The Assessing Officer has applied rule 8 first and then given my tea company its section 33AB deduction on only forty per cent of the composite income, which has more than halved the claim. Which comes first — the section 33AB deduction or the sixty-forty apportionment?
Section 33AB comes first. On 19 May 2011 a Division Bench of the Calcutta High Court held, in an appeal under section 260A for AY 1997-98, that the deduction under section 33AB is taken in computing the profit or loss of the composite tea business, and only after that profit or loss has been determined does rule 8 of the Income-tax Rules, 1962 come into play to work out how much of it is liable to tax. The Tribunal below had held the opposite — that the section 33AB deduction was to be calculated on forty per cent of the income determined under rule 8 — and the High Court set that finding aside as erroneous. The Court's route was the parenthesis in section 33AB(1)(b) itself, which fixes the ceiling by reference to the profits of the business "computed under the head 'Profits and gains of business or profession' before making any deduction under this section": that is a computation under Chapter IV-D, and rule 8 operates only on the figure that computation produces. In the same judgment, and on the assessee's own concession, the Court answered the section 80HHC question the other way — a Chapter VI-A deduction on a composite tea income comes AFTER the sixty-forty apportionment, following Union of India v Warren Tea Ltd (2004) 266 ITR 226 (Cal) and the Supreme Court in CIT v Williamson Financial Services (2008) 297 ITR 17.
Decided by the High Court (Bhaskar Bhattacharya J and Sambuddha Chakrabarti J) on 2011-05-19, reported as I.T.A. No. 651 of 2004, High Court at Calcutta, Special Jurisdiction (Income-Tax), Original Side; heard 12 May 2011, judgment 19 May 2011; no law-report citation traced. It bears on section 33AB, section 33AB(1), section 260A, section 80HHC, section 72, section 37(4), section 37(5), section Rule 8 of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Appeals matters.
This is the single most valuable sequencing point in the tea provisions, and it cuts both ways in the same assessment. A deduction that is part of the computation of business profits under Part D of Chapter IV — and section 33AB is in that Part — is given on the whole composite income before rule 8 splits it; a deduction under Chapter VI-A is given after the split, on the forty per cent that rule 8 has made taxable. Getting that the wrong way round changes the figure by a factor of two and a half. The Court's reasoning also answers the argument the Revenue tends to make, that rule 8 makes only forty per cent of the composite income "income" at all, so a Chapter IV deduction should attach only to that: the Court said in terms that the question of applying rule 8 does not arise so long as the profit or loss of the growing and manufacturing business has still to be determined after all permissible deductions. Note two limits before citing this. First, the judgment is on the pre-Finance Act 2001 text: the section it reproduces reads "twenty per cent" and speaks of tea only, because the year was AY 1997-98. The words the reasoning turns on — the parenthesis fixing the stage of computation — are unchanged in the present forty per cent text, but the figure and the crops are not. Second, the Court also decided, against the assessee and on concession, that a transit flat for garden employees at the Calcutta head office was a guest house within section 37(4) and (5), following Keshoram Industries & Cotton Mills Ltd v CIT (1991) 191 ITR 518, and that section 80HHC came after rule 8. Do not cite this decision as a general "deductions come first" authority; it is authority for a Chapter IV-D deduction coming first and for a Chapter VI-A deduction coming after.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Goodricke Group Ltd, a public limited company carrying on the business of growing and manufacturing tea through seventeen tea gardens, appealed under section 260A against an order of the Income-tax Appellate Tribunal, "B" Bench, Kolkata dated 23 April 2004 in ITA No. 895 (Kol)/2002 for AY 1997-98. For that year the company had claimed a deduction under section 33AB of Rs 50,69,336 and had also claimed section 80HHC before apportioning the composite income in the ratio 60:40. The Assessing Officer allowed the section 33AB deduction as claimed in the return, but computed the section 80HHC deduction after the apportionment, and disallowed expenditure on a transit flat maintained at Calcutta for garden employees on official visits as guest-house expenditure under section 37(4). Before the Commissioner (Appeals) the company sought a higher section 33AB deduction by reference to the assessed income; the Commissioner (Appeals) held that section 33AB was to be allowed after apportioning the composite income 60:40 and by reference to forty per cent of it. The Tribunal agreed that the section 33AB deduction was to be calculated on forty per cent of the composite income determined under rule 8 and remanded the quantum to the Commissioner (Appeals). The Division Bench formulated four questions: the guest-house question, whether the Commissioner (Appeals)'s direction on section 33AB exceeded his jurisdiction, whether section 33AB was to be calculated on forty per cent of the rule 8 income, and whether section 80HHC was to be computed before rule 8 was applied.
The third question was answered in the negative and against the Revenue: the section 33AB deduction is made in computing the profit or loss of the composite business, and rule 8 applies only to the profit or loss so determined. The Tribunal's holding that the deduction was to be made after the taxable amount was determined under rule 8 was erroneous. The first question (transit flat as guest house) was answered in the affirmative and against the assessee on concession, following Keshoram Industries & Cotton Mills Ltd. The fourth question (section 80HHC before rule 8) was answered in the affirmative and against the assessee on concession. The second question was left unanswered as having lost relevance. The appeal was partly allowed, the Tribunal's order being modified only on the third question, with no order as to costs.
The Court took the answer from the words of section 33AB(1) itself. Reproducing the sub-section as it then stood, it said that the answer depends on the interpretation of the phrase fixing the ceiling at a percentage "of the profits of such business (computed under the head 'Profits and gains of business or profession' before making any deduction under this section)". Of the two amounts — the sum deposited with the nationalised bank and that percentage of the profits — whichever is less "should be deducted first". After that deduction and the other available deductions under the Act, the profit or loss from the business is determined; and it is on that determined amount of profit or loss that rule 8 then operates to find the amount of tax payable. The Court therefore held that the question of applying rule 8 does not arise so long as the profit or loss of the growing and manufacturing business remains to be determined after deducting all permissible deductions under the Act. On section 80HHC the Court did not reason independently: counsel for the assessee did not press the point in view of the Division Bench decision in Union of India v Warren Tea Ltd and the Supreme Court decision in CIT v Williamson Financial Services, and the Court answered the question against the assessee on that footing.
We find that the Tribunal below erroneously held that the deduction under Section 33AB of the Act would be made after the taxable amount will determine under Rule 8 of the Rules. The question of application of Rule 8 does not come so long the profit or loss from the business of growing and manufacturing tea is determined after deduction of all permissible deductions under the Act.
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Handle my notice → Ask a CA on WhatsAppSection 33AB comes first. On 19 May 2011 a Division Bench of the Calcutta High Court held, in an appeal under section 260A for AY 1997-98, that the deduction under section 33AB is taken in computing the profit or loss of the composite tea business, and only after that profit or loss has been determined does rule 8 of the Income-tax Rules, 1962 come into play to work out how much of it is liable to tax. The Tribunal below had held the opposite — that the section 33AB deduction was to be calculated on forty per cent of the income determined under rule 8 — and the High Court set that finding aside as erroneous. The Court's route was the parenthesis in section 33AB(1)(b) itself, which fixes the ceiling by reference to the profits of the business "computed under the head 'Profits and gains of business or profession' before making any deduction under this section": that is a computation under Chapter IV-D, and rule 8 operates only on the figure that computation produces. In the same judgment, and on the assessee's own concession, the Court answered the section 80HHC question the other way — a Chapter VI-A deduction on a composite tea income comes AFTER the sixty-forty apportionment, following Union of India v Warren Tea Ltd (2004) 266 ITR 226 (Cal) and the Supreme Court in CIT v Williamson Financial Services (2008) 297 ITR 17. This was decided by the High Court (Bhaskar Bhattacharya J and Sambuddha Chakrabarti J) and bears on section 33AB, section 33AB(1), section 260A, section 80HHC, section 72, section 37(4), section 37(5), section Rule 8 of the Income Tax Act 1961. It is reported as I.T.A. No. 651 of 2004, High Court at Calcutta, Special Jurisdiction (Income-Tax), Original Side; heard 12 May 2011, judgment 19 May 2011; no law-report citation traced. This is the single most valuable sequencing point in the tea provisions, and it cuts both ways in the same assessment. A deduction that is part of the computation of business profits under Part D of Chapter IV — and section 33AB is in that Part — is given on the whole composite income before rule 8 splits it; a deduction under Chapter VI-A is given after the split, on the forty per cent that rule 8 has made taxable. Getting that the wrong way round changes the figure by a factor of two and a half. The Court's reasoning also answers the argument the Revenue tends to make, that rule 8 makes only forty per cent of the composite income "income" at all, so a Chapter IV deduction should attach only to that: the Court said in terms that the question of applying rule 8 does not arise so long as the profit or loss of the growing and manufacturing business has still to be determined after all permissible deductions. Note two limits before citing this. First, the judgment is on the pre-Finance Act 2001 text: the section it reproduces reads "twenty per cent" and speaks of tea only, because the year was AY 1997-98. The words the reasoning turns on — the parenthesis fixing the stage of computation — are unchanged in the present forty per cent text, but the figure and the crops are not. Second, the Court also decided, against the assessee and on concession, that a transit flat for garden employees at the Calcutta head office was a guest house within section 37(4) and (5), following Keshoram Industries & Cotton Mills Ltd v CIT (1991) 191 ITR 518, and that section 80HHC came after rule 8. Do not cite this decision as a general "deductions come first" authority; it is authority for a Chapter IV-D deduction coming first and for a Chapter VI-A deduction coming after. If it applies to you, the first step is this: Set out the computation in the order the Court laid down: compute the profits of the composite growing-and-manufacturing business under the business head; take the lower of the deposit and forty per cent of that figure as the section 33AB deduction; determine the resulting profit or loss; and only then apply rule 8 to find the taxable forty per cent.
Goodricke Group Ltd, a public limited company carrying on the business of growing and manufacturing tea through seventeen tea gardens, appealed under section 260A against an order of the Income-tax Appellate Tribunal, "B" Bench, Kolkata dated 23 April 2004 in ITA No. 895 (Kol)/2002 for AY 1997-98. For that year the company had claimed a deduction under section 33AB of Rs 50,69,336 and had also claimed section 80HHC before apportioning the composite income in the ratio 60:40. The Assessing Officer allowed the section 33AB deduction as claimed in the return, but computed the section 80HHC deduction after the apportionment, and disallowed expenditure on a transit flat maintained at Calcutta for garden employees on official visits as guest-house expenditure under section 37(4). Before the Commissioner (Appeals) the company sought a higher section 33AB deduction by reference to the assessed income; the Commissioner (Appeals) held that section 33AB was to be allowed after apportioning the composite income 60:40 and by reference to forty per cent of it. The Tribunal agreed that the section 33AB deduction was to be calculated on forty per cent of the composite income determined under rule 8 and remanded the quantum to the Commissioner (Appeals). The Division Bench formulated four questions: the guest-house question, whether the Commissioner (Appeals)'s direction on section 33AB exceeded his jurisdiction, whether section 33AB was to be calculated on forty per cent of the rule 8 income, and whether section 80HHC was to be computed before rule 8 was applied. The matter was decided on 2011-05-19 by the High Court (Bhaskar Bhattacharya J and Sambuddha Chakrabarti J). On those facts the High Court held as follows. The third question was answered in the negative and against the Revenue: the section 33AB deduction is made in computing the profit or loss of the composite business, and rule 8 applies only to the profit or loss so determined. The Tribunal's holding that the deduction was to be made after the taxable amount was determined under rule 8 was erroneous. The first question (transit flat as guest house) was answered in the affirmative and against the assessee on concession, following Keshoram Industries & Cotton Mills Ltd. The fourth question (section 80HHC before rule 8) was answered in the affirmative and against the assessee on concession. The second question was left unanswered as having lost relevance. The appeal was partly allowed, the Tribunal's order being modified only on the third question, with no order as to costs.
The Court took the answer from the words of section 33AB(1) itself. Reproducing the sub-section as it then stood, it said that the answer depends on the interpretation of the phrase fixing the ceiling at a percentage "of the profits of such business (computed under the head 'Profits and gains of business or profession' before making any deduction under this section)". Of the two amounts — the sum deposited with the nationalised bank and that percentage of the profits — whichever is less "should be deducted first". After that deduction and the other available deductions under the Act, the profit or loss from the business is determined; and it is on that determined amount of profit or loss that rule 8 then operates to find the amount of tax payable. The Court therefore held that the question of applying rule 8 does not arise so long as the profit or loss of the growing and manufacturing business remains to be determined after deducting all permissible deductions under the Act. On section 80HHC the Court did not reason independently: counsel for the assessee did not press the point in view of the Division Bench decision in Union of India v Warren Tea Ltd and the Supreme Court decision in CIT v Williamson Financial Services, and the Court answered the question against the assessee on that footing. In the words reproduced by the source cited on this page: "We find that the Tribunal below erroneously held that the deduction under Section 33AB of the Act would be made after the taxable amount will determine under Rule 8 of the Rules. The question of application of Rule 8 does not come so long the profit or loss from the business of growing and manufacturing tea is determined after deduction of all permissible deductions under the Act."
It was decided by the High Court on 2011-05-19 and is reported as I.T.A. No. 651 of 2004, High Court at Calcutta, Special Jurisdiction (Income-Tax), Original Side; heard 12 May 2011, judgment 19 May 2011; no law-report citation traced. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 33AB, section 33AB(1), section 260A, section 80HHC, section 72, section 37(4), section 37(5), section Rule 8, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The third question was answered in the negative and against the Revenue: the section 33AB deduction is made in computing the profit or loss of the composite business, and rule 8 applies only to the profit or loss so determined. The Tribunal's holding that the deduction was to be made after the taxable amount was determined under rule 8 was erroneous. The first question (transit flat as guest house) was answered in the affirmative and against the assessee on concession, following Keshoram Industries & Cotton Mills Ltd. The fourth question (section 80HHC before rule 8) was answered in the affirmative and against the assessee on concession. The second question was left unanswered as having lost relevance. The appeal was partly allowed, the Tribunal's order being modified only on the third question, with no order as to costs. It arises in Deductions & Disallowances, How Tax Law Is Read and Appeals matters, on section 33AB, section 33AB(1), section 260A, section 80HHC, section 72, section 37(4), section 37(5), section Rule 8 of the Income Tax Act 1961, and was decided by Bhaskar Bhattacharya J and Sambuddha Chakrabarti J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Quote the parenthesis in section 33AB(1)(b) to the officer. It fixes the ceiling by reference to profits "computed under the head 'Profits and gains of business or profession' before making any deduction under this section", which is the computation rule 8 later operates on, not the post-rule-8 figure. Do not carry the same argument across to a Chapter VI-A claim in the same return. On section 80HHC this very judgment goes against the assessee, following Warren Tea and the Supreme Court in Williamson Financial Services; a composite claim that puts both deductions before rule 8 will fail on the Chapter VI-A limb and may damage credibility on the section 33AB limb. Check the year. The judgment construes the pre-2002 text (twenty per cent, tea only). If your year is AY 2002-03 or later the percentage is forty, and if it is AY 2004-05 or later coffee and rubber are within the section too; say so when you cite the case rather than letting the Revenue point it out. If the Commissioner (Appeals) has given a direction on a point nobody raised before him, keep that jurisdictional objection alive as a separate ground. It was the second question here and the Court did not need to answer it once the assessee won on the merits.
Still good law. The sequencing this judgment lays down has been followed twice by later Division Benches of the same court. In M/S. Singlo (India) Tea Ltd v CIT, ITA 360 of 2005, decided 4 March 2016 (Girish Chandra Gupta and Asha Arora JJ), the Calcutta High Court held that "the deduction u/s.33AB of the Act is to be allowed from the total composite income derived from growing and manufacturing tea and only after such deduction is made, Rule 8(1) of the Income Tax Rules, 1962 shall be applied to apportion the resultant income into 60% agricultural income, not taxable under the Act and balance 40% which is taxable under the Act", and recorded that Goodricke had also been followed by a Division Bench in M/s. Singlo (India) Tea Co. Ltd v CIT, Central-1, Kolkata, ITA 338 of 2007, order dated 1 September 2015. I traced no appeal from this judgment to the Supreme Court and did not search for a contrary High Court view outside Calcutta, so the label carries only what the Calcutta line establishes. Two cautions the label cannot carry. The judgment construes the pre-Finance Act 2001 text of section 33AB (twenty per cent, tea only), so the reasoning transfers to the current text but the figures do not. And its answer on section 80HHC was given on the assessee's concession in the face of Union of India v Warren Tea Ltd and the Supreme Court in CIT v Williamson Financial Services, so it is not independent authority on the Chapter VI-A limb. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
THE JUDGMENT CARRIES NO PARAGRAPH NUMBERS. It opens with "Bhaskar Bhattacharya, J.:" and runs into unnumbered prose; the digits that appear in the running text (2, 3, 4, 5 and so on) are page numbers carried across from the certified copy, not paragraph numbers, and the lettered items (a) to (j) are the sub-heads of the narrative of facts. No paragraph locator is therefore given anywhere in this entry, and any citation of this judgment that gives one should be distrusted. The section 33AB text the Court reproduces is the PRE-2002 text — "twenty per cent", tea only, and "before furnishing the return of his income" without the words "the due date of" — which is correct for AY 1997-98 and confirms independently that the footnotes to the section recording the Finance Act 2001 and Finance Act 2003 amendments are genuine. Two citation strings appear inside the judgment and are reproduced here as neutral references only: Union of India v Warren Tea Ltd (2004) 266 ITR 226 (Cal) and CIT v Williamson Financial Services (2008) 297 ITR 17 (SC). Neither judgment is set out in this entry, and the library already holds an entry on the Supreme Court decision. Section 37(4) and 37(5), which the first question turned on, were themselves omitted from the Act after the year in issue; that limb of the judgment is legislative history and is not stated here as current law. The Tribunal's order in the same matter had remanded the quantum of the section 33AB deduction to the Commissioner (Appeals); the High Court's answer on the third question modifies the Tribunal's order only on that question, and the appeal was "partly allowed". Whether this judgment has been appealed to or considered by the Supreme Court is not established here, and the validity note says so. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The third question was answered in the negative and against the Revenue: the section 33AB deduction is made in computing the profit or loss of the composite business, and rule 8 applies only to the profit or loss so determined. The Tribunal's holding that the deduction was to be made after the taxable amount was determined under rule 8 was erroneous. The first question (transit flat as guest house) was answered in the affirmative and against the assessee on concession, following Keshoram Industries & Cotton Mills Ltd. The fourth question (section 80HHC before rule 8) was answered in the affirmative and against the assessee on concession. The second question was left unanswered as having lost relevance. The appeal was partly allowed, the Tribunal's order being modified only on the third question, with no order as to costs.
TaxSphere, “Goodricke Group Ltd v CIT-II, Kolkata — the s.33AB deduction is taken in computing the composite tea profit BEFORE rule 8 splits it sixty-forty, not on the forty per cent”, https://taxnotice.vittsphere.com/caselaw/case/goodricke-group-33ab-deduction-comes-before-the-rule-8-sixty-forty-apportionment-not-on-the-forty-per-cent/ (validity last checked 2026-09-09)
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My client grows and manufactures tea. It put money into the NABARD account after the year had closed and now wants the section 33AB deduction. By when did the deposit have to be made, how much can be claimed, and what has to be filed by the specified date under s.44AB?
My tea client took money out of the NABARD account and spent part of it on a car and on machinery for the head office, and sold a machine bought out of the account four years ago. What is taxed back, and in which year?
Our tea company exports. Should the section 80HHC deduction be worked out on the whole composite income before Rule 8 splits it sixty-forty, or only on the forty per cent that is taxable?
Our client grows tea and manufactures it in its own factory. What proportion of the composite income is taxable under the Income-tax Act, and what does sub-rule (2) allow for replanting?
