Income from Plantations

INCOME FROM TEA, COFEEE & RUBBER PLANTATIONS.

It may be recalled in the earlier article we have analyzed the generation of agricultural income, the manner it is considered as exempt under the Income-tax Act and what are the conditions tagged on to derive such benefits. While general agricultural income enjoys blanket exemption, if it is not accompanied by any other income derived by a person, the manner of treatment accorded to income from Tea, Coffee and Rubber Plantations are altogether in a different platform. While general agricultural income as it is generated enjoys, the lawmakers did not consider it necessary to dwelve at length the basis for computation of such income. However income generated from Tea,. Coffee and Rubber Plantations stand altogether in a different footing, for certain percentage of income generated from these sources are subjected to Income-tax. The idea behind taxing these incomes (though they are also derived from the same agricultural source) is that persons involved in these operations have to necessarily deploy larger inputs and such persons could tend to be men worthy of means. In a society which craves for progressive taxation as its avowed policy, the law makers have thought it fit to tax such entities on a limited scale, for they are the affordable lot, when compared to the tiny common who could generate agricultural income to a very limited extent from their land holdings. On the other hand owners of plantations have necessarily to possess larger extent of land to raise their crop, who are necessarily endowed with the necessary wherewithal to invest and reap benefits. It is such back ground, in the minds of the law makers which has instilled in imposing a certain levy on incomes generates from these sources.

COMPUTATION OF INCOME FROM TEA; Rule 8 of the Income-tax Rules provides that Income derived from the sale of tea grown and manufactured in India by any person shall be computed treating it as though it is income derived from business and forty percent of such income shall be taken to be the income liable to tax. While computing the income from tea, development allowance as laid down under section 33AB of the Income-tax Act shall be allowed. The extent of deduction to be allowed are: (admissible from the assessment year 1991-92 onwards)

1. The sum of money deposited in Tea/Coffee/Rubber Development account maintained by an assessee with any Bank, under a scheme as approved by the Tea/Coffee/Rubber Board, before the expiry of 6 months from the end of the previous year or before the due date for furnishing a return of income or
2. Deposited the money in a deposit account opened in accordance with and for the purpose framed in a scheme framed by the Tea/Coffee/Rubber Board shall be allowed a deduction as under:
1. a sum equal to the amount of the aggregate of the amount
2. a sum equal to forty percent of the profits of such business (computed in the manner laid down for computing income from profits and Gains from business or profession) before making any deduction under this section.

The other inherent condition with regard to the benefit of deduction for tea growers/manufacturers is that

1. the assessee shall at least 3 months before the commencing of operations for plantations or re-plantation, give notice of intention to the Tea Board in writing
2. the assessee shall afford the Tea Board authorities or such other agencies as may be authorized by the Tea Board to inspect the area under plantation or re-plantation
3. the assessee shall furnish to the Tea Board all such particulars, Documents or statements in relation to the planting or replanting of tea, as the Tea Board may require from time to time
4. and the assessee shall furnish to the assessing Officer along with the return of income for the previous year for which the deduction is claimed, a certificate from the Tea Board in form 5 and a statement of particulars in form 5A

This apart, the deduction shall be allowed only when the books of accounts are audited and a report is rendered by a chartered account qualified under section 288(2) of the Act. Further the amount deposited in the account shall not be withdrawn except for the purposes specified in the scheme or in the circumstances specified below:

1. closure of business
2. death of an assessee
3. partition of a Hindu Undivided family
4. dissolution of a firm
5. liquidation of a company.

The assessee shall forfeit the benefit of deduction if

1. if the funds are utilized fopr installation of any plant or machinery in any residential accommodation including a guest house
2. for acquiring any office appliances, other than a computer
3. any machinery or plant the whole cost of which is allowable as a deduction &
4. acquisition of any new plant or machinery for the purpose of construction, manufacture or production of any article or thing specified in the Eleventh schedule.

The instances of above violation shall entail in the entire amount being treated as the income of the assessee and brought to tax in the normal manner. Similarly where the assets acquired in accordance with the scheme or deposit held is transferred within a period of 8 years from the date of deposit/acquisition, then the assessee shall forfeit the benefit of exemption and the assessing Officer shall make an assessment on the extent of deposit so used for purposes other than the one laid down, as the income of the assessee in the particular year of violation and bring the same to tax in the normal manner

COMPUTATION OF INCOME FROM MANUFACTURE OF RUBBER:

Income-tax Rules 7A provides that 35% of the income derived from the sale of centrifuged latex or latex based crepes (such as latex crepe) or brown crepes remilled crepe, smoked blanket crepe or flat barke crepe or technically specified block rubbers manufactured or processed from field latex or coagulumn obtained from rubber plants grown by a seller in India, shall be adopted, treating the entire process as business income.

While computing the income from sale of rubber as above, cost of planting rubber plants in replacement of plans that have died or become permanently useless in an area already planted, if area has not already been abandoned as waste land shall be allowed as a deduction. While working out the admissible deduction, the value of subsidy, if any granted shall no be reduced from the cost of such planting or re-planting.

COMPUTATION OF INCOME FROM THE MANUFACTURE OF COFFEE:

Income-ax Rules 7B provides that 25% shall be deemed to be the income derived from coffee from the value of coffee grown and cured by the seller in India, treating the same as a business proposition.

Income derived from the sale of coffee grown, cured, roasted and grounded by the seller in India, with or without mixing chicory or other flavouring ingredients shall be computed as if it were income derived from business and 40% of such income shall be adopted as income derived from this source.

It has furher been explained that the term curing shall have the same meaning as assigned in clause (d) of section 3 of the Coffee Act, 1942 (7 of 1942)

Similarly as discussed in the case of rubber, allowance shall be made in respect of the cost of planting of coffee plants and replacements of plants that have died or become permanently useless in an area already planted if such area has not been previously abandoned. While computing the deduction, the value of subsidy, if any provided to the grower shall no be deducted.

The benefit of exemption as discussed under Tea enumerating section 33AC shall equally apply for both Coffee and Rubber incomes. I.e. deposit in specific account with NABARD. (National Bank for Rural and Agricultural Development)

The encouragement from the taxation point of view of comparison though very much differs from the normal agricultural income, yet, while considering the enormous investments and possibility of the industry gaining substantial boost/boom could be reasonably termed as commensurate with the merit and potential of the industry as a whole.