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TMI Blog2011 (11) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of A.O. and added back the subsidy on ground that subsidy received by the assessee did not relate to the acquisition of the rose plants but in creating infrastructure. Since new facts in respect of grant of subsidy were recorded by CIT(A) hence the issue is restored back to first appellate authority to verify exact nature of subsidy granted to the assessee and then decide the issue. In respect of other dis-allowance it is held that whatsoever be the addition, the same shall qualify for the exempted income being part and parcel of the agricultural income. Therefore the deletion of addition is hereby affirmed. - Decided partly in favor of Revenue. - IT Appeal No. 1975 (Ahd.) of 2008 - - - Dated:- 30-11-2011 - Mukul Kumar Shrawat And A. Mohan Alankamony, JJ. D. V. Singh for the Appellant. Tushar P. Hemani for the Respondent. ORDER Mukul Kumar Shrawat, Judicial Member This is an appeal at the behest of the Revenue, which has emanated from the order of Commissioner of Income-tax-(Appeals), Valsad dated 31-01-2008 for the assessment year 2005-06. Grounds raised are hereby decided as follows:- 1. On the facts and in the circumstances of the case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d level, excess water is drained from the trays which have small holes at the bottom. The main reason for drainage is that over watering of the plants can cause root damage and the quality of the plant and its product can become weak if there is excess water. With Try and Stands System, all excess water is drained out, which creates ideal conditions for growing roses. (3) Bentcanopy (Bending): There is a practice in commercial greenhouse culture of roses called bent canopy . It means week or blind shoots that aren't going to bear saleable buds are bent down into the alleys and left there. They are bent above the second leaf up, and presumably that means the stem will be crimped. The stems can't grow much or sprout at all beyond the bend. They break shoots just inside the bend. These shoots prove to be longer and stronger than if the stem were pinched back or pruned, because the bent part continues to photosynthesize and feed sugars back, despite the handicap of the crimp. In short, bending shoots is very important for maximizing the quality of roses. Bending shoots is not possible if plantation is done on ground level. (4) Pest Disease Control: As a 100% Export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an agriculturist. He has repeated that the rose plants were planted on the bridge of plastic tray erected, with the help of MS stand, 2-3 ft. above the land. There was no tilling of land, sowing of seeds, plantation or such similar operations on the land. According to AO even there were no subsequent agricultural operations such as weeding, tending, pruning, cutting, harvesting so as to make the produce fit for the marketing. The AO has also quoted that mere performance of these subsequent operations on the product of the land would not be enough to characterize of them as agricultural operation. However, he has remarked that the subsequent operations, if performed in conjunction with and in continuation of the basic operation, then the subsequent operations would also constitute a part of the integrated agriculture activity. He has emphasized that the roots of rose plants were planted on the earth land, therefore the land was not actually cultivated. The land was not actually used for the purpose of growing the rose, as per Assessing Officer. 2.3 In one of reply the assessee has submitted that the said agricultural operations and activities have been accepted by certain Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that the project of the assessee was not a nursery culture project. A decision of Hon'ble Uttarakhand High Court pronounced in the case of CIT v. Green Gold Tree Farmers (P) Ltd. [2008] 167 Taxman 151 was cited, wherein it was held that the flowers erected in pots could be treated as agriculture produce. Based upon the said judgment, Ld. CIT(A) has discussed the ratio laid down therein that even where basic operations are not carried out on land, such income will be deemed as agricultural income eligible for exemption u/s.10(1) of the Act. Further, a decision of Hon'ble Madras High Court in the case of CIT v. Soundarya Nursery [2000] 241 ITR 530/[2002] 123 Taxman 372 has also been relied upon, wherein it was held that the seeds and plants sold by the nursery in pots are the result of primary as well as subsequent operations comprehended within the term agriculture hence to be treated as product of agriculture. Ld. CIT(A) has given a finding that the assessee had factually established the nexus between income, land and agricultural operation. It was concluded as under:- It is a fact that the appellant's activity has been endorsed as an 'agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immediate source because the rose plants were not grown on the land but on plastic trays. He has stressed upon the point that if the activities do not involve any basic operation on the land then would not constitute an agricultural activity. He has referred case law CIT v. Kunwar Trivikram Narain Singh AIR 1965 SC 1836 for the proposition that agriculture in its primary sense denotes the basic operation requiring involvement of human skill and labour upon the land and is restricted to cultivation of the land in the strict sense of the term, meaning thereby, tilling of the land, sowing of the seeds, planting and similar operations on the land. The court further ruled that mere performance of some subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations, would not be enough to characterize them as agricultural operations. He has commented upon the decision of Madras High Court pronounced in the case of Soundarya Nursery (supra) that there must be primary agricultural activity at the start of the agricultural operation and subsequently the agricultural produce can be sold in the pots. As against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the basic contention of the Revenue is that the absence of basic operation was absent in the present case, therefore not eligible for exemption u/s 10(1) of the Act. Respondent Assessee's arguments: 5. From the side of assessee, Shri Tushar P Hemani, Ld. AR appeared and placed reliance on the verdict of Ld. CIT(A). Ld. AR has also placed before us a decision of ITAT Pune Bench pronounced in the case of K F Bio Plants (P.) Ltd. v. ITO in IT Appeal No.146/PN/2008 order dated 26-03-2009. He has also mentioned that various government organizations have held; activity of the assessee as agricultural activity and in this regard certificates were filed from certain connected agencies, already mentioned above. Conclusion 6. Nature of Land in question: We have carefully heard both the sides at some length. We have also thoroughly perused the orders of authorities below in the light of compilation filed and the case laws cited. Copy of the lease agreement is placed before us through which the lease period was effective from 01-10-2002. The lessee, the assessee, was required to pay to the lessor a sum of ₹ 25 lakh as refundable deposited. The Lessee has agreed to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanted on plastic trays, which were kept at the height 2-3 ft. placed on MS stand. It was explained that the purpose of growing the rose plants at a height is primarily to avoid the pest and to develop in a controlled atmosphere. By this method, the rose plant is protected from climate, pest, as well as other disease, to minimize the possibility of damage. The drainage system for watering the plants with the help of dipper is required. The watering of rose plants are also a technical method to avoid excessive watering so that the roots of the rose plants should not get damaged. The commercial green house i.e. bent canopy is used for various benefits so that the sun-light and the humidity level both can be maintained. For meeting the international demand, it is explained, that the assessee-company adopted best measure to ensure best quality of rose. 6.2 Conditions of Agriculture operation - From the side of the respondent-assessee there was detailed discussion about the growing of rose plants and other connected agricultural operation carried out by the assessee. However, the objection of the Revenue was that the rose plants were not grown on the land, therefore the generation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor, Navsari These certificates have thus certified that the green house floriculture units are eligible for benefits in respect of electricity tariff which are otherwise available to mainstream agricultural activities. The National Bank for Agricultural and Rural Development has stated that the assessee's unit is an integrated EOU, where the entire range of activities from growing of flowers to packing, pre-cooling, cooling, transportation in reefer vans and eventual export is an undividable process which requires uninterrupted power supply and the growing of flowers is like any other agriculture pursuit. The Collector has also issued no objection in respect of extension of facilities which would otherwise available for any agricultural activity and directed that the floriculture activity is a part of mainstream agricultural activity. Rather in a letter, issued by Horticulture Commissioner it was expressed that it is not known as to how this doubt has arisen that floriculture is not a horticultural activity and that the activity is an agricultural activity. Growing of flowers or ornamental plants is floriculture similar to Olericulture (growing of vegetable) and Poraology ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s agricultural income or not, will depend on the facts of each case. If the nursery is maintained by carrying out basic operations on land and subsequent operations are carried out in continuation of the basic operations, then income from such nursery would be agricultural income not liable to tax under section 10. However, if the nursery is maintained independently without resorting to basic operations on land, then income from such nursery would not be agricultural income and would be liable to be included in the total income. 4.2 With a view to giving finality to the issue, an Explanation in section 2 of the Income-tax Act, has been inserted providing that any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income. Accordingly, irrespective of whether the basic operation have been carried out on land, such income will be treated as agricultural income, thus qualifying for exemption under sub-section (1) of section 10 of the Act. 4.3 Applicability : This amendment has been made applicable with effect from 1st April, 2009 and shall accordingly apply for assessment year 2009-10 and subsequent assessment years. Though th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income as agricultural income. If in the primary sense, the agricultural operation denotes cultivation of a field or tilling of land or sowing of seeds or any other activity of cultivation of plant on agricultural land then such activity is nothing but an agricultural activity. If rearing of plant is connected with the exploration of land then such activity is held as an agricultural activity. Eve the decision of Proagro Seeds Co. Ltd. (supra) as cited from the side of the Revenue has clearly drawn the distinction. It was found that in the absence of basic agricultural operation, the income earned was not an agricultural income. Therefore in the light of the specific facts of that case, a view was taken; but those facts were peculiar in nature, applicable to that appeal only. That view of the Hon'ble court must not be generalized, but the guidelines depicted are to be regarded. 7.1 Before we conclude, it is worth to place on record a decision of ITAT Pune Bench pronounced in the case of K F Bio Plants (P.) Ltd. (supra) wherein one of us i.e. Judicial Member is the co-signatory and the issue was squarely identical due to the fact that in that appeal as well the income was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,55,094/-. It was found by the Assessing Officer that addition during the year were at ₹ 71,82,689/-, therefore aggregating to ₹ 2,34,37,783/-. The assessee has claimed depreciation @ 10% at ₹ 23,43,778/-. It has also been noted by the AO that the assessee had received subsidy from National Horticulture Board of ₹ 24,97500/-during the year. The observation of the AO was that the rose plants were not entitled for the depreciation. It was noted by the AO that the life of rose plant is 7-10 years only. According to him, as per the provision of Section 32 rose plants are not entitled for depreciation. Further, he has also noted that t as per Explanation-10 to Section 43 of the Act actual cost means, the cost reduced by subsidy. Assigning these reasons, it was held that the depreciation was not allowable to the assessee. However, he has held that it was deferred revenue expenditure as per the following view:- [6.3] The assessee company has received subsidy from the National Horticulture Board on the Rose Plants for ₹ 24,97,500/-. Accordingly, the cost of the Rose Plants is reduced by the amount of subsidy. Balance of cost of Rose Plants arrived at S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- therefore the Assessing Officer has mentioned that the assessee was required to deduct tax at source @ 5% on an impugned amount. The provision of Section 194J were applied and held that assessee was not entitled for the deduction. The matter was carried before the first appellate authority. The first appellate authority has held that the payment in fact was made without deduction of TDS, therefore not to be allowed as per Section 40(a)(ia) of the Act. 9.2 Having heard the submissions of both the sides, the first question raised by us is that if the entire income is an exempted income being fallen within the category of agricultural income u/s.10(1) of the Act then what will be the tax effect on such an addition. Both the sides have admitted that this ground has consequential tax effect if the grant of exemption for agricultural income is rejected, otherwise academic in nature. As far as legality of the issue is concerned for non-deduction of TDS, we are not with the arguments of assessee, therefore hereby affirm the finding of Ld. CIT(A). But Ld. CIT(A) was in right in holding that the said disallowance is to be treated as part and parcel of agricultural income and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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