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TMI Blog2003 (9) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was asked to substantiate its claim of agricultural income. The assessee vide letter dt. 29th March, 2001, explained in detail the various activities carried on by it i.e., preparation of the soil beds and propagation of the plaints. The details of such activities will be referred to by us at the appropriate place in our order later on. However, not satisfied with the explanation of the assessee, the AO rejected the claim of the assessee by observing as under : "Now the question comes what the agriculture is - the primary meaning of word is Agar field and cultra - cultivation i.e., cultivation of field, which means tilling of land, sowing the seeds, etc. The subsequent observation are weeding, digging of soil around the growth, removal of undesirable undergrowth etc. [CIT v. Raja Benoy Kumar Suhas Roy (1957) 32 ITR 466 (SC)]. The next point is there must be nexus between income, land and agriculture operation. As per Section 2(1A) an income to be "agriculture income" should be derived from land and the land should be used for agricultural purposes. Then there should be something done to land by human and technical agency to produce out of land any crop, tree plantation or ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loped further in pots by taking them out from land. Hence, income from the sale of such plants cannot be considered as agricultural income, therefore, the income of the assessee at Rs. 5,61,826 which is claimed exempt under Section 10(1) is treated as non-agricultural income and benefit of exemption under Section 10(1) is not allowable and income is added into taxation income of the assessee." 3. The matter was carried in appeal before the CIT(A), who also confirmed the order of AO by holding that running of nursery by the assessee was a commercial activity which could not be treated as agricultural activity in view of the Hon'ble Allahabad High Court judgment in the case of H.H. Maharaja Vibhuti Narain Singh v. State of U.P. (1967) 65 ITR 364 (All) wherein it has been held that nursery income is not necessarily agricultural income unless is maintained by the farmers as an aid or necessary adjunct to the primary process of agriculture. Further, reliance was placed on another judgment of Allahabad High Court in the case of Smt. Anand Bala Bhushan v. CIT (1996) 217 ITR 144 (All) wherein it was held that sale proceed to leechi fruit was not an agricultural income. He also relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee by contending that principle of res judicata do not apply to the income-tax proceedings since each year is an independent year and, therefore, finding, if any, recorded in one year would not be binding in the subsequent year. Reliance we also placed on the decision of Punjab High Court in the case of Jamna Das Rameshwar Das v. CIT (1952) 21 ITR 109 (Punj). It was also submitted by her that rule of consistency would not apply where returns are processed under Section 143(1) since such process has to be carried out without application of mind in view of Board circular wherein the AOs have been advised to dispose of the returns under Section 143(1). 5. After considering the rival submissions of the parties, we are not inclined to agree with the stand taken by the learned counsel for the assessee. In our opinion, rule of consistency which is based on the theory of res judicata presupposes the formation of a particular view on the basis of the material placed on record. As a general rule, the principle of res judciata is not applicable to the decisions of IT authorities and, therefore, any decision given in one assessment year would be final and conclusive between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." 6. The perusal of all the above authorities clearly shows beyond doubt that rule of consistency can be applied only where earlier decision has been taken after due application of mind to the relevant materials placed on the record, where fresh facts are brought on record in the subsequent year then such rule would be inapplicable. The Hon'ble Supreme Court has clearly stated that a fact must be found to exist in the earlier proceedings. A fact can be said to be found if some authority applies his mind to the relevant material and evidences on record and then a finding is recorded. Therefore, in our opinion, where assessment in made without application of mind with reference to permeating aspect then the rule of consistenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that assessments under Section 143(1) amounts to the order of assessment and, therefore, the claim of the assessee regarding agricultural income in the preceding assessment years stands accepted. As far as Tribunal decisions are concerned, we find that assessments were made under the unamended provisions of Section 143(1). Prior to the amendment effective from 1st April, 1988, the AO had power to assess under Section 143(1) but after the amendment the power to assess is missing. Therefore, the Tribunal decisions relied upon by the counsel are distinguishable. Further, the contention of the learned counsel for the assessee that intimation under Section 143(1) amounts to an assessment order also cannot be accepted in view of the judgment of Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT & Am. (2000) 246 ITR 173 (Del) wherein it has been held that intimation under Section 143(1)(a) cannot be treated to be an order of assessment. Even otherwise, the Punjab & Haryana High Court judgment in the case of Vipin Kumar (supra) does not lay down that intimation under Section 143(1)(a) is an order of assessment. What has been held therein is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch pots, the roots of such plant passes through the hole provided beneath such pot/container. Further, in such process, the plant takes its nourishment from soil provided in the pot and mainly from the land beneath such pot which help such plant to grow at faster rate in comparison to a plot placed at concrete platform. 3. That it had incurred a sum of Rs. 2,15,406 in the cultivation and plantation. 4. That the plants sold were the result of the basis operations on the land on expending human skill and labour 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 with water and by placing them in the green house or in shade and after performing several operations, such as weeding, watering, manuring, etc. and as such they do not cease to be the agricultural income. 5. That in the instant case, the assessee has sold the plant grown from mother plants and it was nobody's case as has been noted by their Lordships in (2000) 241 ITR 530 (Mad) (supra) that mother plant can be regarded as not grown on land, It is worth appreciating where seed is an agricultural commodity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully. The question for consideration is whether the income arising from the sale of plants grown by the assessee in its nursery/farm can be said to be agricultural income as defined in Section 2(1A) of the Act, According to this section, any income derived from land, which is situated in India and is used for agricultural purposes, by agriculture would be agricultural income. The AO has rejected the claim of the assessee on the ground that activities carried on by the assessee do not fall within the scope of the word "agriculture". The meaning of the word "agriculture" is no more res integra in view of the judgment of the Hon'ble Supreme Court in the case of Raja Binoy Kumar Suhas Rai (supra). The relevant portion of the judgment is being reproduced as under : 'Agriculture' in its primary sense denotes the cultivation of the field and is restricted to cultivation 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 explanation of human skill and labour upon the land itself. Those operations which the agriculturist has to resort t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products of the land which have some utility either for consumption or for trade and commerce and would also include forest products such or for trade and commerce and would also include forest products such as timber and sal and piyasal trees, casuarina plantations, tendu leaves and horra nuts. There is no warrant at all for extending the term 'agriculture' to all activities which have some relation to the land or are in anyway connected with the land, for the term 'agriculture' cannot be dissociated from the primary significance thereof, which is that of cultivation of the land. The extension of the term 'agriculture' to denote such activities as breeding and rearing livestock, dairy farming, butter and cheese-making, and poultry farming, is an unwarranted distortion of the term." A carefully reading of the above clearly shows that unless the assessee has carried out the basic operations upon the land i.e., tilling of the land, sowing of the seeds planting, etc. requiring the expenditure of human skill and labour upon the land, it cannot be said that the income earned by the assessee is agricultural income. Further, reveals that subsequent operations w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uire for germination of seed has been explained in brief in para (i) above. (b) Cutting : A cutting is taken from the mother plant and planted in the prepared soil bed. Roots from such cutting germinates in few months. When plant is established, the same is transferred from such soil bed to either pot or at appropriate place in the land for its further growth. (c) Gootying : On a branch of a mother plant a slit is made and on that portion harmones are applied and covered with manure and soil and wrapped with jute/polythene. The wrapped portion is watered regularly till roots emerges at that point. When there are sufficient roots it is cut and transferred to land/pot for its own separate growth for its onward sale. (d) Layering : A branch of the mother plant is bent down and a slit is made in the stem and some harmones are applied. This is presented into soil so that the slit stem is under the soil. Watering is done regularly. From such slit portion roots start emerging. When there is a reasonable growth of roots, that portion is cut from the mother plant and it becomes a new plant, the plant so prepared is fully established, it is again shifted to either in pot or appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except that of required small seized soil beds i.e., each bed measuring 2 to 3 feet wide and 10 to 15 feet long and number of such beds are required along with other type of soil beds for growing, cutting, gooty, etc. For ploughing such sized soil beds, conventional tractor etc. are riot required. Further, it has been explained that seed/cutting/gooty are sown in the land to take new plants. When plants are established only then they are shifted in suitable containers or appropriate place in land. In view of above it is quite evident that the assessee-firm is not doing any trading of plants and it has been developing and growing the plant from its birth to the point sale. Therefore, the assessee firm has been carrying out agricultural activities and its income is agricultural income. The fact is established in earlier years also." The perusal of the above clearly shows that the assessee not only carried out the basic operations but also the subsequent operations. Such subsequent operations were carried out in continuance of basic operations. The above said letter of the assessee also shows that the Inspector of income-tax had visited the nursery of the assessee and no adverse co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. 369, their Lordships referred to two types of nurseries-one which may be maintained by a farmer as an aid or necessary adjunct to the primary process of agriculture while the other one which may be maintained and run as a business quite independently of agriculture. After such discussion, they went on to mention that there was no discussion of the type of nursery involved. In view of the same, the answer to the question was given in negative. Hence, that case does not help the Revenue. 17. However, we are in agreement with the observations of their Lordships of Allahabad High Court in as much as the income from all nurseries cannot be considered as agricultural income. It would depend on the facts of each case, If the nursery is maintained by carrying out basic operations and subsequent operations in pots are carried out in continuation of basic operations then, in our considered opinion, income from such nursery would be agricultural income not liable to tax under Section 10 of the Act. However, if the nursery is maintained independently without resorting to basic operations on the land then income from such nursery would be liable to be included in the total income. Similarly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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