Under the Income Tax Act, 1961 of rule 8 deals with Income derived from sale of tea grown and manufactured by the seller in India. Here, neither total income will be taken as agricultural income nor as business income. The total Income from sale of tea grown and manufactured divides into 40% of Business Income and 60% of agricultural income. It shall be computed as if it were income derived from business, and forty percent of such income shall be deemed to be income liable to tax.
Rules 7, 7A, 7B and 8 deals with determination of income from manufacture and not from cultivation of produces – rubber, coffee and tea.
These rules provide for determination of income when cultivator himself carries manufacturing processes and marketing activities and sell agricultural produce after carrying such processes that is when he sells manufactured produce of rubber, coffee and tea in which his own cultivated agricultural produce was used.
These rules prescribe different proportion in which composite income will be taxable under Income Tax Act. The prescribed proportions are for rubber 35%, for coffee of two types are 25% and 40% and for tea 40%.
Income | Business income | Agricultural income |
Growing & manufacturing tea in India | 40% | 60% |
Sale of rubber plants grown by a seller in India | 35% | 65% |
Sale of coffee grown & cured by seller in India | 25% | 75% |
Sale of coffee grown, cured, roasted & grounded by seller in India | 40% | 60% |
Rule 8- Growing and manufacturing of Tea in India
Any income derived by a person from selling tea in India manufactured from self grown tea leaves in India shall also be composite income comprising of agricultural income and non-agricultural income. Rule 8 provides method for separate calculation of the two incomes.
As per Rule 8, in such a case, first of all, composite income shall be calculated as follows:
| Composite Income/ Total Income = | Sale proceeds of Tea (i.e. Industrial Product) Less: Cost of Cultivation (i.e. Agricultural Expenses) Less: Industrial Expenses |
Note: M.V. of tea leaves is not to be deducted as cost.
Now, Agricultural income = 60% of Composite income
Non-agricultural income = 40% of Composite income
Then, 40% of total income of such sugar industries will be chargeable to tax under the head ‘Profit and gain from business and profession’.
While computing such income, an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area hasn’t previously been abandoned. For the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which is exempt from tax u/s 10(30).
It is for the assessee to prove whether a particular income is agricultural income or business income.
Related Case:
Income Tax Act, 1961 — Income Tax Rules, 1962, rule 8 — The primary question in this appeal was :—”Whether, on the facts and circumstances of the case, the learned Income-tax Appellate Tribunal was justified in confirming the disallowance of cess paid on green tea leaves. While allowing the appeal, the Gauhati High Court held that (i) it would appear from the pleadings on record that both the judgments of this court were brought to the notice of the learned Tribunal and despite that the learned Tribunal, which is otherwise bound to follow the judgment of the jurisdictional High Court, has failed to take care of it and act there-upon in answering the questions pleaded before the learned Tribunal. Judicial propriety requires that the decision of the jurisdictional High Court has to be obeyed by all Tribunals unless the contrary is available from any judgment of the apex court. (ii) Consequently, we allow this appeal, set aside the impugned order dated August 23, 2006, passed by the learned Tribunal so far it relates to the question raised in this appeal, and answer the question in favour of the assessee and against the Revenue reiterating that the cess on green tea leaves shall be allowed on 100 per cent. Composite income under the Income-tax Act, 1961, before applying rule 8 of the Income-tax Rules. Jorehaut Group Ltd. vs. Assistant Commissioner of Income-tax (HC)
Reference:
As Per Rule 8, of the Income Tax Act, 1961-
Income from the manufacture of tea.
(1) 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 forty per cent of such income shall be deemed to be income liable to tax.
(2) In computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area has not previously been abandoned [, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (30) of section 10, is not includible in the total income.]