The restoration of 33AB of the Income Tax bill, which allows it to be taxed only after the deletion of 20 per cent of the pre-tax profits with the provision for an additional 20 per cent to be deducted, forms the basis of the tea industry's argument. It also wants the agricultural income to be treated as part of the single divisible pool of taxes to neutralise losses as taxes on agricultural income vary from state to state.

The incorporation of Section 33AB along with an additional 20 per cent tax benefit would translate into a 16 per cent cut in taxes in the present budget. The deletion of 33AB from the IT Bill late last year had meant an additional burden of 8 per cent on tea companies taking into account the corporate income tax and respectivestate agricultural taxes.

Also, the industry has urged the government to treat agricultural income as part of a single divisible pool of taxes in line with the recommendations of the tenth finance commission.

As industry sources put it: "This would enable the companies to reduce the computed tax liability which in certain cases work out to be more than 100 per cent of the profits."

As per Section 8 of Income-Tax rules, the tea industry has a complicated dual taxation structure wherein 40 per cent is subject to corporate income tax (CIT) and the remaining 60 per cent is taxed by state governments under their respective agricultural income tax acts.

The industry's present demand for imposition of taxes only after a 40 per cent deduction from pre-tax profits would essentially mean a reduction by almost 16.4 per cent from the present 41 per cent taking into account both CIT and agricultural tax.

A 35 per cent CIT when imposed after deduction of 40 per cent of the pre-tax profit works out to be Rs 8.4(i.e 35 per cent of Rs 24), whereas an agricultural income tax of 45 per cent on the rest translates to Rs 16.2 (in case of Assam, 45 per cent agricultural income tax on Rs 36), which brings a total tax component of 24.6 per cent.

Under the present system of taxation, tea companies are denied the opportunity to neutralise the losses on account of agricultural income in one state against the profits on the same account made in another state. This is in contrast to a company of any other industry having multiple units in other states which is able to offset losses in one unit to profits in another unit primarily because corporation tax is levied on total profits of the company.

Although mooted by the tenth finance commission, this did not benefit the tea industry as agricultural income could not be taxed by the centre. Industry watchers point out that if it is done, the states loss in revenue if any would be more than compensated than the gain in revenue from their share of proposed single pool.

Based onthe share of the divisible pool in respect of the income tax of each state, the tea industry has worked out the share of each tea growing state from an estimated Rs 4,000 crore released to the states. An industry source says that subjected to problems of increasing insurgency, the tea growers are put in a tight spot with respect to pumping in more investments, a review by the government will only help check the flight of capital and allow it to generate sufficient internal resources specifically earmarked for tea gardens.