ORDER
M.M. Cherian, A.M.
1. This appeal is directed against the order of the CIT(A), Cochin in the case of the Highland Produce Co. Ltd., Alleppey, for the asst. yr. 1990-91. The only ground raised by the Revenue in this appeal is that the CIT(A) erred in holding that deduction under s. 80HHC is allowed on the profits from tea before the apportionment as per r. 8 of the IT Rules.
2. The assessee is a company in which the public are substantially interested and it derives income from the manufacture of tea from own estates and also from trading in tea purchased from others. In computing the income for the asst. yr. 1990-91 the assessee claimed deduction under s. 80HHC on the profit from tea before making the apportionment of 40 per cent in accordance with r. 8 of the IT Rules, as income liable to tax under the IT Act. But the AO was of the view that first the apportionment at 40 per cent should be made on the profit from tea and then only the deduction was to be allowed under s. 80HHC. In the assessee’s appeal, the CIT(A) found that apart from the tea manufactured from own estates, the assessee was also deriving profit from trading in tea and so deduction under s. 80HHC was allowable in respect of the entire profit of Rs. 83,63,410. The appellate authority held that deduction of Rs. 14,21,723 was allowable under 80HHC on the entire profit from tea and then 40 per cent of the balance amount was to be apportioned as income liable to tax under Central Income-tax. The Department is in appeal before the Tribunal with the plea that the deduction allowed by the CIT(A) is not in order.
3. We have heard the Departmental Representative Shri Kuruvilla M. George, and the assessee’s representative Shri R. Sekar, Chartered Accountant. In holding that income from tea should be computed first as per the provisions of the IT Act after allowing all the deductions including the deduction under s. 80HHC and then 40 per cent of the same should be apportioned as per r. 8 of the IT Rules, the CIT(A) has followed the decision of the Madras High Court in the case of CGT vs. Periakaramalai Tea & Produce Co. Ltd. (1972) 84 ITR 643 (Mad). In that case the Madras High Court held as under :
“The 40 per cent income derived from the sale of tea contemplated by r. 8(1) of the IT Rules, 1962, is the chargeable income. Therefore, before applying the rule income should have been computed in accordance with the provisions of the IT Act. That is after allowing deductions including those under Chapter VI-A of the IT Act, 1961. Hence the deduction in respect of the profits from the industry contemplated under s. 80-I of the IT Act, 1961, should be applied to the profits and gains attributable to the income from the tea industry before r. 8 of the IT Rules, 1962 is applied to apportion the agricultural income chargeable to agricultural income-tax.”
Rule 8(1) of the IT Rules provides that income derived from the sale of tea, grown and manufactured by the seller in India shall be computed as if it were income derived from business and 40 per cent of such income shall be deemed to be income liable to income-tax. It was submitted by the learned representative of the assessee that income from tea was to be computed under the head ‘business’ in accordance with the provisions of the IT Act, which would mean that the deduction under s. 80HHC also should be allowed on that income. Forty per cent of the balance amount would be deemed to be income liable to tax under Central income-tax under r. 8(1) of the IT Rules. Shri Sekhar also made another submission that it would not make any difference in the net taxable income from tea whether the deduction under s. 80HHC was allowed before or after the apportionment at 40 per cent. It was stated that in the present case the increase in the deduction allowed by the CIT(A) was on account of the deduction allowed from the profit of Rs. 6,05,494 from trading which was not allowed by the AO. We find that the CIT(A) was correct in holding that first the deduction under s. 80HHC was to be allowed and then only the apportionment as per r. 8 is to be made towards the income liable to Central Income-tax. The provisions of r. 8 does not support the contention of the Department that first the apportionment is to be made and then only the deduction under s. 80HHC. The decision of the Madras High Court reported in (1972) 84 ITR 643 (Mad) (supra) also supports the computation as directed by the CIT(A). We accordingly uphold the order of the CIT(A).
4. In the result, the Revenue’s appeal is dismissed.