TaxTMI 
TaxTMI 
2011 (11) TMI 373
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....green house and started a floriculture project. It was 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 gro....
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....ystem in order to ensure export quality production." 2.1 On the basis of the said explanation, 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 ....
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....d of our agricultural processes is attached in a separate sheet, Kindly find attached the certificates from various government 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 missin....
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....g the genuineness of the appellant's claim. There is no substance in the Assessing Officer's observation that a company cannot claim the benefit of Sec.10(1) as from the combine reading of sec.10 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....
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....peration, only conventional methods are acceptable. Referring a decision of Delhi Tribunal Sudisha Farm Nursery v. ITO [2004] 88 ITD 638 he has argued that if a nursery is maintained independently without resorting 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....
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....ase for a period of 25 years. Therefore it was not in dispute that the land in question is an agricultural land and not a commercial land, and that it belonged to agriculturists, as many as, nine in numbers. Vide lease 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 c....
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....land was acquired by the assessee from agriculturists. It is also not in disputed that mother plats are always been grown on the agricultural land. As far as ingredients of basic operation is concerned the assessee's 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....
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....sed for agricultural purposes; (b) any income derived from such land by - (i) agriculture; or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him 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 pu....
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....ubsequent/ secondary agriculture operations' thus constitute an integrated agriculture activity. Primary as well Secondary agriculture activity both carried out conjointly thus comprehend "Agriculture operation". So a nexus is needed between agriculture land with agriculture operation to treat an income as Agriculture income. On these parameters, in our humble opinion, one 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 ....
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.... like planting, cutting, weeding, tilling and watering etc. In that case the plants were grown in the green house and nurtured by giving requisites nourishment, light, humidity etc. Facts and the circumstances under which the flowers are cultivated in that appeal being almost identical hence a strong is placed on the Pune Bench decision. Further reliance has also be placed on the decision 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 ....
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....re incurred at Rs. 2,09,40,283/- is treated as deferred revenue expenditure and requires to be amortized over the period of benefit to be derived from the said plants. Accordingly, the cost of Rose Plants after reducing subsidy, the net amount is spared over for 10 years and 1/10th thereof is allowed, as differed revenue expenditure during the year under consideration and balance of expenditure is allowable 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 ....