M/s Apeejay Tea Limited(Marged with Apeejay Surrendra Corporate Services Ltd.), Kolkata V. D.C.I.T CC - III,kolkata, Kolkata

ITA 2456/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4113 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 19-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 15-10-2013
• Court: TRIBUNAL
• Department Lawyers: MD GHAYASUDDINJCITSR
• Assessee Lawyers: MANISH TIWARI
• Keywords: Business income; Depreciation; Capital receipt; Revised return
• Section: 14A; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SHRI P.M.JAGTAP, AM & SRI N.V.VA SUDEVAN, JM ] I.T.A NO. 2456/KOL/2013 ASSESSMENT YEAR : 2009-1 0 M/S. APEEJAY TEA LTD. -VS.- D.C.I.T.- CEN TRAL CIRCLE-III, (MERGED WITH APEEJAY SURRENDRA KOLKATA CORPORATE SERVICE LTD., KOLKATA [PAN : AAECA1925D] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI MANISH TIWARI, FCA FOR THE RESPONDENT : MD.GHAYAS UDDIN, JCIT,S R.DR DATE OF HEARING : 28.11.2016. DATE OF PRONOUNCEMENT : 2.12.2016. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 16.07.2013 OF CIT(A)- CENTRAL-I, KOLKATA RELATING TO AY 2009-10. 2. GROUND NOS.1 & 3 RAISED BY THE ASSESSEE READ AS FOLLOWS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(A) IS WRONG AND UNJUSTIFIED IN HOLDING RECEIPTS UNDER FOLLOWING HEA DS AGGREGATING TO RS. 77,09,180/- AS HAVING NO NEXUS WITH GROWING AND MANUFACTURING OF T EA AND THEREBY NOT APPLYING RULE 8 TO THOSE RECEIPTS: - STREET REMOVAL CHARGES RS. 7,93,447 INSURANCE CLAIM RS. 13,36,376 RENTAL FROM GENERATOR RS. 4,93,178 HOSPITAL & BAZAR COLLECTION RS. 49,85,206 OTHER RECEIPTS RS. 1,00,973 RS. 77,09,180 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. 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 TH EREBY NOT APPLYING RULE 8 THEREON. 2 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 2 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF GROWING, MANUFACTURING AND SALE OF TEA AND PACKAGED TEA. INCOME FROM GROWI NG, 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 T AX 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 M ANUFACTURE 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 COMPUT ED AS IF IT WERE INCOME DERIVED FROM BUSINESS, AND FORTY PER CENT OF SUCH INCOME SHALL B E DEEMED TO BE INCOME LIABLE TO TAX. 4. FOR A.Y.2009-10 M/S. APEEJAY TEA LTD FILED RETU RN OF INCOME ON 29.09.2009. CONSEQUENT TO AN ORDER OF THE HONBLE GUWAHATI HIGH COURT DATED 22.12.2009 M/S. APEEJAY TYPHOO TEA LTD GOT AMALGAMATED WITH M/.S. A PEEJAY TEA LTD. THEREAFTER THE ASESSEE FILED REVISED RETURNS ON 20.09.2010 AND 27. 09.2010 TO GIVE EFFECT TO THE MERGER. SUBSEQUENTLY M/S. APEEJAY TEA LTD GOT MERGED WITH M /S. APEEJAY SURRENDRA CORPORATE SERVICES PVT. LTD., VIZ., THE ASSESSEE IN THIS APPE AL. 5. THE AO NOTICED THAT THE ASSESSEE HAD TREATED RS .1,27,24,061/- WHICH WAS SUNDRY RECEIPTS AS PART OF THE COMPOSITE INCOME FROM GROWI NG AND MANUFACTURING OF TEA AND ONLY 40% OF SUCH COMPOSITE INCOME WAS LIABLE TO TA X. THE BREAK-UP OF SUCH RECEIPT WAS AS FOLLOWS PARTICULARS AMOUNT (RS.) 1) DISCOUNT RECEIVED 1,24,330/- 2) STREET REMOVAL CHARGES 7,93,447/- 3) SALE OF SAMPLE TEA 56,000/- 4) TEA WASTE SALE 48,34,521/- 5) INSURANCE CLAIM 13,36,376/- 3 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 3 6) RENTAL INCOME FROM GENERATOR TO HINDUSTAN LEVER 4,93,178/- 7) HOSPITAL RECOVERY & BAZAAR COLLECTION 49,85,206/- 8) OTHERS 1,00,973/- TOTAL RECEIPT 1,27,24,061/- 6. THE AO WAS OF THE VIEW THAT THE AFORESAID ITEMS OF INCOME HAD NO DIRECT NEXUS WITH THE OPERATION OF GROWING & MANUFACTURING OF TEA AT THE GARDENS OF THE ASSESSEE AND HE TRACED THE SOURCE OF THESE RECEIPTS AS FOLLOWS: (A) STREET REMOVAL CHARGES 7,93,447/- [RENT RECEIVED F ROM OUTSIDERS FOR USE OF WAREHOUSE] (B) INSURANCE CLAIM 13,36,376/-[RECEIVED OTHER THAN F OR LOSS OF STOCK] (C) RENTAL INCOME FROM GENERATOR TO HINDUSTAN LEVER 4,93,178 [NOT RELA TED TO TEA GROWING OR MANUFACTURING] (D) HOSPITAL RECOVERY & BAZAR COLLECTION 49,85,206 [NOT RELATED TO TEA GROWING OR MANUFACTURING] (E) OTHERS 1,00,973/- 77,09,180/- 7. THEREFORE, THE AO HELD THAT THE AFORESAID SUM O F RS.77,09,180/- HAS TO BE KEPT OUTSIDE THE PURVIEW OF COMPOSITE INCOME. 40% OF WHI CH IS LIABLE TO TAX. HE HELD THAT THE ENTIRE AMOUNT OF RS.77,09,180/- WAS TO BE TAXED AS PER REGULAR PROVISION WITHOUT APPLYING RULE 8. 8. SIMILARLY THE ASSESSEE SOLD DEPB LICENSE ENTITL EMENT DURING THE RELEVANT PREVIOUS YEAR AND THE PROCEEDS OF RS.5,47,286/- ON SUCH SALE WAS RECEIVED BY IT ON 10-09-2008. THE AO ACCEPTED THE FACT THAT AS PER SEC 28(IIID), THE INCOME IS TAXABLE AS BUSINESS RECEIPT, BUT AGAIN, SINCE IT HAD NO NEXUS WITH THE BUSINESS OF GROWING AND MANUFACTURING OF TEA, HE HELD THAT RULE 8 IS NOT APPLICABLE ON AN Y PROFIT OUT OF SUCH RECEIPT. HENCE THE 4 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 4 AMOUNT OF RS.5,47,286/- WAS BROUGHT TO TAX BY THE A O AS INCOME CHARGEABLE TO TAX AS PER REGULAR TAX RATE AS PART OF REGULAR INCOME. 9. IN COMING TO THE ABOVE CONCLUSION, THE AO PLACE D RELIANCE ON THE JUDGMENT OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF SOOKERATI NG 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 PREF ERRED AN APPEAL BEFORE CIT(A). BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT ALL THE I TEMS OF INCOME HAD NEXUS WITH THE GROWING AND MANUFACTURING OF TEA AND HAD TO BE REGA RDED AS PART OF THE COMPOSITE INCOME BEFORE APPORTIONMENT. THE ASSESSEE CONTENDE D THAT MAINTAINING WAREHOUSE IS PART AND PARCEL OF TEA MANUFACTURING BUSINESS AND I TS TEMPORARY LETTING OUT WAS INCIDENTAL TO THE BUSINESS ACTIVITY. THE RENTAL REC EIPTS FROM SUCH LETTING ARE THEREFORE PART OF THE COMPOSITE INCOME. SIMILARLY, RENT RECEI PTS 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 MARK ET AREA FOR STAFF WELFARE AND RECOVERY FROM THEM FOR USE OF HOSPITAL AND BAZAAR T O SELL THEIR OTHER PRODUCTS WAS NOTHING BUT RELATABLE TO GROWING AND MANUFACTURE OF TEA AND WAS TO BE REGARDED AS PART OF THE COMPOSITE INCOME. 11. THE CIT(A) DID NOT FIND FORCE IN THE SUBMISSIO N MADE BY THE ASSESSEE HE HELD THAT BY NO STRETCH OF IMAGINATION, RENTING OUT OF WAREHO USE OR GENERATOR SETS OR RECOVERY FROM HOSPITAL OR MARKET AREA CAN BE TREATED AS PART OF THE OPERATIONS OF GROWING AND MANUFACTURING OF TEA AND THAT THE AO HAS RIGHTLY HE LD THAT SUCH RECEIPTS WERE ASSESSABLE AS BUSINESS INCOME UNDER THE NORMAL PROVISIONS OF T HE ACT. HE ALSO HELD THAT THE ASSESSEE HAS NOT EXPLAINED THE NATURE OF RECEIPTS U NDER INSURANCE CLAIM OR OTHER RECEIPTS TO JUSTIFY ITS CLAIM AND THAT THE ASSESSE E HAS FAILED TO ESTABLISH THAT THE RECEIPTS 5 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 5 UNDER CONSIDERATION HAD ANY DIRECT NEXUS WITH THE B USINESS OR GROWING AND MANUFACTURING OF TEA. 12. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE HAS RAISED GROUND NO.1 BEFORE THE TRIBUNAL. 13. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THE ORDER OF ITAT IN ASSESSEES OWN CASE FOR A.Y.2005-0 6 IN ITA NO.1406/KOL/2009 AND 1233/KOL/2009 ORDER DATED 11.09.2015 WHEREIN THE TR IBUNAL HAD AN OCCASION TO CONSIDER SIMILAR ISSUE. SOME OF THE ITEMS OF INCOME THAT WERE CONSIDERED BY THE TRIBUNAL IN THE AFORESAID ASSESSMENT ORDER ARE SIMI LAR TO THE ITEMS OF INCOME THAT ARE CONSIDERED AS NORMAL BUSINESS OF THE ASSESSEE BY TH E AO IN THE PRESENT ASSESSMENT YEAR. THE FOLLOWING WERE THE OBSERVATIONS OF THE TRIBUNAL :- 9.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE DETAILS OF RS.46,26,553/- ARE AS BELOW:- A. DISCOUNT OUT OF RS.2,76,732/- PACKING MATERIAL B. MACHINERY BREAK RS. 11,600/- DOWN CLAIM C. STREET REMOVAL RS.4,2S,928/- CHARGES D. DISCOUNT ON RS. 14,000/- WAREHOUSING CHARGES E. TEA BOARD SUBSIDY RS. L,14,975/- F. SCRAP SALE RS. 41,548/- G. STORM DAMAGE RS. L,48,693 /- CLAIM H. RECEIVED FROM IOL RS . 2,34,000 / - (INDIAN OIL LIMITED) REALISED FROM AUTO RS. 81,142/- ENTINES J. BAZAR RENT RS. 54,450/- K. INTEREST ON I.T. RS.3,78,515/- REFUND (99-2000) L. SUNDRY RECEIPTS RS.28,45,070/- TOTAL RS.46,26,553/- 6 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 6 9.3. FROM THE AFORESAID LIST IT COULD BE SEEN THAT ITEMS A TO J , WERE ONLY ARISING OUT OF TEA BUSINESS TOTALLING TO RS.14,02,968/- AND ACCORDINGL Y TO BE TREATED AS INCOME FROM BUSINESS. SINCE NO DETAILS COULD BE FILED REGARDING THE SUNDRY RECEIPTS BEFORE US, THE SAME IS CONSIDERED AS THE INCOME FROM OTHER SOURCES. INT EREST ON INCOME-TAX REFUND COULD DEFINITELY BE CONSTRUED ONLY AS INCOME FROM OTHER S OURCES. 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 HONBLE SUPREME COU RT IN THE CASE OF LIBERTY INDIA LTD. 317 ITR 218 (SC). 15. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. IN CIT VS. KOTHARI PLANTATIONS & INDUSTRIES LTD. 203 ITR 547 (CAL) THE HONBLE CALCUTTA HIGH COURT HAD TO EXAMINE THE PROVISIONS OF RULE 8 OF THE RULES IN TH E CONTEXT OF THE ACTION OF THE REVENUE IN TAXING RECEIPT BY AN ASSESSEE TO WHICH RULE 8 AP PLIES OF A SUM WHICH FELL WITHIN THE DESCRIPTION OF RECEIPTS TAXABLE U/S.41(2) OF THE AC T. THE REVENUE TAXED THE SAID RECEIPT AS BUSINESS INCOME WITHOUT INCLUDING THE SAME IN TH E COMPOSITE INCOME BEFORE APPORTIONMENT BETWEEN AGRICULTURAL AND BUSINESS INC OME. THE HONBLE CALCUTTA HIGH COURT HELD RULE 8 PROVIDES THAT THE INCOME DERIVED FROM THE SALE OF TEA GROWN AND MANUFACTURED BY THE SELLER IN INDIA SHALL BE COMPUT ED AS IF IT WERE INCOME DERIVED FROM BUSINESS AND 40 PER CENT OF SUCH INCOME SHALL BE DE EMED TO BE INCOME LIABLE TO TAX UNDER THE ACT. SEC. 29 PROVIDES THAT THE BUSINESS I NCOME REFERRED TO IN S. 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINE D IN SS. 30 TO 43D. ACCORDINGLY THE INCOME FROM TEA BUSINESS HAS TO BE COMPUTED AS PROV IDED IN S. 29 IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SS. 30 TO 43D AND 40 PE R CENT OF THE INCOME SO COMPUTED ALONE CAN BE ASSESSED UNDER THE ACT. SEC. 41(2) FAL LS WITHIN THE SCOPE OF S. 29 AND ONLY 40 PER CENT OF SUCH INCOME CAN BE SUBJECTED TO TAX UNDER THE ACT. THERE CANNOT BE A SEPARATE COMPUTATION OF THE INCOME UNDER S. 41(2). UNDER R. 8, TAX CANNOT BE LEVIED ON THE ENTIRE SUM ASSESSED UNDER S. 41(2). SEC. 41(2) APPLIES IN RESPECT OF ASSETS WHICH WERE USED FOR THE PURPOSES OF TEA BUSINESS AND ON S ALE WHEREOF, THE AMOUNT IN EXCESS OF 7 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 7 THE WRITTEN DOWN VALUE IS REALISED. SEC. 41(2) IS A DEEMING PROVISION. IT FICTIONALLY TREATS A CAPITAL RECEIPT AS A BUSINESS RECEIPT. THE EXPLN. TO S. 41(2) PROVIDES THAT, WHERE THE MONEYS PAYABLE IN RESPECT OF THE BUILDING, MACHINER Y, PLANT OR FURNITURE BECOME DUE IN A PREVIOUS YEAR IN WHICH THE BUSINESS OR PROFESSION FOR THE PURPOSE OF WHICH THE BUILDING, MACHINERY, PLANT OR FURNITURE WAS BEING U SED IS NO LONGER IN EXISTENCE, THE PROVISIONS OF THE SAID SUB-SECTION SHALL APPLY AS I F THE BUSINESS OR PROFESSION IS IN EXISTENCE IN THE PREVIOUS YEAR. THE FICTION PROVIDE D UNDER S. 41(2) THUS TREATS THE BUSINESS IN WHICH THE ASSET IN QUESTION HAD BEEN US ED AS IN EXISTENCE AND PROVIDES THAT ANY AMOUNT REALISED IN EXCESS OF THE WRITTEN DOWN V ALUE NOT EXCEEDING THE ACTUAL COST IS TO BE CHARGED TO INCOME-TAX AS INCOME OF THE BUSINE SS OF THE PREVIOUS YEAR IN WHICH SUCH MONEYS BECOME PAYABLE. THE EFFECT OF S. 41(2) R/W THE EXPLANATION IS THAT THE EXCESS OVER THE WRITTEN DOWN VALUE IS DEEMED TO BE THE INCOME OF THE TEA BUSINESS AND HAS TO BE ACCORDINGLY COMPUTED WITH REFERENCE TO R. 8. THE CONTENTION OF THE IT AUTHORITIES THAT SUCH INCOME DOES NOT ARISE OUT OF CULTIVATION OF TEA LEAVES AND/OR MANUFACTURE OF TEA IS NOT CORRECT IN VIEW OF THE ST ATUTORY FICTION CREATED UNDER S. 41(2) R/W THE EXPLANATION THERETO AND THE PROVISION S OF S. 29. TO SUM UP, BY VIRTUE OF THE FICTION UNDER S. 41(2), PROFIT, THOUGH IN TH E NATURE OF A CAPITAL GAINS, IS TREATED AS INCOME OF THE BUSINESS, THOUGH NOT IN EXISTENCE, WH ERE 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 GROW ING 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 ACCE PT THE BUSINESS OF GROWING TEA AND THE BUSINESS OF MANUFACTURING TEA AS ONE INDIVISIBLE CO MPOSITE BUSINESS CALLING FOR APPORTIONMENT OF ITS INCOME UNDER ALL CIRCUMSTANCES . SECONDLY, DEPRECIATION OF THE ASSETS, EVEN THOUGH USED EXCLUSIVELY FOR MANUFACTUR ING TEA, ALSO GETS SLICED DOWN TO 40 PER CENT BY THE OPERATION OF THE SAID R. 8(1). IT I S ILLOGICAL TO SAY THAT THE SAME RULE OF 8 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 8 APPORTIONMENT SHALL NOT APPLY TO THE FICTIONAL PROF IT ARISING UNDER THE CIRCUMSTANCES DESCRIBED UNDER S. 41(2). THE FICTION IS THAT THE C APITAL PROFIT UNDER S. 41(2) IS TO BE TREATED AS PROFIT OF THE PRE-EXISTING BUSINESS OF G ROWING AND MANUFACTURING TEA. 16. IN MCLEOD RUSSEL INDIA LTD. VS. CIT (2013) 260 CTR 0337 (GAU), THE HONBLE GAUHATI HIGH COURT HAD AN OCCASION TO EXAMINE SIMIL AR CLAIM BY AN ASSESSEE WHO RECEIVED (A) PROFITS ON SALE OF LICENCE, GRANTED U NDER CUSTOMS AND CENTRAL EXCISE DUTIES DRAWBACK RULES, 1971, (B) SALE OF SCRAP AND (C) MISC. GARDEN INCOME, AND (D) EXCISE DUTY REMISSION, WHETHER SHOULD BE CONSIDERED AS PART OF THE COMPOSITE INCOME BEFORE APPORTIONMENT BETWEEN AGRICULTURAL AND NON A GRICULTURAL INCOME. THE HONBLE GAUHATI HIGH COURT HELD THAT AS PER RULE 8 INCOME W HICH IS DERIVED FROM SALE OF TEA GROWN AND MANUFACTURED BY SELLER SHALL BE TREATED A S IF IT WERE 'INCOME DERIVED FROM THE BUSINESS' AND 40 PERCENT OF SUCH INCOME SHALL BE DE EMED TO BE INCOME CHARGEABLE UNDER INCOME TAX ACT, 1961. THE HONBLE COURT HELD THAT AS PER SECTION 28 (III A), PROFITS ON SALE OF LICENCE, GRANTED UNDER CUSTOMS AND CENTRAL EXCISE DUTIES DRAWBACK RULES, 1971, ARE TO BE TREATED AS INCOME DERIVED FROM BUSI NESS WHICH IN THE CASE OF THE ASSESSEE WAS FROM SALE OF TEA GROWN AND MANUFACTURE D. SIMILARLY SUM CLAIMED AS RECEIPT FROM EXCISE DUTY WAS COMPOSITE INCOME UNDER SECTION 28 (III C) BEFORE APPORTIONMENT THEREOF UNDER RULE 8 OF RULES. SUM C LAIMED AS RECEIPT FROM SALE OF SCRAPS FORMS PART OF COMPOSITE INCOME OF ASSESSE. CLAIM OF MISCELLANEOUS GARDEN INCOME WAS PART OF COMPOSITE INCOME OF ASSESSE. THE HONBLE COURT OBSERVED THAT WHEN STATUTORY PROVISIONS HAVE BEEN MADE IN FORM OF CLAUSE (III A) AND CLAUSE (III C) OF SECTION 28, AS AND WHEN AN INCOME SHALL BE CHARGEAB LE TO INCOME TAX UNDER HEADS OF PROFITS AND GAINS DERIVED OF BUSINESS, IT WOULD BE WHOLLY IMPERMISSIBLE FOR AO TO TREAT INCOME, WHICH FELL WITHIN AMBIT OF CLAUSE (III A) A ND CLAUSE (III C) OF SECTION 28 AS INCOME, WHICH WAS NOT COMPOSITE INCOME. RECEIPTS C LAIMED BY ASSESSE AS COMPOSITE INCOME BEFORE APPORTIONMENT HAD DIRECT NEXUS WITH A SSESSEE ACTIVITIES OF GROWING, MANUFACTURING AND SELLING OF TEA. 9 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 9 17. IT IS CLEAR FROM THE RATIO LAID DOWN IN THE AF ORESAID DECISIONS THAT RULE MAKING AUTHORITY HAS PRESCRIBED THAT INCOME, WHICH IS DERI VED FROM SALE OF TEA GROWN AND MANUFACTURED BY SELLER, SHALL BE TREATED AS IF IT W ERE 'INCOME DERIVED FROM THE BUSINESS'. THEREFORE WHATEVER INCOME IS TAXED AS BUSINESS INCO ME IN THE ABSENCE OF ANY OTHER SOURCE OF INCOME EXCEPT GROWING AND MANUFACTUIRNG O F TEA HAS TO BE REGARDED AS PART OF COMPOSITE INCOME. IN FACT THE AO HAS ALSO TAXED THE SE 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 AF ORESAID DECISIONS AND IN THE LIGHT OF THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE, WE SHALL NOW EXAMINE EACH OF THE ITEMS OF INCOME THAT WERE REGARDED BY THE RE VENUE AS NOT FORMING PART OF THE COMPOSITE INCOME. ALL INCOMES (INCLUDING DEPB RECE IPTS ) EXCLUDED BY THE AO FROM THE COMPOSITE INCOME BUT TAXED AS INCOME FROM BUSIN ESS 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 T HE AFORESAID DECISIONS, THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF LI BERTY 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, T HE 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. W E THEREFORE HOLD THAT INCOME SET OUT IN GROUND NO. 1 & 3 HAVE TO BE INCLUDED AS PART OF THE COMPOSITE INCOME. THUS GROUND NO.1 AND GR.NO.3 ARE ALLOWED. 19. GROUND NO.2 RAISED BY THE ASSESSEE READS AS F OLLOWS :- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(A) ERRED IN NOT CONSIDERING INTEREST SUBSIDY OF RS.22,64,023/- AS P ART OF COMPOSITE INCOME FOR THE PURPOSE OF RULE 8. 20. AS PART OF DEVELOPMENT OF NORTH-EAST INDIA, TH E CENTRAL GOVT. GIVES A SUBSIDY @ 3% OF THE INTEREST ON WORKING CAPITAL FOR TEN YEARS FROM THE DATE OF SUBSTANTIAL 10 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 10 EXPANSION IN PLANT & MACHINERY. DURING THE PREVIOUS YEAR, THE ASSESSEE RECEIVED RS. 22,64,023/- FROM THE NORTH-EASTERN DEVELOPMENT FINA NCE CORPORATION ( NEDFC LTD.) ON CLAIM MADE FOR SUBSIDY FOR INTEREST ON WORKING C APITAL PAID FOR F.Y. 2003-04 & 2004-05. THE ASSESSEE CLAIMED THIS SUBSIDY AS A REV ENUE ITEM TO BE INCLUDED IN THE COMPOSITE INCOME FOR SEGREGATION OF 40% OF SUCH INC OME WHICH IS LIABLE TO TAX. ACCORDING TO THE AO WORKING CAPITAL WAS NOT USED ONLY FOR THE MANUFACTU RING OF TEA GROWN IN ITS TEA GARDENS BUT WERE ALSO UTILIZED FOR THE PURPOSES OF MANUFACTURING OUT OF PURCHASED TEA LEAVES NOT GROWN IN ITS TEA GARDENS. THE AO ALSO OBSERVED THAT THE ASSESSEE HAS ALSO EARNED INCOME FROM OTHER SOURCES. UNDER THE CIRCUMSTANCES, ACCORDING TO THE AO, IT WAS ILLOGICAL TO PRESUME TH AT THE WORKING CAPITAL WAS USED EXCLUSIVELY FOR THE BUSINESS OF GROWING AND MANUFAC TURING OF TEA. THE AO THEREFORE HELD THAT THE INTEREST SUBSIDY CANNOT BE TREATED AS PART OF THE COMPOSITE INCOME FROM TEA BUSINESS. THE AO T HEREFORE CONSIDERED THE RECEIPT IN QUESTION AS PART OF ITS BUSINESS RECEIPT AND BROUGHT IT TO TAX AS PER REGULAR PROVIS ION WITHOUT APPLYING RULE. 21. ON APPEAL BY THE ASSESSEE THE CIT(A) WAS OF TH E VIEW THAT T HE AO HAS GIVEN ELABORATE REASONS IN HIS ASSESSMENT ORDER FOR HOLDI NG THAT THE INTEREST SUBSIDY COULD NOT BE CONSIDERED AS PART OF THE COMPOSITE INCOME FROM TEA BUSINESS AS THERE WAS NO NEXUS WITH THE BUSINESS OF GROWING AND MANUFACTURING OF T EA AND THAT THE ASSESSEE COULD PRODUCE NO MATERIAL ON RECORD IN SUPPORT OF ITS CON TENTIONS. THE CIT(A) ALSO HELD THAT THERE WAS NO DENYING THE FACT THAT THE RECEIPTS ARE BUSINESS RECEIPTS, BUT THEN, THEY HAVE BEEN ASSESSED AS SUCH BY THE AO BUT HE WAS IN AGREE MENT WITH THE AO THAT THESE RECEIPTS CANNOT BE TREATED AS PART OF THE COMPOSITE INCOME FROM TEA BUSINESS FOR THE PURPOSES OF RULE 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE HAS RAISED GR.NO.2 BEFORE 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 THEREFO RE IT HAD TO BE INCLUDED IN THE 11 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 11 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. T HE 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 INC OME. 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 AGRICULTUR E AND INCOME FROM NON- AGRICULTURAL INCOME. WE THEREFORE DIRECT THE AO TO CONSIDER THE AFORESAID RECEIPT ALSO AS PART OF THE COMPOSITE INCOME. GR.NO.2 RAISED BY TH E ASSESSEE IS ACCORDINGLY ALLOWED. 24. GROUND NO.4 RAISED BY THE ASSESSEE READS AS FO LLOWS :- 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(A) IS WRONG AND UNJUSTIFIED IN UPHOLDING THE ORDER OF ASSESSING OFF ICER TO DISALLOW EXPENSES OF RS. 17,97,238/ - U/S. 14A OF I.T. ACT, 1961 AFTER APPLI CATION OF RULE 8 OF I.T. RULES, 1962. 25. THE AO DISALLOWED A SUM OF RS.17,97,238/- AS E XPENDITURE WHICH IS RELATABLE TO THE BUSINESS INCOME WHICH DOES NOT FORM PART OF THE TOT AL INCOME UNDER THE ACT. THE DISALLOWANCE WAS MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT ON THE AFORESAID ACTION OF THE AO. THE ASSESSEE FILED AN A PPEAL BEFORE CIT(A). BEFORE CIT(A), THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAS ITSE LF MADE DISALLOWANCE OF RS.17,97,238/- UNDER SECTION 14A OF THE ACT OUT OF THE COMPOSITE INCOME FROM THE BUSINESS OF GROWING AND MANUFACTURING TEA. THE AO TAXED THE DISALLOWANCE U/S.14A OF THE ACT SEPARATELY AS TAXABLE INCOME WHICH RESULTS IN DOUBLE TAXATION. THE CIT(A) HOWEVER CONFIRMED THE ORDER OF THE AO BY OBSERVING THAT BY ITS VERY DEFINITION, THE DISALLOWANCE U/S 14A IS RELATED TO THE INCOME WHICH WAS NOT INCLUDIBLE IN THE TOTAL INCOME AND SO, THE SAME CANNOT BE TREATED AS PART OF THE COMPOSITE INCOME FROM TEA BUSINESS. AGGRIEVED BY THE ORDER OF THE CIT(A), TH E ASSESSEE HAS RAISED GR.NO.4 BEFORE THE TRIBUNAL. 12 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 12 26. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES . THE LD. DR RELIED ON THE ORDERS OF CIT(A). 27. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE COMPUTATION OF COMPOSITE INCOME AND INCOME TO BE TA XED SEPARATELY UNDER THE HEAD INCOME FROM BUSINESS AS DONE BY THE AO IN THE ORD ER OF ASSESSMENT IS AS FOLLOWS: INCOME FROM BUSINESS (APEEJAY TEA LTD.) COMPOSITE BUSINESS INCOME AS PER COMPUTATION FILED WITH THE REVISED RETURN 9,21,97,316(1) ADD: AS DISCUSSED- CESS ON GREEN LEAF 1,77,55,774(2) BALANCE TOTAL 10,99,53,090(3) LESS: (I) ADDITION MADE BY THE ASSESSEE U/S.14A IN ITS COMPUTATION OF COMPOSITE BUSINESS INCOME, SINCE THIS DISALLOWANCE IS TO BE MADE FROM EXPENDITURES NOT RELATED TO BUSINESS OF GROWING AND MANUFACTURING OF TEA 17,97,238 (II) INTEREST SUBSIDY (TO BE TAXED FULLY) 22,64,023 (III) OTHER RECEIPTS (TO BE TAXED FULLY) 77,09,180 (IV) SALE PROCEEDS OF DEPB SCHEME 5,47,286 TOTAL OF (I) TO (IV) 1,23,17,727 (4) ADJUSTED COMPUTED COMPOSITE INCOME [(3)-(4)]: 9,76,35,363 (5) 40% OF THE ABOVE (5) RS.3,90,54,145 ADD: PROFIT ON SALE OF PURCHASED BLACK TEA R S. 16,37,459 ADD: PROFIT ON SALE OF TEA MANUFACTURED FROM PURCHASED GREEN LEAF RS.1,54,63,246 ADD: ITEMS DISCUSSED ABOVE TO BE TAXED FULLY RS.1,23,17,727 BALANCE BUSINESS INCOME: RS.6,84,72,577 13 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 13 IT CAN BE SEEN FROM THE ABOVE COMPUTATION OF TOTAL INCOME DONE BY THE AO THAT HE HAS ADDED DISALLOWANCE U/S.14A OF THE ACT TWICE. ONCE WHILE COMPUTING ADJUSTED COMPOSITE INCOME AND AGAIN WHILE COMPUTING BALANCE BUSINESS INCOME (AS PART OF THE SUM OF RS.1,23,17,727). THE QUANTUM OF DISALLOWANC E U/S.14A OF THE ACT IS NOT IN DISPUTE. WE ARE OF THE VIEW THAT THE DISALLOWANCE HAS TO BE MADE ONLY AT THE STAGE OF ARRIVING AT THE COMPOSITE INCOME AND THE FURTHER AD DITION TO THE BALANCE BUSINESS INCOME IS NOT WARRANTED. IN THIS REGARD THE CONCLU SIONS WHILE DECIDING GROUND NO.1 AND 2 ABOVE WILL EQUALLY APPLY TO THIS GROUND OF APPEAL ALSO. ACCORDINGLY THE ADDITION OF RS.1,23,17,727 TO THE BALANCE BUSINESS INCOME IS DI RECTED TO BE DELETED. GR.NO.4 IS ACCORDINGLY ALLOWED. 28. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE COURT ON 02.12.2016. SD/- SD/- [P.M.JAGTAP] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 02.12.2016. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.M/S. APEEJAY TEA LTD. (MERGED WITH APEEJAY SURREN DRA CORPORATE SERVICES LTD.), APEEJAY HOUSE, 15, PARK STREET, KOLKATA-16. 2. D.C.I.T., CENTRAL CIRCLE-III, KOLKATA. 3.CIT(A)-CENTRAL-I, KOLKATA 4. CIT-CENTRAL-I, K OLKATA. 3. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGISTRAR, ITAT, KOLKATA BENCHES 14 ITA NO.2456/KOL/2013 M/S. APEEJAY TEA LTD. A.YR.2009-10 14