Tea, Coffee or Rubber Development Account

Introduction

If assessee, engaged in the business of tea, coffee or rubber plantation in India, makes deposit in special deposit accounts, the deduction is allowed under this provision. This deposit can be utilized by the assessee only for the specified purposes and any use of deposit for non-permitted purpose would result in withdrawal of deduction.

1. About

1.1. Who can claim deduction?

The deduction is allowed to an assessee who is engaged in the business of tea, coffee or rubber plantation in India. In other words, this deduction is available if assessee is engaged in the business of growing and manufacturing tea or coffee or rubber in India.

If assessee is engaged in growing tea-leaves (or coffee or rubber leaves) but is not engaged in the business of processing or manufacturing of tea (or coffee or rubber) this deduction isn’t available. Similarly, if assessee is not engaged in growing tea-leaves but is engaged in processing them, this deduction is not available.

1.2. When this deduction is allowed?

The deduction is available when assessee deposits the amount in the following accounts:

(a) Special Account with NABARD

(b) Deposit Account under the deposit scheme made by the Tea Board, the Coffee Board or the Rubber Board, with the prior approval of the Central Government.

The deduction is available for deposits made in these accounts within 6 months from the end of the tax year or before the due date for furnishing the return of income, whichever is earlier.

Further, the assessee is also required to have his accounts audited by a Chartered Accountant one month prior to the due date for furnishing the return of income under section 263 and furnish the report of such audit electronically in Form 182.

The audit shall not be mandatory if accounts are required to be audited under any other law, and the audit report under that law is obtained, along with a report in Form 182, for the purposes of this provision.

1.3. How much deduction is allowed?

The amount of deduction to be available under this provision shall be the lower of the following:

(a) Amount deposited in the accounts specified above

(b) 40% of business profits, computed under the head ‘Business or Profession’ before making any deduction under this provision.

Such deduction is allowed before making any deduction of carried forward business losses under Section 112.

1.4. When deposit can be withdrawn?

The amount standing to the credit of the assessee in the special account or deposit account is allowed to be withdrawn for the purposes specified in the scheme. In addition, the assessee is allowed to withdraw the deposit in the circumstances specified below:

(a) In case of closure of business

(b) In case of death of assessee

(c) In case of partition of HUF

(d) In case of dissolution of firm

(e) In case of liquidation of company.

1.5. Withdrawal of deduction

1.5-1. In case of closure of business

If deposit is withdrawn on closure of business or dissolution of the firm, the amount so withdrawn is chargeable to tax as business income of that tax year. However, if the amount is withdrawn in the event of death of assessee, partition of HUF or liquidation of company, the deduction shall not be withdrawn and nothing would be taxable in the hands of recipient.

1.5-2. Use for non-permitted purpose

If deposit is utilized for purchase of following machinery and plant, the amount so utilized shall be deemed to be business profits of that tax year:

(a) Any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of guest house

(b) Any office appliances (not being computers)

(c) Any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the business income

(d) Any new machinery or plant to be installed in an industrial undertaking for construction, manufacture or production of any article or thing specified in the Eleventh Schedule.

1.5-3. Amount remain unutilized

The amount of deposit withdrawn, by the assessee from deposit account, or released by NABARD from special account should be utilized in accordance with the relevant scheme in the said tax year. If it is not so utilized, the unutilized amount is deemed to be business income of that tax year. However no taxability will arise if such sum is withdrawn or released, as the case may be, in case of death of the assessee, Partition of HUF or Liquidation of a company.

1.5-4. Sale of assets within 8 years

If any asset, acquired under the relevant scheme, is sold or otherwise transferred within 8 years from the end of the tax year in which it was acquired, the proportionate amount of deduction, relatable to the cost of such asset is deemed to be business income of that tax year. The deduction to be withdrawn shall be calculated as under:

The deduction is not withdrawn if asset is transferred, within 8 years, to the government, a local authority, a statutory corporation or a government company. Similarly, the deduction shall not be withdrawn from a partnership firm which is succeeded by a company. This benefit is allowed subject to fulfilment of two conditions – first, all properties and liabilities of the firm, immediately before the succession, are transferred to the company and second, all shareholders of the company were partners of the firm immediately before the succession.

In this situation, the successor-company is required to apply the deposit in accordance with the scheme and should not transfer such assets within unexpired period of 8 years.

1.6. How much is taxable on withdrawal of deduction?

As income from tea plantation (or coffee or rubber plantation) is treated as income partly from agriculture operations and partly from business activities, the amount to be taxed, out of the deduction withdrawn under this provision, shall be computed in accordance with Rule 271.

1.7. Double deduction

Where the amount deposited has been allowed as a deduction in any tax year, no deduction shall be allowed in respect of such amount in any other tax year.

Similarly where the amount standing in the credit of the special account or Deposit account is utilized by the assessee for an expenditure in accordance with the scheme, such expenditure shall not be allowed as deduction in computing the business income.

1.8. No deduction to partner or member

In case of a Firm, AOP or BOI, No deduction shall be allowed for the amount deposited while computing the income of any partner or member, as the case may be.

References

National Bank for Agriculture and Rural Development

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.