TaxTMI 
TaxTMI 
2016 (10) TMI 165
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....declaring his taxable income as Rs. 3,47,238, from plantscape business and agricultural income of Rs. 51,89,480/- from agricultural operation, in the nursery owned by the assessee in Velichai Village near Kelambakkam. The assessment was completed u/s.143(3) on 11.12.2009 on the assessed income of Rs. 10,47,616/- and agricultural income of Rs. 51,89,4380/-. The case was reopened by issuance of notice u/s.148 on 31.03.2011 and assessment was completed u/s.143(3) r/w S.147 of the Act on 22.3.2013 computing net taxable income at Rs. 62,37,096/-. The Assessing Officer raised a demand of Rs. 26,23,900/- by treating the agricultural income as business income. 3. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) in I.T.A.No.47/2013. The Commissioner of Income Tax (Appeals vide his order dated 26.12.2014, had allowed that the income derived from agricultural land, as exempt u/s.10(1) of the Income Tax Act, 1961, by giving a categorically factual finding that the assessee had grown plants, in nursery on the agricultural land owned by him, at Velichai Village near Kelambakkam and at Chengalpattu, and derived income from sale of such plants....
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....went on appeal before the Commissioner of Income Tax (Appeals) who has held that the definition of agriculture income prior to insertion of Explanation 3 would include the activity of nursery also and directed the Assessing Officer to treat the income received from nursery as agricultural income and allowed exemption available to such agriculture income u/s.10(1) of the Act, by its order dated 26.12.2014 in ITA No.47/2013-14. Aggrieved against this order, the revenue preferred an appeal in ITA No.667 of 2015 before the Income Tax Appellate Tribunal, Madras A Bench, Chennai, which dismissed the appeal preferred by the revenue and the said order is impugned in the instant appeal. 6. Further, the learned Standing Counsel for the revenue would further submit that the Tribunal failed to note that Explanation 3 to Sec.2(1A) was inserted by Finance Act, 2008 with effect from 01.04.2009 and was applicable only from the assessment year 2009-10 onwards and therefore, not applicable to the earlier assessment year. The Tribunal also failed to appreciate that, as per Section 2(1A) of the Act, agriculture income should be derived from land, and the land should be used for agricultural purpose....
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....counsel appearing for the assessee/respondent and perused the materials on record. 9. On 20.06.2016, this Court issued notice of motion on the following substantial question of law:- Whether on the facts and circumstances of the case, 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? However, at this stage of final hearing, this Court deems it fit to add the following substantial question of law also:- Is not the finding of the Tribunal bad, especially, when Explanation 3 to Section 2(1A) was inserted by Finance Act, 2008 with effect from 01.04.2009 and was applicable only from the assessment year 2009-10 and not for the earlier assessment year? 10. The Case of the respondent/assessee is that he owns an agricultural land to an extent of 23.03 Acres at Velichai Village near Kelambakkam and 16.93 Acres in Chengalpattu and derived income from sale of replanted trees, flowers and creepers, saplings and seeds, rent for agricultural land, share of profit and interest on capital from a firm engaged in agricultural operation. The respondent filed his re....
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.... and agricultural operation. Eventually, based on the aforesaid decision, the Assessing Officer disallowed the agricultural income of Rs. 51,89,480/- by order dated 22.3.2013. 12. Against that order, the respondent/assessee filed an appeal in ITA No.312/13-14/A-2 before the Commissioner of Income Tax (Appeals), Chennai, challenging the validity of reopening the assessment u/s.147 and disallowance of agricultural income, treating the same as business income Rs. 51,89,480/-. The appellate authority dismissed the appeal insofar as the first ground is concerned, viz., reopening of the assessment, holding that it is valid in law. However, with regard to the issue of disallowance of agricultural income of Rs. 51,89,480/-, the claim of the assessee was allowed holding that the income from nursery is an agriculture income. 13. In reaching his conclusion, the appellate authority has relied on the decision of CIT v. Green Gold Tree Farmers P Ltd., (2008) 167 Taxman 151 (Uttarakand), wherein it has been held that sale proceeds of plants raised in nursery on land belonging to the assessee constitute agriculture income. The appellate authority has also referred to the decision of a Divisi....
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.... Finance Act,2008, to treat the income from nursery as agricultural income and the same is usefully extracted hereunder:- "2(1A) Agriculture income means - ....................................................................... Explanation 3 For the purpose of this clause, any income derived from saplings or seedling grown in a nursery shall be deemed to be agriculture income. This amendment came to force with effect from 01.04.2009 and the same is applicable from the assessment year 2009-10 onwards. 15. Following the aforesaid decision of Soundarya Nursery's case (supra), the Income Tax Appellate Tribunal upheld the order of the appellate authority and dismissed the appeal of the revenue. 16. The decisions relied on by the Assessing Officer, viz., Raja Benoy Kumar Sahas Roy (Supra) has been considered in detail by the Division Bench of this Hon'ble Court in CIT vs. Soundarya Nursery (2000) (241 ITR 531) dated 5.8.1998, and thereafter, at Paragraph 7 of the Judgment, this Court held as follows:- "7. Our attention was then invited by learned counsel to the decision of the Supreme Court in the case of CIT V. Raja Benoy Rumor Sahas ....