2021 (3) TMI 262 - AT - Income Tax

Exemption u/s 10(1) - Agricultural Income or not - income derived from sale of saplings and seedling grown in a nursery shall deemed to be agricultural income - A.O. held that the portion relating to other than supply of plants and saplings cannot be characterized as agricultural income and such portion of income cannot be entitled to exemption u/s 10(1) - HELD THAT - In the instant case, the primary operation is done in assessee s nursery will confine only with regard to growing of plants and saplings. The subsequent operation, i.e., supply of fertilizer, supply of soil, engaging Horticulturists, insuring the plant, making pits and other related activities even assuming it is secondary operation is never carried out in assessee s nursery but in client s site. Plants and saplings are planted in the client s site and became the property of the client. Thereafter the assessee s role is only to tend these plants and saplings. The services so performed are in the nature of maintenance and cannot be termed as secondary operation in the strict sense of the term. Therefore, hold that the income derived by the assessee by activities other than sale of plants raised in its own nursery is not in the nature of agricultural income falling within the definition of section 2(1A) of the I.T.Act. The judicial pronouncement relied on by the assessee is distinguishable on facts for the reason that in those case, both primary and secondary agricultural operations as enumerated by the Hon ble Apex Court in the case of CIT v. Raja Benoy Kumar Sahas Roy 1957 (5) TMI 6 - SUPREME COURT was carried out in assessee s land, whereas, in the instant case, only growing of saplings and seedlings is undertaken in assessee s nursery and the other activities such as preparation of land, supply of soil, supply of fertilizer, engaging Horticulturists, insuring etc. even assuming it as secondary operation to the primary operation was never carried out in assessee s nursery but in client s site. - Decided against assessee.

Issues Involved:
1. Legality of the Assessment Order.
2. Disallowance of exemption claimed under Section 10(1) of the Income Tax Act.
3. Modus operandi of the appellant’s business.
4. Evaluation based on a single document.
5. Interpretation of Section 2(1A) defining "agricultural income".
6. Reliance on the Karnataka High Court ruling in the case of Namdhari Seeds Pvt. Ltd.

Detailed Analysis:

1. Legality of the Assessment Order:
The appellant contended that the assessment order was "bad in law" and opposed the facts and circumstances of the case. However, the Tribunal upheld the assessment order, finding it to be in accordance with the law.

2. Disallowance of Exemption Claimed under Section 10(1) of the Income Tax Act:
The appellant claimed an exemption of ?20,11,009 as agricultural income. The Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed 50% of this exemption, reasoning that the appellant engaged in composite contracts involving not only the sale of plants but also softscape and landscaping work. The Tribunal agreed with the A.O. and CIT(A), concluding that only income derived from saplings and seedlings grown in the appellant's nursery qualifies as agricultural income under Section 10(1).

3. Modus Operandi of the Appellant’s Business:
The appellant argued that their business included buying saplings from other nurseries, planting them in their farm, and nurturing them to the required level. However, the Tribunal noted that the appellant undertook composite contracts, which included activities beyond mere cultivation, such as softscape work and landscaping at clients' sites. These activities were not considered agricultural operations.

4. Evaluation Based on a Single Document:
The appellant contended that the assessment was based on a single document without considering other contracts or documents. The Tribunal found that the CIT(A) had thoroughly examined the purchase orders and invoices, which indicated that the appellant engaged in composite contracts involving activities beyond the sale of saplings and seedlings.

5. Interpretation of Section 2(1A) Defining "Agricultural Income":
Section 2(1A) defines agricultural income and includes income derived from saplings or seedlings grown in a nursery. The Tribunal referred to the Supreme Court judgment in CIT v. Raja Benoy Kumar Sahas Roy, which clarified that agricultural operations include both primary and subsequent operations on the land. The Tribunal concluded that the appellant's activities at clients' sites did not qualify as agricultural operations since they were not performed on the appellant's land.

6. Reliance on the Karnataka High Court Ruling in the Case of Namdhari Seeds Pvt. Ltd.:
The appellant argued that the CIT(A) erroneously relied on the Karnataka High Court ruling in Namdhari Seeds Pvt. Ltd. The Tribunal found that the facts of the present case were different, as the appellant's activities involved composite contracts and not just the sale of saplings and seedlings grown in their nursery.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming the assessment order and disallowing 50% of the exemption claimed under Section 10(1). The appeal filed by the appellant was dismissed. The Tribunal emphasized that only income derived from saplings and seedlings grown in the appellant's nursery qualifies as agricultural income, and the composite contracts involving activities at clients' sites do not fall within this definition.

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