TaxTMI 
TaxTMI 
2017 (12) TMI 1058
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....03 shall be identically applicable in all other years. ITA No. 1988/DEL/2006 [AY 2002-03] 2. The assessee is in appeal against the order dated 22.02.2006 passed by the CIT(A), New Delhi. The assessee is a company incorporated under the Companies Act, 1956 and is a 100% subsidiary of Pioneeer Overseas Corpn. USA (POC). In the relevant AY 2002-03, the assessee filed its return of income declaring an income of Rs. 38,53,720/- after claiming exemption under section 10(1) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short]. According to the assessee-company, the main activity of the company is to procure various variety of seeds from growers, processing and packing, and subsequent sale. The procurement of seeds from growers is at a fixed rate. The procurement cost is bifurcated in the books of account under the following heads: a) Land Lease Rent b) Fertilizers & Chemicals c) Labour & Service Charges The case of the assessee was selected for scrutiny assessment under section 143(2) of the Act. The AO show caused the assessee to explain as to why the claim of agricultural income not be disallowed. The assessee submitted....
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..... The Assessment Orders for A.Y. 1996-97 to 2001 -02 and the Audit Reports are factually incorrect in stating that defective or substandard seeds are returned to the farmers. However, as a matter of goodwill and established practice the sales proceeds of the grain are credited to the job -workers. (v) Male chopping charges (debited under Labour and Service Charges) are paid out on per acre basis in the case of all crops except mustard. (vi) As against the small number of cases where balances were negative the company has incurred far greater loss by way of its inputs in terms of parent weed costs and the expenditure towards field production staff. (vii) For F.Y. 2000-01 the company ploughed down 442 acres of land where the seeds sown did not sprout within a few days of sowing. As a result the lease got frustrated and the land was returned to the farmer under mutual agreement. This clearly shows that the company had possession of leased lands and also the property in the seeds belonged to it. (viii) Consideration for purchase of goods can never be a negative figure Yet, it has happened. This is so, because in a job-contract the contractor becomes ....
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....ment provides that compensation to the farmer towards inputs i.e. Fertilizers, chemicals, insecticides etc. shall be paid at the rate per acre mentioned in the agreement. 6. The Ld. AR has further referred to the confirmation of the farmer stating that they were provided seeds for planting by the assessee and on the directions and guidance by the assessee, the entire range of agricultural operation were carried out. It was further stated in the confirmation that the assessee had paid to the farmer a composite sum calculated at the rate per kg. of good seeds. 7. The Ld. AR submitted that the report given by the DI, Hyderabad which contains adverse findings against the assessee was prepared behind the back of the assessee in a surprise field visit. The enquiry report dated 21.02.2004 revealed the following:- i) All the lands referred to in the Annexure have been taken on lease by PHI Seeds Ltd. Delhi, for the F.Y. 2000-01 on an annual rent of Rs. 1500/- per acre. ii) M/s PHI Seeds Ltd. in turn, handed over the lands back to the farmers themselves to cultivate maize. iii) M/s PHI Seeds Ltd. supplied the male and female seeds in the farmers at free at f....
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....ible for the revenue cannot be allowed to take business decision on assessee's behalf. The revenue has clearly confused "measure of payment" with the quality and character of payment. (Ref. Senniram Dongarmal 42 ITR 392, SC at Pg. 1/dPB-1) vii In any event, the mode and basis of payment of compensation for labour is a matter between the company and the farmer. If the farmer is satisfied with such an arrangement, which he enters into year after year, it is not for the revenue to contend that the assessee should have adopted some other business model, and state that for this reason the income is not agricultural. As lon as it shown that the assessee had derived income from agri-land in which it has interest, the income is exempt u/s 10(1) of the Act. viii) The company, being artificial person, cannot cultivate land itself. It can either 'employ' labour on wages or engage contract labour. The company has contracted with farmer also for providing labour on as many as 5000-6000 plots of lands aggregating 15,000-16,000 across Andhra Pradesh, and also some in Rajasthan, Karnataka & Gujarat. The present arrangement was found to be most feasible for managing the production on so ma....
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....n favour of the assessee. In ITA No. 6093/Mum/2007 for A.Y. 2004-05 the Tribunal held as under:- "3. The learned counsel for the assessee contended before us that the issue is covered in favour of the assessee by the decision of the Tribunal in the assessee's own case for the assessment year 1993-94 to 2003-04, copies of the relevant orders have been placed on record. The issue has extensively been considered by the Tribunal in ITA Nos. 286 & 287 /Bang/03, 307 to 309/Bang/02 and 1070, 1895 & 1896/Bang/04 vide order dated 26.11.2007. The relevant facts are contained in para 4 to 4.1 of the order. We reproduce para nos.4, 4.1 and 10 to 18 of the order as under:- "4. Briefly stated, the facts are that the assessee company was incorporated in the year 1988 for production of high yielding hybrid seeds. In terms of the approval of the Foreign Investment Promotion Board (FIPB) dated 24.6.84, the company is engaged in the business of production and marketing of hybrid seeds. The company with the help of farmers carries out the production of hybrid seeds. According to the assessee, growing of hybrid seeds involves carrying out agricultural operations jointly with the land ....
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..... (h) The company shall have total access to the land at any time to supervise agricultural activities, inspect and testing. The farmers shall not obstruct the servants, agents and the officers of the company to have access to the land. These facts are enumerated in the order of the CIT (A) at pages 2 to 4, 10 We have heard rival submissions and considered them carefully. After examining the order of the Assessing Officer and CIT (A), we do not find any infirmity in the findings of the Id CIT (A) . These are undisputed facts that the assessee has shown agricultural income on the same activity for AY 90-91 onwards. During the assessment proceedings for AY 90-91, the claim of the assessee was negated by the Assessing Officer. The assessee filed appeal before the CIT (A), who after discussing the issue in detail allowed the claim of the assessee of doing agriculture activity and the Assessing Officer was directed to accept the agricultural income shown by the assessee. The assessments for AY 91-92 and 92-93 were passed u/s 143 (3) and the Assessing Officer has accepted the agricultural income as shown by the assessee himself. However, thereafter the Assessing Officer....
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....bserving that the contract entered contrary to the provisions of Karnataka Land Reforms Act, 1961 (KLRA) and such conditions prevailed under KLRA prescribed in the contract will not prevail over the provisions of the Act. The Assessing Officer while negating the claim of the assessee also observed certain further objections. The assessee preferred appeal before the CIT (A), who allowed the claim of these assesses by observing that the receipts shown by these assesses are agricultural receipts. On appeal before the Tribunal, the Tribunal held that the receipts shown by the assessee are agricultural receipts. The Tribunal has discussed the issue in detail. The meaning of agricultural income has also been discussed and by placing reliance on the decision of Madras High Court in the case of Maddi Venkatasubbayya in 20 ITR 151 and in the case of Associated Metal Co in 177 ITR 428 (Alld) where the facts were identical decided the issue in favour of the assessee. The decision of the Supreme Court in the case of Raja Benoy Kumar Sahas Roy in - (2002- TIOL-150-SC-IT)=32 ITR 466 was also taken into consideration by the Tribunal. While discussing the ratio of these decisions in details, the T....
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....rtment has accepted the claim of the assessee itself. There is no change in facts or in circumstances; therefore, rule of consistency will be applicable on the facts of the present case. 16 The Hon'ble Supreme Court in the case of Radhaswamy in - (2002-TIOL-745-SC-IT)= 193ITR 325 has held that if there is no change in facts then rule of consistency will prevail upon. Many High Courts have also held so. 17 Respectfully following the decision of the Supreme Court and other High Courts, we hold that even in view of consistency there is no infirmity in the findings of the ld CIT(A), who has also taken into consideration the past history of the case. Accordingly, we confirm the order of the ld CIT (A) for these two years. 18 The facts in the remaining years are identical, therefore, in view of the reasoning discussed above, we confirm the orders of the ld CIT (A) for the remaining years also. "4. Since the decision of the CIT (A) is in accord with the order of the Tribunal in the assessee's own case for earlier years (supra), we find no justification to interfere. 5. The appeal of the Revenue is accordingly dismissed. Respectfully following the decisions of the Coordin....
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....lture would be restricted only to cultivation of the land in the strict sense of the term meaning thereby, tilling of the land, sowing of the seeds, planting and similar operations on the land. They would be the basic operations and would require the expenditure of human skill and labour upon the land itself. There are however other operations which have got to be resorted to by the agriculturist and which are absolutely necessary for the purpose of effectively raising the produce from the land. They are operations to be performed after the produce sprouts from the land, e.g., weeding, digging the soil around the growth, removal of undesirable undergrowths and all operations which foster the growth and preserve the same not only from insects and pests but also from depredation from outside, tending, pruning, cutting, harvesting, and rendering the produce fit for the market. The latter would all be agricultural operations when taken in conjunction with the basic operations above described, and it would be futile to urge that they are not agricultural operations at all........... .......We are of opinion that the mere performance of these subsequent operations on the product....
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.... operation performed on the land constituting agricultural operation. If the basic operations are there, the rest of the operations found themselves upon the same. But if these basic operations are wanting the subsequent operations do not acquire the characteristic of agricultural operations. All these operations no doubt require the expenditure of human labour and skill but the human labour and skill spent upon the land. The human labour and skill spent in the performance of subsequent operations cannot be said to have been spent on the land itself, though it may have the effect of preserving, fostering and regenerating the products of the land." 16. The Hon'ble Supreme Court in the aforesaid judgment has clearly held that agricultural income will arise when basic operations such as cultivation of land like tilling of the land, sowing of seeds, planting and other similar operations are carried out. The said basic operations should be on the land itself and it cannot be outside the land. Section 2(1A)(b)(i) refers to income derived from such land by agriculture. Sec. 2(1A)(b)(ii) refers to any income derived from such land by the performance of a cultivator or receiver ....
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.... preferred by the assessee and the farmer but the said arrangement only gives rise to business income in the hands of the assessee and not agricultural income. The leave and license agreement as well as the service provider agreement read alongwith the statements of the farmers also show that the agricultural operations are carried out by the farmers only. 20. The reliance placed by the Ld. AR upon the judgment in the case of CIT vs. Monsanto India Ltd. passed by the Hon'ble Bombay High Court is misplaced in as much as even in the said judgment the Hon'ble High Court in para 3 has clearly observed that agricultural operations ought to have been actually carried out by the assessee. 21. The judgment of the Hon'ble Karnataka High Court rendered in the case of CIT Vs. Namdhari Seeds Pvt. Ltd. is applicable to the facts of the present case. The submission of the Ld. AR that the present case is different from Namdhari Seeds (supra) case and, therefore, the ratio of the said judgment is not applicable does not appeal to us. It has been submitted by the Ld. AR that the aforesaid was a case where the agreement was contrary to the Karnataka Land Reforms Act, however, in the present ca....
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....atering of the land, use of the seeds supplied by the assessee and also had to sell the hybrid seeds at a price fixed by the assessee...... ....If the farmer has to arrange the labour and pay the labour charges and also spend money for other operations either basic or subsequent operations, he can only take advance amount from the assessee and such amount paid by the assessee would be deducted from the so called compensation to be paid for the qualified foundation seeds at the end by the assessee. The entire terms of agreement would only indicate that the foundation seeds grown by the farmer would be purchased by the assessee at the end for a certain price provided seeds qualify the specifications as per the agreement. It is nothing short of a fertile womb being offered by a surrogate mother for the growth of child of someone else. The assessee supervises and oversees the sowing cultivation right from the process of sowing till the end in order to get the qualified foundation seeds as per the specifications so as to carry on his trade in selling certified seeds. The main interest of the assessee is to see that good an d healthy seeds are produced by the farmer meeting the ....
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....ntical to the case of the assessee for AY 2002-03, we follow our own decision in ITA No. 1988/DEL /2006 and dismiss the aforesaid grounds. 25. Ground No. 11 pertains to the disallowance of contribution to superannuation fund of Rs. 3,23,767/-. The other additions/ disallowances are not pressed in the aforesaid ground of appeal. With respect to the said ground, the submission of the assessee before the AO and the CIT appeal has been that the sum is allowable as per Companies Act since its income being agricultural, the aforesaid have not been added back to the total income. Since we have held that the assessee is not entitled for the claim of agricultural income, the aforesaid amount is to be added to the total income of the assessee. Ground No.11 raised by the assessee is dismissed. 26. Rest of the grounds raised are not pressed, hence they are dismissed as not pressed. 27. As a result the appeal of the assessee is dismissed. ITA No. 443/DEL/2010 [AY 2005-06] and ITA No. 1903/2014 [AY 2009-10] 28. These appeals of the assessee pertain to A.Ys 2005-06 and 2009-10. Since the issues involved are common, the appeals are taken up together. Grounds No. 1 to 7 of ITA No.....