Theory:

     When the daimio himself was almost directly under him, he threw a handful of ashes over the tree, which did not change a particle. The wind blew the fine dust in the noses and eyes of the daimio and his wife. Such sneezing and choking! It spoiled all the pomp and dignity of the procession. The man whose business it was to cry, “Get down on your knees,” seized the old fool by the collar, dragged him from the tree, and tumbled him and his ash-basket into the ditch by the road. Then, beating him soundly, he left him for dead.

     Thus the wicked old man died in the mud, but the kind friend of the dog dwelt in peace and plenty, and both he and his wife lived to a green old age.
Explanation:
 
When the daimio was nearly under the tree where the bad old man occupied, the bad old man threw a handful of ashes over the tree, which had zero effect. Nothing had happened to the bare cherry tree. It remained in the same withered stage. Thus, the bad old man failed in his third attempt also.
 
Despite the fact that the evil old couple failed in their first two attempts to become as wealthy as their good old neighbours, it had no effect on them and instead served to hurt them. Unfortunately, for the third time, it had the worst effect on the bad old man. The ash particles were blown into the daimio's and his wife's nostrils and eyes by the wind; they started to sneeze and cough. Daimio and his wife were unable to breathe due to the ash particles. The event completely ruined the grandeur and formality of the march.

The daimio's guardians were furious with the evil old man and dragged him down from the tree, throwing him and his ash-basket into a roadside ditch. The bad old man was heavily beaten up for his deed and left dead just as he had beaten up Muko. The sin he sowed made him reap the same. As the bad old man died in the mud, Muko's beloved masters lived long, happily and peacefully with the wealth they possessed.
 
Meaning of difficult words:
 
S.No
Words
Meaning
1.
ChokeNot able to breathe
2.
PompFormal ceremony
3.
DignityA calm and serious manner
4.
TumbleA sudden downfall
5.
Dwelt Inhabit or live somewhere
Reference:
National Council of Educational Research and Training (2007). Honeycomb. The Ashes That Made Trees Bloom (pp. 55-63). Published at the Publication Division by the Secretary, National Council of Educational Research and Training, Sri Aurobindo Marg, New Delhi.