Brijesh Kumar, C.J.—

The Income Tax Appellate Tribunal, Guwahati by its order dated 19.6.98, in compliance with the order passed by the Hon'ble Supreme Court in Civil Appeal No. 7651 of 1996, has referred the following question under section 256 (2) of the Income Tax Act:

“Whether, on the facts and in the circumstances of the case the Tribunal has not erred in law in directing the Assessing Officer to allow the benefit of section 32AB to the assessee after holding that the income is agricultural income which is exempt from income tax under section 10(1) of the Income Tax Act, 1961.”

2. The dispute pertains to the assessment year 1988-89. The Assessing

Officer disallowed deduction under section 32AB of the Income Tax Act, 1961 on a sum of Rs.40,95,058 holding that it was sale proceeds of Eucalyptus trees, hence not business income but income from other sources. The Commissioner of Income Tax (Appeals), however, took a different view and allowed benefit of deduction to the assessee under section 32AB of the Act. The Department feeling aggrieved, filed an appeal before the Tribunal and the Tribunal held that the activities of the assessee in earning business income and agricultural income had to be construed forming part of the same business activity eligible for deduction under category of 'eligible business' and the deduction to be computed under section 32AB (1) (ii) to the extent of 20% according to section 32AB (3) of the Act. The Tribunal also held that since the accounts have been prepared according to Part II and Part III of the Sixth Schedule to the Companies Act as required under section 32AB (3) of the Act, the assessee would be entitled for benefit of section 32AB of the Act. The order of the Commissioner of Income Tax (Appeals) on this point was upheld.

3. The brief facts as may be indicated are that during the relevant period of assessment the assessee company claimed that it sold agricultural produce (Eucalyptus wood) amounting to Rs.62,61,973 raised from lease-hold land in which agricultural expenses to the extent of Rs.21,66,915 were incurred, thus earning a profit of Rs.40,95,058. The said amount was claimed to be exempt under section 10(1) of the Income Tax Act as agricultural income. As indicated earlier, this contention was not accepted by the assessing authority as the company did not acquire any interest in the land. The income was also not treated as agricultural income, but income from other sources. The contention, however, as raised by the assessee company was accepted by the Commissioner of Income Tax (Appeals) as well as by the Tribunal. It appears that the applications moved by the Revenue under section 256 (1) and 256 (2) had been rejected, hence the Revenue approached the Hon'ble Supreme Court, and in view of the order passed b by the Supreme Court, the question, as indicated earlier, has been referred under section 256 (2) of the Income Tax Act.

4. So far the finding of fact as recorded finally is that an amount of Rs.

40,95,0587- is agricultural income falling under the head "Profit and gains of business or profession", exempt under section 10 (1) of the Act. It is then held by the Tribunal that the Commissioner of Income Tax (Appeals) was justified in directing the authorities to allow deduction under section 32AB of the Act. The whole question that falls for consideration is as to whether or not after holding that the income being agricultural income and exempt under section 10 (1), deductions under section 32AB are still to be made admissible. In this connection we may have a look on the relevant provisions which are quoted below :

“10. Incomes not included in total income. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included -

(1) agricultural income;

32AB. Investment deposit account. (1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax

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