2016 (10) TMI 165 - HC - Income Tax

Nursery Income Deemed Agriculture: Court Affirms Tax Treatment

The Commissioner of Income Tax Versus K.N. Pannirselvam

The High Court upheld the appellate authority and Tribunal's decision that income from nursery activities qualifies as agricultural income under Section ... 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 pointed out by the learned counsel for the respondent, had the issue of expenditure been pointed out at the time of assessment, the assessee was bound to explain. Assessment order does not disclose that because of the fact that the assessee did not prove expenditure, income from flowers and petals was added. He has only said without performing basic operations, income generated cannot be termed as agricultural income. Even during the appeal, the revenue has not raised such issue. Such contentions are 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. - Decided against the revenue Issues Involved:1. Validity of reopening the assessment under Section 147 of the Income Tax Act.2. Classification of income from nursery activities as agricultural income under Section 10(1) of the Income Tax Act.3. Applicability of Explanation 3 to Section 2(1A) of the Income Tax Act, inserted by Finance Act, 2008, for the assessment year 2007-08.Detailed Analysis:1. Validity of Reopening the Assessment under Section 147 of the Income Tax Act:The respondent/assessee filed the return of income for the assessment year 2007-08 on 24.10.2007, declaring taxable income from plantscape business and agricultural income from nursery operations. The assessment was initially completed under Section 143(3) on 11.12.2009. The case was reopened by issuance of notice under Section 148 on 31.03.2011, leading to a reassessment completed under Section 143(3) read with Section 147 on 22.3.2013. The appellate authority upheld the validity of reopening the assessment, stating it was lawful.2. Classification of Income from Nursery Activities as Agricultural Income under Section 10(1) of the Income Tax Act:The Assessing Officer treated the agricultural income from nursery activities as business income, disallowing the claim of Rs. 51,89,480 as agricultural income. The appellate authority and the Tribunal, however, upheld the assessee's claim, relying on the decision in CIT vs. Soundarya Nursery (241 ITR 531), which held that income from nursery activities, including plants grown in pots, constitutes agricultural income. The Tribunal concluded that the basic and subsequent operations performed in the nursery qualify as agricultural activities, thus the income derived is exempt under Section 10(1).3. Applicability of Explanation 3 to Section 2(1A) of the Income Tax Act for the Assessment Year 2007-08:The revenue argued that Explanation 3 to Section 2(1A), inserted by Finance Act, 2008 with effect from 01.04.2009, was not applicable for the assessment year 2007-08. The Tribunal and appellate authority, however, held that the definition of agricultural income prior to the insertion of Explanation 3 already included nursery activities. The Tribunal's decision was based on the ratio laid down in Soundarya Nursery's case, which interpreted agricultural activities to include nursery operations even before the amendment.Conclusion:The High Court confirmed the concurrent findings of the appellate authority and the Tribunal, holding that the income from nursery activities qualifies as agricultural income and is exempt under Section 10(1) of the Income Tax Act. The Court dismissed the revenue's appeal, affirming that the reopening of the assessment was valid and the income derived from nursery operations should be treated as agricultural income, even for the assessment year 2007-08, based on existing legal interpretations and judicial precedents. The substantial questions of law were answered against the revenue, and the impugned order of the Income Tax Appellate Tribunal was confirmed.