission and reimbursement of expenses for non deduction of tax at source. 12.1 The brief facts in relation to the above issue are as follows: In order to obtain exports, foreign agents were paid commission. It was contended by the assessee that the commission payments to foreign agents were not taxable in India and hence, no tax was deducted at source. The Assessing Officer however held that tax ought to have been deducted under section 195 of the I.T. Act and having not deducted tax at source, the expenditure claimed was disallowed by invoking the provisions of sec. 40(a)(i) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from sale of import license. 5) Taxability of miscellaneous income 6) Disallowance of foreign agents commission and expense reimbursement for non deduction of tax. 14.1 In I.T.A. No.164/Coch/2017, the following issues are raised: i) Disallowance of claim under section 10(30) for subsidy received from Tea Board of India and taxed 100% under Income Tax Act. ii) Disallowance under section 14A. iii) Taxation of Income from sale of import license. iv) Taxability of miscellaneous income v) Disallowance of foreign agents commission and expense reimbursement for non deduction of tax. 14.2 Since issues raised in Revenue s appeals in I.T.A. No. 163/Coch/2017 and 164/Coch/2017 are identical to the issues raised in I.T.A. No. 131/Coch/2017, our reasoning/finding in I.T.A. No. 131/Coch/2017, will hold good for I.T.A. Nos. 163/Coch/2017 and 164/Coch/2017. It is ordered accordingly. 14.3 In the result, the appeals filed by the Revenue in I.T.A. Nos. 131, 163 164/Coch/2017 are partly allowed. 15. As regards the additional ground raised in assessee s appeals in I.T.A. Nos. 77, 78 91/Coch/2017, we find that apart from the additional Ground No. 3 in I.T.A. 77/Co ..... 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