Commissioner of Income Tax vs George Williamson (Assam) Ltd. (No. 1)

D.N. Baruah, J.—In this reference, the following question has been referred by the Income Tax Appellate Tribunal u/s 256(2) of the Income Tax Act, 1961 (for short "the Act"), as per the direction of this court in Civil Rule No. 33(M) of 1992, for the opinion of this court :

" Whether, on the facts and in the circumstances of the case, the Tribunal has not erred in law in directing the Assessing Officer to ascertain the nature of the scraps sold to see whether such scrap was intimately connected with the tea business to determine the taxability of income from sale proceeds at 100 per cent. or 40 per cent. when Rule 8(1) of the Income Tax Rules, 1962, clearly says that 40 per cent. of the income derived from the sale of tea grown and manufactured shall be deemed to be income liable to tax and no other income except income from sale of tea grown and manufactured comes under the purview of Rule 8(1) of the Income Tax Rules, 1962 ? "

The Assessing Officer assessed the income from sale of scrap at 100 per cent. for the assessment year 1982-83. The assessee preferred appeal before the Commissioner of Income Tax, and the Commissioner of Income Tax (Appeals) directed the Assessing Officer that sale of scraps, etc., should be taken as 40 per cent. and not 100 per cent. Being aggrieved, the Revenue preferred an appeal against the said order before the Income Tax Appellate Tribunal. The Tribunal while remanding back the matter to the Assessing Officer had directed him to ascertain the nature of the scrap sold and to see whether such scrap was immediately connected with the business so as to determine the taxability of income from such sale proceeds to be 100 per cent. or 40 per cent. Hence, the present reference.

We have heard Mr. G. K. Joshi, learned standing counsel for the Revenue assisted by Mr. U. Bhuyan, and Mr. R. Gogoi, learned counsel for the assessee assisted by Mr. S. Saikia. Mr. Joshi submits that the Tribunal ought not to have remanded the matter and the Tribunal, therefore, erred in law in giving the direction to the Assessing Officer to make further enquiry. Mr. Gogoi, on the other hand, submits that the Tribunal was fully justified in making such direction.

On the submissions of counsel for the parties, it is to be seen whether the direction given by the Tribunal is justified or not.

In the case of a business carried on by a tea company the total income should be determined in two parts as per Rule 8 of the Income Tax Rules, 1962, taking the income as a whole both agricultural and other business. The Assessing Officer has to take only 40 per cent. income for the purpose of making assessment under Rule 8 of the said Rules and the remaining 60 per cent. under the agricultural income. But that does not mean that income derived by the tea company cannot form and compute as 100 per cent. income. If the income is derived from the sale of tea grown and manufactured by the tea company, only 40 per cent. income, which is assessed under the Act must have some connection with the tea business. Any other income which has got no connection whatsoever cannot be taken as income from the tea business. Therefore, in our opinion, before taking into account the income derived from sale of scrap materials, it is necessary to determine whether the sale of such scrap materials is arising out of business of tea garden and/or tea plantation or manufacture of tea. Therefore, such finding has to be arrived at by the Assessing Officer only after a thorough scrutiny of the entire matter. In view of the above, in our opinion, the Tribunal was fully justified in giving the direction. Accordingly, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue.

A copy of this judgment under the signature of the Registrar and the seal of the High Court shall be transmitted to the Income Tax Appellate Tribunal.

In the facts and circumstances of the case, there will be no direction as to costs.