TMI Blog2017 (8) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... ived is for agricultural activity and for no other activity. This distinction does not take note of the fact that the activity carried out by the appellant would not decide whether the remuneration received is agricultural income or not, but whether the income is derived from land. For any income to be classifiable as agricultural income, it has primarily to be derived from land In the present facts, no agricultural income is derived by the appellant from the land. It receives consideration for providing Services under the contract dated 23.7.1999. For providing Services relatable to agricultural operations is still not income derived from the land. The words “derived from” would mean direct linkage/immediate source of income and not an indirect source of income. - Decided in favour of revenue. Income fall under Section 2(1A)(b)(ii) - agricultural income - nature of income - Held that:- So far as activity carried out at Stage-II is concerned, there is no evidence on record to indicate that taking care of the plants after they have been transplanted on the land owned by the WCL would be an activity ordinarily employed by a cultivator in taking care of the plants to render it t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is from the Agricultural operations ? 2) Whether in the facts and circumstances of the case and in law the ITAT and the Authorities below erred in holding that the income derived by the appellant from the turnkey contract of plantation is not the agricultural income as defined under Section 2(1A)(b)(ii) and (iii) of the Income Tax Act, 1961 ? 3. For the sake of convenience, we will refer to the facts relating to Assessment Year 1998-99. It is an agreed position between the parties that the facts for both the Assessment Years are similar. Therefore, the facts in one year can be conveniently referred to for answering the above substantial questions of law. 4. Briefly stated, the facts are as under : (a) The appellant/assessee is a company incorporated under the Companies Act wholly owned by the Government of Maharashtra. The appellant is inter alia engaged in the activity of turnkey plantation i.e. to create and develop plantations, rock gardens etc. for companies/institutions such as Western Coal fields Ltd. (WCL Ltd.), ONGC etc. in terms of a contract entered into with them. (b) Typically, as reflected in the contract dated 23.7.1999 entered into by M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. (d) However, the Assessing Officer, by an order dt.29.12.2000 passed under Section 143(3) of the Act, held that the amount of ₹ 1.28 Crores received on account of its activity of turnkey plantation cannot be considered to be receipts on account of agricultural activity. This on the basis that the appellant is neither the owner of the land nor of the plantation raised on it but has merely executed the work and provided Services in terms of contract. Thus, it had received contractual payment for providing Services. However, the Assessing Officer did not bring the entire gross receipt of ₹ 1.28 Crores to tax, but reduced the direct expenses of ₹ 71.82 Lakhs and proportionate common expenses of ₹ 7.46 Lakhs incurred to carry out the activity of turnkey plantation and added the amount of ₹ 49.29 Lakhs to its business income bringing it to tax. (e) Being aggrieved, the appellant/assessee filed an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. By an order dated 21.11.2002, the CIT(A) dismissed the appellant/assessee's appeal holding that the income attributable to the contract for plantation on turnkey basis could not be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance was held to be taxable under the Act. Accordingly, the appeal of the assessee was dismissed on 23.4.2004. 5. Being aggrieved with the impugned order dated 23 April 2004 of the Tribunal, the assessee is in appeal before us. 6. Mr.Deshpande, learned Senior Counsel appearing in support of the appeal submits : (a) The entire operation carried out in execution of the plantation contract by the appellant is an agricultural operation. Thus, the income arising therefrom is agricultural income. Thus, this artificial division of holding that stage I income is agricultural income and StageII is not, is uncalled for, as the entire operation is an indivisible. In any event, once StageI is considered to be an agricultural operation, StageII also becomes so, in view of the Supreme Court decision in CIT vs. Raja Benoy Kumar Sahas Roy, 32 ITR 466 ; (b) Ownership of land and/or interest therein is irrelevant for the purposes of determining whether the operation carried out by the appellant is an agricultural activity or not. This alone has been the basis of the holding part activity as agricultural (Stage-I) and part i.e. Stage-II is not agricultural. The ownership and/or inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the income is derived from rendering of Service. Further also the appellant has no interest in the land belonging to the company/institution to whom it renders Service ; (D) The immediate and effective source of income in this case is amounts received under the contract dated 23.7.1999. That 80% of the consideration received by the appellant is within a period of one year when the appellant has carried out activity only on its land and developed the plants before transposing it on the land belonging to the company/institution. Thus, the impugned order of the Tribunal correctly holds that the consideration for the sale has been received when the plants are transposed on to the land belonging to company/institution, thereafter it is only Service carried out stage-II by the appellant. 8. Before we consider the rival submissions, it would be useful to refer to Sections 2(1A) and 10 of the Act which defines the meaning of 'agricultural income and incomes which are excluded from total income respectively as under : Definitions : In this Act, unless the context otherwise requires:( 1) ............ (1A) Agricultural income means : (a) any ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither by : (i) agriculture; or (ii) the performance by a cultivator/receiver of rent in kind of any process ordinarily carried out by a cultivator to make agricultural product/produce fit to be taken into market; or (iii) sale by a cultivator of any agricultural produce in respect of which the process is carried out other than the process indicated in (ii) above. Clause (b) of the above definition restricts the three classes of income as specified in sub-clauses (i), (ii) and (iii) thereof only to any income derived from such land. Such land would indicate the land which has been described in clause (a) of Section 2(1A) of the Act i.e. the land which is situated in India, used for agricultural purposes and the income derived from such land should be other than rent or revenue indicated in Section 2(1A)(a) of the Act. However, the sine qua non for any income to be considered as an agricultural income is that it should be derived from land situated in India and used for agricultural purposes. The words 'derived from' as held by the Apex Court in Liberty (I) Ltd. vs. CIT, 317 ITR 218 is narrower than the words attributable to . The use of the words derived from' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen StageII must also be considered to be agricultural operation. In support, reliance is placed upon the decision of the Apex Court in Raja Binoy Kumar Sahas Roy (supra) to contend that where the basic operation is agricultural operation then subsequent operations even if by themselves they may not constitute agricultural operations, if it is an integrated activity. (f) According to us, the above submission on the part of the appellant overlooks the basic fact in the present case that the operations which are carried out on the land belonging to WCL after transplanting the plants is an activity different and not an activity in continuation of StageI activity of sowing the seeds and developing plants on it's own land and thereafter, transplanting those plants on the land of WCL Ltd. It is not one continuous seamless integrated operation. The activity carried out at StageI and II are two different processes. The appellant could in a given case not take up the activity at StageII, as it is not necessary that the same agency should do both Stages. In fact, StageII could be carried out by some other agency. Therefore, the activity at StageII is not so linked in the present facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agricultural produce as thika rent and the balance was received as consideration for the loan. The Revenue contended that thika rent is not agricultural income as it is received by a money lendor. The Privy Council negatived the contention of the Revenue in view of the fact that Section 2(1)(a) of the Act confers exemption to a kind of income i.e. agricultural income and it has no relation with the character of the recipient. Therefore, in the facts before it, the Privy Council held that if business of money lending brings in income which has been derived from land then it is exempt from income tax. The aforesaid decision is completely distinguishable from the facts herein. In the present case, the appellant/assessee does not receive any income out of agricultural produce derived from the land. The income received by the appellant/assessee is for providing Services under the contract dated 23.7.1999. It is not an income which has been derived from the land. In this case, primary source of the appellant's income is the rendering of Service under the contract and not from any land. Therefore, the aforesaid decision being completely distinguishable is of no assistance to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e characterised as agricultural income. (m) In E.C.Danby .vs. CIT, 12 ITR 351, the Patna High Court held that the payment received by an assessee as remuneration for managing agricultural properties of partnership firm could not be said to be derived from land so as to classify it as agricultural income. The remuneration received was in the nature of salary. Mere fact that the ultimate source of salary was agricultural property would not make any difference. This is because the income was not received out of profits or sale of agricultural produce but remuneration due to Manager as a salary for looking after the property. The distinction sought to be drawn by the appellant is that, in the above case, the income received in the hands of the Manager is for managing agricultural property where as in the present case the appellant is a cultivator performing only agricultural operations and therefore, the source of his income in his hands is agricultural income. This distinction overlooks the fact that no income has been derived from the agricultural land in which the agricultural produce has been generated. If agricultural produce has been sold the income which arose therefrom would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court, it is not the appellant's case that the consideration received by it at stage II is classifiable under Section 2(1A)(b)(i) of the Act. (b) It is the appellant's case that, in any case, the consideration received for activity carried out at stage II of the contact split by the Tribunal would still be agricultural income. This by virtue of Section 2(1A)(b)(ii) and (iii) of the Act. (c) So far as Section 2(1A)(b)(ii) of the Act is concerned, the appellant submits that the consideration is received for the activity carried out by it at stage II is an activity which would be carried out by any cultivator ordinarily to render agricultural produce fit to be taken to the market. (c) We note that activity carried out Stage-I is an agricultural activity and income at that stage is derived is from the land owned by the appellant. Thus, classified as agricultural income. So far as activity carried out at Stage-II is concerned, there is no evidence on record to indicate that taking care of the plants after they have been transplanted on the land owned by the WCL would be an activity ordinarily employed by a cultivator in taking care of the plants to render it to be fit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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