2022 (11) TMI 843 - AT - Income Tax

Nature of receipt - Agriculture income or not - treating the receipt from National Highways Authority of India (NHAI) on account of sale of tea bushes and receipt received on account of sale of trees as business income of the assessee - HELD THAT - We agree with the submission of assessee that since the land, in question, has already been treated as agricultural land, therefore, the produce thereupon i.e. the tea bushes and even the shade trees grown for the protection of the tea bushes would also fall in the definition of income from sale of agricultural produce which is exempt u/s 10 - Our above view is fortified by the decision of CIT vs. Kanan Devan Hills Produce Company Ltd. 1990 (1) TMI 5 - CALCUTTA HIGH COURT Admittedly, in this case in hand, the land has already been treated as agricultural land not capital in nature and the tea bushes have been cultivated by the assessee to obtain tea leaves and the shade trees are grown by the assessee for the protection of its tea crops. Not only the tea leaves but the entire plant i.e. tea bushes is the agricultural produce and the shade trees has also been grown and cultivated by the assessee which is a part of its activity to grow and protect tea crops. In view of this, the action of the lower authorities in taxing compensation received on account of sale of tea bushes and shade trees cannot be held to be justified. The addition made by the lower authorities by taxing the sale of tea bushes and shade trees is ordered to be deleted - Decided in favour of assessee.

Summary

Issues:
1. Tax treatment of receipts from NHAI for sale of tea bushes, shade trees, and labor quarters.
2. Disallowance of interest payments to related concerns.

Issue 1: Tax treatment of receipts from NHAI for sale of tea bushes, shade trees, and labor quarters:

The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the tax treatment of receipts totaling Rs. 4,45,53,602 from NHAI. The assessee contested the treatment of Rs. 75,84,192 for tea bushes, Rs. 17,47,763 for shade trees, and Rs. 51,36,869 for labor quarters as business income. The department accepted the land as agricultural, exempting compensation for land acquisition. The Assessing Officer, however, treated the receipts from tea bushes and shade trees as taxable business income. The Tribunal agreed with the assessee that since the land was agricultural, the receipts from tea bushes and shade trees fell under income from sale of agricultural produce, exempt under section 10 of the Income Tax Act. Citing a High Court decision, the Tribunal ruled that the tea bushes and shade trees were part of agricultural activities and their sale proceeds were exempt. Consequently, the additions made by the lower authorities were deleted, and Ground Nos. 1 & 2 of the appeal were allowed.

Issue 2: Disallowance of interest payments to related concerns:

The assessee had claimed interest payments of Rs. 19,32,000 and Rs. 37,53,492 on loans. The Counsel for the assessee did not press Ground Nos. 3, 4, 5, and 6 related to these interest payments. The Tribunal dismissed these grounds as not pressed. The remaining issue was the tax treatment of interest payments, which was not pressed by the assessee. Hence, the Tribunal's decision focused on the tax treatment of receipts from NHAI for the sale of tea bushes, shade trees, and labor quarters.

In conclusion, the ITAT Kolkata ruled in favor of the assessee, allowing the appeal partly by deleting the additions made by the lower authorities regarding the tax treatment of receipts from NHAI for the sale of tea bushes and shade trees. The Tribunal held that since the land was agricultural, the receipts fell under income from sale of agricultural produce and were exempt under section 10 of the Income Tax Act. The Tribunal dismissed the grounds related to interest payments as not pressed by the assessee. The appeal was partly allowed on the 10th of November, 2022.