2011 (8) TMI 499 - AT - Income Tax

Bonsai Sales Deemed Agricultural Income Exempt under ITA, 1961

Smt. Reena Panda Versus Income-tax Officer, Balasore (Ward-1), Balasore

Smt. Reena Panda Versus Income-tax Officer, Balasore (Ward-1), Balasore - TMI Issues Involved:1. Determination of whether income from the sale of bonsai and other plants constitutes agricultural income.2. Applicability of Explanation 3 to section 2(1A) of the Income-tax Act, 1961.3. Interpretation and application of the Supreme Court's decision in CIT v. Raja Binoy Kumar Sahas Roy [1957] 32 ITR 466.4. Assessment of agricultural operations carried out by the assessee.Issue-wise Detailed Analysis:1. Determination of whether income from the sale of bonsai and other plants constitutes agricultural income:The primary issue raised by the assessee was whether the income from the sale of bonsai and other plants should be considered agricultural income and thus exempt under section 10(1) of the Income-tax Act, 1961. The assessee argued that the agricultural operations carried out included both primary and secondary operations, such as tilling, planting, manuring, watering, pruning, and cutting. The Tribunal found that these operations were indeed agricultural in nature. The Tribunal concluded that the basic agricultural operations were carried out on the soil, and the subsequent nurturing of the plants did not change the nature of the income from agricultural to non-agricultural.2. Applicability of Explanation 3 to section 2(1A) of the Income-tax Act, 1961:The assessee contended that the insertion of Explanation 3 to section 2(1A) by the Finance Act, 2008, which states that any income derived from saplings or seedlings in a nursery shall be deemed to be agricultural income, should be applicable to the assessment years in question. The Tribunal agreed with the assessee, stating that the explanation was clarificatory in nature and thus applicable to earlier years as well. This explanation supported the assessee's claim that the income derived from the nursery operations should be considered agricultural income.3. Interpretation and application of the Supreme Court's decision in CIT v. Raja Binoy Kumar Sahas Roy [1957] 32 ITR 466:The Assessing Officer and the CIT(A) relied on the Supreme Court's decision in Raja Binoy Kumar Sahas Roy to deny the exemption, arguing that the subsequent operations performed by the assessee did not qualify as agricultural operations. However, the Tribunal found that this decision had been misinterpreted. The Supreme Court had stated that agricultural operations include both primary operations (such as tilling and planting) and subsequent operations (such as nurturing and harvesting) if they are part of an integrated agricultural activity. The Tribunal held that the assessee's operations fell within this definition, as they involved significant human skill and labour in both the primary and subsequent stages.4. Assessment of agricultural operations carried out by the assessee:The Tribunal examined the nature of the operations carried out by the assessee, including the cultivation of bonsai plants, which involved planting in soil, performing primary and secondary agricultural operations, and nurturing the plants in a controlled environment. The Tribunal concluded that these activities constituted agricultural operations. The Tribunal also noted that the plants were grown on agricultural land owned by the assessee and that the income was derived from these agricultural operations. Therefore, the Tribunal held that the income from the sale of bonsai and other plants should be considered agricultural income and exempt under section 10(1) of the Income-tax Act, 1961.Conclusion:The Tribunal allowed the appeals of the assessee, holding that the income derived from the sale of bonsai and other plants constituted agricultural income and was exempt under section 10(1) of the Income-tax Act, 1961. The Tribunal directed the Assessing Officer to consider the income as exempt, setting aside the order of the CIT(A).