Law:

Section:

Section 29 of the Income-tax Act, 1961, read with rule 8 of the Income-tax Rules, 1962 - Tea - Income from manufacture of - Whether, cess paid on green leaf in process of growing and manufacturing tea is to be excluded while computing income under rule 8 of tea grown and manufactured - Held, yes FACTS The Tribunal allowed deduction of the cess paid by the assessee on green leaf in the process of growing and manufacturing tea holding that the deduction was eligible after computing income under rule 8 and the apportionment was to be made only after the income was so computed. On appeal, the department contended that 60 per cent of the cess so paid was eligible since 60 per cent of the income computed under rule 8 was held to be agricultural income. HELD 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 on green leaf would have been eligible for deduction at the time of computation of the agricultural income. 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 Act along with the income out of the tea manufactured from the tea grown. When by fiction the income is 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…

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