The main legal principle established is that the deduction under Section 80HHC should be allowed before apportionment of non-agricultural income and agricultural income under Rule 8 of the Income Tax Rules, 1962.

P.P. Naolekar, J.

1. The question for determination in these appeals lies in a narrow compass, but it involves a question of considerable nicety under the provisions of the Indian Income Tax laws. It is in effect, whether in the computation of the composite income derived from sale of tea grown and manufactured by the seller and exported out of India under Section 2(1A) of the Income Tax Act, 1961 (hereinafter referred to as "the Act of 1961"), read with Rule 8 of the Income Tax Rules, 1962 (hereinafter referred to as "the Rules of 1962"), the deduction under Section 80HHC in respect of profits derived from export of tea out of India should be allowed as per permissible deduction before apportionment of non-agricultural income and agricultural income under Rule 8 of the Rules of 1962 and thereafter the income so computed, as if it is a business income, is to be apportioned on the basis of 40 per cent being non-agricultural income and 60 per cent, being the agricultural income.

2. The facts necessary, in brief are-M/s. George Williamson (Assam) Ltd., and the Williamson Financial Services Ltd., are assessees under the Income-tax Act, and are limited companies engaged in the business of cultivation, manufacture and sale of tea. The appeals covers the assessment years 1989-90, 1990-91, 1992-93, 1993-94 and 1994-95 in respect of M/s. George Williamson (Assam) Ltd. and the assessment years 1989 -90, 1990-91, 1991-92, 1992-93, 1993-94 and 1994-95 in respect of M/s. George Williamson Financial Services Ltd. It will be sufficient to refer to the facts for the assessment year 1990-91 of the assessee, namely, George Williamson (Assam) Ltd. For the assessment year 1990-91, the appellant filed its return of income before the Deputy Commissioner of Income Tax (Assessment). In the said return the appellant claimed deduction under Section80HHC of the Act of 1961 before complying with Rule 8 of the Rules of 1962. The assessment was completed by the Income Tax Officer vide order dated March 31, 2002, allowing deduction under Section 80HHC of the Act only after applying Rule 8 of the Rules of 1962. Being aggrieved by the said assessment order, the appellant preferred appeal before the Commissioner of Income Tax (Appeals), contending therein, that the assessing authority was incorrect in first applying Rule 8 of the Rules of 1962 and then computing deduction under Section 80 HHC of the Act of 1961 on the income, for ascertaining the income of the tea business. It is contended that the provisions of the Income Tax Act do not provide computation of deduction under Section 80HHC of the Act of 1961 after applying Rule 8 of the Rules of 1962. The appellants have placed reliance on the judgment of the Madras High Court in the case of CAIT v. Periakaramalai Tea and Produce Co. Ltd. [1972] 84 ITR 643 (Mad). The Commissioner of Income Tax (Appeals) had allowed the appeal filed by the appellant and directed computation of the business income permitting deduction under Section80HHC of the Act of 1961 before complying with Rule 8 of the Rules of 1962 for arriving at the business income of the appellant for tax purposes. The Revenue preferred an appeal before the Tribunal. The appeal filed by the Revenue was allowed by the Tribunal holding that Section 80 HHC of the Act of 1961 would apply only after application of Rule 8 of the Rules of 1962. The Tribunal has mainly placed reliance on the decision of the Gauhati High Court in Assam Co. Ltd. v. State of Assam and held that the application of Rule 8 of the Rules of 1962 would be prior to the permissible deduction under Section 80 HHC of the Act of 1961. Aggrieved by the said order, the appellants have preferred appeals before this court.

3. Learned senior counsel for the appellant, Dr. P. Pal, has urged before this court that Rule 8 of the Rules of 1962 provides for computation of composite income return from the sale of tea manufactured by the seller. Such composite income is to be computed in the first