2018 (1) TMI 658 - AT - Income Tax

Disallowance of the claim of agricultural income - nature of the agricultural activities carried on by the assessee - The case of the Revenue is that the assessee, though has levelled the land by use of tractors, has not done any further agricultural activity of sowing the seeds etc. - Held that - In the case of K.Lakshmanan & Co. vs. CIT (1998 (2) TMI 10 - SUPREME Court), the Hon ble Supreme Court was dealing with a case of an assessee which was growing mulberry leaves and rearing silkworms and the assessee has grown the mulberry tree and plucked the leaves from the trees which were cut and fed to the silkworms and the silk cocoons were sold in the market by the assessee. The assessee claimed that the entire income derived from growing of mulberry leaves and sale of cocoons was exempt from levy of income-tax as it was agricultural income . The Hon ble Supreme Court held that the agricultural produce of the cultivator will be mulberry leaves and by no stretch of imagination can the silkworms and certainly not the silk cocoons be regarded as the agricultural produce of the cultivator. We find support from this judgment also in favour of our findings. The assessee has filed the copies of the invoices and bills and agricultural activities as additional evidence before us and we have considered the same for giving relief to the assessee. However, since this additional evidence was not filed before the authorities below, we deem it fit and proper to admit the same and remand the same to the file of the AO for verification of the authenticity of the said documents and for computation of agricultural income. If it is found that these documents are genuine, then our findings stands. If it is otherwise, the AO is free to take a decision on the basis of only such documents which are found to be genuine. The assessee is directed to furnish the bifurcation of its income from CWG towards agricultural activity and non-agricultural activity before the AO on the basis of our finding that activity up to harvesting is agricultural activity. - Decided partly in favour of assessee

Summary

Issues Involved:
1. Nature of the activity carried out by the assessee (agricultural vs. business).
2. Treatment of income derived from the activity (agricultural income vs. business income).
3. Bifurcation of activities into agricultural and non-agricultural components.

Detailed Analysis:

1. Nature of the Activity Carried Out by the Assessee:
The primary issue was whether the activities carried out by the assessee, which involved growing and laying turf grass for the Commonwealth Games (CWG) 2010, constituted agricultural activities. The assessee argued that the entire process, including growing grass on leased agricultural land and subsequent operations, was agricultural. The Assessing Officer (AO) and CIT (A) contended that only the initial growing of grass was agricultural, while the subsequent operations (cutting, bundling, transporting, and laying the turf) were specialized business activities.

2. Treatment of Income Derived from the Activity:
The AO treated the entire income from the CWG contract as business income, arguing that the activities beyond growing the grass did not constitute agricultural operations. The assessee claimed the income as agricultural, citing various judicial precedents. The Tribunal examined the contract terms, including the requirements to grow, deliver, and maintain the grass turf, and the payment structure. It concluded that the growing of grass till harvesting was agricultural, but the subsequent activities were not.

3. Bifurcation of Activities into Agricultural and Non-Agricultural Components:
The Tribunal determined that the activities could be bifurcated. It held that the operations up to the harvesting of grass on agricultural land were agricultural activities, while the subsequent activities (transporting, laying, and maintaining the turf) were service-oriented and non-agricultural. The Tribunal referenced several judicial decisions to support this bifurcation, including CIT vs. Raja Binay Kumar Sahas Roy and CIT vs. Soundarya Nursery, which clarified the scope of agricultural activities.

Conclusion:
The Tribunal concluded that the income from the growing and harvesting of grass should be treated as agricultural income, while the income from subsequent activities should be treated as business income. The case was remanded to the AO for verification of the documents and computation of agricultural income based on the bifurcation. The assessee was directed to provide a detailed bifurcation of income from agricultural and non-agricultural activities. The appeal was partly allowed, with the alternate ground of appeal being accepted and the primary grounds being rejected.

Order Pronouncement:
The order was pronounced in the Open Court on 29th December, 2017.