Income Tax Appellate Tribunal - Kolkata
Rajendra Kumar Agarwala, Jalpaiguri vs Assessee on 10 June, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL : "A" BENCH : KOLKATA
[ Before Shri D.K.Tyagi, J.M. & Shri B.C. Meena, A.M. ]
I.T.A.No. 1492 (Kol) of 2009
Assessment year 2000-01
Sri Rajendra Kumar Agarwala, -Vs- Income-tax Officer, Ward-2(1),
Jalpaiguri (PAN-ADBPG1080G) Jalpaiguri.
( Appellant ) ( Respondent )
Appellant by : N o n e
Respondent by : Sri O.P.Agarwal.
ORDER
Per Sri B.C.Meena, A.M. : This is the appeal filed by the assessee against the
order dated 10.06.2009 of C.I.T.(A), Jalpaiguri, pertaining to assessment year 2000-01. The only ground raised in this appeal by the assessee relates to addition of Rs.55,000/- as business income instead of agricultural income claimed by the assessee.
2. In the return of income filed for the assessment year under consideration, the assessee had shown total income of Rs.93,133/- comprising of rental income of Rs.33,138/- and income from jute business of Rs.60,000/-. In addition to the said income, the assessee also declared income of Rs.55,000/- from nursery business and claimed exemption on the ground that the same was agricultural income. The A.O. did not allow the claim of the assessee and treated the said income of Rs.55,000/- as income from business as, according to him, there was no agricultural activity and income from growing of tea seedlings is not agricultural income. He placed reliance on the decision of Hon'ble Allahabad High Court in the case of H.H. Maharaj Vibhuti Narain Singh vs. State of UP [65 ITR 364]. The case law relied upon by the assessee before the A.O. in the case of CIT vs. Soundarya Nursery [241 ITR 530 (Mad)] was not considered as according to him, that decision relates to growing of fruit plants and flower plants and not tea seedlings.
3. On appeal, the C.I.T.(A) confirmed the action of the A.O. in treating the income from tea seedlings as business income. The observation of the C.I.T.(A) is reproduced below :-
1"I have carefully considered the submission of the AR and also perused the assessment order. Though the decision of the Madras High Court, cited by the Ld. AR made it clear that even income from plants grown in pots is agricultural income but the same is not relating to growing of tea seedlings. In that case, it is apparent that plants grown on pots were sold. But the Ld. AO has mentioned that the normal procedure adopted in general by the producers of tea seedlings is that in a small plastic container mud is placed with required fertilizer and seeds are transplanted thereon and thereafter the same is placed just on the soil for growing. The question of cultivation of land as a whole does not arise and there was no primary operation of the cultivation.
In the decision of Allahabad High Court, cited supra, held that even if the keeping of a nursery necessarily means the use of some land and earth for the purpose of rearing plants, that would not by itself amount to carrying on a primary agricultural operation in the sense of cultivating fields. The Allahabad High Court has followed the guidelines prescribed by the Apex Court in the case of Raja Benoy Kumar Sahas Roy (supra). Therefore, in my opinion, the decision of the Allahabad High Court is more applicable to the fact of the case than the decision of the Madras High Court, cited by the Ld. A.R. In view of the aforesaid fact, I find no reason to interfere with the order of the Ld. AO. The same is confirmed."
4. At the time of hearing before us, none appeared on behalf of the assessee. The Ld. Departmental Representative relied on the orders of the authorities below. However, the assessee vide his letter dated 24/4/2010 has stated that the grounds of appeal filed along with the Memorandum of Appeal before the Tribunal may be treated as his arguments in support of his claim. The same is reproduced below :-
"The appellant is the owner of a plot of land (about 1 acre) in which Agricultural activity that is tilling of land, mixing of cow dang and other manures, making of sheds, sawing of seeds, watering, weeding, digging the soil around the growth, spraying of chemicals etc. are carried on for cultivation of Tea seedlings. Thereafter these plants are sold to the local business man who put them in poly packs (small plastic container) and sell them to different parties. -
This fact was explained before the A.O. and a written explanation was filed on 09-09-2002 (copy enclosed marked No.1 ). In the said letter in para-2 every thing was explained. But the Ld. A.O. in his order of assessment (page--2, para-1) did not consider any thing but simply opinioned that the agricultural operation conducted by the other are different in nature and this the only point for making the addition.
But this finding has got no meaning, what the other business men are doing is not relevant rather what the assessee did is relevant, neither it 2 is clear wherefrom the Ld. A.Q. got this information What the assessee did was explained before the A.O., an explanation and necessary documents were also produced hence there is no reason to reject the explanation filed by the appellant.
The Court decisions cited by the Ld. C.I.T(A) is not also relevant in the case of the assessee. The appellant is the owner of agricultural land and the basic and subsequent agricultural activities are carried on by him so there is no confusion about its agricultural character. The business of the appellant should not be confused with the business of the other persons, they may not have agricultural land or do not carry on any agricultural activity.
That the Ld. C.I.T.(A) in his order has stated that the decision of the Madras High Court in CIT v. Soundarya Nursery 241 ITR 530 is not relating to tea seedling. But it does not negate the very principal of agricultural income."
5. On perusal of the appellate order, we find that the C.I.T.(A) has distinguished the decision of Hon'ble Madras High Court in the case of CIT vs. Soundarya Nursery (supra), relied upon by the assessee, by holding that even though the Hon'ble High Court has held that income from plants grown in pots is agricultural income, but the same is not relating to growing of tea seedlings. Hon'ble Allahabad High Court in the case of H.H. Maharaja Vibhuti Narain Singh vs. State of UP (supra) has dealt with the question whether the income from the nursery constituted agricultural income ? The answer was negative. While holding so, the Hon'ble Allahabad High Court has adopted the discussions and guidelines narrated by the Hon'ble Supreme Court in the case of CIT vs. Raja Benoy Kumar Sahas Roy [32 ITR 466 (SC)].
5.1. In the written submission, the assessee has submitted that he is the owner of a plot of about 1 acre of land in which agricultural activity, i.e. tilling of land, mixing of cow dang and other manures, making of sheds, sawing of seeds, watering, weeding, digging the soil around the growth, spraying of chemicals etc. are carried on for cultivation of tea seedlings, which constitute integral part of agricultural operation. These activities are also carried on by the assesee in pursuance of his operating a nursery as stated above. Thereafter these plants are sold to the local businessmen who put them in poly packs (small plastic container) and sell them to different parties. This fact was explained to the A.O. vide his letter dated 9/9/2002. We find no 3 mention in the orders of the authorities below discarding the above factual position. It is further pertinent to mention here that no growth of plant is possible without tilling of land, turning over the earth for killing insects, watering, manuring, spraying and fixing them in the earth. Only when plants are established in soil, they are sold to the local businessmen who put them in poly packs and sell them to different parties. On the above facts it is found that the assessee is not doing any trading in plants, but is developing and growing plants from its birth to its point of sale. Therefore, the assessee is carrying on agricultural activities and the income is agricultural income.
5.2. The conditions precedent for attracting the provision of Sec. 2(1A)(a) of I.T. Act, 1961 are that (i) rent or revenue which is directly derived from any land which is used for agricultural purposes will be agricultural income; (ii) revenue which is derived must also be directly and not indirectly associated with the land which is used for agricultural purposes before it can be said to be agricultural income; and (iii) the effective source of receipts being from land is the decisive factor. Thus it is settled that agricultural income is derived from the produce of the land which are something saleable either for consumption or for trade or commerce if there is some substance available from the plants which constitute agricultural produce. In the case of CIT vs. Raja Benoy Kumar Sahas Roy (supra) it has been held that 'agriculture' consisted of the expressions 'agar', i.e. land and 'culture', i.e. cultivation, which means cultivation of field, i.e. tilling of land, manuring & spraying chemicals, sowing of seeds, watering etc. There are also some subsequent operations required to be carried out for growing plants on the cultivated land. Further, for determining income from agriculture, there must be a nexus between income from land and agricultural operations. Income treated as agricultural income should be derived from land and the land should be used for agricultural operation. In the case of the assessee, as we find from the facts found on record, he has 1 acre of land in which after meeting necessary procedures he produces tea seedlings. Therefore, the criteria is not the tea seedlings, but it is any plant or seed being cultivated and grown on such agricultural land.
45.3. The assessee relied on the decision of Hon'ble Madras High Court in the case of CIT vs. Soundarya Nursery (supra), wherein the question before the Hon'ble Court was as to whether the income from sale of plants grown directly in the pots and the sale of seeds can be treated as agricultural income within the meaning of Sec. 2(1) of the I.T. Act, 1961. In the said decision the Hon'ble Madras High Court has discussed several guidelines for treating the activities as agricultural or otherwise. The facts of that case and finding of the Hon'ble Court are given below :-
"4. The Tribunal, after considering all the relevant facts, as also the applicable law, concluded that the assessee's activities are to prepare seedlings on scientific lines; that the mother plants are grown on prepared beds on lands owned by it and the plants are then grafted or budded; that the resulting grafts are transplanted in suitable containers and are reared in gross houses or in shade and after they take root, they are transmitted to large containers filled with top soil and manure, etc. till they establish themselves; and thereafter those plants are sold and that the primary source of the plant is the mother plant, which is reared on earth and for which activities, certainly contribution of human labour and energy are essential.
5. Learned counsel for the Revenue contended before us that the plants are only grown in pots and no matter the period for which they are so grown, that activity can never be regarded as agricultural operations. In support of that submission, counsel referred to the decision of Allahabad High Court in H,H, Maharaja Vibhuti Narain Singh vs. State of U.P. (1967) 65 ITR 364 (All) wherein the Court made an observation which was clearly obiter that agriculture cannot be carried on in pots, as in that case, a large number of coconut plants were nurtured on land in the nursery.
6. Our attention was then invited by learned counsel to the decision of the Supreme Court in the case of CIT vs. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466 (SC) : TC 31R.304, which is the leading case on 'agriculture'. It was held therein that agriculture in its primary sense denotes the cultivation of the field and is restricted 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 and these are basic operations, which require the expenditure of human skill and labour upon the land itself. The apex Court further held that besides the basis operations, the subsequent operations would also be comprehended within the terms of agriculture, and such subsequent operations are illustrated as weeding digging the soil around the growth, removal of undesirable undergrowth and all operations which foster the growth and preservation of the same not only from insects and pets, but also from depredation from outside, tending pruning, cutting, harvesting and rendering the produce fit for the market, which would all be agricultural operations, when taken in conjunction with the basic operations.
7. All the products of the land, which have some utility either for consumption or for trade or commerce, if they are based on land, would be agricultural products. Here, it is not the case of the Revenue that without performing the basic operations, only the subsequent operations, as described in the decision 5 of the apex Court have been performed by the assessee. If the plants sold by the assessee in pots were the result of the basic operations on the land on expending human skill and labour thereon and it is only after the performance of the basic operations on the land, the resultant product grown or such part thereof as was suitable for being nurtured in a pot, was separated and placed in a pot and nurtured with water and by placing them in the green house or in shade and after performing several operations, such as weeding, watering, manuring, etc. they are made ready for sale as plants; all these operations would be agricultural operations. All this involves human skill and efforts. Thus, the plants sold by the assessee in pots were the result of primary as well as subsequent operations comprehended within the term 'agriculture' and the are clearly the products of agriculture.
8. So far as the seeds are concerned, we are surprised that, that question should have been raised at all by the Revenue, as it is not possible for the seeds to exist without the mother plants, and the mother plant, it is nobody's case, was not grown on land. It is also not the case of the Revenue that the seeds were the result of the wild growth and not on account of cultivation by the assessee. The seeds were clearly a product of agriculture and the income derived from the sale of seeds, was agricultural income." [Emphasis supplied] Therefore, in the case of Soundary Nursery (supra), it has been categorically held that when plants sown in pots were the result of continuation of basic operations on the land requiring expenditure on human skill and labour thereon and after performance of the basic operations on land, the resultant product or part thereof was suitable for nurturing in a place under shelter or by accommodating them in a greenhouse or in a shed after performing several operations, such as weeding, watering, manuring etc. and are made ready for sale thereby these operations are agricultural operations and the plants are products of agriculture, the income derived from such agricultural products is only assessable as agricultural income. It is pertinent to mention here that Hon'ble Madras High Court while deciding the case of CIT vs. Soundary Nursery (supra) applied the ratio of Hon'ble Supreme Court decision in the case of CIT vs. Raja Benoy Kumar Sahas Roy (supra) and held obiter the decision of Hon'ble Allahabad High Court in the case of H.H.Maharaja Vibhuti Narain Singh vs. State of UP (supra), relied on by the authorities below. In this view of the matter, the decision relied upon by the authorities below in support of their case that tea seedlings are not agricultural operation is not applicable to the facts and circumstances of the assessee's case.
5.4. In this connection, we may further refer to the decision of Hon'ble Uttarkhand High Court in the case of CIT vs. Green Gold Tree Farmers (P) 6 Ltd. [(2008) 299 ITR 162], wherein the assessee was carrying on activities of running a nursery and offering extension services to farmers and derived income therefrom. The Hon'ble High Court applying the ratio of decisions in the cases of Raja Mustafa Ali Khan vs. CIT [16 ITR 330 (PC)], CIT vs. Raja Benoy Kumar Sahas Roy [32 ITR 466 (SC)] and S.S.Raja Linga Raja vs. State of Madras [AIR 1767 SC 814] held that the sale proceeds of plants raised in nursery on land belonging to the assessee constitutes income from agriculture eligible for exemption u/s. 10(1) of the Act. The observation of Hon'ble High Court is as under :-
"From perusal of both the cls. (a) and (b) of s. 2(1A) it is clear that agricultural income must be derived from land which is used for agricultural purposes. The terms "agriculture" and "agricultural purposes" not having been defined in the Indian IT Act, but necessarily fall back upon the general sense in which they have been understood in common parlance. "Agriculture" in its root sense means a gear, a field and cultivate; cultivation of field which is course implies expenditure of human skill and labour upon land. Therefore, on the facts of the case, the sale proceeds of the plants raised in the nursery on the land belonging to the assessee constitute income from agriculture, hence exempt from tax under I.T. Act."
The assessee has filed paper sheet detailing therein the basic operations being carried out by him and subsequent operations for which expenditure to the tune of Rs.45,000/- had been incurred. From the assessment order, we do not find any mention about disallowing and questioning necessity of incurring such expenditure. It is further mentioned that all through from assessment year 1998-99 till A.Y. 2003-04, excepting the assessment year under appeal, i.e. A.Y. 2000-01, income shown by the assessee has been accepted by the department as agricultural income. The department could not bring on record any material to establish that the nature of land and operations carried on by the assessee on such land were different than those of earlier as well as subsequent assessment years. In that view also, we do not find any justifiable reason to deviate from the accepted position.
5.5. Therefore, considering the totality of the facts and circumstances of the case and case laows discussed above, including the decision of Hon'ble Madras High Court in the case of CIT vs. Soundarya Nursery (supra), we hold that tea seedling is a part of agricultural operation and the income derived 7 from sale of such seedlings is agricultural income and not business income as held by the authorities below. We, therefore, delete the addition of Rs.55,000/- made to the total income of the assessee as business income.
6. In the result, the appeal of the assessee is allowed.
Order is pronounced in the Court on 7.5.10.
Sd/- Sd/-
[D.K.Tyagi] [B.C. Meena]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 7-05-2010
Copy forwarded to :
1. Sri Rajendra Kr. Agarwala, Merchant Road, Dinbazar, Jalpaiguri-735 101
2. I.T.O., Ward-2(1), Jalpaiguri
3. C.I.T.(A), Jalpaiguri
4. The C.I.T., Jalpaiguri
5. The Departmental Representative, ITAT, Kolkata.
True copy, By order
[dkp]
Dy. Registrar.
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