2011 (11) TMI 373 - AT - Income Tax

Agricultural Income vs Business Income establishment of green house - floriculture project - rose plants were planted on the bridge of plastic tray erected, with the help of MS stand, 2-3 ft. above the land - Revenue contention that plants were not planted on the earth land and no basic agricultural operation was carried out reduction of subsidy received from cost of plants reversed by CIT(A) - dis-allowance on account of non- deduction of TDS other dis-allowances Held that - It is not in dispute that the agricultural land was acquired by the assessee from agriculturists and mother plats are always been grown on the agricultural land. Normal agricultural activity like planting, cutting, weeding, tilling and watering etc. were carried out by assessee. CIT(A) has given a finding that the assessee had factually established the nexus between income, land and agricultural operation. Thus, income in question cannot be included in total income being within the ambits of the provisions of Section 10(1) of the Act. CIT(A) reversed the order of A.O. and added back the subsidy on ground that subsidy received by the assessee did not relate to the acquisition of the rose plants but in creating infrastructure. Since new facts in respect of grant of subsidy were recorded by CIT(A) hence the issue is restored back to first appellate authority to verify exact nature of subsidy granted to the assessee and then decide the issue. In respect of other dis-allowance it is held that whatsoever be the addition, the same shall qualify for the exempted income being part and parcel of the agricultural income. Therefore the deletion of addition is hereby affirmed. - Decided partly in favor of Revenue.

Issues Involved:
1. Deletion of addition of Rs. 935,719 under the head "income from business or profession" instead of agricultural income.
2. Deletion of addition of Rs. 249,750 as depreciation on rose plants.
3. Deletion of addition of Rs. 26,900 under Section 40(a)(ia).
4. Deletion of addition of Rs. 11,099 on car insurance.
5. Aggregate addition of Rs. 13,53,354 as business income instead of agricultural income.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 935,719 under the Head "Income from Business or Profession" Instead of Agricultural Income:
The core issue was whether the income from growing roses in a high-tech greenhouse setup qualifies as agricultural income under Section 10(1) of the Income-tax Act, 1961. The Assessing Officer (AO) argued that the rose plants were grown on plastic trays elevated above the ground, which did not involve basic agricultural operations on the land. The AO cited various legal precedents to support the view that agricultural income should involve direct cultivation on land.

The assessee contended that their advanced method of growing roses in a greenhouse environment, involving soil preparation, drainage, pest control, and other agricultural practices, should qualify as agricultural operations. They provided certificates from several government authorities, including NABARD and APEDA, endorsing their activity as agricultural.

The First Appellate Authority (CIT(A)) concluded that the assessee's operations met the criteria for agricultural income, citing the decision in CIT v. Green Gold Tree Farmers (P) Ltd. and other relevant case laws. The Tribunal upheld this view, emphasizing that the use of advanced technology in conjunction with traditional agricultural methods still constituted agricultural operations.

2. Deletion of Addition of Rs. 249,750 as Depreciation on Rose Plants:
The AO disallowed the depreciation claim on rose plants, treating the expenditure as deferred revenue expenditure to be amortized over 10 years. The CIT(A) found that the subsidy received by the assessee did not relate to the acquisition of rose plants but to the creation of infrastructure like the greenhouse.

The Tribunal restored the issue to the CIT(A) to verify the exact nature of the subsidy and decide according to the law.

3. Deletion of Addition of Rs. 26,900 under Section 40(a)(ia):
The AO disallowed the professional fee of Rs. 26,900 paid without deducting TDS. The CIT(A) upheld the disallowance but treated it as part of agricultural income, thus qualifying for exemption under Section 10(1).

The Tribunal affirmed the CIT(A)'s decision, noting that the disallowance had no tax effect if the income was exempt as agricultural income.

4. Deletion of Addition of Rs. 11,099 on Car Insurance:
The AO disallowed the car insurance expense as no car was found in the balance sheet. The CIT(A) rejected the claim but allowed the benefit under Section 10(1) as part of agricultural income.

The Tribunal found no error in the CIT(A)'s view and confirmed the decision.

5. Aggregate Addition of Rs. 13,53,354 as Business Income Instead of Agricultural Income:
The AO made ad hoc disallowances, which the CIT(A) invalidated for lack of specific defects. The Tribunal upheld the CIT(A)'s decision, noting that any addition would qualify for exemption as part of agricultural income.

Conclusion:
The Tribunal affirmed the CIT(A)'s view that the assessee's income from growing roses in a high-tech greenhouse qualifies as agricultural income under Section 10(1). The issues regarding depreciation, TDS disallowance, and car insurance were either restored for verification or affirmed as part of agricultural income. The appeal of the Revenue was partly allowed.

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