2015 (2) TMI 67 - HC - Income Tax

Activity of growing roses, chikkus - whether an agricultural income exempt from tax? - Held that - No hesitation in holding that the sale proceeds from the business of nursery carried on by the assessee constitute income from agriculture. See CIT vs. Soundarya Nursery (1998 (8) TMI 37 - MADRAS High Court) wherein the decision in the case of CIT vs. Raja Benoy Kumar Sahas Roy (1957 (5) TMI 6 - SUPREME Court) was considered and also SHRI PURANSINGH M. VERMA Versus THE CIT 2014 (11) TMI 901 - GUJARAT HIGH COURT holding that the sale proceeds from the business of nursery carried on by the assessee constitute income from agriculture. Therefore the question of law framed in the reference and the tax appeal is answered against the Revenue and in favour of the assessee.

Summary

Issues:
Challenge to judgment by Revenue regarding agricultural income exemption.

Analysis:
The High Court heard the appeals challenging the order passed by the Income-tax Appellate Tribunal regarding the treatment of income from nursery as agricultural income exempt from tax. The substantial question of law framed was whether the Tribunal was correct in holding the activity of growing roses and chikkus as agricultural income exempt from tax. The Assessing Officer initially disallowed the income from the nursery as exempt, but the CIT(A) allowed the appeals filed by the assessee. The Revenue then appealed to the ITAT, which upheld the CIT(A)'s decision. The Tribunal noted that the Revenue failed to provide any material to disprove the cultivation of roses by the assessee, who had invested substantially in the activity. The Tribunal referenced previous decisions to support its findings, including the case of CIT vs. Soundarya Nursery.

Another issue arose in a separate case before the same Court, where the Court emphasized that for income to be considered agricultural, basic operations like tilling the land and planting seeds must be carried out, along with subsequent operations. The Court clarified that subsequent operations alone do not qualify as agricultural operations. In the case under consideration, the assessee had grown plants on owned land, undertaking various activities like tilling, weeding, and watering, which involved human skill and effort. The Court distinguished a case involving different types of nurseries and concluded that the income from the nursery business constituted agricultural income based on the operations carried out by the assessee.

Ultimately, the High Court decided in favor of the assessee, stating that the income from the nursery business constituted agricultural income based on the operations performed by the assessee. The Court dismissed the Tax Appeals filed by the Revenue, upholding the Tribunal's decision that the sale proceeds from the nursery business were exempt from tax. The judgment provided a detailed analysis of the legal principles governing the classification of income as agricultural and highlighted the importance of the operations carried out on the land to determine the nature of income earned.