The deduction under Section 80HHC of the Income-tax Act, 1961, should be granted before apportioning the income between agricultural income and non-agricultural income, as this is in accordance with the provisions of the Act and the Rules and gives full effect to the provision's intention to boost exports.

Satyabrata Sinha, J.

1. INTERPRETATION of section 80HHC of the Income-tax Act, 1961 (hereinafter referred to as "the said Act"), vis-a-vis a circular letter bearing No. 600 (see [1991] 189 ITR (St.) 126), dated 23rd May, 1991, issued by the Central Board of Direct Taxes is in question in this writ application.

2. THE facts shortly stated are as follows :

THE petitioner being a company incorporated and registered under the Companies Act, 1956, admittedly is engaged in growing, manufacturing and selling black tea. It also exports tea out of India.

A question arose as to the stage of grant of deduction required to be given in assessment of computation of income of such an assessee in view of various representations regarding problems faced by tea exporters. By reason of the impugned Circular No. 600 (see [1991] 189 ITR (St.) 126), dated 23rd May, 1991, the Board has laid down the following formula. Abbreviated profit and loss account

3. ACCORDING to the petitioner, the interpretation of the aforesaid provision by the Central Board of Direct Taxes (hereinafter referred to as "the said Board") is not in consonance with the provisions of Section 80HHC read with Rule 8.

4. DR. Pal, learned senior counsel appearing on behalf of the petitioner, submits that in terms of Rule 8 framed under the said Act legal fiction has been created in terms whereof the agricultural income and the non-agricultural income is to be treated as a composite income out of which 60 per cent, thereof would be treated as an agricultural income and 40 per cent, thereof would be treated as non-agricultural income and, in that view of the matter, the proper stage for grant of such deduction would be when the allocation chargeable under the said Act in terms of Rule 8 is being made.

The learned Additional Solicitor General, appearing on behalf of the Revenue, on the other hand, submitted that the aforementioned circular letter is merely clarificatory in nature which the Board was entitled to issue in terms of Section 295(2)(b) and hardly there exists any difference in the matter of computation of profits so far as that part of business of the petitioner relating to sale of tea leaves within or outside India is concerned and the difference, if any, would be only in respect of computation of agricultural income. According to learned counsel Section 80HHC has to be considered in the light of the provisions of Section 2(1A), Section 10(1), Section 28, Section 29 and Sections 30 to 43D of the said Act. In support of the aforementioned contentions strong reliance has been placed upon a recent Division Bench decision of the Gauhati High Court in Assam Company Limited v. State of Assam [1996] 219 ITR 59.

5. IT is beyond any cavil of doubt that Parliament occupies the legislative field in respect of imposition of taxes arising out of non-agricultural income in terms of item No. 82, List I of the Seventh Schedule to the Constitution of India whereas the legislative field in relation to agricultural income falls within the ambit of the State Legislature in terms of item No. 42 of List II thereof.

6. THE Constitution of India itself defines agricultural income in article 366(1) to mean agricultural income as defined for the purposes of enactments relating to Indian income-tax.

Section 2(1A) of the said Act defines agricultural income.

7. SECTION 10 provides for such income which would not he included in total income and agricultural income is one of such items.

8. SECTION 2(45) defines total income which means the total amount of income referred to in SECTION 5, computed in the manner laid down in the Act.

Section 5 provides for the scope of total income which in the case of a resident includes all income from whatever source derived, viz., (a) which is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise in India during such year or (c) accrues or arises outside India during