TaxTMI 
TaxTMI 
2011 (11) TMI 373
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.... noted by the Assessing Officer that the company had started growing rose flowers at village Kuched in Jalalpore block of Navsari District in Gujarat. It has also been noted by the AO that one of a director who worked as a marketing director namely, Shri Dipakbhai Patel is basically an agriculturist. At the start of the assessment order, the AO has also noted that the assessee-company had acquired agricultural land from agriculturist on a lease of 25 years for a least rent of Rs. 6 lakh per annum vide a lease agreement dated 24-10-2002. Further, it was observed that the company had constructed a green house floriculture project on the said land and the rose plants were grown on a bridge of plastic tray. As per the description the trays were erected on M.S stand which is stated to be 2-3 ft. above and trays were filled with a mixture of soil. The company had started its commercial production with effect from 01-10-2004 and good qualities of roses were grown and those roses were exported abroad. The assessee has claimed exemption u/s 10(1) as income under the head "agricultural income". Before Assessing Officer, the process of growing the rose flowers were explained as follows:- "B....
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....the Assessing Officer has observed that the rose plants were not planted on the earth land and no basic agricultural operation was carried out. As per AO the basic agricultural operation should be cultivated on land, such as, seed sowing, planting of pants on earth land. On examination of assessee's claim as agricultural income, the AO had held that no such activities were carried out by the assessee to treat the income as agricultural income. The AO has also examined the definition of agricultural income as defined in Section 2(1A) of the Act, the same shall be discussed here-in-below at the appropriate point in time. 2.2 Thereafter the Assessing Officer has discussed Mumbai Tenants Administrative and Agricultural Land Act, 1948 which was found to be followed by the Govt. of Gujarat through which the term "agriculture" is defined. As per the said definition agriculture is that:- "The agricultural land possessed by the agriculturist used for growing crops, fruits, gardening, grass for animal but does not include activities of spontaneous wood cutting." The Assessing Officer has also mentioned an order "57 BLR 199", wherein "agriculture" is defined as an operation which has ....
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....vernment and other organizations as proof of the activities carried out by us as agriculture. List is as below:- (a) National Bank for Agricultural and Rural Development (BABARD) (b) Agricultural and Processed Food Products Export Development Authority (APEDA), Ministry of Commerce, Govt. of India (c) Gujarat Agro Industries Corporations Ltd. (d) Department of Horticulture, Gujarat State, Gandhinagar (e) Certificate from Collector, Navsari." 2.4 Case laws referred by the Assessing Officer were:- (1) Consolidated Coffee Estates (1943) Ltd. v. CAIT [1970] 76 ITR 29 (Mys) (2) CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC) (3) H.H. Maharaja Vibhuti Narain Singh v. State of Uttar Pradesh [1967] 65 ITR 364 (All.) (4) CIT v. K.S. Iman Saheb [1969] 71 ITR 742 (Mad.) (5) Raja Mustafa Ali Khan v. CIT [1948] 16 ITR 330 (PC) 2.5 In the light of these precedents, it was concluded that the nexus between income and the agricultural operation on the agricultural land was missing. Therefore, in the absence of basic agricultural operation, the income was not an agricultural income. One more thing has also been added by the Assessing Officer that the assessee itself ha....
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.... r.w.s sec.2(31), one would realize that the wordings of section 10 which defines the incomes not included in total income prescribes that the benefit of section 10 are available to any person deriving such income and the definition of person includes company as clearly included in Sec. 2(31). Therefore the appellant company is very much eligible for claiming exemption u/s.10(1). The Hon'ble Madras High Court in case of CIT v. Soundarya Nursery reported in 241 ITR 530 has held that seeds and plants sold by the nursery in pots the result of primary as well as subsequent operations comprehended within the term agriculture and hence, clearly products of agriculture. The appellant's floriculture activity gets support from the aforesaid decision. The appellant has factually established the nexus between income, land and agricultural operations. Thus, after considering the facts of the case in totality, I am of the considered view that the appellant company has earned agricultural income by performing agricultural activity and therefore the appellant company has rightly claimed the exemption u/s.10(1) of the Act. The AO is, thus, directed to grant exemption u/s.10(1) to the Appel....
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....sorting to basic operations on the land then income from such nursery involves purchases and sale of plants. Then profits arising from such trading is subject to tax. He has further argued that mere performing of secondary operation would not make the assessee's activity and agricultural activity. Case law cited in the case of Jugal Kishore Arora v. Dy. CIT [2004] 141 Taxman 187 (All). Finally, he has informed that vide insertion in Section 2(1A) of Explanation (iii) is now provided that any income derived from sapling or seedlings grown in a industry shall be deemed to be agricultural income. He has contended that the said explanation (iii) is inserted by Finance Act, 2008 with effect from 01-04-2009. The said clause is therefore applicable from assessment year 2009-10 and not for the year under consideration. Before the said insertion the intention of the Legislature was to tax the nursery income as business income, otherwise the said explanation would have been applicable from retrospective effect. 4.1 Another Ld. DR Mr. D. V. Singh has placed reliance on the arguments raised earlier from the side of the Revenue as also the written submission filed and argued that only wher....
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....e agreement it was also verified that the property in question happened to be holding the character of agricultural land. Revenue has not disputed these facts but raised objection primarily in respect of the operation carried out by the assessee that whether an agriculture operation or not. 6.1 Activity in question : The company had developed a green house for the establishment of a floriculture project. The company had grown good quality of rose flowers and also exported them abroad. It was explained that for the plantation of roses a very well treated soil is required. The quality of the soil is therefore tested. Manures are mixed for preparing a base for growing the rose plants. The company has installed a proper drainage system. Certain operations such as mixing of soil and watering of plants through drainage are explained. Then the activity of pruning and bending of growing plants carried out to get best size of rose buds. It has also been explained that pest control is also required. Insecticides are sprinkled to save the plants from any disease. From the facts as emerged from the compilation filed we have gathered that within green house the floriculture activity comprises ....
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.... case is that the technology deployed is (i) use of soil and operation on soil (ii) use of particular soil type contents i.e. coco peat, manure, etc. present in the soil, (iii) drainage system as over watering harms the roots as well as quality (iv) bending shoots for maximizing the quality of roses, and (v) pest and diseases control for providing protection to roses. Therefore we hold that the activity which is connected with the land cultivation , such as ploughing of field, leveling of field, sowing of seed in the ploughed and leveled field, growing of plants, as case the may be, plantation, manuring, watering, weeding-out of weeds, so and so forth. These agriculture operations are said to be 'basic cultivation activity' and thereafter an agriculturist has to perform 'subsequent agriculture operation', namely tending of grown plants, pruning, cutting or shaping and finally harvesting of crop. We have to clarify, as held by few honourable courts as well, that the subsequent operations ought to be a continuation of basic Agriculture operation. The fundamental requirement is that it should remain connected with the basic agriculture operation. 6.3 Connected evidenc....
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....fit to be taken to market; or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause; (c) ** ** ** (B) ... ... Explanation 1 - For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section. Explanation 2 - For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income. Explanation 3 - For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income; ( relevant portions high-lighted) 6.5 After ins....
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....has to examine the facts of such cases so as to decide whether alleged agriculture activity do fall within the operations discussed hereinabove to hold as Agriculture Income to qualify for deduction u/s 10(1) of the Act. This aspect of availability of exemption to nursery has been duly considered in the case of Soundarya Nursery (supra), wherein it was held that the plants sold by the assessee-company in pots could be said to be a result of primary as well as subsequent operation comprehended within the terms "agriculture". Thus, it was held that the income generated from growing of plants in pots and sale of seeds is an agricultural income. Likewise, in the case of Soundarya Nursery (supra) the legal proposition laid down was that where sale proceeds of plants raised in nursery on land belonging to assessee constitute nothing but agricultural income, it was clarified that by perusing clauses (a) and (b) the definition of agricultural income in Section 2(1A), it is clear that income must be derived from land which is used for agricultural purpose. By referring (Raja Bahadur) Kamakhaya Narain Singh (supra), it was commented though it must always be difficult to draw the land, yet, u....
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....ision of Soundraya Nursery (supra) in which as well the decision was based upon the facts pertaining to primary as well as subsequent operation, held comprehend with in 'Agriculture'. Likewise, the decision of Green Gold Tree Farmers (P.) Ltd. (supra) also applies for the legal proposition that where measures of cultivation of land were taken, expenditure is incurred on human labour and skill to cultivate the land then in it's root sense the activity is 'Agriculture activity'. 7.2 In fact assessee's activity has already been endorsed as an agriculture activity by several other connected authorities certifying it as an agricultural operation. After an elaborate discussion of the facts as well as law pronounced by several courts, as also the decisions now cited from the side of the Revenue, it is finally held that considering the advancement of technology and the use of the advanced equipment in cultivation; coupled with the conventional cultivation method, put together, made the operation carried out by the assessee was agricultural operation in nature. Respectfully placing reliance on this decision as also the few decisions cited hereinabove, we are of the ....
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....able equally in the next nine following years(s). Accordingly, Rs. 20,94,028/- is allowed as deferred revenue expenditure during the year under consideration instead of depreciation as claimed by the assessee." 8.2 When the matter was carried before the first appellate authority, it was held that Assessing Officer was not justified in reducing amount of subsidy of Rs. 24,97,500/-. He has noticed that the amount of subsidy received by the assessee did not relate to the acquisition of the rose plants but in creating infrastructure i.e. Green House etc. On those findings, he has held that the loss amount of Rs. 23,43,783/- is to be amortized over a period of 10 years. 8.3 On hearing the submissions of both the sides, we have noticed that altogether certain new facts in respect of grant of subsidy were recorded by Ld. CIT(A). Because of this reason, we deem it proper to restore this issue to the stage of first appellate authority so that the exact nature of subsidy granted to the assessee should first be verify and then according to law the issue should be decided. We hold accordingly. This ground of the Revenue may be treated as allowed for statistical purposes. 9. Next ground No.3....