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2016 (10) TMI 165 - MADRAS HIGH COURT

2016 (10) TMI 165 - MADRAS HIGH COURT - TMI - Reopening of assessment - determination of Agriculture income u/s.10(1) - whether the Tribunal was right in deleting the disallowance made on agricultural income on the ground that the same was exempt under Section 10(1) of the Income Tax Act? - Held that:- It is not the case of the Assessing Officer, at the first instance that the assessee has not produced any details of the expenditure incurred in raising flowers and petals in pots. As rightly poin .....

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e made for the first time, before this Court. The assessment order has to fall or succeed on the contents of the order. A fact which was never raised in the assessment proceedings cannot be introduced for the first time, in an appeal under Section 260A, for an answer. Needless to state that questions of law arise on the facts considered by the authorities with reference to the provisions and for the above reasons, we are of the view that the revenue cannot raise the said issue at this stage. - D .....

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facts of the case in nutshell are as follows:- The respondent herein is the assessee. The respondent/assessee was carrying on agricultural operation in the agricultural land owned by him at Velichai Village near Kelambakkam and derived income from sale of replanted trees, flowers and creepers, saplings and seeds, rent for agricultural land, share of profit and interest on capital from a firm engaged in agricultural operations. He filed the return of income for the Assessment Year 2007-2008 on 2 .....

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of the Act on 22.3.2013 computing net taxable income at ₹ 62,37,096/-. The Assessing Officer raised a demand of ₹ 26,23,900/- by treating the agricultural income as business income. 3. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) in I.T.A.No.47/2013. The Commissioner of Income Tax (Appeals vide his order dated 26.12.2014, had allowed that the income derived from agricultural land, as exempt u/s.10(1) of the Income Tax Act, 1961 .....

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Tax Appeals, the revenue filed an appeal before the Income Tax Appellate Tribunal in I.T.A.No.667/Mds/2015. The Tribunal vide its order dated 13.9.2015 upheld the order of Commissioner of Income Tax (Appeals), both on facts and in law, in respect of agricultural income. Aggrieved by the order of the Tribunal, the revenue has preferred the present Appeal. 4. Mr.T.Ravikumar, learned Standing Counsel for the revenue would submit that the assessee was a landscaping architect running two business con .....

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e assessee as to why agriculture income should not be treated as business of income. A notice under section 143(2) dated 23.9.2011 was also served on the assessee. Further notice under section 142(1) dated 4.2.2013 was also served on the assessee. 5. Based on the ratio laid down by the Hon'ble Supreme Court in the case of Raja Vinay kumar Sahas Roy reported in 32 ITR 466, wherein it has been held that without the performance of the basic operations such as tilling of land, sowing of seeds, p .....

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1,89,480/- as agricultural income and treated the same as business income vide order dated 22.3.2013. Aggrieved against this order, the assessee went on appeal before the Commissioner of Income Tax (Appeals) who has held that the definition of agriculture income prior to insertion of Explanation 3 would include the activity of nursery also and directed the Assessing Officer to treat the income received from nursery as agricultural income and allowed exemption available to such agriculture income .....

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ct, 2008 with effect from 01.04.2009 and was applicable only from the assessment year 2009-10 onwards and therefore, not applicable to the earlier assessment year. The Tribunal also failed to appreciate that, as per Section 2(1A) of the Act, agriculture income should be derived from land, and the land should be used for agricultural purpose and the immediate source of income should be from the land. The Tribunal also failed to note that the assessee without performing the basic operations like t .....

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raja Vibhuti Narain Singh vs. State of Uttar Pradesh (1966) 34 CCH 0268 ALLHC : (1967) 65 ITR 0364 and the decision of Patna High Court in Commissioner of Wealth Tax vs. Nathmal Jalan (1996) 64 CCH 0635 PatHC : (1997) 142 CTR 0399. Ultimately, in the light of the above facts and decisions, he would submit that the order impugned shall be set aside and the Appeal shall be allowed. 7. Mr.M.P.Senthilkumar, learned counsel for the respondent/assessee would submit that the Assessing Officer has erron .....

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has Roy (Supra) and Maharaja Vibhuti Narain Singh (Supra), relied on by the Assessing Officer, has been considered, and held that even the plants grown in pots is an agricultural activity as they involve all the activities of agriculture farming like seeding, weeding, watering, manuring etc.,.. Aggrieved by the order of the appellate authority, the appeal preferred by the revenue before the Tribunal was also rightly dismissed based on the ratio laid down by the Hon'ble Supreme Court and this .....

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eting the disallowance made on agricultural income on the ground that the same was exempt under Section 10(1) of the Income Tax Act? However, at this stage of final hearing, this Court deems it fit to add the following substantial question of law also:- Is not the finding of the Tribunal bad, especially, when Explanation 3 to Section 2(1A) was inserted by Finance Act, 2008 with effect from 01.04.2009 and was applicable only from the assessment year 2009-10 and not for the earlier assessment year .....

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8377; 3,47,238/- from plantscape business being landscaping architect business and agricultural income of ₹ 51,89,480/- from agricultural operation in the nursery owned by the assessee in Velichai Village near Kelambakkam. The assessment was completed under section 143(3) on 11.12.2009 on the assessed income of ₹ 10,47,616/- and agricultural income of ₹ 51,89,480/-. 11. The assessing officer reopened the assessment order and issued notice under section 148 of the Act. As per se .....

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ricultural income. He referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. Raja Benoy Kumar Sahas Roy (32 ITR 466) wherein it has been held that without the performance of the basic operations such as tilling of land, sowing of seeds, planting and similar operations on the land, mere performance of subsequent operations such as weeding, digging the soil around the growth, tendering, pruning, cutting etc, would not be enough to characterise them as agricultural operati .....

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or necessary adjunct to the primary process of agriculture for example paddy, nursery, nursery of tomato plants. He has also referred to the decision of the Punjab High Court in the case of CIT Vs. Raja Bahadur Karmakya Narain Singh (161 ITR 325) wherein it has been held that there must be nexus between the income, land and agricultural operation. Eventually, based on the aforesaid decision, the Assessing Officer disallowed the agricultural income of ₹ 51,89,480/- by order dated 22.3.2013 .....

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disallowance of agricultural income of ₹ 51,89,480/-, the claim of the assessee was allowed holding that the income from nursery is an agriculture income. 13. In reaching his conclusion, the appellate authority has relied on the decision of CIT v. Green Gold Tree Farmers P Ltd., (2008) 167 Taxman 151 (Uttarakand), wherein it has been held that sale proceeds of plants raised in nursery on land belonging to the assessee constitute agriculture income. The appellate authority has also referred .....

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on land, would be agricultural products. Hence, it is not the case of the revenue that without performing the basic operations, only the subsequent operations, as described in the decision of the Apex Court have been performed by the assessee. If the plants described in the decision of the Apex Court have been performed by the assessee. If the plants sold by the assessee in pots were the result of the basic operations on the land on exepending human skill and labour thereon and it is only after .....

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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. 9. So far as the seeds are concerned, we are surprised that, that question should have been raised at all by the Revenue, as it is not possible for the seeds to exist without the mother plants, and the mother plant, it is nobody's case, was not grown on land. It is also not the case of the Revenue that the se .....

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efully extracted hereunder:- 2(1A) Agriculture income means - ....................................................................... Explanation 3 For the purpose of this clause, any income derived from saplings or seedling grown in a nursery shall be deemed to be agriculture income. This amendment came to force with effect from 01.04.2009 and the same is applicable from the assessment year 2009-10 onwards. 15. Following the aforesaid decision of Soundarya Nursery's case (supra), the Income .....

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Supreme Court in the case of CIT V. Raja Benoy Rumor Sahas Roy [(1957) 32 ITR 466], which is the leading case of agriculture . It was held therein that 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 and these are basis operations, which require the expenditure human skill and labour upon the lan .....

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t for the market, which would all be agricultural operations, when are taken in conjunction with the basic operations. 17. Another decision relied on by the Assessing Officer, viz., Maharaja Vibhuti Narain Singh (Supra), has also been considered in detail by the Division Bench of this Hon'ble Court in CIT vs. Soundarya Nursery (2000) (241 ITR 531) dated 5.8.1998, and at Paragraph 6 of the Judgment, this Court held as follows:- 6. Learned counsel for the Revenue contended before us that the p .....

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e nursery. 18. In the explanation offered to the Assistant Commissioner of Income Tax, Business Circle II, Nungambakkam, Chennai, the assessee/respondent herein has submitted that he has been doing Landscaping Architect from 1981 and running two business concerns viz., plantscape and Flower and Petals. He is growing plants in his lands and for that purpose, he has incurred expenses for tilling of land, sowing of seeds, and purchase of clay sand and fertilizers. As such, agricultural operations a .....

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