Nursery income and agricultural exemption: integrated cultivation qualifies, but resale profits from purchased plants remain taxable.

Rule of consistency did not bind the Revenue because earlier years had only been processed under section 143(1) without a conscious adjudication on the agricultural character of the income. Nursery income from plants raised through integrated cultivation activities, including soil preparation, sowing, propagation, grafting, watering and manuring, was treated as agricultural income under section 2(1A) and exempt under section 10. However, profit from plants purchased for resale, where no basic agricultural operations were carried out, was held to remain taxable and outside the exemption.

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Issues: (i) Whether the rule of consistency applied where earlier years had been processed under section 143(1) without a conscious adjudication on the agricultural nature of the income. (ii) Whether income from the sale of plants grown in the nursery constituted agricultural income exempt under section 10, and whether profit from plants purchased for resale was also exempt.

Issue (i): Whether the rule of consistency applied where earlier years had been processed under section 143(1) without a conscious adjudication on the agricultural nature of the income.

Analysis: The principle of consistency was held to depend on an earlier decision reached after due application of mind on relevant material and on a finding actually recorded for the earlier year. Processing of returns under section 143(1) was treated as not involving such conscious examination. Since the earlier years were not assessed under section 143(3) and no material showed a considered decision on the issue, the earlier processing did not create a binding factual position for later years.

Conclusion: The rule of consistency was held inapplicable against the Revenue.

Issue (ii): Whether income from the sale of plants grown in the nursery constituted agricultural income exempt under section 10, and whether profit from plants purchased for resale was also exempt.

Analysis: Agricultural income was tested under section 2(1A) by applying the settled distinction between basic operations on land and subsequent operations. Where the assessee carried out preparation of soil beds, sowing, propagation, cutting, gootying, layering, grafting, watering, manuring, and related activities in continuation of basic cultivation, the nursery activity amounted to agriculture. The nature of the product was held immaterial, and nursery produce grown through such integrated operations qualified as agricultural produce. At the same time, plants purchased for resale without any basic agricultural operations did not acquire the character of agricultural income, and profit from such trading activity remained taxable.

Conclusion: Income from plants grown by the assessee was held to be agricultural income and exempt under section 10, but profit on purchased plants sold without basic cultivation was not exempt.

Final Conclusion: The assessee succeeded on the main nursery income issue, but the addition was sustained to the limited extent of profits attributable to purchased plants, so the appeal was allowed only in part.

Ratio Decidendi: Nursery income is agricultural income when the produce is raised through integrated basic and subsequent operations on land, but consistency cannot be invoked from prior section 143(1) processing lacking conscious adjudication, and trading profits from purchased plants remain taxable.

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