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2015 (9) TMI 794 - ITAT PUNE

2015 (9) TMI 794 - ITAT PUNE - TMI - Treatment to assessee's income - CIT(A) treated as agriculture income u/s 2(1A)(b)(i) and to exclude said income u/s 10(1) - assessee engaged in the business of production of nursery plants and banana plants, tissue culture activities etc - Held that:- We find no infirmity in the order of the CIT(A) following the decision of Hon’ble Madras High Court in the case of Soundarya Nursery (1998 (8) TMI 37 - MADRAS High Court)and the Explanation (3) to section 2(1A) .....

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come. Their Lordships were also dealing with a situation in which operations were carried on in a greenhouse. Therefore, merely because a greenhouse in involved, the nature of operations would not change - Decided in favour of assessee. - ITA Nos.428 & 429/PN/2014 - Dated:- 28-8-2015 - SHRI R.K. PANDA AND SHRI VIKAS AWASTHY, JJ. Appellant by : Shri Dheeraj Jain and Shri B.C. Malakar Respondent by : Shri Pramod Shingte ORDER PER R.K. PANDA, AM : The above 2 appeals filed by the Revenue are direct .....

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lture activities etc. The income derived from the said activity was claimed exempt u/s.10(1) of the IT. Act in the return of income filed for the Assessment Year under consideration, claiming the same to be agricultural income. However, the Assessing Officer was of the view that in view of the provisions of sec.2(1A) of the I. T. Act, unless an assessee carries out the basis operations upon the land i.e. tilling of the land, sowing of seeds, planting etc., requiring exploitation of human skill a .....

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ot be treated as agricultural income. The Assessing Officer further noted that in the case of the assessee, the assessee was not carrying on any basic agricultural operations on the land but was engaged in the business of production of tissue culture of banana and other plants which involved indoor activities in controlled and artificial atmosphere and surrounding. The Assessing Officer pointed out that even the partnership deed of the assessee clearly spelt out the intention of the assessee to .....

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the income of ₹ 10,51,560/- claimed as exempt u/s.10(1) was held to be income from business and assessed accordingly. 3. In appeal the Ld. CIT(A) decided the issue in favour of the assessee by observing as under : 5. The submissions of the appellant are carefully examined with reference to the facts of the case, material placed on record and the relevant provisions of law as applicable for the year under consideration. The basic issue that is to be decided in this case is whether the incom .....

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subsequent operations. The basic operations would involve tilling of the land, sowing of the seeds, planting and similar operations on the land requiring expenditure of human skill and labour on the land itself. Thus, these are essentially activities which initiate: and facilitate the process of growth of agricultural produce. The subsequent operations are those which are to be performed after the produce sprouts from the land, e.g., weeding, digging the soil around the growth, removal of undes .....

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e present case, the Assessing Officer while concluding that the income derived by the appellant was not in the nature of agricultural income, has held that the appellant was not carrying out any basic operations on the land but it its activity was confined to production of tissue culture of banana and other plants involving indoor activities in controlled and artificial: atmosphere, Therefore, what we have to examine is whether the basic agricultural operations are carried out by the appellant i .....

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culture where many plants can be obtained. This is called 'propagation phase'. It involves obtaining many micro segments through tissue culture from the mother plant and each of which is capable of developing into an independent plant. f. Fourth Step: In this step the plants obtained in above mentioned steps are transferred back to soil and root formation is induced. Steps are taken to cut down unnecessary growth of plants through auxiliary shoot formation etc. g. Fifth Step: This conta .....

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ed. Thus, the primary source of the plant is the mother plant which is reared on earth involving the basic operations. Therefore, the conclusion drawn by the Assessing Officer while rejecting the claim of the appellant that the appellant is merely engaged in tissue culture without actually carrying out the basic operations are found to be contrary to the facts of the case. 5.3 At this stage, it is relevant to refer to the decision of the Hon'ble Madras High Court in the case of CIT vs. Sound .....

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thereon and it is only after the performance of the basic operations on the land, the resultant product grown or such part thereof as was suitable for being nurtured in a pot, was separated and placed in a pot and nurtured with water and by placing them in the green house or in shade and after performing several operations, such as weeding, watering, manuring, etc., they are made ready for sale as plants all these questions would be agricultural operations all this involves human skill and effo .....

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lso, as noted hereinabove, the primary source of the plant grown in soil-filled bags in green house is the mother plant which is reared on earth involving the basic operations. Similar view has been taken by the ITAT, Pune in the case of KF Bioplants Pvt. Ltd in ITA No.146/PN/08 for the A.Y. 2004-05. In the said case, the ITAT held that since the activities carried out by the assessee involved basic agricultural operations, income from sale of plants, even if grown through a tissue culture labor .....

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Explanation (3) to Sec.2(1A). He further argued that this Explanation is clarificatory in nature and therefore, will have to be taken to be with retrospective effect, thereby rendering the income derived by the appellant from sale of seedlings as agricultural income. However, since it is already held that the appellant's activities involved basic agricultural operations and therefore, income thereof constitutes agricultural income, it is not felt necessary to deal with this alternate argume .....

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in both; the Assessment Years under consideration are decided in its favour. 4. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds : 1. The order of the Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case. 2. The Commissioner of Income Tax (Appeals) grossly erred in directing the Assessing Officer to treat assessee's income as agriculture u/s 2(1A)(b)(i) of the Income Tax Act, 1961 and to ex .....

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rged at the time of the hearing, the order of the Commissioner of Income-tax (Appeals) may be vacated and that of the Assessing Officer be restored. 6. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the ITAT. 5. The Ld. Departmental Representative heavily relied on the order of the AO. Referring to the decision of the Hon ble Allahabad High Court in the case of H.H. Maharaja Vibhuti Narain Singh V .....

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ng etc. requiring exploitation of human skill and labour upon the land, it cannot be said that the income earned by the assessee was agriculture income. He also relied on the decision of the Coordinate Bench of the Tribunal in the case of M/s. Abhijit Subhash Gaikwad Vs. DCIT vide ITA No.699/PN/2013 for A.Y. 2009-10 and batch of other appeals order dated 27-05-2015. 6. The Ld. counsel for the assessee on the other hand heavily relied on the order of the CIT(A). Referring to the decision of the H .....

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nch of the Tribunal in the case of ITO Vs. K.F. Bioplant Pvt. Ltd. which has been followed by the Ld. CIT(A) he submitted that the Tribunal after considering various decisions has held that income from floriculture/tissueculture is agriculture income. Merely because the revenue has not accepted the decision of the Tribunal and has filed an appeal before the Hon ble High Court the same cannot be a basis for not following the decision of the Tribunal until and unless the same is reversed by a high .....

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herefore, the said decision is not applicable to the facts of the case. He also relied on the following decisions : 1. ITO Vs. Dr. Seemantini S. Pathare - ITA No.263/PN/2011 order dated 23-01-2013 2. Dy. CIT Vs. Best Roses Biotech Pvt. Ltd. -ITA No.1975/Ahd/2008 order dated 30-11-2011 7. We have considered the rival arguments made by both the sides, perused the order of the AO and Ld. CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited b .....

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on the land, it cannot be said that the income earned by the assessee is agricultural income. Since in the present case according to the AO the assessee is not carrying out any basic operations on the land as the nature of activity itself of the farm is to produce tissueculture of banana and other plants, the AO rejected the claim of the assessee that the income is agricultural income. He accordingly brought the same to tax as business income. We find the Ld. CIT(A) following the decision of Hon .....

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while adjudicating the nature of income from floriculture, horticulture and tissue culture etc., has observed as under : 2. The facts in brief are as under. The assessee is primarily engaged in the business of plant floriculture/tissue culture. The assessee has claimed exemption of the income from the above activities u/s.10(1) r.w.s. 2(1A)(b)(i) of the Act as agriculture income. The Assessing Officer declined to accept the claim of the assessee that income from the activities of the floricultu .....

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y High Court. The Ld CIT(A) following the decision of the ITAT Pune Bench in assessee's own case, allowed the claim of the assessee. 3. We find that the Tribunal has allowed the identical claim of the assessee on the identical set of facts in the A.Y. 2004-05. The said order of the Tribunal is followed in the other years also being A. Ys. 2001-02, 2003-04 and 2005-06 and 2006-07 being ITA Nos. 1274 to 1278/PN/2010, common order dated 22.2.2012. The operative part of the order of the Tribunal .....

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rsery, 241 ITR 530(Mad.) and of Hon'ble Allahabad High Court in the case of Jugal Kishore Arora Vs. DCIT, 269 ITR 133 (Allhad.). The relevant para Nos. 33 to 40 of the decision of the Tribunal in the case of the assessee for A.Y. 2004-05 (supra) are being reproduced hereunder for a ready reference: "33. In our considered view, therefore, the operations carried out on the facts of the case before us are agricultural operations in nature. The objections taken by the authorities below are .....

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sidering all the relevant facts, as also the applicable law, concluded that the assessee's activities are to prepare seedlings on scientific lines: that the other plants are grown on prepared beds on lands owned by it and the plants are then grafted or budded; that' the resulting grafts are transplanted in suitable containers and are reared in green houses or in shade and after they take root, they are transmitted to large containers filed with top soil and manure, etc, till they establi .....

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pply to assessee's case as well. 36. In Soundarya Nursery's case, Hon'ble Madras High Court, after taking note of the law laid down by the Hon'ble Supreme Court in the case of Raja Benoy Kumar Sahas Roy (supra) and the facts of the case, observed as follows: All the products of the land, which have some utility either for consumption or for trade or commerce, if they are based on land, would be agricultural products. Here, it is not the case of the Revenue that without performing .....

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er and by placing them in the green house or in shade and after performing several operations, such as weeding, watering, manuring, etc ., they are made ready for sale as plants all these questions would be agricultural operations all this involves human skill and effort. Thus, the plants sold by the assessee in pots were the result of primary as well as subsequent operations comprehended within the term "agriculture" and they are clearly the products of agriculture. 37. When we apply .....

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rried on in a greenhouse. Therefore, merely because a greenhouse in involved, the nature of operations would not change. Learned CIT(A) has distinguished this precedent on the ground that in assessee's case, basic operations have not been carried out on land. That premises itself, for the detailed reasons set out earlier in this order, rests on a unsustainable legal foundation. The basic operations have been, and can only be, carried out on the land. The fact that this land is in a greenhous .....

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Supreme Court judgment in the case of Raja Benoy Kumar Sahas Roy (supra), also observed that "the nature of produce raised has no relevance to the character that "the nature of produce raised has no relevance to the character of agricultural operation". It was noted that cultivation of flowers of artistic and decorative value would also be included in the scope of agricultural operations. This observation will also apply to the facts of the present case. 39. We may mention that o .....

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this Explanation is retrospective in effect inasmuch as it is merely clarificatory in nature. We are taken through the budget speech by the Finance Minister, Explanatory Memorandum to the Finance Bill and other documents to support the contention that this amendment in law was merely clarificatory. Our attention was thus invited to several judicial precedents in which it is noted that even while an amendment is stated to be prospective in application, but held to be retrospective in effect. On t .....

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esent content. We leave it at that. 40. In view of the above discussions, and for the reasons set out above, we are of the considered view that the authorities belong indeed erred in law and on facts of this case in holding that the impugned income is not agricultural income. We, therefore, direct the Assessing Officer to treat the said income as agricultural income under section 2 (1A)(b)(i) of the Act. As a corollary to this direction, the Assessing Officer shall also exclude the said income f .....

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