Bennur Siddegowda Santhosh Vs ITO (ITAT Bangalore)
Coffee Income: Rule 7B Overrides Rule 7 – ITAT Remands for Segregation of Own vs Purchased Produce
In, the ITAT Bangalore held that Rule 7B (specific provision for coffee) prevails over Rule 7 (general provision) for computing income from coffee cultivation and processing.
The assessee, a coffee grower and curer, claimed entire income as agricultural. However, the AO applied Rule 7B(1A) and treated 40% of income as business income, leading to addition. The assessee argued that Rule 7 should apply and also contended that part of coffee was purchased from third parties.
The Tribunal clarified:
- Rule 7 is a general rule and not applicable to coffee
- Rule 7B specifically governs coffee grown and processed by the assessee
- Accordingly, 40% of income is taxable (business) and 60% remains agricultural where own produce is involved
However, an important distinction was noted:
- Income from coffee purchased from other planters and processed has no agricultural character and is fully taxable as business income
Since proper segregation between:
1. Own-grown coffee, and
2. Purchased coffee
was not done, the Tribunal remanded the matter back to AO for verification and correct computation.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
