Blossom Tea Garden, a tea estate in Dibrugarh, Assam received - 23,00,000 as compensation from an insurance company for severe damage to the green…

CA Final · Direct Tax Laws and International Taxation · RTP · May 2024
Blossom Tea Garden, a tea estate in Dibrugarh, Assam received - 23,00,000 as compensation from an insurance company for severe damage to the green leaves due to a hailstorm in July 2023. Blossom tea estate is of the view that the entire receipt under the insurance policy for damage caused by the hailstorm to tea leaves will be agricultural income, hence, would not be chargeable to tax. Examine the contention of Blossom Tea Garden.
(A) Blossom Tea Garden's contention is incorrect; entire compensation is assessable as income from other sources.
(B) Blossom Tea Garden's contention is incorrect; entire compensation is assessable as manufacturing income.
(C) Blossom Tea Garden's contention is incorrect; it's deemed to be profit on sale of standing crop or the produce, therefore the same is taxable as profits and gains from business or profession.
(D) Blossom Tea Garden's contention is correct; no part of the compensation consists of manufacturing income, and it cannot be apportioned under rule 8 between manufacturing income and agricultural income. Therefore, the income will be agricultural income.

Suggested Answer and Working Notes:

Correct Answer: Option (D)

Blossom Tea Garden's contention is correct; no part of the compensation consists of manufacturing income, and it cannot be apportioned under rule 8 between manufacturing income and agricultural income. Therefore, the income will be agricultural income.

Topics: Double Taxation Relief, Non-Resident Taxation

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