High Court Of Uttarakhand
CIT vs. Green Gold Tree Farmers (P) Ltd.
Section 2(1A)
Asst. Year 1989-90
P.C. Verma & B.C. Kandpal, JJ.
IT Ref. No. 10 of 2001
28th February, 2007
Counsel Appeared :
Arvind Vashist, for the Appellant
JUDGMENT
By the court :
By means of this reference, the Tribunal has required the opinion of the High Court on the question, formulated as under : “Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in confirming the view of the CIT(A) who held that the sale proceeds of the plants raised in the nursery on the land constituted the income from agriculture ?”
2. The brief facts of the case are that the respondent assessee is a private limited company which was incorporated on 20th Nov., 1986 and the first return of income was filed for the asst. yr. 198889 for the period from 20th Nov.,1986 to 31st Oct., 1987. The assessment in question is in respect of previous year 1st Nov., 1987 to 31st March,1989 being transitional year of 17 months. The AO noticed that the assessee company was carrying on the activities of running of nursery and of extension service and deriving income therefrom. The assessee purchased plants in its nursery and reared them and then sold them to various parties including farmers. It provided extension service to those farmers who purchased ETPs. In respect on both the activities, separate P&L a/cs have been filed for the period from 1st Nov., 1988 to 31st March, 1989 yielding from nursery at Rs. 92,836 the period of five months ending with 31st March, 1988, and Rs. 2,25,904 for the year ending 31st Oct., 1988. Both the above amounts totalling to Rs. 3,18,740 were shown as agricultural income from the sale of poplar plants. The AO issued a notice dt. 19th Nov., 1990 to the assessee as to why the said income from nursery business be not taken as income from business instead of income from agriculture as claimed by the assessee. According to the AO, the assessee failed to show that primary agricultural processes were carried on upon the land. He viewed that the assessee’s action of preparing separate P&L a/c would not convert the activity into two activities, one being agriculture and the other business as such, a separation into two activities was only an artificial one as could be seen from the facts that the agriculture requires the operations from rearing to harvesting and the assessee’s case was not so and that the assessee’s activity of nursery cannot be treated as agriculture in nature, particularly when the aim and object of the activity was business of providing extension service to the farmers, and further that the P&L a/c for nursery revealed all elements of business like advertisement, salary, discount and depreciation. Hence, income from nursery was treated as business income and profits computed by the AO. The assessee has also further shown loss from extension service of Rs. 2,29,947 for the period of five months ending with 31st March, 1989 and Rs. 3,84,146 for the period of 12 months ending with 31st Oct., 1988.
The accounts of extension service were in respect of the ETPs sold and the extension charges Rs. 11,10,343 for five months and Rs. l,66,432 for 12 months have been received from the farmers stated to have been approved by the rural bank. The loss income under the head ‘Extension service’ was shown by the assessee as its business income. The state of affairs with the composite business was seen from the audited accounts for the period 1st Nov., 1987 to 31st March, 1989 besides quantitative details in respect of nursery account. It was found that as on 31st Oct., 1988, closing of work-in-progress was shown at Rs. 24,743 and the assessee gave its working as required by the AO. The assessee also gave working of closing of the work-inprogress of ETPs and also gave reconciliation besides the figures as per the auditors report pertaining to the quantitative details for the period ending with 31st Oct., 1988 for 12 months and 31st March, 1989 for five months. The AO noticed inconsistencies therefrom and ultimately concluded that the profits returned at Rs. 3,18,740 (Rs. 92,836 + Rs. 2,25,904) referred to above did not reflect the true profit of the assessee and further that the facts and circumstances of the case are such that income could not be properly deducted. Hence, he viewed that profit from nursery business shown did not represent true income as the method employed was such that true profits could not be arrived at. In respect of extension service, the AO found that the accounts thereof did not give correct income and the income was, therefore, arrived at by following proviso to s. 145(1) of the Act. Aggrieved by the aforesaid assessment order, the assessee filed appeal before the CIT(A). The CIT(A) directed the AO not to tax the income from nursery as it is agricultural income and income from extension services to be recomputed treating it as business income. Feeling aggrieved by the aforesaid judgment and order of the CIT(A), the Revenue Department preferred an appeal before the Tribunal. The cross-appeals were also filed by the assessee. The Tribunal consolidated the appeals together and decided the matter by the common judgment. The Tribunal dismissed both the appeals, i.e., filed by the Revenue Department as well as by the assessee.
This reference was made by the Tribunal to the High Court for its opinion on the question of law formulated in the previous para. Heard learned standing counsel for the Revenue and carefully perused the record. The learned standing counsel for the Revenue has argued that the income from the nursery is taxable income and the appeal filed by the Revenue Department has been dismissed by the Tribunal without applying the principle of law as well as the judicial pronouncements of the Supreme Court. In order to appreciate the arguments it would be relevant to peruse the provision of s. 2(1) of the IT Act, 1922, which is extracted below : “‘Agricultural income’ means— (a) any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenuein British India or subject to a local rate assessed and collected by officers of the Crown as such; (b) any income derived from such land by— (i) agriculture, or (ii) the performance by a cultivator or receiver of rent-in- kind of any process ordinarily employed by a cultivator or received of rent-in-kind to render the produce raised or received by him fit to be taken to market, or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in sub-cl. (ii).”
8. It is important to mention here that the same definition of “agricultural income” has been adopted in s. 2(1A) of the IT Act, 1961. From perusal of both the cls. (a) and (b) of the definition of the “agricultural income”, it is clear that the income must be derived from land which is used for agricultural purposes. The meaning of the expression “agricultural purposes” was explained in Raja Mustafa Ali Khan vs. CIT (1948) 16 ITR 330 (PC), wherein it has been held that “though it must always be difficult to draw the line yet unless there is some measure of cultivation of the land, some expenditure of skill or labour upon it, it cannot be said to be used for agricultural purposes, within the meaning of the IT Act.”
9. The aforesaid decision was further considered by the Hon’ble apex Court in the case of CIT vs. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466 (SC), wherein it was held that : “where trees were planted and nurtured by manual labour, the income arising therefrom was agricultural income and the test laid down by the Supreme Court applied to the fact of the case before them.”
10. The Hon’ble Supreme Court in another case S.S. Raja Linga Raja vs. State of Madras AIR 1967 SC 814, has also held as under : “‘Agricultural income’ is defined (insofar as the definition is relevant in these appeals) as meaning (a) any rent or revenue derived from a plantation, (b) any income derived from such plantation in the State by (i) agriculture, or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market, or (iii) the sale by a cultivator or receiver of rent-inkind of the produce raised or received by him, in respect of which no process of the nature described in paragraph (ii).”
11. The terms “agriculture” and “agricultural purposes” not having been defined in the Indian IT Act, but necessarily fall back upon the general sense in which they have been understood in common parlance. “Agriculture” in its root sense, means a gear, a field and cultivate, cultivation of field which of course implies expenditure of human skill and labour upon land. Turning to the Dictionary meaning of “agriculture”, Webster’s New International Dictionary describing it as “the art or science of cultivating the ground, including rearing and management of livestock, husbandry, farming, etc. and also including in its broad sense farming, horticulture, forestry, butter and cheese making, etc.” Murray’s Oxford Dictionary describes it as “the science and art of cultivating the soil, including the allied pursuits of gathering in the crop and rearing livestock, tillage, husbandry, farming in the widest sense.” In Bouviers’ Law Dictionary quoting the Standard Dictionary, ‘agriculture’ is defined as “the cultivation of soil for food products or any other useful or valuable growths or the field or garden, tillage, husbandry, also by extension, farming, including any industry practised by cultivator of the soil in connection with such cultivation as breeding and rearing of stock, dairying, etc; the science that treats of the cultivation of the soil.” In Corpus Juris Secondum the term “agriculture” has been understood to mean, “art or science of cultivating the ground, especially in fields or large quantities, including the preparation of soil, the planting of seeds, the raising and harvesting of crops, and the rearing, feeding and management of livestock, tillage, husbandry and farming. In its general sense, the word also includes gardening or horticulture.” Century Dictionary and Anderson’s Dictionary of Law “The primary meaning of ‘agriculture’ is the cultivation of the ground, and in its general sense, it is the cultivation of the ground for the purpose of procuring vegetables and fruits for the use of man and beast including gardening or horticulture and the raising or feeding of cattle and other stock.” Wharton’s Law Lexicon adopts the definition of agriculture, in 8 Edw. VII, C. 36, as including horticulture, forestry and the use of land for any purpose of husbandry etc. In 10 Edw. VII. C8, s. 81, it was defined so as to include the use of land as meadow or pasture land or orchard or osier or woodland or for market gardens, nursery grounds, or allotments, etc. In 57 and 58 Vict C 30 s. 22, the term ‘agricultural property’ was defined so as to include agricultural land, pasture, and woodland, etc.
12. The Hon’ble Supreme Court in a case CIT vs. Raja Benoy Kumar Sahas Roy AIR 1957 SC 768 has held that : “The term ‘agriculture’ cannot be confined merely to the production of grain and food products for human beings and beasts but, must be understood as comprising all the products of the land which have some utility either for consumption or for trade and commerce and would also include forest products such as timber, sal and piyasal trees, casuarina plantations, tendu leaves, horra nuts, etc.”
13. Therefore, on the facts of the case as well as on the basis of the judicial pronouncements detailed above, we have no hesitation in holding that the sale proceeds of the plants raised in the nursery on the land belonging to the assessee constitute income from agriculture, hence exempt from tax under IT Act.
14. We do not find any good ground to interfere with the findings recorded by the Tribunal. The question of law framed in this reference is answered against the Revenue Department and in favour of the assessee.
15. The income-tax reference is disposed of accordingly. Order accordingly.
[Citation : 299 ITR 262]
