2017 (1) TMI 626 - HC - Income Tax

Disallowance made on agricultural income - Tribunal deleting the disallowance on the ground that the same was exempted under Section 10(1) - Held that - From the materials on record it could be seen that it is not the case of the Assessing Officer at the first instance that the assessee has not produced any details of the expenditure incurred in raising flowers and petals in pots. Assessment order does not disclose that because of the fact that the assessee did not prove expenditure income from flowers and petals was added. He has only stated that without performing basic operations income generated cannot be termed as agricultural income. Even during the appeal the Revenue has not raised such issue. Such contentions are made for the first time before this Court. The assessment order has to fall or succeed on the contents of the order. A fact which was never raised in the assessment proceedings cannot be introduced for the first time in an appeal under Section 260A for an answer. Needless to state that questions of law arise on the facts considered by the authorities with reference to the provisions and for the above reasons we are of the view that the Revenue cannot raise the said issue at this stage. In the light of the concurrent findings of the appellate authority and the appellate Tribunal and also in the light of the above decisions this Court is not inclined to interfere with the impugned order of the appellate Tribunal. The substantial questions of law are answered against the Revenue

Summary

Issues Involved:

1. Whether the Tribunal was right in deleting the disallowance made on agricultural income on the ground that the same was exempted under Section 10(1) of the Income Tax Act?
2. Is not the finding of the Tribunal bad, especially when Explanation 3 to Section 2(1A) was inserted by Finance Act, 2008 with effect from 01.04.2009 and was applicable only from the assessment year 2009-10 and not for the earlier assessment years?

Detailed Analysis:

Issue 1: Deletion of Disallowance on Agricultural Income

The respondent/assessee, a landscaping architect, declared agricultural income of ?10,52,307/- for the Assessment Year 2004-05. The Assessing Officer reopened the assessment and issued notices under sections 143(2) and 142(1) of the Income Tax Act. The Assessing Officer disallowed the agricultural income, treating it as business income, based on the Supreme Court's decision in CIT vs. Raja Benoy Kumar Sahas Roy (32 ITR 466), which held that without basic agricultural operations like tilling, sowing, and planting, subsequent operations alone are insufficient to classify income as agricultural.

The Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal, holding that income from the nursery falls within the definition of 'Agricultural income' and is exempt under Section 10(1) of the Act. This decision was upheld by the Income Tax Appellate Tribunal, which dismissed the Revenue's appeal.

The Tribunal relied on the decision in CIT vs. Soundarya Nursery (241 ITR 530), which held that plants grown in pots involve agricultural activities and thus qualify as agricultural income. The Tribunal found that the assessee had performed both primary and subsequent agricultural operations, making the income from the nursery agricultural.

Issue 2: Applicability of Explanation 3 to Section 2(1A)

The Revenue argued that Explanation 3 to Section 2(1A), inserted by the Finance Act, 2008, effective from 01.04.2009, was not applicable to the Assessment Year 2004-05. The Tribunal, however, did not consider this argument and dismissed the Revenue's appeal.

The appellate authority and the Tribunal relied on the decision in CIT v. Green Gold Tree Farmers P Ltd. (2008) 167 Taxman 151 (Uttarakand), which held that income from plants raised in a nursery constitutes agricultural income. They also referred to the Division Bench decision in CIT vs. Soundarya Nursery, which confirmed that plants grown in pots involve agricultural operations and qualify as agricultural income.

Conclusion:

The High Court upheld the concurrent findings of the appellate authority and the Tribunal. It confirmed that the income from the nursery qualifies as agricultural income under Section 10(1) of the Income Tax Act. The Court found that the Revenue's arguments regarding the applicability of Explanation 3 to Section 2(1A) were not raised during the assessment proceedings and could not be introduced for the first time in an appeal under Section 260A. The substantial questions of law were answered against the Revenue, and the appeal was dismissed with no order as to costs.