D.K.Seth, J. - (1.) In this case the learned Tribunal had allowed deduction of the cess paid on green leaf in the process of growing and manufacturing tea since assessed to income-tax. According to learned counsel, 60 per cent. of the cess so paid is eligible for deduction since 60 per cent. of the income computed under Rule 8 is held to be agricultural income. According to him, the cess is payable under Section 8(2)(e) of the Assam Agricultural Income-tax Act, 1939. Therefore, it can be deducted only to the proportion of the agricultural income. He relies on a decision in Jorehaut Group Ltd. v. Agricultural Income-tax Officer [1997] 226 ITR 622 (Gauhati), wherein the cess paid was allowed to be deducted against 60 per cent. of the agricultural income before apportionment under Rule 8. But we find from the said decision that the said decision does not support the contention raised by learned counsel for the appellant that only 60 per cent. of the cess is payable. In the said decision in Jorehaut Group Ltd. [1997] 226 ITR 622 (Gauhati), it was held that the amount of cess paid is deductible after apportionment from 60 per cent. of the income computed under the Income-tax Act. Nowhere had it pointed out that 60 per cent. of the cess paid is eligible for deduction, not the rest. Neither was it held that the balance of 40 per cent. of cess would be eligible for deduction against the 40 per cent. of the income exigible to the tax under the Income-tax Act, 1961.
(2.) 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 before 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 per cent. of the income so computed shall again be required to be computed under the Agricultural Income-tax Act. On the other hand, this 60 per cent. is exposed and becomes exigible 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. The Commissioner of Income-tax (Appeals) has found that the Guwahati High Court failed to consider the decision in Karimtharuvi Tea Estates Ltd. v. State of Kerala, Anglo-American Direct Tea Trading Co. Ltd. v. CAIT; Tata Tea Ltd. v. State of West Bengal; Mcleod Russel (India) Ltd. v. State of West Bengal, wherein the concept of agricultural income provided in Section 2(1A) of the Income-tax Act and its interpretation with reference to Rule 8 of the Income-tax Rules, 1962, read with Section 295 of the Income-tax Act, was explained and clarified and that the judgment of the Guwahati High Court is contrary to the principle propounded in the said judgments of the Supreme Court. Whereas the learned Tribunal had found that the cess came up for consideration before the Tribunal in the case of Bishnauth Tea Co. Ltd. v. Jt. CIT Special Range 2, Kolkata (I. T. A. No. 732/Cal of 2000) and Steward Holl (India) Ltd. v. Jt. CIT, Spl. Range 21, Kolkata (I. T. A. No. 720/Cal of 2000) where the issue was determined in favour of the assessee and that in case of the present assessee also, for the assessment years 1993-94 and 1995-96 the Tribunal by its order dated October 11, 2002, took a similar view reversing the order of the Commissioner of Income-tax (Appeals).
(3.) Having regard to the provisions contained in Rule 8 with which we had occasion to deal in Union of India v. Warren Tea Ltd. [2004] 266 ITR 226 (Cal), A. P. O. No. 792 of 1999, disposed of by us on January 15, 2004, it appears that in respect of computation of income of tea grown and manufactured, a fiction has been created under which both the agricultural component and the business component of the income would be assessed together for the purpose of computing the income under the Act and only after the computation of the total income, the apportionment is to be made determining 60 per cent. as agricultural income and 40 per cent. as exigible to tax under the Act. During the process of the computation, all deductions allowable at the time of computation are to be allowed and that was rightly allowed. Inasmuch as if the income for tea grown was assessed under the agricultural income-tax, in that event, the same cess paid of green leaf would have been eligible for deduction at the time of computation of the agricultural income. But when by fiction in respect of tea grown and manufactured, the agricultural component of the income out of the tea grown is also computed under the Income-tax Act along with the income out of the tea manufactured from the tea grown. When by fiction the income as computed as an income under the Act, all deductions as are available both for the agricultural component and for the business component of the income are to be allowed as a natural corollary to the fiction so created. Such deductions, which are allowed in order to arrive at the total income exigible to tax, are to be allowed and the apportionment of the total income so computed is to be made. If the agricultural part of the deductions is made applicable for deduction from the 60 per cent. of the total income so computed, in that event, this 60 per cent. would be again made assessable under the Agricultural Income-tax Act which is not permissible. In that event, the purpose of creating fiction would stand frustrated. It would then be a concept completely foreign to the fiction so created. Therefore, the entire amount paid as cess on green leaf seems to be eligible for deduction with regard to which we do not find any confusion.;