2017 (5) TMI 712 - AT - Income Tax

Nature of activity - dividend received - taking land from the company on lease - sham transaction - addition under the head Income from other sources rejecting the claim of the assessee to treat it as agricultural income - Held that - The transaction of lease of agricultural land between the assessee and the land holding companies cannot be termed as illegal, however it appears to be sham because of the following reasons (1) The lease rent paid to the land holding companies/HUF by the assessee and the other individuals who had taken the land on lease is only ₹ 500 per acre per annum, which is too low and not in parity with the agricultural income earned by the lease holders. (2) All the shareholders of the land holding companies are the lease holders of the land owned by the companies which is in proportion to the shares held by them. (3) The decision of the company to lease the land is not in the interest of the company which is a distinct legal entity for profit but a modus operandi to pass on the income derived from agricultural operation from the land owned by the companies to the shareholders of the company directly. (4) The entire transaction is aimed to circumvent the provisions of the Act because dividend income is taxable in the hands of the asses see. (5) There is also no cogent evidence to prove that the assessee had cultivated the land and earned agricultural income individually because it appears that the agricultural operations were collectively performed by all the shareholders by engaging staff. The documentary evidences created are in connivance with all the parties to make believe the transaction entered in papers to be genuine. (6) It is crystal clear that all the shareholders of the company had performed agricultural activities under the name of Barwood Estate instead of in the name of the companies which is only to avoid the distribution of profit by the companies as dividend. Because of the above mentioned reasons, we are of the considered view that the learned Assessing Officer and the learned Commissioner of Income-tax (Appeals) are right in their decisions for holding the amount received by the assessee to be treated as dividend income due from the company. Hence we hereby refrain from interfering with the orders of the Revenue authorities. - Decided against assessee.

Summary

Issues:
Assessment of agricultural income as income from other sources.

Analysis:
The appeal involved a dispute regarding the treatment of agricultural income as income from other sources. The assessee, an individual, filed her return admitting agricultural income. However, during scrutiny, the Assessing Officer rejected this claim, treating the amount as income from other sources. It was found that the assessee did not own any agricultural land but had obtained land on lease along with others. The agricultural activities were managed by a third party, Mr. E. J. Coelho, and the produce was sold to a tea factory. The Revenue authorities concluded that the arrangement was a means to divert profits and avoid dividend tax, leading to the inclusion of the amount in the assessee's income under a different head.

The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, emphasizing that the genuineness of the agricultural income was questionable. It was noted that the assessee did not directly supervise the agricultural operations, and the income did not reach her but was managed by Mr. E. J. Coelho. The Commissioner found that the assessee failed to provide details of expenses incurred in agricultural activities, indicating that the income reflected in the return was not actual income but rather notional. Therefore, the Commissioner affirmed the Assessing Officer's decision based on the lack of ownership of the land and direct involvement in agricultural operations by the assessee.

During the appeal before the Tribunal, the authorized representative argued that the lease of agricultural land and the management arrangements were legal, urging the deletion of the addition to income from other sources. However, the Tribunal, after considering the submissions and the lease transaction details, found the arrangement to be a sham. The low lease rent, collective involvement of shareholders in agricultural activities, and the motive to avoid dividend tax led the Tribunal to agree with the Revenue authorities. The Tribunal concluded that the income received by the assessee should be treated as dividend income, dismissing the appeal and upholding the orders of the Revenue authorities.

In summary, the judgment revolved around the classification of agricultural income as income from other sources due to the lack of ownership of land, indirect involvement in agricultural activities, and the perceived motive to avoid dividend tax. The Tribunal found the arrangement to be a sham and upheld the decision to include the amount in the assessee's income under a different head, emphasizing the collective nature of agricultural operations and the absence of direct supervision by the assessee.