Judgment:
These are the appeals filed by the assessees against the order of the learned Commissioner under section 263 dated 27-3-2000, for the assessment year 1995-96.
As the similar grounds of appeals and the facts and circumstances of both the cases are exactly same, therefore, both the appeals are disposed of by a common order.
In these cases, regular assessment was completed under section 143(3) on 27-3-1998. Subsequently, a proposal under section 263 has been sent by the concerned assessing officer in these cases in respect of the assessment year mentioned above on the ground that while completing the assessment for the abovementioned year, the assessing officer had allowed 'cess' on green leaf paid to the government by the assessee-company as business expenditure, disregarding the fact that the Hon'ble Gauhati High Court in the case of Jorhaut Group Ltd. v.Agrl. ITO (1997) 226 ITR 622 (Gau) had held that cess would be deductible from agricultural income in the course of agricultural income-tax proceedings. According to the assessing officer, allowance of cess in the income-tax proceedings has made the assessment order for the above-mentioned year erroneous and prejudicial to the interest of revenue.
The brief facts of the case are that the appellants are Indian companies engaged in the business of growing, manufacturing and sale of tea. The tea estates of the appellant-companies are located in the State of Assam. The income of the appellants from growing, manufacturing and sale of tea is subject to apportionment at 40 : 60 by application of rule 8 of the Income Tax Rules, 1962 (hereinafter referred to as the 'Central Rules'), the 40 per cent being subject to central income-tax under the Income Tax Act (hereinafter referred to as the "Central Act") and the balance 60 per cent to Assam agricultural income-tax under the Assam Agricultural Income Tax Act, 1939 (hereinafter referred to as the "Agricultural Act").
The appellants had claimed the said cess paid during the relevant previous year as a deductible expenditure under the Central Act. The assessing officer had allowed the deduction in determining the composite income from growing, manufacturing and sale of tea and thereafter apportioned the net income at 40 per cent : 60 per cent by applying rule 8 of the Central Rules.
We have heard the rival submissions, gone through the orders of the authorities below and carefully perused the case laws cited by the learned authorised representative and relied on by the assessing officer and Commissioner (Appeals) while framing the order under section 263.
The business of growing, manufacturing and selling of tea comprises partly of agricultural process and partly of manufacturing process (in other words, non-agricultural process). The income therefrom is also partly agricultural income and partly non- agricultural income. The corresponding taxation thereon is again partly the State subject (as contained in Entry 46 of List II of the Seventh Schedule to the Constitution of India, namely tax on agricultural income) and partly by the union subject (as contained in Entry 82 of List I of the Seventh Schedule of the Constitution of India, namely, tax on income other than agricultural income). Incidentally, the legislative power to levy tax by Parliament and State legislature is contained in articles 246(1) and (3) respectively of the Constitution of India. In Tata Tea Ltd. v.State of West Bengal (1988) 173 ITR 18 (SC), the Hon'ble Supreme Court analysed the provisions as under "A perusal of the aforesaid rule 8(1) makes it clear that under the said rule, income from sales of tea grown in India has to be computed as if it were income derived from business which would imply that the deduction allowable under the Act of 1961 in respect of income derived from business would be allowable in the case of income derived from sale of tea grown and manufactured by a seller and further allowance would be granted as set out in rule 8(2) and 40 per cent of the income so computed would be deemed to be income liable to the levy of income-tax and balance of the income would be liable to tax as agricultural income subject to such further deductions as the law pertaining to the levy of agricultural income-tax might allow."Assam Company Ltd. & Anr. v. State of Assam & Ors. (2001) 248 ITR 567 (SC), the Supreme Court after discussing the aforesaid provisions of law observed at page 571 of the report as under : "A reading of the above provisions shows that the computation of agricultural income even for the purpose of the State enactments will have to be that which is made under the provisions of the Income Tax Act and Rules made thereunder".
The Hon'ble Court, thereafter, on analysing the provisions of the Agricultural Act held at page 572 of the report observed that it is clear that the State Act intended the agricultural income for the purpose of its levy to be that which is computed as such by the officers acting under the Central Act.
Thus, as far as computation of income of the composite business of growing, manufacturing and selling of tea is concerned, the provisions that have to be applied or the provisions that have overriding effect are the provisions of the Central Act and the Central Rules. After determination of the income on the basis that it is only business income determined in accordance with the Central Act, 40 per cent thereof is to be charged to central income-tax. Any further deduction allowable under the Agricultural Act is neither to be taken cognizance of nor would result in allowance or disallowance of any expenditure allowable under the Central Act.
The green leaf cess paid under the Assam Taxation (on Specified Lands) Act, 1990, is a tax payable by the appellant at specified rates on every kilogram of tea produced, i.e., an expenditure incurred in carrying out the business of growing, manufacturing and sale of tea.
Growing and cultivation of tea is an integral part of the business of growing, manufacturing and sale of tea. The tax payable, therefore, is an expenditure incurred wholly and exclusively for the purpose of the business of the appellants and is, hence, an allowable expenditure.
The learned Commissioner has in coming to his decision relied on the decision of the Gauhati High Court in Jorehaut Group Ltd. v. Agrl. ITO (supra) wherein the Honble Gauhati High Court had held on facts of the case, that the green leaf cess was allowable to the assessee in that case from 60 per cent of the income which is treated as agricultural income.
As per our considered view reliance on the said decision, by the Commissioner is misplaced. The said decision cannot have any application to the present case, in view of the fact that : The said decision was rendered in the particular facts of that case. In the said case, the assessee was contending that the deduction was allowable to it from agricultural income and further, the assessee has in fact, not claimed the deduction of green leaf cess paid from its central income-tax computation.
The judgment of the Honble Gauhati High Court is to be understood in the light of the said background facts. The Honble court had allowed the said deduction only for that reason, Otherwise, the law provides a specific bar on such deductions. Under the second proviso to section 8(2) of the Agricultural Act, in case of assessees engaged in growing and manufacture of tea, any expenditure specified in section 8(2) would not be further allowable if the said expenditure is allowed under the central income-tax assessment of the assessee. It is, therefore, claimed that as the assessee said case had not claimed the deduction from the composite income. the same was allowed from the agricultural income, It is well settled law that the ratio decidendi of a court decision should be derived from the totality of the facts and circumstances of the case. It has been held by the Honble Supreme Court in its decision in CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC) that the judgment of a court must be read as a whole and the observations from the judgment has to be considered in the light of the questions which were before the Court. A judgment of the court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the true principle laid down by the decision will have to be ascertained and words and sentences from the judgment should not be picked up divorced from the context of the questions under consideration.
Thus, the learned Commissioner has simply picked up the decision of Gauhati High Court and without reference to the context applied the same to the present case. In the present case, the claim is under the central income-tax assessment and as such the referred decision has no application. Furthermore, the decision of the Gauhati High Court was rendered in connection with deductibility of green leaf cess under section 8(2)(e) of the Agricultural Act.
The said decision/ratio cannot have any bearing on allowability of green leaf cess paid under central income-tax assessment. While coming to its decision with reference to agricultural income-tax, the court never held that the expenditure is not allowable in computing income under the Central Act. The decision, therefore, cannot be applied in the present case. The ratio of (sic) judgment is to be applied only where it is directly applicable to the issue at hand and not based on a corollary drawn on argument/logic.Assam Company Ltd. v. State of Assam (supra) that the computation of agricultural income even for the purpose of State enactments will have to be that which is made under the provisions of the Income Tax Act and Rules made thereunder. Therefore, as far as computation of income is concerned for assessees engaged in growing, manufacturing and sale of tea, the provisions of the Central Act and Central Rules are supreme and read with the second proviso to section 8(2) of the Agricultural Act, there is no question of any allowance under section 8(2)(e) of the Agricultural Act.
Even otherwise, the Hon'ble Gujarat High Court has not taken into consideration binding decisions of the Supreme Court referred to above, which were existing when this judgment was rendered. In Tata Tea Ltd.' case (supra), the Supreme Court has held that a perusal of r. 8(1) of the Central Rules makes it clear that under the said rule, income from sale of tea grown and manufactured by a seller in India has to be computed as if it were income derived from business which would imply that deductions allowable under the Act of 1961, in respect of income derived from business would be allowable and further allowance would be granted as set out in rule 8(2) and 40 per cent of the income so computed would be deemed to be income liable to levy of central income-tax and the balance of the income would be liable to tax as agricultural income.
In view of the above discussion, we do not find any merit in the orders of the learned Commissioner (Appeals). Furthermore, from the orders of the learned Commissioner under section 263, we do not find that he has alleged the orders as erroneous and prejudicial to the interest of the revenue. As per our considered view, while framing the order under section 263, the learned Commissioner himself has to come to the conclusion that the order of the assessing officer was erroneous and prejudicial to the interest of the revenue, which is completely absent in the instant order given by the learned Commissioner.