HIGH COURT OF UTTARAKHAND

Commissioner of Income-tax, Meerut

v.

Green Gold Tree Farmers (P.) Ltd.

P.C. VERMA AND B.C. KANDPAL, JJ.

IT REFERENCE NO. 10 OF 2001

FEBRUARY 28, 2007

Section 2(1A) of the Income-tax Act, 1961 - Agricultural income Assessment years 1988-89 and 1990-91- Whether sale proceeds of plants raised in nursery on land belonging to assessee consti­tutes income from agriculture - Held, yes

Facts

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 same to various parties including farmers. It provided extension service to those farmers who purchased plants. During the assessment proceedings, the assessee filed separate profit and loss accounts in respect of both the activities and claimed income from sale of popular plants as agricultural income. The Assessing Officer was of the view that the assessee’s action of preparing separate profit and loss account would not convert the activity into two activities, one being agriculture and the other busi­ness as such; 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; the assessee’s activity of nursery would not be treated as agriculture in nature, particularly when the aim and object of the activity was providing extension service to the farmers; and the profit and loss account for nursery revealed all elements of business like advertisement, salary, discount and depreciation. Accordingly, the Assessing Officer held that income from nursery was to be treated as business income. On appeal, the Commissioner (Appeals) held that the sale proceeds of the plants raised in the nursery on the land constituted the income from agriculture. On appeal, the Tribunal upheld the order of the Commissioner (Appeals).

On reference :

Held

From a perusal of clauses (a) and (b) of the definition of the ‘agricultural income’ in section 2(1A), 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 v. CIT [1984) 16 ITR 330 : (AIR 1949 PC 13), 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 Income-tax Act’. [Para 9]

The terms ‘agriculture’ and ‘agricultural purposes’ having not been defined in the Indian Income-tax Act, 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 cultivation of field which of course implies expenditure of human skill and labour upon land. [Para 12]

Therefore, on the facts of the case, as well as on the basis of the judicial pronouncements of Supreme Court in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466; S.S. Raja Linga Raja v. State of Madras AIR 1967 SC 814, it was clear that the sale proceeds of the land belonging to the assessee constitute income from agriculture and, hence, exempt from tax under the Act. [Para 14]