Section 33AB: Tax deduction For Tea, Coffee or Rubber:

Applicability of section of 33AB:

• As per the provision of income tax, it is applicability to all assessee who is engaged in the business of growing and manufacturing of tea, coffee or rubber in India.
• The amount furnished in the deposit account or some specified account to utilize the amount for the particular period is permitted as a deduction under section 33AB.

Deposit of amount with NABARD Account:

Under this section deduction is allowed if some amount is deposited with NABARD

• Up to the due date of return filing (or)
• Six months from end of previous year
  whichever is earlier.

Quantum of Deduction under Section 33AB:

As a deduction under section 33AB, lower of the below amount is eligible for deduction

• Actual amount deposited with NABARD
• 40% of the profit is calculated( Before this deduction)

Utilization of Withdrawal Amount From Deposit:

Deposited amount should be utilized for purposes prescribed by Tea, coffee, Rubber Board.

Consequences of Mis utilization Deposit Amount:

If deposited amount is Mis-utilized then deduction allowed earlier shall be withdrawn and it is taxable.

Some Important Key Points Under this Section 33AB:

• If any amount is withdrawn from NABARD A/c should be utilized in the year of Withdrawal only, Otherwise such amount shall be taxable.
• When amount utilized [as per scheme] for revenue expenses then such expenses shall not be allowed as deduction under PGBP.
• When amount utilized (as per scheme] for purchase of any P&M then depreciation shall be allowed on such Plant and Machinery.

 

If any amount is utilized for following purposes then deduction claimed earlier withdrawn:

1. For Plant and Machinery used in office premises or residential accommodation
2. For office appliances [not being computer]
3. Plant and Machinery on which 100% deduction already allowed under the head PGBP.

.Where asset purchased is sold/ transferred before expiry of 8 years from end of previous year, in which it was acquired, such part of asset as is relatable to deduction allowed, shall be deemed to be income of P.Y. in year of sale / transfer of asset.

Restriction of 8 years shall not apply:-

• Where asset is sold/ transferred to Govt/ Local Authority/ Statutory corporation, Government Company.
• Transfer is by succession of firm to company whereby all assets and liabilities of firm are transferred to company and all shareholders of the company were partners of the firm immediately before succession.

To Withdrawal the amount which was furnished in a particular or deposit account. Below are the mentioned criteria for the amount deposited in the specified account or deposit account

• For the target as mentioned inside the policy
• On the business shutdown
• On the death of the taxpayers
• On the liquidation of the firm or end of the company
• Division of the Hindu Undivided Family

The deduction beneath section 33AB will be open but there is a condition that the accounts must get audited through the chartered accountant prior to the date which is mentioned by the council. Thus the taxpayers are needed to furnish the report for the accounts which are audited and examined all through inside the Form no. 3AC.

Illustration

G Ltd., a company in which public are substantially interest, is engaged in the business of growing and manufacturing tea in India. For the previous year ended 31.03.2022, its composite business profits before allowing deduction u/s 33AB is 60,00,000. On 01.09.2022, it deposited a sum of 11,00,000 in the Tea Development Account. During the previous year 2020-21, G Ltd. had incurred a business loss of 14,00,000 which has been carried forward. On 25.01.2023, it withdrew 10 lakhs.

from deposit account which is utilized as under:

-6,00,000 for purchase on non-depreciable asset as per the scheme specified
-3,00,000 for purchase of machinery to be installed in the office premises
-1,00,000 was spent for the purpose of scheme on 5.4.2023,

You are required to determine business income of G Ltd. and the tax consequences that may arise from the above transactions in the relevant assessment year.

Answer:

Computation of Business Income of G Ltd. for the A.Y. 2023-24

10,00,000 being the amount withdrawn from Tea Development Account has to be utilized in the prescribed manner, otherwise, the withdrawn amount would be chargeable to tax as business income. In the given case, the taxability of withdrawal amount based on their utilization is as follows:

-6,00,000, out of the amount withdrawn from the deposit account, utilized for purchase of non-depreciable asset as per the specified scheme .

– 3,00,000, being the amount utilized for purchase of machinery to installed in the office premises is not a permissible utilization. Hence, the amount would be deemed as profits and gains of business of the previous year 2022-23 as per section 33AB(4).

-1,00,000 was spent for the purpose of scheme on 05.04.2023. As per section 33AB(7), this amount would be taxable since the same is not utilized during the same previous year (i.e., P.Y. 2022-23) in which the amount is withdraw from the deposit account.

When any part of withdrawal amount becomes taxable, the agricultural and non-agricultural portions of income must be segregated. Accordingly, 1,60,000, being 40% of 4,00,000 ( 3,00,000+ 1,00,000) would be chargeable to tax as business income and the balance 2,40,000, being 60% of 4,00,000 would be agricultural income exempt from tax.

Computation of Business Income of G ltd for the Assessment Year 2022-23:

Working Note

Deduction under section 33AB(1) would be the lower of the followings

• Amount deposited in Tea Development Account on or before 30.09.2022 = 11,00,000
• 40% of profit of such business [i.e Rs: 24,00,000, being 40% of Rs: 60,00,000]

So, Amount of deduction is = 11,00,000.