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?
Rule 8(1) of the Income-tax Rules, 1962 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 forty per cent of such income shall be deemed to be income liable to tax. The balance sixty per cent is agricultural income, exempt under s.10(1) and within the States' taxing power. Sub-rule (2) directs that 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 that in determining that cost no deduction shall be made in respect of any subsidy which, under clause (30) of section 10, is not includible in total income.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text), reported as Rule 8 of the Income-tax Rules, 1962, as reproduced at para 16 of the Supreme Court's judgment in CIT v. Willamson Financial Services & Ors (Civil Appeal Nos. 3803-3808 of 2005 and connected appeals, 12 December 2007) and, as to both sub-rules, by the Gauhati High Court in Bazaloni Group Ltd. v. CIT (24 August 2004); and, as to both sub-rules, by the Calcutta High Court in M/s. Apeejay Tea Ltd. v. CIT & Anr. (G.A. No. 3135 of 2013 and ITAT No. 165 of 2013, 14 March 2014). It bears on section Rule 8, section 10(1), section 10(30), section Rule 7, section Rule 7A, section Rule 7B, section 80HHC, section 295 of the Income Tax Act 1961, in Capital Gains Exemptions, Deductions & Disallowances and How Tax Law Is Read matters.
Rule 8 is a legal fiction and its limits matter more than its arithmetic. The Supreme Court has held that the fiction is confined to the rule itself: chargeability and computability are assigned only to the forty per cent, so the computation provisions in sections 15 to 59 are attracted only to that extent, and the fiction cannot be carried into Chapter VI-A. That is why a deduction under Chapter VI-A is allowed AFTER the sixty-forty apportionment and not against the whole composite income. Three further practical points. First, the rule applies only where the seller both GROWS and MANUFACTURES the tea in India; a purchaser of green leaf who only manufactures is outside it. Second, the sixty per cent is not merely exempt income, it is income excluded from total income altogether under s.10(1), which is a different thing from a Chapter VI-A tax-free income and produces different consequences. Third, sub-rule (2) is a replacement allowance for an area already planted and not previously abandoned; it is not an allowance for extending the plantation, and the subsidy add-back rule in it points to clause (30) of section 10 — note the contrast with Rules 7A(2) and 7B(2), which point to clause (31).
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Rule 8, headed "Income from the manufacture of tea", reads: "(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." The rule's predecessor under the Indian Income-tax Act, 1922 was Rule 24, which in the form reproduced by the Supreme Court fixed the same forty per cent and carried the replanting allowance as a proviso rather than a separate sub-rule.
Not a judgment in itself. The rule, as judicially reproduced, deems forty per cent of the income from the sale of tea grown and manufactured by the seller in India to be income liable to tax, leaving sixty per cent as agricultural income, and requires an allowance for the cost of replacement planting in an area already planted and not previously abandoned, without reduction for a subsidy excluded by clause (30) of section 10.
Not a judgment; no judicial reasoning is stated for the rule as such. The Supreme Court in CIT v. Willamson Financial Services at paragraph 24 described the scheme: where the income of an assessee is partly from agriculture and partly from manufacture the profits on sales have to be apportioned, the task being simplified by Rules 7 and 8 framed under section 295(2)(b); under Rule 8, which applies only in cases where the assessee himself grows tea-leaves and manufactures tea in India, forty per cent of the profits on sales is taxable as business income while the balance is exempt as representing agricultural income. At paragraphs 38 and 39 the Court held that Rule 8(1) uses the word "income" and not "total income", that the words "as if" stand for a legal fiction, and that chargeability and computability are confined to the forty per cent.
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.
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Handle my notice → Ask a CA on WhatsAppRule 8(1) of the Income-tax Rules, 1962 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 forty per cent of such income shall be deemed to be income liable to tax. The balance sixty per cent is agricultural income, exempt under s.10(1) and within the States' taxing power. Sub-rule (2) directs that 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 that in determining that cost no deduction shall be made in respect of any subsidy which, under clause (30) of section 10, is not includible in total income. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section Rule 8, section 10(1), section 10(30), section Rule 7, section Rule 7A, section Rule 7B, section 80HHC, section 295 of the Income Tax Act 1961. It is reported as Rule 8 of the Income-tax Rules, 1962, as reproduced at para 16 of the Supreme Court's judgment in CIT v. Willamson Financial Services & Ors (Civil Appeal Nos. 3803-3808 of 2005 and connected appeals, 12 December 2007) and, as to both sub-rules, by the Gauhati High Court in Bazaloni Group Ltd. v. CIT (24 August 2004); and, as to both sub-rules, by the Calcutta High Court in M/s. Apeejay Tea Ltd. v. CIT & Anr. (G.A. No. 3135 of 2013 and ITAT No. 165 of 2013, 14 March 2014). Rule 8 is a legal fiction and its limits matter more than its arithmetic. The Supreme Court has held that the fiction is confined to the rule itself: chargeability and computability are assigned only to the forty per cent, so the computation provisions in sections 15 to 59 are attracted only to that extent, and the fiction cannot be carried into Chapter VI-A. That is why a deduction under Chapter VI-A is allowed AFTER the sixty-forty apportionment and not against the whole composite income. Three further practical points. First, the rule applies only where the seller both GROWS and MANUFACTURES the tea in India; a purchaser of green leaf who only manufactures is outside it. Second, the sixty per cent is not merely exempt income, it is income excluded from total income altogether under s.10(1), which is a different thing from a Chapter VI-A tax-free income and produces different consequences. Third, sub-rule (2) is a replacement allowance for an area already planted and not previously abandoned; it is not an allowance for extending the plantation, and the subsidy add-back rule in it points to clause (30) of section 10 — note the contrast with Rules 7A(2) and 7B(2), which point to clause (31). If it applies to you, the first step is this: Confirm the seller both grew and manufactured the tea in India before applying Rule 8 at all; if leaf was bought in, that part of the operation is not within the rule.
Rule 8, headed "Income from the manufacture of tea", reads: "(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." The rule's predecessor under the Indian Income-tax Act, 1922 was Rule 24, which in the form reproduced by the Supreme Court fixed the same forty per cent and carried the replanting allowance as a proviso rather than a separate sub-rule. It was decided by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not a judgment in itself. The rule, as judicially reproduced, deems forty per cent of the income from the sale of tea grown and manufactured by the seller in India to be income liable to tax, leaving sixty per cent as agricultural income, and requires an allowance for the cost of replacement planting in an area already planted and not previously abandoned, without reduction for a subsidy excluded by clause (30) of section 10.
Not a judgment; no judicial reasoning is stated for the rule as such. The Supreme Court in CIT v. Willamson Financial Services at paragraph 24 described the scheme: where the income of an assessee is partly from agriculture and partly from manufacture the profits on sales have to be apportioned, the task being simplified by Rules 7 and 8 framed under section 295(2)(b); under Rule 8, which applies only in cases where the assessee himself grows tea-leaves and manufactures tea in India, forty per cent of the profits on sales is taxable as business income while the balance is exempt as representing agricultural income. At paragraphs 38 and 39 the Court held that Rule 8(1) uses the word "income" and not "total income", that the words "as if" stand for a legal fiction, and that chargeability and computability are confined to the forty per cent. In the words reproduced by the source cited on this page: "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."
It was decided by the CBDT Circulars & Instructions and is reported as Rule 8 of the Income-tax Rules, 1962, as reproduced at para 16 of the Supreme Court's judgment in CIT v. Willamson Financial Services & Ors (Civil Appeal Nos. 3803-3808 of 2005 and connected appeals, 12 December 2007) and, as to both sub-rules, by the Gauhati High Court in Bazaloni Group Ltd. v. CIT (24 August 2004); and, as to both sub-rules, by the Calcutta High Court in M/s. Apeejay Tea Ltd. v. CIT & Anr. (G.A. No. 3135 of 2013 and ITAT No. 165 of 2013, 14 March 2014). Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section Rule 8, section 10(1), section 10(30), section Rule 7, section Rule 7A, section Rule 7B, section 80HHC, section 295, 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 cuts both ways and is cited by both sides. Not a judgment in itself. The rule, as judicially reproduced, deems forty per cent of the income from the sale of tea grown and manufactured by the seller in India to be income liable to tax, leaving sixty per cent as agricultural income, and requires an allowance for the cost of replacement planting in an area already planted and not previously abandoned, without reduction for a subsidy excluded by clause (30) of section 10. It arises in Capital Gains Exemptions, Deductions & Disallowances and How Tax Law Is Read matters, on section Rule 8, section 10(1), section 10(30), section Rule 7, section Rule 7A, section Rule 7B, section 80HHC, section 295 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. 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. Compute the composite income first, as business income, applying the ordinary business computation provisions, and only then apply the sixty-forty split. Take any Chapter VI-A deduction AFTER the apportionment, against the forty per cent, following the Supreme Court in CIT v. Willamson Financial Services. Claim the sub-rule (2) replanting allowance only for replacement of dead or permanently useless bushes in an area already planted and not previously abandoned, and do not reduce the cost by a subsidy excluded by s.10(30). Keep in mind that the sixty per cent is agricultural income within the State legislature's field under Entry 46 of List II, and that the State authority must accept the central computation of the composite income.
Searched for later treatment; none was found. That is not the same as a source affirming it. No instrument amending rule 8 of the Income-tax Rules, 1962 has been found. ONE LIMIT ON THAT, AND IT IS THE MAIN LIMIT ON THIS ENTRY: no official text of the rule was available. References to 'rule 8' in the electronic sources each serve a different instrument altogether, and a phrase search on the forty-per-cent words returned only Appendix and circular material, not the rule itself. So the text set out here comes from judicial reproductions. The 40/60 split and the sub-rule (2) replanting allowance are reproduced in identical terms by the Supreme Court in 2007, the Gauhati High Court in 2004 and the Calcutta High Court in 2014, which is inconsistent with an intervening change and is the best assurance available here. It is not the same as reading the rule. Two consequences follow. The entry states that the rule was in this form when those courts reproduced it, the latest of them on 14 March 2014, and it does not state that the rule stands in this form today; anyone relying on the percentages for a current year should confirm them against the Rules. And no commencement date for rule 8 has been established, which is why the entry carries none: a judgment's date and the vintage of a text are neither of them the date a provision took effect, and putting either in that field would mislead. This states the law under the 1961 Act and the 1962 Rules, which govern up to AY 2026-27 and the disputes arising from those years. 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.
NO OFFICIAL TEXT OF RULE 8 OF THE INCOME-TAX RULES, 1962 COULD BE OBTAINED, and that is the first thing to know about this entry. References to 'rule 8' in the electronic sources serve, variously, regulation 8 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the Direct Tax Vivad se Vishwas Rules 2020 and 2024, the Prohibition of Benami Property Transactions Rules 2016, the Faceless Assessment Scheme 2019, the Equalisation Levy Rules 2016, the Faceless Appeal Schemes 2020 and 2021, the Faceless Penalty (Amendment) Scheme 2022, the Commodities Transaction Tax Rules 2013, the Centralised Processing of Equalisation Levy Statement Scheme 2023, the Electoral Trusts Scheme 2013 and the e-Verification Scheme 2021. Thirteen have been checked and none of them is the Income-tax Rules, 1962. Any reference to 'rule 8' must therefore be identified by the instrument it belongs to before it is used. THE TEXT ABOVE COMES FROM THREE JUDICIAL REPRODUCTIONS. Sub-rule (1) is from paragraph 16 of the Supreme Court's judgment in CIT v. Willamson Financial Services (12 December 2007). Sub-rules (1) and (2) together are from the Gauhati High Court in Bazaloni Group Ltd. v. CIT (24 August 2004), and again from the Calcutta High Court in M/s. Apeejay Tea Ltd. v. CIT & Anr. (G.A. No. 3135 of 2013 and ITAT No. 165 of 2013, 14 March 2014, Girish Chandra Gupta and Sudip Ahluwalia JJ). Both sub-rules are therefore corroborated on two independent routes each. The Calcutta reproduction is the most recent and the cleanest: it prints 'under the provisions of Clause (30) of Section 10' without the '(sic)' that appears in the Gauhati report, and it encloses the closing words of sub-rule (2) in square brackets, indicating that they were inserted into the rule. The Gauhati reproduction prints 'under the provisions of (sic) (30) of Section 10', the '(sic)' being in the report; read with Rules 7A(2) and 7B(2), which point to clause (31), the reference is plainly to clause (30) of section 10. THIS ENTRY CARRIES NO DATE, AND THAT IS DELIBERATE. No commencement date for rule 8 has been established. Every other date available — the date of a judgment that reproduces the text, or the vintage of a source it was read from — would be read as the day the position took effect, which it is not. The percentages and the text above are verified on two routes each; only the date they took effect from is not. 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.
Not a judgment in itself. The rule, as judicially reproduced, deems forty per cent of the income from the sale of tea grown and manufactured by the seller in India to be income liable to tax, leaving sixty per cent as agricultural income, and requires an allowance for the cost of replacement planting in an area already planted and not previously abandoned, without reduction for a subsidy excluded by clause (30) of section 10.
TaxSphere, “Statutory position — Rule 8: tea grown and manufactured by the seller, forty per cent taxable and sixty per cent agricultural, and the sub-rule (2) replanting allowance”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-rule-8-tea-forty-per-cent-taxable-sixty-per-cent-agricultural-and-the-replanting-allowance/ (validity last checked 2026-09-09)
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