The ITAT Kolkata, in D.C.I.T., Circle-4(1) v. M/s. Goodricke Group Ltd, has held that the amount of cess paid on green leaves can be deducted while computing composite income under Rule 8 of the Income Tax Rules.
Assesse-Company, engaged in the business of growing and manufacturing of tea, claimed that the entire green leaf cess had to be allowed as deduction while computing the composite income from manufacture and sale of tea and only on the loss or profit arrived at after such deduction Rule 8(1) of the Rules have to be applied and 40% of such sum has to be considered as taxable income or loss from the business of manufacture and sale of tea.
The Assessing Officer took a stand that the cess on green tea leaf was an expenditure which was attributable to the activity of growing of tea and would therefore be not allowable as deduction. According to him, the first step should be compute income from growing and manufacturing tea and without allowing cess on green tea leaf as a deduction thereafter 40% should be attributed to taxable income and 60% attributed to Agricultural income.
Rule 8 of the Income Tax Rules, 1962 provides method of computation for composite income from manufacture 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 computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax.
The bench, after hearing both the sides, observed that issue is squarely covered by the decision of the Calcutta High Court in CIT vs AFT Industries Ltd. 270 ITR 167 (Cal) where the amount paid as cess was held as eligible for deduction in computing the composite income under Rule 8 of I.T. Rules.
In view of the above findings, the appeal preferred by the department was dismissed.
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