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2003 (9) TMI 783 - AT - Income TaxExemption u/s 10 - Agricultural income - Whether the income from the sale of plants grown by the assessee can be considered as agricultural income exempt u/s 10 of the IT Act, 1961 - HELD THAT - The CIT(A) has decided the issue against the assessee for the reasons that activity of the assessee was by way of business. In our opinion, the claim of the assessee cannot be rejected on this ground. Once the assessee had shown that the agricultural operations were carried out then income from the sale of agricultural produce would amount to agricultural income. There is nothing in the Act which may allow to tax such income on the reasoning adopted by the CIT(A). In our considered opinion, once the income falls within the scope of expression 'agricultural income', it has to be excluded from the total income of the assessee in view of SecBalwanttion 10 of the Act. This view of ours is also fortified by the decision of the Tribunal, Jaipur Bench in the case of Balwant Singh v. ITO 1995 (6) TMI 72 - ITAT JAIPUR . Thus, it is held that activities carried out by the assessee amounted to agricultural operations and consequently, the income derived from such operations was agricultural income not liable to tax under Section 10. However, we find from the reply of the assessee dt. 29th March, 2001, that assessee had purchased certain plants for sale (para 2). Since no basic operations were carried out with reference to such plants, the profits on sale thereof would be trading profits even though such plants were maintained in the nursery for some time. Particulars of such purchase and sale are not available on record and, therefore, requires verification. The order of the CIT(A) is, therefore, set aside and the AO is directed to restrict the addition only with reference to the profits arising from the sale of plants which was purchased by the assessee. In the result, appeal of the assessee is partly allowed.
Issues Involved:
1. Whether the income from the sale of plants grown by the assessee can be considered as agricultural income exempt u/s 10 of the IT Act, 1961. Summary: Issue: Whether the income from the sale of plants grown by the assessee can be considered as agricultural income exempt u/s 10 of the IT Act, 1961. 1. The assessee, a partnership firm, engaged in running a nursery since 1st April 1992, declared its income from agriculture and claimed exemption u/s 10 of the IT Act, 1961. For the assessment year 1998-99, the assessee filed its return declaring Rs. 2,460 as interest income and Rs. 5,61,826 as agricultural income, claiming exemption u/s 10. The case was selected for scrutiny, and the AO issued notices u/s 143(2) to substantiate the claim of agricultural income. The AO rejected the claim, stating that the income from the sale of plants developed by processes like "Gootying" and maintained in pots did not constitute agricultural income as the immediate and effective source of income was not land. 2. The CIT(A) confirmed the AO's order, holding that the running of the nursery was a commercial activity and not an agricultural activity, relying on the judgment of the Allahabad High Court in the case of H.H. Maharaja Vibhuti Narain Singh v. State of U.P. (1967) 65 ITR 364 (All). 3. The assessee appealed to the Tribunal, arguing that the rule of consistency should apply as the assessee's agricultural income had been accepted in previous years. However, the Tribunal noted that the earlier assessments were completed u/s 143(1) without scrutiny, and thus, the rule of consistency did not apply. 4. On the merits, the Tribunal considered the activities carried out by the assessee, including the preparation of soil beds, propagation of plants through various methods, and subsequent operations. The Tribunal referred to the Supreme Court's judgment in the case of Raja Binoy Kumar Suhas Roy, which defined agricultural operations as basic operations on the land followed by subsequent operations in conjunction with the basic operations. 5. The Tribunal concluded that the assessee carried out both basic and subsequent operations on the land, and the income from the sale of plants grown through these operations constituted agricultural income. However, the Tribunal noted that the assessee had also purchased certain plants for sale, and the profits from these sales would be considered trading profits. The Tribunal directed the AO to verify the particulars of such purchases and sales and restrict the addition to the profits arising from the sale of purchased plants. 6. The Tribunal distinguished the case from other judgments relied upon by the CIT(A), noting that the facts were different and the activities carried out by the assessee amounted to agricultural operations. Consequently, the income derived from such operations was agricultural income exempt u/s 10 of the IT Act, 1961. 7. The appeal of the assessee was partly allowed, with the direction to the AO to restrict the addition to the profits arising from the sale of purchased plants.
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