Section 33AB

Section 33AB — the law in short

What the courts have decided on section 33AB, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• 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 High CourtHelps taxpayer
  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.
• Statutory position — s.33AB: the tea, coffee and rubber development account — the deposit deadline, the forty per cent ceiling, the Form 3AC audit, and which assessment years each figure governs CBDT Circulars & InstructionsCuts both ways
  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?
  Section 33AB(1) allows a deduction to an assessee carrying on the business of growing and manufacturing tea or coffee or rubber in India which has, "before the expiry of six months from the end of the previous year or before the due date of furnishing the return of his income, whichever is earlier", either deposited with the National Bank (NABARD) in a special account under a scheme approved by the Tea Board, Coffee Board or Rubber Board, or deposited in a Deposit Account under a scheme framed by that Board with the previous approval of the Central Government. The deduction is the LOWER of the amount deposited and forty per cent of the profits of that business computed under "Profits and gains of business or profession" before any deduction under section 33AB itself, and it is expressly given before brought-forward losses are set off under section 72. The forty per cent figure is not original: "forty" was substituted for "twenty" by the Finance Act, 2001 with effect from 1 April 2002, so twenty per cent governs assessment years up to AY 2001-02 and forty per cent AY 2002-03 onwards. Coffee and rubber were not in the section at all until the Finance Act, 2003 brought them in with effect from 1 April 2004 — that is, from AY 2004-05; for AY 2003-04 and earlier the section is a tea provision only.
• Statutory position — s.33AB(3) to (8): the five permitted withdrawals, the four barred purchases that are taxed back in full, the non-utilisation charge, and the eight-year lock-in on scheme assets CBDT Circulars & InstructionsCuts both ways
  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?
  Sections 33AB(3) to (8) are where the deduction is lost, and each limb produces a deemed profit chargeable under "Profits and gains of business or profession" in a different year. Sub-section (3) allows withdrawal only for the purposes specified in the scheme or the deposit scheme, or in five listed circumstances — closure of business, death of the assessee, partition of a Hindu undivided family, dissolution of a firm and liquidation of a company. Sub-section (4) then catches misapplication: where an amount released by NABARD or withdrawn from the Deposit Account is used to purchase plant or machinery for office premises or residential accommodation including a guest-house, office appliances other than computers, plant or machinery whose whole actual cost is already allowed as a deduction in one previous year, or new plant or machinery for an industrial undertaking making an Eleventh Schedule article, "the whole of such amount so utilised" is deemed to be the profits and gains of that previous year. Sub-section (5) taxes back the whole amount withdrawn where the withdrawal is on closure of business or dissolution of a firm, expressly "as if the business had not closed or, as the case may be, the firm had not been dissolved". Sub-section (7) taxes back so much of a released or withdrawn amount as is not actually utilised for the business within that same previous year, with a proviso sparing amounts released on closure of the account on death, partition of a HUF or liquidation. And sub-section (8) imposes an eight-year lock-in on assets: an asset acquired in accordance with the scheme that is sold or otherwise transferred before eight years from the end of the previous year in which it was acquired brings back, as profits of the year of transfer, so much of the cost of the asset as is relatable to the section 33AB(1) deduction.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.