TMI Blog2004 (10) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... alid. 2. On the facts and circumstances of the case, the learned CIT(A) erred in upholding 1/4th share of agricultural income amounting to Rs. 1,54,690 as income from other sources and accepting the assessment made as such in the hands of the appellant by the AO. While doing so, the learned CIT(A) has ignored the relevant facts of the case and the material available on record. 3. The learned CIT(A) has further erred in allowing charging of interest under ss. 234A and 234B." 3. The brief facts relating to ground No. 1 are that the assessee along with his brothers owned agricultural land measuring 27 acres, 1 kanal and 10 marlas, which was leased out to M/s SmithKline Beecham Consumer Healthcare Ltd. (for short SBCHL), vide agreement dt. 13th Nov., 1997, with a specific term that it would be used for agricultural purposes. The assessee claimed such share of lease money out of land given to SBCHL as his income out of agricultural land and filed returns claiming refund of TDS which was deducted by lessee, SBCHL, on lease rent paid to the assessee. Such returns were processed and a refund granted, which comprised of TDS and interest thereon. 4. Subsequently, the AO initiated pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT(A) was of the view that the lease money was with respect of their business requirement and not with reference to the intention of doing agricultural operations, as the lease agreement clearly stated that there was a increase of lease money after every three years, irrespective of the fact that generation of income by way of agricultural operations or not, which suggested the nature of agreement. The CIT(A) also emphasised in para 18 of the agreement, which stipulated TDS by the lessee and in case the said annual charge was subjected to income-tax at a later stage, then the same could be reimbursed by the lessee. The CIT(A) observed that from reading of the above clause, it was evident that the lessee was ready to clear the burden of tax of the assessee knowing the fact that the land taken on lease by it was not meant for any agricultural purposes. The CIT(A) was further of the view that the photographs produced clearly showed that the land was being used by the lessee without having any agricultural operation and such trees had spontaneous growth without involvement of any human labour and skill. 9. The CIT(A), after considering the above facts, held that the receipt by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 003) 264 ITR 566 (SC) (ii) I.M.C. Ltd. Anr. vs. Jt. CIT (2003) 183 CTR (Cal) 445 : (2003) 261 ITR 731 (Cal) (iii) Vipan Khanna vs. CIT (2002) 175 CTR (P H) 335 : (2002) 255 ITR 220 (P H) (iv) Mahalakshmi Traders vs. Asstt. CIT (2004) 84 TTJ (Mad) 342 (v) CIT vs. Lucas TVS Ltd. (2001) 168 CTR (SC) 311 : (2001) 249 ITR 306 (SC). It was, therefore, submitted by the learned Authorised Representative that in view of the ratio of the above judgments and the reasons recorded by the AO for reopening, it is evident that such initiation by the AO, as sustained by the CIT(A), was bad in law and based only on mere change of opinion, which was not permissible in law and the assessments so framed are liable to be quashed. 12. On the other hand, learned Departmental Representative heavily supported the orders of the CIT(A) and pointed out that the initiation of reopening by the AO under s. 148 was based on substantial material, as evident from p. 19 of the paper book, which clearly stated that it came to the knowledge of the Department that the assessee was claiming income from other sources under the head 'Agricultural income' and also confirmed by the lessee vide letter dt. 3rd Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, as s. 147 reads as under: "If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned." From plain reading of the above section, it is clear that the reopening in this case was rightly initiated by the AO working on the information available on record. We, therefore, find no infirmity in the orders of the CIT(A) in sustaining reopening by the AO under s. 147 and uphold the same, and reject the ground raised by the assessee in this regard. 14. Coming to ground No. 2, learned Authorised Representative strongly objected to the impugned finding and submitted that from perusal of the agreement between the assessee and the lessee-company along with documents on record, it was evident that such agreement was meant for use of leased land only for agri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the lessee and the lessor and the intention of the lessor while leasing out the land. It was, therefore, pleaded that the orders of the CIT(A) confirming the orders of the AO should be set aside and the receipt from lessee company be treated as agricultural income. 16. Learned Authorised Representative also reiterated the submissions that from appraisal of the photographs placed on record, it was evident that the lessee was having agricultural operations and the land was being used for agricultural purposes apart from releasing water from effluent treatment plant. 17. On the other hand, learned Departmental Representative heavily relied on the impugned orders and submitted that the assessee in this case was having rental income with the lessee company, SBCHL, which, in turn, never intended to carry on agricultural operations but took the land on lease only for releasing water from its effluent treatment plant and the trees which were claimed to have grown had spontaneous growth without having any manual labour or skill and, therefore, could not be held in the nature of agricultural income, as decided by the Hon'ble Supreme Court in the case of CIT vs. Raja Benoy Kumar Sahas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties. The assessee whereas has claimed the receipt from SBCHL as income from agricultural operation, the Revenue has disputed treating the same as from other sources. 20. Learned Authorised Representative has heavily relied on the definition of 'agricultural income', as appearing in s. 2(1A)(a) and (b). Sub-cl. (a) of cl. (1A) of s. 2 states that any rent or revenue derived from land which is situated in India and used for agricultural purposes in place of any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such. Thus, the land used for agricultural purposes by the lessee will qualify for agricultural income. 21. We find that the position that emerges from the above definition of s. 2(1A)(a) is as under: (i) rent or revenue which is directly derived from any land which is used for agricultural purposes will be agricultural income; (ii) revenue which is derived must also be directly and not indirectly, associated with the land which is used for agricultural purposes before it can be said to be agricultural income; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the land in the strict sense of the term, meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land. These are basic operations and require the expenditure of human skill and labour upon the land itself. The mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations, would not be enough to characterise them as agricultural operation; in order to invest them with the character of agricultural operations, these subsequent operations must necessarily be in conjunction with and in continuation of the basic operations which are the effective cause of the products being raised from the land. The subsequent operations divorced from the basic operations cannot constitute by themselves agricultural operations." While going through the above decisions of the Hon'ble Supreme Court, we find that in the present case the assessee had agreement with SBCHL, though stated to be agricultural purpose, still it was lacking involvement of manual labour or skill and the trees which were being grown had spontaneous growth and the lessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of 'agricultural income', only then it earns exemption in whatever character the assessee receives it. 25. We, while considering the contention of learned Authorised Representative that the land was used for agricultural purposes, find that if the term 'agriculture' is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and the raising on the land of products which have some utility either for consumption or for trade and commerce, it will be seen that the term 'agriculture' receives a wider interpretation, both in regard to its operations as well as the results of the same. Nevertheless, there is present all throughout the basic idea that there must be at the bottom of its cultivation of land in the sense of tilling of the land, sowing of the seeds, planting and similar work done on the land itself, which is absent in the present case where the assessee is getting rent against such letting out of land which is being used by the lessee primarily for releasing water from its effluent treatment plant and having trees of the land with spontaneous growth without involving manual labour or skill. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the above judgments. 28. All above terms and conditions of deed of agreement and the prevailing facts in this case clearly suggest that the lease of land by the assessee was meant for granting rights to SBCHL to use the same for its business operation and, therefore, was rightly treated as 'income from other sources'. We, therefore, based on our above discussion and keeping in view the totality of facts and circumstances of the present case, find that the CIT(A) while sustaining the action of the AO, has passed a well reasoned and speaking order which does not call for any interference from our side. We, therefore, uphold the same and reject the ground raised by the assessee. 29. Taking the last ground, we find that the CIT(A) has not adjudicated the issue though a specific ground was taken by the assessee. Since it is a legal ground, the CIT(A) ought to have adjudicated the same. We, therefore, set aside this issue to the file of the CIT(A) for adjudication afresh, after affording opportunity to the assessee of being heard. 30. Facts and issues being similar, our decision in this case shall apply mutatis mutandis to the cases of all the other three assessees of this gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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