2017 (8) TMI 445 - AT - Income Tax

Tribunal confirms agricultural income exemption under Section 10(1) of Income Tax Act

The Tribunal upheld the CIT(A)'s decision, confirming the income from plant floriculture/tissue culture as agricultural income exempt under Section 10(1) ... Exemption u/s 10(1) - agricultural income - proof of agricultural operations - business of plant floriculture / tissue culture - Held that:- basic operations are carried out in the present case, which require human skill and labour, and subsequent operations, no matter how sophisticated, if that be used against the assessee, are only to foster the growth and to protect the produce, we find that the income from these operations can only be said to be agricultural income. The authorities belong indeed erred in law and on facts of this case in holding that the impugned income is not agricultural income. We, therefore, direct the Assessing Officer to treat the said income as agricultural income under section 2 (1A)(b)(i) of the Act. - Decided in favour of assessee. Issues Involved:1. Whether the income earned by the assessee is exempt as agricultural income under Section 10(1) of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Exemption of Income as Agricultural IncomeBackground and Facts:The assessee, a company engaged in plant floriculture/tissue culture, filed its return for the Assessment Year (A.Y.) 2010-11, declaring an income of Rs. 3,53,273/-. The case was selected for scrutiny, and the Assessing Officer (AO) determined the total income at Rs. 10,14,79,040/-, treating it as business income rather than agricultural income. The AO based this determination on a similar decision taken for A.Y. 2004-05, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee appealed to the CIT(A), who reversed the AO's decision, treating the income as agricultural income exempt under Section 10(1) of the Income Tax Act. The Revenue then appealed to the ITAT.Revenue's Grounds of Appeal:1. The CIT(A) erred in directing the AO to treat the income as agricultural income under Section 2(1A)(b)(i) and exclude it under Section 10(1).2. The CIT(A) ignored the fact that the greenhouses and tissue culture laboratories cannot be termed as land or nurseries for growing plants.3. The CIT(A) overlooked that the assessee's sales consisted mainly of flowering plants developed from imported mother plants in a tissue culture laboratory, not grown in a nursery.4. The Revenue sought to vacate the CIT(A)'s order and restore the AO's decision.Tribunal's Analysis and Decision:- The Tribunal noted that the primary issue was whether the income from plant floriculture/tissue culture is exempt under Section 10(1).- The AO had relied on the reasoning from A.Y. 2004-05 to classify the income as business income. However, the Tribunal had reversed this decision in the assessee's favor for A.Y. 2004-05 and subsequent years.- The CIT(A) had followed the Tribunal's decisions for A.Y. 2004-05 and A.Y. 2009-10, which treated the income as agricultural income.- The Tribunal reiterated its earlier findings, emphasizing that the operations carried out by the assessee were agricultural in nature, involving basic and subsequent operations on land, which qualify as agricultural activities under Section 2(1A)(b)(i).- The Tribunal referenced several judicial precedents, including the Supreme Court's decision in CIT Vs. Raja Benoy Kumar Sahas Roy and the Madras High Court's decision in CIT Vs. Soundarya Nursery, which supported the classification of such income as agricultural.- The Tribunal also noted that Explanation (3) to Section 2(1A) clarified that income from saplings or seedlings grown in a nursery is deemed agricultural income, reinforcing the assessee's claim.Conclusion:- The Tribunal found no new material or distinguishing facts presented by the Revenue to challenge the CIT(A)'s order.- Following the consistent decisions in the assessee's favor for earlier years, the Tribunal upheld the CIT(A)'s order, confirming the income as agricultural and exempt under Section 10(1).- The Revenue's appeal was dismissed.Final Judgment:The appeal of the Revenue was dismissed, and the order of the CIT(A) was upheld, confirming the income derived from floriculture and tissue culture as agricultural income exempt under Section 10(1) of the Income Tax Act.