Chennai, Jan 25 (PTI) The Madras High Court today stayed all proceedings against former Union minister P Chidambaram and his family members pursuant to a demand notice issued by the Income Tax department last year relating to income from a coffee estate owned by them for the 2008-09 financial year.

Justice Rajiv Shakder passed the interim order on petitions by Chidambaram, his wife Nalini and son Karti challenging the March 31, 2016 demand notice and consequential reassessment order dated December 30 last issued by the Assistant Commissioner of Income Tax, Chennai.

"Pending adjudication of the writ petitions, the further proceedings pursuant to the demand notice are stayed," the judge said and adjourned the hearing to March 16 next.

The matter relates to the petitioners claiming exemption of entire income from the sale of coffee and pepper from their estate in Coorg in Karnataka in 2008-09 as agricultural income under section 10(1) of the Income Tax Act.

The I-T department last year had issued the demand notice claiming about Rs. six lakh from the petitioners after reassessing the income for the period.

The counsel for senior Congress leader Chidambaram and others alleged that the I-T department's action in reopening the assessment and reassessing the income for 2008-09 six years later was illegal and arbitrary.

Counsel Vijay Narain alleged that it had been made only with an intention to defame the petitioner and his family.

Stating that the petitioners had only sold raw coffee seeds, he argued that the income from the sale would attract tax only if they were involved in curing coffee.

He said Chidambaram had inherited the 200-acre estate from his grandfather in 1956. It was later partitioned into five units of 40 acres each in the names of Chidambaram, his wife, son, daughter-in law and grand daughter.

Coffee and other crop grown in the estate were continuously generating agriculture income and had been exempted from Income Tax since then, he said.

The petitioners said coffee grown in their estate was sold as raw coffee after pulping and drying and the process involved no curing of seeds.

Further, they said under rule 7B(1) of the Income Tax Rules, income derived from the sale of coffee grown and cured by the seller in the country shall be computed as if it were income derived from business and 25 per cent of such income shall be deemed to be income liable to be taxed.

Agricultural income classification: stay on income-tax proceedings over coffee estate pending challenge to reopening and reassessment. Challenge to reopening a completed income-tax assessment and a demand notice claiming tax on sale of coffee from a family estate for 2008-09, where petitioners assert the receipts are agricultural income exempt because raw coffee was sold without curing; High Court granted an interim stay on further proceedings arising from the demand notice pending adjudication, and the dispute turns on whether sale after pulping and drying without curing attracts tax or falls within rules deeming part of coffee income as business income.