Ajit K. Sengupta,J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the following question of law has been referred to this court for the assessment year 1984-85 : "Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 41(2) of the Income-tax Act, 1961, read with Rule 8(1) of the Income-tax Rules, 1962, the Tribunal was correct in Jaw in holding that only 40 per cent. of income under Section 41(2) be brought to tax and not 100 per cent. as done by the lower authorities in computing the profit under Section 41(2) of the Income-tax Act on the sale of the tea garden ?"
(2.) Shortly stated, the facts are that the assessee is engaged in the business of cultivating tea leaves and manufacturing tea therefrom. There is no dispute that the income arising from its tea business is a composite income which is required to be taxed under the Act to the extent of 40 per cent. with reference to Rule 8(1) of the Income-tax Rules, 1962 (in short, "the Rules"), and the balance 60 per cent. income is to be assessed as agricultural income. During the relevant previous year, the assessee sold Rehabari Tea Estate for a total consideration of Rs. 61 lakhs. After deducting the brokerage incurred in connection with the sale, the net sale proceeds were Rs. 60,39,000. The Assessing Officer computed a sum of Rs. 24,41,350 as the profit under Section 41(2) of the Act being the amount realised in excess of the written down value of the building, plant, machinery, etc. The said sum of Rs. 24,41,350 was assessed in its entirety as income assessable under the Act and the assessee's contention that only 40 per cent. of such sum could be taken into consideration was rejected. The Assessing Officer observed in his order of assessment that Rule 8(1) of the Rules did not apply to the said profit under Section 41(2) of the Act since it was not out of tea grown and manufactured but out of sale of the assets of the tea estate (page 23 of the paper book, lines 25-30).
(3.) The assessee appealed, inter alia, against the assessment of the said entire sum of Rs. 24,41,350 under Section 41(2) of the Act before the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner did not accept the contention of the appellant and held that the entire profits under Section 41(2) were to be assessed and not to the extent of 40 per cent. only as claimed by the appellant. He, however, reduced the amount of the profit under Section 41(2) by Rs. 15,000 (see page 51 of the paper book, lines 33-35).;