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2014 (11) TMI 901 - HC - Income TaxExemption u/s 10(1) - Whether the income was agricultural income as defined in section 2(1A) and therefore exempt u/s 10(1) Held that - Sale proceeds of the land belonging to the assessee constitute income from agriculture, hence exempt from tax under the Income-tax Act - the language of section 2(1)(b)(ii) does not appear to justify the contention of the revenue that for claiming the benefit of section 2(1)(b)(ii) the process employed by the assessee must be of such character as just to make the produce marketable - The true test is what is the process ordinarily employed by the cultivators of any particular locality to render the produce raised by them fit for market - The process adopted in one locality may not necessarily be adopted in another locality in Commissioner of Income-tax, Central Circle, Bangalore Versus Namdhari Seeds (P.) Ltd. 2011 (10) TMI 488 - KARNATAKA HIGH COURT it has been held that the assessee neither had derivative interest in the land nor did it actually cultivate the land and that the entire reading of the terms of agreement would only indicate that the assessee was interested only to have healthy foundation seeds grown for the process of converting them to certified seeds and the entire income amounted to business income of the assessee. Unless the assessee has carried out the basic operations upon the land i.e., tilling of the land, sowing of the seeds planting, etc. requiring the expenditure of human skill and labour upon the land, it cannot be said that the income earned by the assessee is agricultural income - subsequent operations would also be agricultural operations if taken in conjunction with basic operations - if any income is earned by carrying out the subsequent operations without carrying out the basic operations then such income would not be considered as agricultural income - the plants have been grown on land owned by the assessee - The assessee during the course of growing and nurturing the plants on the land carried out certain functions such as tilling the soil, weeding, watering, manuring etc. and finally the plants are made ready for sale - It goes without saying that all this involves human skill and effort - When plants are established in the soil only then they are shifted in suitable containers or appropriate place in land thus, the sale proceeds from the business of nursery carried on by the assessee constitute income from agriculture Decided in favour of assessee.
Issues Involved
1. Whether the income from nursery activities constitutes agricultural income as defined in section 2(1A) and is therefore exempt under section 10(1) of the Income Tax Act, 1961. Issue-wise Detailed Analysis Issue 1: Definition of Agricultural Income The primary question for consideration was whether the income earned by the assessee from the nursery activities qualifies as agricultural income under section 2(1A) of the Income Tax Act, 1961, and is thus exempt under section 10(1) of the Act. The assessee, an HUF firm, claimed that the income earned from agricultural nurseries at Baroda was agricultural income and therefore exempt under section 10(1) of the Act. The Assessing Officer, however, treated the income as non-agricultural and taxed it accordingly. The CIT(A) overturned this decision, ruling that the income was agricultural and thus exempt. The Tribunal later reversed the CIT(A)'s decision, holding that the income was not agricultural. Judicial Precedents and InterpretationsMr. J.P Shah, representing the assessee, argued that the Tribunal erred in its judgment and cited several precedents to support the claim that nursery income should be considered agricultural. These included:
Mr. Varun Patel and Mr. Nitin Mehta, representing the revenue, argued against the assessee's claim, citing:
Court's Analysis and Conclusion After reviewing the arguments and precedents, the court concluded that the income derived from nursery activities is agricultural income exempt under section 10(1) of the Act. The court referred to the definition of agricultural income in section 2(1) of the Act, which includes income derived from land used for agricultural purposes. The court emphasized the importance of basic operations like tilling, sowing, and planting, which are essential for an activity to be considered agricultural. The court cited the Supreme Court's decision in Raja Benoy Kumar Sahas Roy, which held that agricultural income includes all products of the land that have utility for consumption or trade, provided basic agricultural operations are performed. The court also referred to the Uttarakhand High Court's decision in Green Gold Tree Farmers P. Ltd., which held that nursery income is agricultural income if basic operations are performed on the land. The court distinguished the case of Namdhari Seeds, where the income was considered business income because the assessee did not perform basic agricultural operations. Similarly, the court noted that in Maharaja Vibhuti Narain Singh, the income was not considered agricultural because the necessary facts were not on record to reach a conclusion. Based on these considerations, the court held that the income from the nursery activities carried out by the assessee, which involved basic agricultural operations, qualifies as agricultural income and is exempt under section 10(1) of the Act. The court answered the question of law in favor of the assessee and against the revenue. The reference and appeal were disposed of accordingly.
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