2004 (12) TMI 630 - AT - Income Tax

Summary

Issues Involved:

1. Whether the income from the growth and sale of specialized grass is agricultural income.
2. Whether the order of the Assessing Officer should be restored, and the order of the CIT(A) set aside.
3. Whether the revised return claiming the income as agricultural income is valid.

Issue-wise Detailed Analysis:

1. Agricultural Income Determination:

The primary issue was whether the income from the growth and sale of specialized grass could be classified as agricultural income. The assessee, a Private Limited Company involved in real estate, leased its agricultural land to M/s. LBIL for growing specialized grass for a golf course. Initially, M/s. LBIL faced difficulties in cultivation and requested the assessee to take over the cultivation. The assessee agreed and entered into an agreement to grow and supply the specialized grass, receiving Rs. 5 lakhs per month.

The Assessing Officer (AO) rejected the claim of agricultural income, arguing that the income should be directly referable to land and that the land was not intended for agricultural purposes. The AO also noted that the assessee initially declared this income as service charges and only later revised it to agricultural income. The AO concluded that the income was not agricultural.

However, the CIT(A) found that primary and secondary agricultural operations were carried out by the assessee, such as laying irrigation channels, boring tube wells, removing weeds and stones, mixing soil with germicides, and planting seeds. The CIT(A) relied on the Supreme Court's decision in CIT v. Raja Benoy Kumar Sahas Roy, which laid down the test for determining agricultural income. The CIT(A) concluded that the specialized grass was grown through agricultural operations and thus the income was agricultural.

2. Restoring the AO's Order:

The Revenue appealed against the CIT(A)'s decision. The Departmental Representative argued that the grass was already in existence when the assessee took over the land, implying that primary agricultural operations were not conducted by the assessee. However, the CIT(A) and the Tribunal found that the process of growing specialized grass was continuous and involved significant agricultural operations, thus supporting the CIT(A)'s findings.

3. Validity of Revised Return:

The assessee initially declared the income as service charges but later revised the return to claim it as agricultural income. The AO viewed this revision with suspicion, but the Tribunal noted that the law allows an assessee to correct an erroneous position taken in the initial return. The Tribunal found no fault with the revised return as the agricultural operations were substantiated.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, confirming that the income from the growth and sale of specialized grass was agricultural income. The appeal by the Revenue was dismissed, affirming that the CIT(A) correctly appreciated the facts and applied the law, including the Supreme Court's guidelines on agricultural income. The Tribunal also noted that the nature of the assessee's primary business (real estate) and the initial classification of income as service charges were not sufficient grounds to deny the agricultural income claim.