2019 (10) TMI 1117 - AT - Income Tax

Exemption on agricultural income - firm is not the owner of such agricultural land but the partners - HELD THAT - It appears from the partnership deed which is available on record that the said partnership firm has decided to carry on business on selling of agricultural produces from 01.04.2013 by doing agriculture work in the partnership by the name Shraddha Farm at Ahmedabad. Needless to mention such partnership deed has been executed amongst three partners namely Patel Mukundbhai Rambhai, Patel Ushaben Mukundbhai and Patel Bhargav Mukundbhai. The detail of the agricultural land is also mentioned in the said partnership deed at clause 1. We have further considered Section 2(1A) which defines agricultural income which is derived from the agricultural land situated in India used for agricultural purposes. This section does not specify that Revenue has to be derived by the owner of the agricultural land only. The term revenue , therefore, implies some yield or some income from agricultural operations. Further that it can be inferred that agricultural income can also be derived by person who is a cultivator or who is the owner of land. It is only the receiver of rent-in-kind who can directly be held to be the owner of land as referred to in this section. Further that a cultivator may be the owner but it is not necessary that he has to be the owner. In terms of Clause (a) there can be a recipient of rent from land which implies ownership and also a recipient of revenue derived from land, which implies that the person can be the owner or may not be the owner of land. Sub Clause (1) of Clause (b) speaks of income derived from an agricultural land by agricultural activity. Thus revenue derived from land or from agriculture implies a periodic return of income from agricultural operations only It can be well appreciated that the assessee firm though not being the owner of the agricultural land in question is entitled to get exemption of the agricultural income derived from the said land owned by the partners of the firm. The issue is thus decided in the affirmative i.e. in favour of the assessee and against the Revenue.

Summary

Issues:
- Entitlement to exemption on agricultural income for a firm not owning the land.

Analysis:
1. The case involved the question of whether a firm is entitled to exemption on agricultural income when the firm is not the owner of the agricultural land but the partners are. The assessee firm declared exempt income from agriculture for the Assessment Year 2015-16, despite not owning any agricultural land in its balance sheet.

2. The Revenue challenged the claim, arguing that the firm did not own the land and hence should not be entitled to the exemption. The Assessing Officer made an addition to the total income of the assessee on the grounds that no agreement between the firm and landowners was submitted, and the firm was not paying any rent to the landowners, thus not meeting the definition of agricultural income under section 2(1A) of the Income Tax Act, 1961.

3. The firm contended that ownership of the land was not a prerequisite for having agricultural income and that revenue derived from agricultural activities on Indian land should suffice for claiming the exemption. The firm relied on a judgment by the Hon’ble ITAT, Pune Bench in a similar case to support its argument.

4. The Tribunal examined the partnership deed and relevant sections of the Income Tax Act. It noted that agricultural income can be derived by a cultivator or the owner of the land, and ownership of the land is not mandatory for claiming agricultural income. The Tribunal emphasized that revenue derived from agricultural activities on Indian land should qualify as agricultural income, irrespective of ownership.

5. The Tribunal further analyzed the agreement between the firm and Maharashtra State Farming Corporation for joint cultivation of land, where the firm undertook various responsibilities related to agricultural activities. The Tribunal concluded that the firm, even without owning the land, was entitled to the exemption on agricultural income derived from the land cultivated by the partners. The Tribunal held in favor of the assessee and deleted the addition made by the authorities below.

6. Ultimately, the Tribunal allowed the assessee’s appeal, ruling in favor of the assessee and against the Revenue based on the interpretation of the law and the specific circumstances of the case.