Removal Of Section 33ab Provision To Hit Tea Sector

The deletion of the provision relating to Section 33AB in the Working Draft of the Income Tax Bill, 1997 will prove to be a retrograde step for the tea industry, analysts have said.

Under Section 33AB of the Income Tax Act 1961, the tea producers are allowed a deduction upto 20 per cent of their profits provided the amounts are deposited with Nabard within six months of the previous year.

No corresponding provision has been included in any of the sections under the Draft Bill.

The deposits are only to be utilised in specified items of investments of development such as in extension planting, replanting of old tea bushes, infilling and rejuvenation pruning, in modernisation and upgradation of manufacturing facilities and in labour welfare measures.

 

The system of depositing funds with Nabard has enabled the tea industry to put aside a portion of profits in exceptional years for investments in lean years. Utilisation of these funds are then made in years when profitability declines, thus enabling the tea companies to make sustained development investments. For example, in 1990, the size of this fund was Rs 80 crore.

Apart from bringing down the effective rate of taxation on tea, the allowance under this section has enabled the tea industry to generate sufficient internal resources for the development of its gardens.

Moreover, it will be difficult for the tea industry to achieve the production target of 1000 million kg by 2001-02, as envisaged by the Ninth Plan with the abolition of Section 33AB.

This is because tea industry will find it difficult to generate greater resources and provide greater incentive towards reinvestment in developmental activities in tea plantations so that the production and export targets for the Ninth Plan are achieved.

In 1990, corporate income tax was reduced to 40 per cent and Section 33AB as well as Section 32AB were withdrawn. Then after representations to the commerce and finance ministries, Section 33AB was restored in a revised fashion.

Under Section 33AB of the Income Tax Act 1961, tea producers are allowed a deduction upto 20 per cent of their profits provided the amounts are deposited with Nabard within six months of the previous year.