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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-2, Kolkata dated 23.05.2016. Assessment was framed by ITO Ward-4(4), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 17.12.2014 for assessment year 2012-13. Grounds raised by assessee are reproduced below:- “1) That the Commissioner of Income-tax Appeals) was wrong in dismissing the appellant’s grounds of appeal against the action of the Assessing Officer in adding Cess on Green Leaves of Rs.71,372 while computing the Composite income from Tea Business. 2) That without prejudice to the contention raised in Ground No.1 above the Commissioner of Income-tax (Appeals) was wrong in not following Sombaria Co. Ltd. vs. ITO Wd-4(4) Kol. Page 2 the jurisdictional Calcutta High Court decision in relation to the procedure for allowing deduction for Cess on Green Leaves and thus he erred in not holding that the Cess on Green Leaves should have been allowed while computing the Composite income from Tea business. 3) That without prejudice to the contentions raised in Grounds No.s 1 and 2 above, the Commissioner of Income-tax (Appeals) was wrong in stating in his order that the Assessing Officer had allegedly already given the benefit in relation to the Composite income of the appellant’s Tea business. 4) That the appellant craves leave to add, alter or withdraw any ground or grounds of appeal
before or at the hearing of the appeal.” Shri S. Patodia, Ld. Authorized Representative appeared on behalf of assessee and Shri Aridam Bhattacherjee, Ld. Departmental Representative appeared on behalf of Revenue.
2. Since the inter-related issues are involved therefore the same were heard together and are being disposed of by way of this consolidated order. Solitary issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by disallowing the cess on green tea leave.
3. Briefly states facts are that assessee is a limited company and engaged in business of cultivation and manufacturing of tea. The assessee, during the year has claimed a sum of ₹ 71,372/- as deduction on account of cess on green leave imposed by Govt. of West Bengal. The assessee subsequently applied Rule 8 of IT Rules, 1962 to bifurcate the agricultural and business income in the ratio of 60% and 40% of the composite income of tea business. Thus, assessee claimed the deduction of Rs.28,549/- (being 40% of 71,372/-) against the business income chargeable to tax.
4. However, AO was of the view that cess from green leave was to be charged only against the agricultural income as it is incurred exclusively for agricultural activities. Accordingly, AO disallowed the sum of ₹28,549/- and added to the total income of assessee.
5. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that in all earlier years, the deduction of cess on green leave was allowed before bifurcating the agricultural and Sombaria Co. Ltd. vs. ITO Wd-4(4) Kol. Page 3 business income. Therefore, the principle of consistency should be followed. However, Ld. CIT(A) disregarded the contention of assessee and confirmed the order of AO by observing as under:- “I have considered the submissions of the AR of the app. The Assessing Officer has already given the benefit of agricultural income and business income of the composite income of tea business as prescribed under Rule 8 of the IT Rules, 1962.” Aggrieved by the above finding of Ld. CIT(A), the assessee is in appeal before the Tribunal.
6. Before us Ld. AR for the assessee drew our attention on Rule-8 of IT Rules, 1962 which reads as under:- “ Income from the manufacture of tea . 8 . (1) Income derived from the 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. (2) In computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area has not previously been abandoned 11[, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (30) of section 10, is not includible in the total income.”] He further submitted that Rule 8 of IT Rules, does not speak of any deduction of expenses on the basis of direct relation to agricultural activity. The provision of Rule 8 of IT Rules, requires that income derived from sale of green tea leave and manufacture shall be computed as if it were the income from the business. It has a specific formula given under Rule 8 of IT Rules, 1962 for calculating the agriculture and business income. He requested the Bench to set aside the order of Ld. CIT(A).
On the other hand, Ld. DR vehemently relied on the order of Authorities Below.
We have heard the rival contentions of both the parties and perused the material available on record. The issue in the instant case relates to Sombaria Co. Ltd. vs. ITO Wd-4(4) Kol. Page 4 disallowance of cess expenditure claimed by the assessee. The Hon’ble jurisdictional High Court has decided the issue in favour of the assessee in the case of Commissioner of Income Tax vs. A.F.T Industries Ltd. (2004) , 270 ITR 167 (Cal) but against the same order the Revenue has filed SLP in the Hon’ble Apex Court which has been admitted for final adjudication. However, on perusal of record, we find that in identical facts and circumstances, Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. M/s Apeejay Tea & Co. Ltd. Civil Appeal No.1105 of 2006, order dated 6th August, 2015 has decided the issue in favour of the assessee. The relevant extract of the order is reproduced below:- O R D E R The respondent-assessee had paid cess on green leaf to the Government of Assam which was levied under Assam Taxation (On Specified Land) Act, 1990. In its income tax return, it had claimed the same as deduction which has been allowed by the High court. The relevant discussion in this behalf is as under: - "However, the learned Tribunal had held that the deduction is eligible after computing the income under Rule 8 and the apportionment is to be made only after the income is so computed. Such apportionment cannot be made be fare the deduction. Rule 8 of the Income Tax Rules, 1962 requires that the computation is to be made as if by fiction the entire income out of the tea grown and manufactured as income assessable under the Income Tax Act, 1961. In view of Rule 8 the income so. computed is to be apportioned 60:40 of which 40 is assessable to tax under the Act. It does not provide that after apportionment of the 60% of the income so computed shall again be required to be computed under the Agricultural Income Tax Act. On the other hand, this 60% is exposed and becomes eligible to tax under the Agricultural Income Tax Act without being required to be assessed under the said Act by reason of the fiction so created. Therefore, the cess paid has rightly been excluded while computing the income under Rule 8 of the tea grown and manufactured. In arriving of the aforesaid conclusion the High Court has referred to the various judgments of this Court. We are of the opinion that the High Court has rightly interpreted the scope of Rule 8 of the Income Tax Rules 1962. We, thus, find no merit in this appeal which is, accordingly, dismissed.”
Sombaria Co. Ltd. vs. ITO Wd-4(4) Kol. Page 5 Respectfully following the above decision of Hon’ble Supreme Court, we do not hesitate in reversing the order of lower authorities. Thus the ground of appeal of the assessee is allowed.