• Jun
  • 12
  • 2012

Cess on green leaf eligible for deduction in computing composite income under Rule 8

Hon’ble High Court in the case of CIT vs AFT Industries Ltd. 270 ITR 167 (Cal) held that  amount paid as cess is eligible for deduction in computing the composite income under Rule 8 of I.T. Rules. This issue is, therefore, decided in favour of the assessee and against the Revenue by upholding the order of the C.I.T.(A) who has allowed the deduction of payment of cess on green leaves in computing the composite income from tea business of the assessee under rule 8 of the I.T. Rules. We may further mention that identical issue was the subject matter of appeal before the Tribunal in the case of M/s.Empire Plantations (India) Ltd. and the Tribunal vide order dated 28.2.2005 in I.T.A.No.1600 (Kol)/2004 for A.Y. 2000-01 has allowed the claim of the assessee.

 INCOME TAX APPELLATE TRIBUNAL, KOLKATA

ITA No.2049/Kol/2010 – Assessment Year: 2006-07

D.C.I.T. Vs   M/s. Assambrook Ltd. 

Date of Pronouncement: 11.05.2012

ORDER

Per Shri C.D.Rao, AM

The above appeal is filed by the Revenue against order dated 10.03.2010 of theld. CIT-(A)-IV,  Kolkata pertaining to A.Yr. 2006-07.

2. There is a delay of 26 days in filing of the appeal by the Revenue for which the revenue has filed a condonation petition explaining the reasons for such delay. After considering the submissions by the Revenue the delay is condoned.

3. The revenue has taken the following grounds :-

“That on the facts and circumstances of the case, Ld. CIT(A), Kolkata has erred in law in directing the A.O. to treat sundry receipts of Rs.56,l0,000/- as business income without appreciating the fact that the assessee at the same time claims 60:40 division u/. 8 on the same income which it already had shown under the head ‘miscellaneous income’.

2. That on the facts and circumstances of the case, Ld CIT(A), Kolkata has erred in law in deleting the addition of Rs. 30,54,824/- on account of cess on green leaf without considering the fact that expenses on account of cess on green leaf is related to 100% agricultural operation and SLP is pending before the Hon’ble Supreme Court against the decision of Calcutta High Court in the case of AFT Industries Ltd. vs- CIT (270 ITR 167) in the light of which Ld. CIT(A) decided the issue in favour of the assessee.

3. That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing.”

4. Ground No.3 being general in nature does not require any adjudication. Hence the same is dismissed.

5. In respect of ground no.1 which relates to sundry receipts the brief facts of this issue are that AO while doing the scrutiny assessment has disallowed an amount of Rs.56,10,000/- on account of receipts by observing that

“On examination of details it is seen that while computing the composite income the assessee has considered other income which was not permissible under rule 8. Rule 8 clearly speaks about determination of deemed profit from growing and manufacturing of tea. Therefore, the receipts other than sale proceeds of tea from growing & manufacturing are not eligible for consideration of 60 :40 ratio. The assessee has relied on judgment of ITAT, Kolkata in the case of assessee itself. The judgment is actually related to deduction u/s 8OHHC, Hence. the submission is not considered. Since Rule 8 has clearly demarcated the income of growing and manufacturing only the submission is not accepted and accordingly recomputation of composite income is made.”

5.1. On appeal ld. CIT(A) has deleted the same by observing that

“3.2. I have considered the fact narrated by A.O. and submission made by appellant as above. As per A.O. Rule 8 is not applicable in cases an income has to be generated directly from growing and manufacturing and hence he has considered income shown as sundry receipts as central income. Appellant on the other hand has submitted that all the income shown as sundry receipt is directly attributable to the growing and manufacturing of the tea which includes sale of tea waste, sale of store items and scrap, sale of uprooted tea bushes. Since the receipt is generated in the ordinary business of cultivation processing and sale of tea and is directly connected with the cultivation of the same, the income will form integral part of the business and hence it will qualify Under Rule SD. I have considered the argument advance by appellant and I agree that the income is directly from the activities carried out by the appellant and hence it will qualify to be the income in accordance with Rule 8 of I. T.Act., and the ration of 60:40 between agricultural and central income will apply. A.O is directed accordingly to consider the income as per Rule 8. This ground of appeal is allowed as above.”

5.2. Aggrieved by this now revenue is in appeal before us.

6. At the time of hearing before us the ld. DR appearing on behalf of revenue relied on the order of AO.

7. On the other hand, the ld. Counsel appearing on behalf of assessee by filing the details of sundry receipts of Rs.56,10,430/- which are placed at paper book contended that though all the sundry receipts are relating to tea business, assessee has fairly allocated 60% and 50% ratio. However, AO has disallowed the entire amount by stating that it is not relating to business of tea manufacturing and ld. CIT(A) has rightly deleted the same by observing that since the receipt is generated in the ordinary business of cultivation processing and sale of tea and is directly connected with the cultivation of the same, the income will form integral part of the business and hence it will qualify under Rule 8D. of the IT Act. Therefore he requested to upheld the action of ld. CIT(A).

8. After hearing the rival submissions and on careful perusal of materials available on record, it is observed that the details of the sundry receipts earned by assessee company in the relevant A.Yr. are as under :-

Sale of Scrap 3,55,084

Sale of Stores 52,740/-

Sale of waste 4,46,760/-

Sale of Firewood (Uprooted Plants) 45,82,173

Insurance Claim Received (against damage of labour Qrs) 3,05,971

8.1. On careful perusal of the above, it is observed that the major amount is relating to the sale of firewood (uprooted plants) amounting to Rs.45,82,173/- which is apparently relating to the tea industry. Keeping in view of the fact we find in the order of ld. CIT(A) who has deleted an amount of Rs.56,10,000/- made by AO. Therefore we confirm the order of ld. CIT(A) and dismiss the appeal of revenue on this issue.

9. In the result ground no.1 of the revenue in this appeal is dismissed.

10. The second issue raised by the revenue in this appeal is relating to deletion of addition of Rs.30,54,824/- on account of cess on green leaf.

11. The brief facts of this issue are that the AO while doing the scrutiny assessment disallowed an amount of Rs.30,54,824/- on account of cess on green leaf by observing as under :-

“The assessee has debited cess on green leaf in the P&L a/c. the same is not allowable from the composite income being it is related to 100% agricultural income. In this regard it has been submitted that as per the decision of Honourable Calcutta High Court it is allowable expenditure. Since SLP has been filed before the Honourable Supreme Court on this, issue, in order to maintain judicial consistency the same is disallowed and added back with total income.”

11.1. On appeal the ld. CIT(A) disallowed the same by respectfully following the order of the Hon’ble Calcutta High Court in the case of AFT Industries Ltd. vs CIT (270 ITR 167).

12. The ld. DR appearing on behalf of the Revenue relied on the order of the AO. On the other hand, the ld.counsel for the assessee relied on the orders of the ld. CIT(A).

13. After hearing the rival submissions and on careful perusal of the materials available on record, keeping in view of the fact that the issue is concluded by the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs AFT Industries Ltd. 270 ITR 167 (Cal) where the amount paid as cess was held as eligible for deduction in computing the composite income under Rule 8 of I.T. Rules. This issue is, therefore, decided in favour of the assessee and against the Revenue by upholding the order of the C.I.T.(A) who has allowed the deduction of payment of cess on green leaves in computing the composite income from tea business of the assessee under rule 8 of the I.T. Rules. We may further mention that identical issue was the subject matter of appeal before the Tribunal in the case of M/s.Empire Plantations (India) Ltd. and the Tribunal vide order dated 28.2.2005 in I.T.A.No.1600 (Kol)/2004 for A.Y. 2000-01 has allowed the claim of the assessee.

13.1. The fact that the SLP is pending before the Hon’ble Supreme Court against the decision of the Hon’ble Calcutta High Court in respect of AFT Industries Ltd. Vs CIT (270 ITR 167) will not have any effect since the Hon’ble Apex Court has neither set aside the orders of the Calcutta High Court nor granted any stay.

14. In the result ground no.2 raised by the revenue in this appeal is dismissed.

15. In the result the appeal of revenue is dismissed.

Order pronounced in the court on 11.05.2012.

 


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