Law:

Section:

Section 33AB of the Income-tax Act, 1961, read with rule 8 of the Income-tax Rules, 1962 - Tea development account - Assessment year 1986-87 - Whether rule 8 which provides that only 40 per cent of income from business of growing and manufacturing tea in India shall be deemed to be income liable to tax and it has nothing to do with deduction provided under section 33AB(1) which in clear terms provides that deduction must be geared to profits of such business - Held, yes - Whether, therefore, tea development allowance under section 33AB must be in relation to income of business of growing and manufacturing tea rather than to taxable portion of such income - Held, yes FACTS The assessee was a limited company engaged in the cultivation and manufacture of tea. During the accounting period relevant to the assessment year, the assessee deposited a sum of Rs. 18 lakhs under section 33AB(1) and claimed the entire deposit as deduction. The Assessing Officer while taking the profits of the assessee considered only 40 per cent of the business profit and did not take into account 60 per cent. On appeal, the Commissioner (Appeals) held that the entire business profit from growing and manufacture of tea had to be reckoned for the purpose of deduction under section 33AB and since 20 per cent of the profit worked out to Rs. 21,21,090, the deduction might be restricted to the amount of Rs. 18 lakhs as deposited by the assessee. On appeal, the Tribunal dismissed the same. On reference: HELD Admittedly, the assessee had deposited a sum of Rs. 18 lakhs during the previous year relevant to the assessment year under the scheme referred to in section 33AB(1). Under clause (b) of the said section, a deduction of a sum equal to 20 per cent of the profits of such business computed under the head 'Profits and gains of business or profession' is profit before making any deduction under the section. The profits of such business referred to in clause (b) must necessarily be the profits of the business referred to in the main part of sub-section (1), namely, 'business of growing and manufacturing of tea in India'. The assessing authority, in the instant case, had worked out the profits of…

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