Allahabad High Court
Jugal Kishore Arora vs Deputy Commissioner Of Income-Tax on 19 May, 2004
Equivalent citations: (2004)192CTR(ALL)174, [2004]269ITR133(ALL)
Bench: M. Katju, R.S. Tripathi
JUDGMENT
1. These three income-tax appeals involve common questions of law and fact and hence are being disposed of by a common judgment.
2. Heard learned counsel for the parties.
3. The assessee owns a plant nursery where he grows ornamental and decorative plants which he sells and derives income therefrom. The assessee alleges that this is agricultural income as he performs agricultural operation. He has relied on the Supreme Court decision in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466.
4. However, the assessing authority did not accept the appellant's plea, and hence held that the assessee's income was not agricultural income. True copy of the assessment order dated November 9, 2000, for the assessment year 1998-99 is annexure I to the appeal.
5. Against the assessment order of the assessment year 1997-98, the assessee filed an appeal which was allowed by the Commissioner of Income-tax (Appeals), Kanpur, who held that the income is agricultural income and hence exempt from income-tax. True copy of the order dated August 16, 2001, is annexure 2 to the appeal.
6. The Department filed an appeal against the order of the Commissioner of Income-tax (Appeals) for the assessment year 1998-99 (vide annexure 4 to the appeal). During the hearing of this appeal before the Tribunal, learned counsel for the assessee submitted that in view of Instruction No. 1979 dated March 27, 2000, the Central Board of Direct Taxes directed that only such appeals are maintainable before the Tribunal by the Department where the tax effect exceeds rupees one lakh. It was submitted by the assessee that in each of the assessment years 1996-97, 1997-98 and 1998-99 the tax effect was less than rupees one lakh and hence the appeal was not maintainable before the Tribunal. However, the Tribunal held that the question is of a recurring nature and refused to dismiss the appeal.
7. Ultimately, by the impugned order dated November 31, 2003, for these three assessment years, the Tribunal allowed the appeal, and hence this appeal was filed. The main question before us is whether the assessee's income is agricultural income. The Tribunal has referred to the decision of this court in H.H. Maharaja Vibhuti Narain Singh v. State of Uttar Pradesh [1967] 65 ITR 364 and held that the nurseries are maintained and run as a business quite independently of agriculture, and hence the income is not agricultural income. In that decision this court held that even if keeping of a nursery necessarily involves the use of some land and earth for the purposes of rearing plants, that would not by itself amount to the carrying on of a primary agricultural operation in the sense of cultivation of the soil.
8. Section 10(1) of the Income-tax Act states that agricultural income shall not be included in the total income of any person for the purposes of assessing him to income-tax.
9. Section 2(1A) of the Income-tax Act defines "agricultural income" to mean :
"(a) any rent or revenue derived from land which is situated in India and is used 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 ;"
10. It may be noted that the words "agriculture" and "agricultural purposes" have not themselves been defined in the Income-tax Act. Hence they have to be given the meaning in common parlance and as interpreted by the courts. The meaning and import of the terms "agriculture" and "agricultural purposes" have been the subject matter of divergent views by Indian courts commencing from the expression of the opinion of the renowned judge of the Madras High Court, Mr. Justice Bhashyam Iyengar J., in Murugesa Chetti v. Chinnathambi Goundan [1901] ILR 24 Mad 421 in the year 1901, through the decision of Reilly J., in Chandrasekara Bharati Swamigal v. C. P. Duraiswami Naidu, AIR 1931 Mad 659 in the year 1931 and of the Privy Council in Raja Mustafa Ali Khan v. CIT [1948] 16 ITR 330 in the year 1948 and culminating in the decision of the High Court of Orissa in Vikram Deo Varma, Maharaja of Jeypore v. CIT [1956] 29 ITR 76 in the year 1956, since reversed by the Supreme Court in CIT v. Ramakrishna Deo [1959] 35 ITR 312. The divergence centred principally around three problems :
(i) Whether the human labour and skill, involved in agricultural operation should be spent on the land, or they could be spent on the plant or the tree or the crop, after,it has sprouted ;
(ii) Whether the concept of "agriculture" carried it in the nature of the product raised, viz., of its being fit for consumption by man or by beast ; and (iii) Whether such operation would include pasturing of animals on the land and the allied pursuits of rearing, feeding and management of livestock and also include husbandry, farming, horticulture, etc., and making of butter and cheese--which are all included in the dictionary meaning of the word "agriculture".
11. The controversy was settled by the Supreme Court in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 which was heard and decided along with two other appeals in Kameshwar Singh (Maharajadhiraj Sir) v. CIT [1957] 32 ITR 587 (SC) and CIT v. Jyotikana Chowdhurani [1957] 32 ITR 705 (SC). This decision was followed by the Supreme Court in CIT v. Ramakrishna Deo [1959] 35 ITR 312. The pronouncement in the first of the above cases may be regarded as the locus classicus on the topic of agriculture.
12. The primary sense in which the term "agriculture" should be understood, is its root meaning "ager" = field + "cultura" = cultivation ; that is to say, field cultivation or cultivation of the ground, in the sense of tilling of the land, sowing of the seeds, planting and similar operations on the land. These are basic operations and demand the expenditure of human labour and skill upon the land itself and further they are all directed to make the crop sprout out of the land.
13. After the crop sprouts from the land, there are subsequent operations which have to be resorted to by the agriculturist for the efficient production of the crop, such as, weeding, digging the soil around the growth, removal of undesirable growths, preservation of the crop from insects and pests and from depredation by cattle, tending, pruning, cutting, etc. Both the basic and the subsequent operations together form the integrated activity of the agriculturist.
14. The performance of the subsequent operations on the products of the land would not be enough to invest the subsequent operations with agricultural character. They should be in conjunction with, and in continuation of, the basic operation which is the sine qua non of an agricultural operation. Without it, the subsequent operations do not acquire the character of agricultural operations.
15. It may be mentioned that the nature of the produce raised has no relevance to the character of agricultural operation.
16. Accordingly, "agriculture" would include horticulture, floriculture, arboriculture and sylviculture vide Pavadai Pathan v. Ramaswami Chetty, AIR 1922 Mad 351. It would include the raising of groves, plantations, grass or pasture. It would extend to cultivation of all commodities of (i) food value, such as, sugarcane vide CIT v. Ravalgoan Sugar Farm Ltd. [1947] 15 ITR 297 (Bom) ; Brihan Maharashtra Sugar Syndicate Ltd. v. CIT [1946] 14 ITR 611 (Bom) ; tea vide Kaju Mal v. Salig Ram, AIR 1924 PC 1 ; [1924] ILR 5 Lah 50 (PC), coffee vide CIT v. Diwan Bahadur S.L. Mathias [1939] 7 ITR 48 (PC) ; affirming CIT v. Diwan Bahadur S.L. Mathias [1937] 5 ITR 435 (Mad), coconuts vide Ven-kayya v. Ramasami [1899] ILR 22 Mad 39 (coconut growing is agricultural purpose) ; Murugesa Chetti v. Chinnathambi Goundan [1901] ILR 24 Mad 421 (a coconut garden is a fruit garden) ; S.M. Narayanan Ayyangar v. Subramanian Chettiar [1937] ILR 1937 Mad 364 [FB] ; AIR 1937 Mad 254, mangoes vide Saro-jini Devi v. Sri Kristna, AIR 1944 Mad 401 ; Deen Mohammad Mian v. Hulas Narain Singh, AIR 1942 Patna 296 (299, 300) affirmed in the Federal Court on another point in Hulas Narian v. Deen Mohammad Mian, AIR 1943 FC 9 ; [1943] ILR 22 Patna 428 ; cf Raja Bahadur Major Raja Durga Narain Singh v. CIT, [1947] 15 ITR 235 (All), orange, jack fruit, tamarind and plantains vide CIT v. K.E. Sundara Mudaliar [1950] 18 ITR 259, 274 (Mad) (ii) artistic and decorative value, such as, flowers and creepers ; (iii) trade or commercial value, such as, cotton, indigo, jute, hemp, linen, rubber, tobacco, groundnuts, castor seeds, tendu leaves and horra nuts ; (iv) housing value such as, bamboo, timber vide CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC) and palmyra vide CIT v. K.E. Sundara Mudaliar [1950] 18 ITR 259 (Mad) ; (v) fuel value, such as, casuarina vide CIT v. K.E. Sundara Mudaliar [1950] 18 ITR 259 (Mad) ; Pavadai Pathan v. Ramaswami Chetty, AIR 1922 Mad 351 ; Chand-ramani Patta Mahadevi v. Municipal Council [1945] 2 MLJ 315 ; AIR 1946 Mad 143, (vi) medicinal and health value such as, cardamoms vide S.K. Kadirvel-sami Naicker v. S.P. Sultan Ahmed Badruddin Rowther, AIR 1947 Mad 160, arecanuts and betel and the whole gamut of oshadhis ; and (vii) all things edible or otherwise deriving nutriment from the soil.
17. Thus even cultivation of flowers of artistic and decorative value has been held to be an agricultural operation.
18. In the present case, the Assessing Officer found that the assessee was maintaining a nursery at his residence 152, Swaroop Nagar, Kanpur. The Assessing Officer found that the assessee was not deriving income from any land used for agriculture. He was of the view that the nursery was maintained and run as a business quite independently of agriculture. Even if keeping of the nursery necessarily involves the use of some land and earth for the purposes of rearing plants, that would not by itself amount to carrying on a primary agricultural operation in the sense of cultivation of the soil.
19. The Assessing Officer noted from the photographs produced before him that all the plants were grown in earthen pots and these pots were placed on a concrete structure, which was either on the floor of the house or terrace. He also noted that most of the plants were placed in polythene bags and no use of land is evident from these photographs. The Assessing Officer hence was of the view that the activities of the nursery were being carried out in earthen pots and no agricultural process was involved. Hence he rejected the plea of the assessee that he was performing an agricultural operation.
20. The Commissioner of Income-tax (Appeals) reversed the order of the Assessing Officer relying on the decision of the Madras High Court in CIT v. Soundarya Nursery [2000] 241 ITR 530.
21. In further appeal, the Tribunal has held vide paragraphs 19 and 20 of its order that the Assessing Officer should bring on record the nature of the operations, viz., primary as well as secondary on the specific land area, and thereafter apply the law laid down in the above cases to the facts of the present case. He has observed that the Assessing Officer has to examine how the assessee can be said to be carrying on agriculture in the primary sense, i.e., tilling of the land, sowing of seeds and planting and doing other operations on the land. After examining this aspect, the Assessing Officer has to examine the secondary operation carried out by the assessee. Mere performing of the secondary operation will not make the assessee's activity an agricultural activity as held by the Supreme Court.
22. The Tribunal has also sought to distinguish the decision of the Madras High Court in CIT v. Soundarya Nursery [2000] 241 ITR 530.
We find no illegality in the order of the Tribunal. The Tribunal has merely remanded the matter to the Assessing Officer for fresh inquiry after giving opportunity of hearing to the assessee, and to pass a fresh order in accordance with the decisions of the Supreme Court and this court. No exception can be taken to such a direction. As regards the contention that the appeal should not have been entertained in view of the direction of the Central Board of Direct Taxes dated March 27, 2000, we are of the opinion that the instructions of the Central Board of Direct Taxes regarding filing of appeals are only internal matters of the Department, and the assessee cannot object to filing of an appeal despite such an instruction. The appeal is clearly maintainable before the Tribunal on behalf of the Department under Section 253(2) of the Income-tax Act, and this right to file an appeal is a statutory right and cannot be taken away or prohibited by executive instructions. Moreover, the instructions itself state that an appeal can be filed if the matter is of a recurring nature.
23. Thus there is no force in these appeals and they are dismissed.