TMI Blog2005 (1) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer that entire agricultural income amounting to Rs. 1,17,368 was received as share profit from Balaji Farm House, allegedly a partnership firm, in which the assessee claimed to be a partner. From the Profit Loss A/c. of M/s. Balaji Farm House, it was noticed by the Assessing Officer that the entire transaction was related to the sale of agricultural product of Rs. 5,16,722, out of which, after considering the expenses, a net profit of Rs. 4,69,673 was apportioned or distributed between the four partners of the said firm M/s. Balaji Farm House. It was further noticed by the Assessing Officer that the said firm M/s. Balaji Farm House was not assessed to tax. The Assessing Officer was of the view that unless the said firm is separately assessed to tax, net profit of the firm cannot be transferred to the partners' account and no exemption under section 10(2A) can be claimed over such share of profit. The Assessing Officer further discussed the matter as to the applicability of section 10(1) and vis-a-vis section 10(2A) as under:- "It was also explained to the assessee that exemption has been claimed under section 10(1) for the agricultural income earned. Instead of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was under section 10(2A) in respect of his share of profit from M/s. Balaji Farm House. However, the said exemption is also not admissible since M/s. Balaji Farm House is not separately assessed to tax. The reliance placed upon the assessment order for assessment year 1997-98 is not correct because in farming the aforesaid assessment, the Assessing Officer does not appear to have examined the legality of the appellant's claim of agricultural income. From assessment records, it is apparent that the Assessing Officer had confined himself to the determination of the fact of agricultural operation but had overlooked the question of legal validity of the claim under section 10(1) or under section 10(2A). Considering all material facts I hold that the appellant is not entitled to exemption either on account of agricultural income under section 10(1) or share of profit of a firm under section 10(2A) in respect of the income of Rs. 1,17,368. Hence, the Assessing Officer is directed to treat the income of Rs. 1,17,368 as chargeable to tax under the head "Income from Other Sources". The appellant gets a relief to the extent of Rs. 32,050 (Rs. 1,49,418 - Rs. 1,17,368) only." 5. Still ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of section 10 of the Act. Section 10(1) provides that in computing the total income of a previous year of any person, the agricultural income shall not be included. There is no doubt that the agricultural operations were carried out by M/s. Balaji Farm House of which the assessee is one of the partners. The fact of having carried on agricultural operation by M/s. Balaji Farm House has been accepted by the ld. CIT(A). In other words, no dispute has been raised by the ld. CIT(A) as to the agricultural operation having been carried out by M/s. Balaji Farm House in Rajasthan. In other words, the ld. CIT(A) has not rejected the assessee's case on the ground that there was no agricultural activities at all being carried out by M/s. Balaji Farm House of which the assessee is one of the partners. The Assessing Officer's action in doubting the genuineness of agricultural operation carried out by M/s. Balaji Farm House has been ruled out by the ld. CIT(A). The ld. CIT(A) has rejected the assessee's case only on the ground that the assessee is not entitled to exemption either on account of agricultural income under section 10(1) or on account of share of profit of a firm under section 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome mentioned in section 6 of the Income-tax Act. 12. At this stage we find it appropriate to refer provisions related to the Rules for computation of net agricultural income as laid down in Annual Finance Acts. There is no doubt that net agricultural income is entirely exempt from tax under the Income-tax Act; but under the provisions of the Finance Act, 1973 and the subsequent Finance Acts the agricultural income has to be taken into account for the purpose of determining the rate of tax applicable to non-agricultural income. The relevant Finance Act, 1999 applicable for the assessment year commencing on the 1st day of April, 1999 provides under clause (c) of sub-section (1) of section 2 of the Finance Act, 1999 that "net agricultural income", in relation to person, means the total amount of agricultural income, from whatever source derived, of that person computed in accordance with the Rules contained in Part-IV of the First Schedule to the Finance Act, 1999 containing Rules for computation of net agricultural income. Rule 10 of said Part-IV of First Schedule to the Finance Act, 1999 says that the provisions of the Income-tax Act relating to procedure for assessment (includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as the agricultural income or loss of the assessee." On a plain reading of the provisions contained in aforesaid Rule 5, it is clear that in the case of an assessee, who is a member of an association of persons or a body of individuals (other than a HUF, a Company or a firm) which in the relevant previous year has either no income chargeable to tax under the Income-tax Act or has total income not exceeding the maximum amount not chargeable to tax, but has any agricultural income, then, the agricultural income or loss of the association of persons or body of individuals shall be computed in accordance with the Rules contained in Part-IV of First Schedule to the Finance Act, 1999, and the share of the assessee as a member of an association of persons or a body of individuals, in the agricultural income or loss so computed shall be regarded as the agricultural income or loss of the assessee. In the present case before us, it is an admitted position that M/s. Balaji Farm House, which is to be treated as an association of persons for the purpose of assessment under the Income-tax Act as contemplated under section 185 of the Act, has neither any income chargeable to tax under the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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