The DCITNavsari Circle-1,, Navsari v. Best Roses Biotech Pvt.Ltd.,,

ITA 1975/AHD/2008 | 2005-2006
Pronouncement Date: 30-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 197520514 RSA 2008
Assessee PAN AABCB7116Q
Bench Ahmedabad
Appeal Number ITA 1975/AHD/2008
Duration Of Justice 3 year(s) 6 month(s) 3 day(s)
Appellant The DCITNavsari Circle-1,, Navsari
Respondent Best Roses Biotech Pvt.Ltd.,,
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-11-2011
Date Of Final Hearing 13-10-2011
Next Hearing Date 13-10-2011
Assessment Year 2005-2006
Appeal Filed On 27-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD . !' BEFORE SHRI MUKUL KUMAR SHRAWAT JUDICIAL MEMBER AND SHRI A MOHON ALANKAMONY ACCOUNTANT MEMBER . / ITA NO.1975/AHD/2008 # $# / ASSESSMENT YEAR:- 2005-06 DY. COMMISSIONER OF INCOME-TAX NAVSARI CIRCLE NAVSARI / V/S . BEST ROSES BIOTECH PVT. LTD. AT. VILLAGE KUCHED TAL. JALALPORE DIST. NAVSARI PAN NO.AABCB7116Q &'/ APPELLANT .. ()&'/ RESPONDENT &' * + ! / BY APPELLANT SHRI. D.V. SINGH SR-DR ()&' * + ! / BY RESPONDENT SHRI TUSHAR P HEMANI AR * -' / DATE OF HEARING 14/11/2011 .$ * -' / DATE OF PRONOUNCEMENT 30/11/2011 !/ !/ !/ !/ / // / O R D E R . !' /PER MUKUL KUMAR SHRAWAT JUDICIAL MEMBER:- THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE W HICH HAS EMANATED FROM THE ORDER OF COMMISSIONER OF INCOME-T AX-(APPEALS) VALSAD DATED 31-01-2008 FOR THE ASSESSMENT YEAR 2005-06. G ROUNDS RAISED ARE HEREBY DECIDED AS FOLLOWS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED C.I.T.(APPEAL) ERRED IN DELETING ADDITION O F RS.935719/- . UNDER ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 2 THE HEAD INCOME FROM BUSINESS OR PROFESSION INSTEAD OF AGRICULTURE INCOME AS CLAIMED BY THE ASSESSEE. 2. FACTS OF THE CASE FACTS IN BRIEF AS EMERGED FROM THE CORR ESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE INCOME-TAX ACT 1961 (HERE INAFTER REFERRED TO AS THE ACT) DATED 31-12-2007 WAS THAT THE ASSESSEE-COMPANY HAD SET UP A HIGH- TECH GREEN HOUSE AND STARTED A FLORICULTURE PROJECT . IT WAS NOTED BY THE ASSESSING OFFICER THAT THE COMPANY HAD STARTED GROWING ROSE FLOWERS AT VILLAGE KUCHED IN JALALPORE BLOCK OF NAVSARI DISTRI CT IN GUJARAT. IT HAS ALSO BEEN NOTED BY THE AO THAT ONE OF A DIRECTOR WHO WOR KED AS A MARKETING DIRECTOR NAMELY SHRI DIPAKBHAI PATEL IS BASICALLY AN AGRICULTURIST. AT THE START OF THE ASSESSMENT ORDER THE AO HAS ALSO NOTED THAT THE ASSESSEE-COMPANY HAD ACQUIRED AGRICULTURAL LAND FROM AGRICULTURIST ON A LEASE OF 25 YEARS FOR A LEAST RENT OF RS.6 LAKH PER ANNUM VIDE A LEASE AGRE EMENT DATED 24- 10-2002. FURTHER IT WAS OBSERVED THAT THE COMPANY HAD CONS TRUCTED A GREEN HOUSE FLORICULTURE PROJECT ON THE SAID LAND AND THE ROSE PLANTS WERE GROWN ON A BRIDGE OF PLASTIC TRAY. AS PER THE DESCRIPTION THE TRAYS WERE ERECTED ON M.S STAND WHICH IS STATED TO BE 2-3 FT. ABOVE AND TRAYS WERE FILLED WITH A MIXTURE OF SOIL. THE COMPANY HAD STARTED ITS COMMERCIAL PRODUC TION WITH EFFECT FROM 01- 10-2004 AND GOOD QUALITIES OF ROSES WERE GROWN AND THOSE ROSES WERE EXPORTED ABROAD. THE ASSESSEE HAS CLAIMED EXEMPTION U/S 10(1) AS INCOME UNDER THE HEAD AGRICULTURAL INCOME. BEFORE ASSESSING OFFICER THE PROCESS OF GROWING THE ROSE FLOWERS WERE EXPLAINED AS FOLLOWS:- BEST ROSES BIOTECH PVT. LTD. IS GROWING ON A HYDRO PONICS SYSTEM WHERE ROSE PLANTS ARE PLANTED TOW FEET ABOVE GROUND LEVEL WITH THE USE OF MS STANDS AND PLASTIC TRAYS. NO COMMERCIAL P LANTS ARE GROWN WITHOUT SOIL. THE MAIN REASONS BEHIND DEVELOP ING THE HYDROPONICS TECHNIQUE OF GROWING ROSES ARE:- 1) SOIL TYPE : ROSES REQUIRE WELL-AERATED SOIL WITH GOOD DRAINAG E CAPACITY. A SOIL MIXTURE IS PREPARED WITH COCO PEAT MANURE AND SOIL. SOIL COMPONENT IS MORE THAN 75% WHILE MANURE AND O THER PEAT PRODUCTS ARE MIXED FOR LESS THAN 25% OF THE REQUIRE D BASE FOR ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 3 GROWING PLANTS. SUCH MIXTURE MAKES THE SOIL POROUS AND IDEAL FOR GROWING FLOWERING PLANTS. 2) DRAINAGE : WITH PLANTATION ABOVE GROUND LEVEL EXCESS WATER IS DRAINED FROM THE TRAYS WHICH HAVE SMALL HOLES AT TH E BOTTOM. THE MAIN REASON FOR DRAINAGE IS THAT OVER WATERING OF T HE 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 IDEA L CONDITIONS FOR GROWING ROSES. 3) BENTCANOPY (BENDING) : THERE IS A PRACTICE IN COMMERCIAL GREENHOUSE CULTURE OF ROSES CALLED BENT CANOPY. I T MEANS WEEK OR BLIND SHOOTS THAT ARENT GOING TO BEAR SALEABLE BUD S 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 CRIM PED. THE STEMS CANT GROW MUCH OR SPROUT AT ALL BEYOND THE BEND. T HEY BREAK SHOOTS JUST INSIDE THE BEND. THESE SHOOTS PROVE TO BE LONG ER AND STRONGER THAN IF THE STEM WERE PINCHED BACK OR PRUNED BECAU SE 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 ORIENTED UNIT (EOU) BEST ROSES HAS TO ENSURE THAT THE QUALITY OF ROSES IS FREE FROM PEST AND DISEASES. WITH TRAY AND STAND SYSTEM IT IS VERY EFFECTIVE TO MAKE NECESSARY CHEMICAL SPRAYS AND CON TROL THE PEST AND DISEASE. SUMMAR: BEST ROSES IS FOLLOWING THE PRACTICE OF GRO WING ROSES ON A STAND AND TRAY SYSTEM FOR THE ABOVE-MENTIONED REA SONS. THE CONCEPT AND PRACTICE IS STILL OF GROWING IN SOIL BU T ON A ELEVATED SYSTEM IN ORDER TO ENSURE EXPORT QUALITY PRODUCTION. 2.1 ON THE BASIS OF THE SAID EXPLANATION TH E ASSESSING OFFICER HAS OBSERVED THAT THE ROSE PLANTS WERE NOT PLANTED ON T HE EARTH LAND AND NO BASIC AGRICULTURAL OPERATION WAS CARRIED OUT. AS PER AO THE BASIC AGRICULTURAL OPERATION SHOULD BE CULTIVATED ON LAND SUCH AS SEED SOWING PLANTING OF PANTS ON EARTH LAND. ON EXAMINA TION OF ASSESSEES CLAIM AS AGRICULTURAL INCOME THE AO HAD HELD THAT NO SUCH ACTIVITIES WERE CARRIED OUT BY THE ASSESSEE TO TREAT THE INCOM E AS AGRICULTURAL ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 4 INCOME. THE AO HAS ASLO EXAMINED THE DEFINITION OF AGRICULTURAL INCOME AS DEFINED IN SECTION 2(1A) OF THE ACT THE SAME SH ALL BE DISCUSSED HERE-IN-BELOW AT THE APPROPRIATE POINT IN TIME. 2.2 THEREAFTER THE ASSESSING OFFICER HAS DISCUS SED MUMBAI TENANTS ADMINISTRATIVE AND AGRICULTURAL LAND ACT 1948 WHIC H WAS FOUND TO BE FOLLOWED BY THE GOVT. OF GUJARAT THROUGH WHICH THE TERM AGRICULTURE IS DEFINED. AS PER THE SAID DEFINITION AGRICULTURE IS THAT:- THE AGRICULTURAL LAND POSSESSED BY THE AGRICULTURIST USED FOR GROWING CROPS FRUITS GARDENING GRASS FOR ANIMAL BUT DOES NOT INCLUDE ACTIVITIES OF SPONTANEOUS WOOD CUTTING. THE ASSESSING OFFICER HAS ALSO MENTIONED AN ORDER 57 BLR 199 WHEREIN AGRICULTURE IS DEFINED AS AN OPERATION WH ICH HAS SOMETHING TO DO WITH THE LAND AND ANY OPERATION WHICH HELPS THE LAND TO YIELD FRUIT CROPS AND ANY OPERATION WHICH IMPROVES THE NORMAL P RODUCE OF THE LAND MAY COME WITHIN THE EXPRESSION AGRICULTURE. AO HAS ALSO DISCUSSED THE DEFINITION OF AGRICULTURISTS DEFINE IN SECTION 2(6) OF THE SAID MUMBAI TENANTS ADMINISTRATIVE AND AGRICULTURAL LAND ACT 1948. IN THE OPINION OF THE AO ANY ACTIVITY WHICH IS UNCONNECTED WITH THE LAND OR WHICH IS UNCONNECTED WITH THE CULTIVATION O F LAND SHOULD NOT BE TREATED AS AN AGRICULTURAL ACTIVITY. AS PER AO MERELY ENTERING INTO LEASE AGREEMENT TO ACQUIRE AGRICULTURE LAND FR OM AGRICULTURIST DID NOT MEAN THAT THE ASSESSEE HAD THE RIGHTS OF AN AGR ICULTURIST. HE HAS REPEATED THAT THE ROSE PLANTS WERE PLANTED ON THE B RIDGE OF PLASTIC TRAY ERECTED WITH THE HELP OF MS STAND 2-3 FT. ABOVE T HE LAND. THERE WAS NO TILLING OF LAND SOWING OF SEEDS PLANTATION OR SUC H SIMILAR OPERATIONS ON THE LAND. ACCORDING TO AO EVEN THERE WERE NO SUBSEQ UENT AGRICULTURAL OPERATIONS SUCH AS WEEDING TENDING PRUNING CUTTI NG HARVESTING SO AS TO MAKE THE PRODUCE FIT FOR THE MARKETING. THE AO H AS 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 ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 5 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 ACT IVITY. HE HAS EMPHASIZED THAT THE ROOTS OF ROSE PLANTS WERE PLANT ED 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 AS SESSING OFFICER. 2.3 IN ONE OF REPLY THE ASSESSEE HAS SUBMITTED T HAT THE SAID AGRICULTURAL OPERATIONS AND ACTIVITIES HAVE BEEN AC CEPTED BY CERTAIN GOVERNMENT DEPARTMENTS RELEVANT PORTION OF THE REP LY IS REPRODUCED BELOW:- WITH DUE RESPECT TO GENERAL BELIEF ABOUT TRADITION AL AGRICULTURAL OPERATIONS SUCH A CULTIVATION OF LAND SOWING OF SE EDS AND PLANTING WE WOULD LIKE TO STATE THAT GROWING OF FLO WERS IN A GREEN HOUSE ENVIRONMENT IS AN ADVANCED METHOD OF AGRICULT URAL PROCESSES AND IS DIFFERENT FROM TRADITIONAL AGRICUL TURAL OPERATIONS. THE DETAILED METHOD OF OUR AGRICULTURAL PROCESSES I S ATTACHED IN A SEPARATE SHEET KINDLY FIND ATTACHED THE CERTIFICAT ES FROM VARIOUS GOVERNMENT AND OTHER ORGANIZATIONS AS PROOF OF THE ACTIVITIES CARRIED OUT BY US AS AGRICULTURE. LIST IS AS BELOW: - A) NATIONAL BANK FOR AGRICULTURAL AND RURAL DEVELOP MENT (BABARD) B) AGRICULTURAL AND PROCESSED FOOD PRODUCTS EXPORT DEVELOPMENT AUTHORITY (APEDA) MINISTRY OF COMMERCE GOVT. OF INDIA C) GUJARAT AGRO INDUSTRIES CORPORATIONS LTD. D) DEPARTMENT OF HORTICULTURE GUJARAT STATE GANDH INAGAR E) CERTIFICATE FROM COLLECTOR NAVSARI. 2.4 CASE LAWS REFERRED BY THE ASSESSING OFFICER WERE:- 1) CONSOLIDATED COFFEE ESTATES (1943) LTD. V. AGRI. IT (1970) 76 ITR 29 33 (MYS) 2) CIT V. RAJA BENOY KUMAR SAHAS ROY (1957) 32 ITR 466 (SC) 3) H.H. MAHARAJA VIBHUTI NARAIN SINGH V. STATE OF UP (1957) 65 ITR 364( ALL.) ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 6 4) CIT V. K.S. IMAN SAHEB (1969) 71 ITR 742 744 (MAD) 5) RAJA MUSTAFA ALI KHAN V. CIT (1948) 16 ITR 330 335 (PC) 2.5 IN THE LIGHT OF THESE PRECEDENTS IT WAS CO NCLUDED THAT THE NEXUS BETWEEN INCOME AND THE AGRICULTURAL OPERATION ON TH E AGRICULTURAL LAND WAS MISSING. THEREFORE IN THE ABSENCE OF BASIC AG RICULTURAL OPERATION THE INCOME WAS NOT AN AGRICULTURAL INCOME. ONE MORE THING HAS ALSO BEEN ADDED BY THE ASSESSING OFFICER THAT THE ASSESS EE ITSELF HAD SHOWN THE SAID INCOME IN THE PROFIT AND LOSS ACCOUNT AND LATER ON CLAIMED AS EXEMPT U/S 10(1) OF THE ACT. THE ASSESSEE WAS NOT S URE ABOUT THE NATURE OF THE INCOME THEREFORE ALSO CLAIMED SET OF F OF BUSINESS LOSS OF EARLIER YEARS. FINALLY THE CLAIM U/S.10(1) OF THE ACT WAS DENIED AND THE INCOME WAS ASSESSED UNDER THE HEAD INCOME FROM BUS INESS OPERATION.BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE. 3. FINDINGS OF FIRST APPELLATE AUTHORITY BEFORE LD. CIT(A) AN ELABORATE DISCUSSION WAS MAD E AND THE AGRICULTURAL OPERATION CARRIED OUT BY THE ASSESSEE WAS EXPLAINED IN THE LIGHT OF FEW CASE LAWS. LD. CIT(A) HAS CONCLUDED THAT THE PR OJECT OF THE ASSESSEE WAS NOT A NURSERY CULTURE PROJECT. A DECISION OF HONBLE UTTARKHAND HIGH COURT PRONOUNCED IN THE CASE OF CIT V. GREEN GOLD TREE FARMERS (P) LTD. (2008) 169 TAXMAN 151 WAS CITED WHEREIN IT WAS HELD THAT THE FLOWERS ERE CTED IN POTS COULD BE TREATED AS AGRICULTURE PRODUCE. BASED UPON THE SAID JUDGMENT LD. CIT(A) HAS DISCUSSED THE RATIO LAID DOWN THEREI N 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 HONBLE MADRAS HIGH COURT IN THE CASE O F CIT V. SOUNDARYA NURSERY (2000) 241 ITR 530 (MAD) HAS ALSO BEEN RELIED UPON WHEREIN IT WAS HELD THAT THE SEEDS AND PLANTS SOLD BY THE NURSERY IN POTS ARE THE RESULT OF ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 7 PRIMARY AS WELL AS SUBSEQUENT OPERATIONS COMPREHEND ED WITHIN THE TERM AGRICULTURE HENCE TO BE TREATED AS PRODUCT OF AGR ICULTURE. LD. CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAD FACTUALLY ES TABLISHED THE NEXUS BETWEEN INCOME LAND AND AGRICULTURAL OPERATION. IT WAS CONCLUDED AS UNDER:- IT IS A FACT THAT THE APPELLANTS ACTIVITY HAS BEE N ENDORSED AS AN AGRICULTURAL ACTIVITY BY SEVERAL CERTIFYING AUTHO RITIES NAMELY (APEDA) AGRICULTURE AND PROCESSED FOOD PRODUCTS EXP ORT DEVELOPMENT AUTHORITY MINISTRY OF COMMERCE GOVT. OF INDIA NABARD DEPARTMENT OF HORTICULTURE GOVERNMENT OF IN DIA MINISTRY OF AGRICULTURE GOVT. OF INDIA AS WELL AS THE DISTRICT COLLECTOR NAVSARI AND THEREFORE THERE IS NO SCOPE FOR EVEN DOUBTING THE GENUINENESS OF THE APPELLANTS CLAIM. THERE IS NO SUBSTANCE IN THE ASSESSING OFFICER'S OBSERVATION TH AT A COMPANY CANNOT CLAIM THE BENEFIT OF SEC.10(1) AS FROM THE C OMBINE READING OF SEC.10 R.W.S SEC.2(31) ONE WOULD REALIZ E THAT THE WORDINGS OF SECTION 10 WHICH DEFINES THE INCOMES NO T INCLUDED IN TOTAL INCOME PRESCRIBES THAT THE BENEFIT OF SECTION 10 ARE AVAILABLE TO ANY PERSON DERIVING SUCH INCOME AND THE DEFINITION OF PERSON INCLUDES COMPANY AS CLEARLY INCLUDED IN SEC. 2(31). THEREFORE THE APPELLANT COMPANY IS VERY MUCH ELIGIBLE FOR CLA IMING EXEMPTION U/S.10(1). THE HONBLE MADRAS HIGH COURT IN CASE OF CIT V/S SOUNDARYA NURSERY REPORTED IN 241 ITR 530 HAS HELD THAT SEEDS AND PLANTS SOLD BY THE NURSERY IN POTS THE R ESULT OF PRIMARY AS WELL AS SUBSEQUENT OPERATIONS COMPREHENDED WITHI N THE TERM AGRICULTURE AND HENCE CLEARLY PRODUCTS OF AGRICULT URE. THE APPELLANTS FLORICULTURE ACTIVITY GETS SUPPORT FROM THE AFORESAID DECISION. THE APPELLANT HAS FACTUALLY ESTABLISHED T HE NEXUS BETWEEN INCOME LAND AND AGRICULTURAL OPERATIONS. T HUS AFTER CONSIDERING THE FACTS OF THE CASE IN TOTALITY I AM OF THE CONSIDERED VIEW THAT THE APPELLANT COMPANY HAS EARNED AGRICULT URAL INCOME BY PERFORMING AGRICULTURAL ACTIVITY AND THEREFORE T HE APPELLANT COMPANY HAS RIGHTLY CLAIMED THE EXEMPTION U/S.10(1) OF THE ACT. THE AO IS THUS DIRECTED TO GRANT EXEMPTION U/S.10 (1) TO THE APPELLANT COMPANY. THE APPELLANTS GROUND NO.2 AND 3 ARE ALLOWED. 4. REVENUES ARGUMENTS FROM THE SIDE OF THE APPELLANT LD. DRS MR. K. SHYAM PRASAD AND DR. K. MADHUSUDAN MR. D.V.SINGH HAVE APPEARED. ALSO A WRITTEN SUBMISSION IS FILED BY THE REVNUE. HE HAS CONTESTED THAT IN TERMS OF DECISION OF CIT V. KAMAKHAYA NARAIN SINGH (RAJA BAHADUR) (1948) 16 ITR 325 (PC) THE INCOME CAN BE SAID TO BE DERIVED FROM LAND ON LY IF LAND IS THE ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 8 IMMEDIATE AND EFFECTIVE SOURCE OF THE REVENUE AND N OT THE SECONDARY OR INDIRECT SOURCE. MR. PRASAD LD. DR HAS THEREFORE PLEADED THAT IN T HE PRESENT CASE THE AGRICULTURAL LAND WAS NOT THE IMMEDIATE S OURCE BECAUSE THE ROSE PLANTS WERE NOT GROWN ON THE LAND BUT ON PLASTIC TR AYS. 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 S UBSEQUENT OPERATIONS ON THE PRODUCTS OF THE LAND WHERE SUCH PRODUCTS HAVE NOT BEEN RAISED ON THE LAND BY THE PERFORMANCE OF THE BASIC OPERATIONS WO ULD NOT BE ENOUGH TO CHARACTERIZE THEM AS AGRICULTURAL OPERATIONS. HE HA S COMMENTED UPON THE DECISION OF MADRAS HIGH COURT PRONOUNCED IN THE CAS E OF SOUNDARYA NURSERY (SUPRA) THAT THERE MUST BE PRIMARY AGRICULTURAL ACT IVITY AT THE START OF THE AGRICULTURAL OPERATION AND SUBSEQUENTLY THE AGRICUL TURAL PRODUCE CAN BE SOLD IN THE POTS. AS AGAINST THAT ACCORDING TO LD. DR THE RE WAS NO PRIMARY OPERATION ON THE LAND BY THE ASSESSEE AND THE ENTIRE OPERATIO N WAS CARRIED OUT ON ELEVATED PLASTIC TRAYS. HE HAS STATED THAT UNDOUBTE DLY THERE HAVE BEEN TECHNOLOGICAL AND SCIENTIFIC ADVANCES OVER THE YEAR S BUT TO CLAIM AN EXEMPTION THE INCOME SHOULD ARISE FROM THE USE O F AGRICULTURAL LAND. FOR AGRICULTURAL OPERATION ONLY CONVENTIONAL METHODS A RE ACCEPTABLE. REFERRING A DECISION OF DELHI TRIBUNAL SUDISHA FARM NURSERY V. ITO (2003) 81 TTJ 714 (DEL) HE HAS ARGUED THAT IF A NURSERY IS MAINTAINED INDE PENDENTLY WITHOUT RESORTING TO BASIC OPERATIONS ON THE LAND THEN INCO ME FROM SUCH NURSERY INVOLVES PURCHASES AND SALE OF PLANTS. THEN PROFITS ARISING FROM SUCH TRADING IS SUBJECT TO TAX. HE HAS FURTHER ARGUED THAT MERE PER FORMING OF SECONDARY OPERATION WOULD NOT MAKE THE ASSESSEES ACTIVITY AN D AGRICULTURAL ACTIVITY. CASE LAW CITED IN THE CASE OF JUGAL KISHORE ARORA V. DCIT (2004) 133/144 ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 9 TAXMAN 187 (ALL). FINALLY HE HAS INFORMED THAT VIDE INSERTION IN SECTION 2(1A) OF EXPLANATION (III) IS NOW PROVIDED THAT ANY INCOME DERIVED FROM SAPLING OR SEEDLINGS GROWN IN A INDUSTRY SHALL BE D EEMED TO BE AGRICULTURAL INCOME. HE HAS CONTENDED THAT THE SAID EXPLANATION (III) IS INSERTED BY FINANCE ACT 2008 WITH EFFECT FROM 01-04-2009. THE SAID CLAUSE IS THEREFORE APPLICABLE FROM ASSESSMENT YEAR 2009-10 AND NOT FOR THE YEAR UNDER CONSIDERATION. BEFORE THE SAID INSERTION THE INTENT ION OF THE LEGISLATURE WAS TO TAX THE NURSERY INCOME AS BUSINESS INCOME OTHERWIS E THE SAID EXPLANATION WOULD HAVE BEEN APPLICABLE FROM RETROSPECTIVE EFFEC T. 4.1 ANOTHER LD. DR MR. D. V. SINGH HAS PLACED RELI ANCE ON THE ARGUMENTS RAISED EARLIER FROM THE SIDE OF THE REVEN UE AS ALSO THE WRITTEN SUBMISSION FILED AND ARGUED THAT ONLY WHERE A NURSERY HAD CARRIED OUT BASIC AGRICULTURAL OPERATION AND EVEN S UBSEQUENT OPERATIONS WERE AGRICULTURAL OPERATION THEN ONLY THE AGRICULTU RAL INCOME CAN BE ELIGIBLE FOR EXEMPTION OTHERWISE NOT. HE HAS PLACED RELIANCE ON PROAGRO SEEDS CO. LTD. V. JCIT (2003) 126 TAXMAN 37 (DEL) FOR THE LEGAL PROPOSITION THAT INCOME ARISING FROM USE OF LAND FO R AGRICULTURAL PURPOSE BY CONVENTIONAL METHODS IS EXEMPTED AS AGRICULTURAL INCOME BUT WHERE ASSESSEE IS GROWING VARIOUS KINDS OF HYBRID SEEDS A FTER CONDUCTING AGRICULTURAL RESEARCH THEN INCOME EARNED ON SALE OF SUCH SEEDS COULD NOT BE TREATED AS AGRICULTURAL INCOME. THEREFORE T HE 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. 5. RESPONDENT ASSESSEES ARGUMENTS : FROM THE SIDE OF ASSESSEE SHRI TUSHAR P HE MANI LD. AR APPEARED AND PLACED RELIANCE ON THE VERDICT OF LD. CIT(A). LD. A R HAS ALSO PLACED BEFORE US A DECISION OF ITAT PUNE BENCH PRONOUNCED IN THE CASE OF K F BIO PLANTS PRIVATE LTD. V. ITO IN ITA NO.146/PN/2008 ORDER DATED 26-03-2009. HE HAS ALSO MENTIONED THAT VARIOUS GOVERNMENT ORGANIZATION S HAVE HELD; ACTIVITY OF ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 10 THE ASSESSEE AS AGRICULTURAL ACTIVITY AND IN THIS R EGARD CERTIFICATES WERE FILED FROM CERTAIN CONNECTED AGENCIES ALREADY MENTIONED ABOVE. 6. CONCLUSIION . NATURE OF LAND IN QUESTION: WE HAVE CAREFULLY HEARD BOTH THE SIDE S 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 AG REEMENT IS PLACED BEFORE US THROUGH WHICH THE LEASE PERIOD WAS EFFECTIVE FROM 0 1-10-2002. THE LESSEE THE ASSESSEE WAS REQUIRED TO PAY TO THE LESSOR A S UM OF RS.25 LAKH AS REFUNDABLE DEPOSITED. THE LESSEE HAS AGREED TO PAY A SUM OF RS.6 LAKH AS ANNUAL RENT. THERE WERE THREE BLOCK OF LAND PARCEL HAVING AREA 2 46 - 86; 3 19 70; 3 07 56 HECTOR. THE ASSESSEE HAD SHOWN PROFIT ON SALE OF ROSE FLOWERS AND CLAIMED THE INCOME AS EXEMPT U/S.10(1) OF THE ACT. CERTAIN FACTS WERE NARRATED BY THE ASSESSING OFFICER THAT THE AGR ICULTURAL LAND WAS ACQUIRED FROM THE AGRICULTURISTS ON LEASE FOR A PERIOD OF 25 YEARS. THEREFORE IT WAS NOT IN DISPUTE THAT THE LAND IN QUESTION IS AN AGRICULTURA L LAND AND NOT A COMMERCIAL LAND AND THAT IT BELONGED TO AGRICULTURISTS AS MA NY AS NINE IN NUMBERS. VIDE LEASE AGREEMENT IT WAS ALSO VERIFIED THAT THE PROPE RTY IN QUESTION HAPPENED TO BE HOLDING THE CHARACTER OF AGRICULTURAL LAND. REVE NUE HAS NOT DISPUTED THESE FACTS BUT RAISED OBJECTION PRIMARILY IN RESPECT OF THE OPERATION CARRIED OUT BY THE ASSESSEE THAT WHETHER AN AGRICULTURE OPERATION OR NOT. 6.1 ACTIVITY IN QUESTION : THE COMPANY HAD DEVELOPED A GREEN HOUSE FOR THE EST ABLISHMENT OF A FLORICULTURE PROJECT. THE COMPANY HAD GROWN GOOD QU ALITY OF ROSE FLOWERS AND ALSO EXPORTED THEM ABROAD. IT WAS EXPLAINED THA T FOR THE PLANTATION OF ROSES A VERY WELL TREATED SOIL IS REQUIRED. THE QUALITY OF THE SOIL IS THEREFORE TESTED. MANURES ARE MIXED FOR PREPARING A BASE FOR GROWING THE ROSE PLANTS. THE COMPANY HAS INSTALLED A PROPER DRAINAGE SYSTEM. CERTAIN OPERATIONS SUCH AS MIXING OF SOIL AND WATER ING OF PLANTS THROUGH ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 11 DRAINAGE ARE EXPLAINED .THEN THE ACTIVITY OF PRUNIN G AND BENDING OF GROWING PLANTS CARRIED OUT TO GET BEST SIZE OF ROSE BUDS. IT HAS ALSO BEEN EXPLAINED THAT PEST CONTROL IS ALSO REQUIRED. INSEC TICIDES ARE SPRINKLED TO SAVE THE PLANTS FROM ANY DISEASE. FROM THE FACTS AS EMERGED FROM THE COMPILATION FILED WE HAVE GATHERED THAT WITHIN GREE N HOUSE THE FLORICULTURE ACTIVITY COMPRISES OF GROWING OF ROSE BY DEPLOYING HYDROPONICS TECHNIQUE FOR THE FARMING OF BEST QUALI TY ROSES. IT IS STATED THAT THE ASSESSEE HAS DEPLOYED A BUDDING TECHNICAL PLANT. FURTHER IT WAS EXPLAINED THAT ROOT STOCKS WERE BROUGHT FROM TH E MARKET AND PLACED IN THE GREEN HOUSE. THE PLANTATION AND THE GENERATION OF SAPLING WAS NOTHING BUT AGRICULTURAL ACTIVITY. THE MOTHER P LANT IS OTHERWISE REARED ON EARTH. FOR REARING OF MOTHER PLANT HUMAN LABOUR IS INVOLVED. THE TILLING OF SOIL WATERING AND OTHER PRIMARY AGR ICULTURAL ACTIVITY IS THE BASIC REQUIREMENT FOR THE GROWING OF THE ROSE PLANT S. SUBSEQUENTLY THE SAPLINGS ARE PLANTED ON PLASTIC TRAYS WHICH WERE K EPT AT THE HEIGHT 2-3 FT. PLACED ON MS STAND. IT WAS EXPLAINED THAT THE P URPOSE OF GROWING THE ROSE PLANTS AT A HEIGHT IS PRIMARILY TO AVOID THE P EST AND TO DEVELOP IN A CONTROLLED ATMOSPHERE. BY THIS METHOD THE ROSE PLA NT IS PROTECTED FROM CLIMATE PEST AS WELL AS OTHER DISEASE TO MINIMIZ E 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 ROOT S OF THE ROSE PLANTS SHOULD NOT GET DAMAGED. THE COMMERCIAL GREEN HOUSE I.E. BENT CANOPY IS USED FOR VARIOUS BENEFITS SO THAT THE SU N-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 OTH ER CONNECTED ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 12 AGRICULTURAL OPERATION CARRIED OUT BY THE ASSESSEE. HOWEVER THE OBJECTION OF THE REVENUE WAS THAT THE ROSE PLANTS W ERE NOT GROWN ON THE LAND THEREFORE THE GENERATION OF INCOME WAS NO T DIRECTLY CONNECTED WITH THE OPERATION OF LAND. SOMEHOW WE ARE NOT AGRE EING WITH THE SAID PROPOSITION OF THE REVENUE-DEPARTMENT BECAUSE ON DU E CONSIDERATION OF THE ACTIVITY AS EXPLAINED TO US IT IS NOT JUSTI FIABLE TO SAY THAT THE GROWING OF ROSE PLANTS AT ALL IS NOT CONNECTED WITH THE UTILIZATION OF LAND. IT IS NOT IN DISPUTE THAT THE AGRICULTURAL LAND WAS ACQUIRED BY THE ASSESSEE FROM AGRICULTURISTS. IT IS ALSO NOT IN DIS PUTED THAT MOTHER PLATS ARE ALWAYS BEEN GROWN ON THE AGRICULTURAL LAND. AS FAR AS INGREDIENTS OF BASIC OPERATION IS CONCERN ED THE ASSESSEES CASE IS THAT THE TECHNOLOGY DEPLOYED IS (I) USE OF SOIL AND OPERATION ON SOIL (II) USE OF PARTICULAR SOIL TYPE CONTENTS I.E. COCO PEAT MANURE ETC. PRESENT IN THE SOIL (III) DRAINAGE SYSTEM AS OVER WATERING HARMS THE ROOTS AS WELL AS QUALITY (IV) BENDING SHOOTS FOR MAXIMIZI NG THE QUALITY OF ROSES AND (V) PEST AND DISEASES CONTROL FOR PROVIDING PRO TECTION TO ROSES. THEREFORE WE HOLD THAT THE ACTIVITY WHICH IS CONNEC TED WITH THE LAND CULTIVATION SUCH AS PLOUGHING OF FIELD LEVELING OF FIELD SOWING OF SEED IN THE PLOUGHED AND LEVELED FIELD GROWING OF PLANTS AS CASE THE MAY BE PLANTATION MANURING WATERING WEEDING-OUT OF WEED S SO AND SO FORTH. THESE AGRICULTURE OPERATIONS ARE SAID TO BE BASIC CULTIVATION ACTIVITY AND THEREAFTER AN AGRICULTURIST HAS TO PERFORM SUBSEQU ENT AGRICULTURE OPERATION NAMELY TENDING OF GROWN PLANTS PRUNING CUTTING OR SHAPING AND FINALLY HARVESTING OF CROP. WE HAVE TO CLARIFY AS HELD BY FEW HONOURABLE COURTS AS WELL THAT THE SUBSEQUENT OPER ATIONS OUGHT TO BE A CONTINUATION OF BASIC AGRICULTURE OPERATION. THE FU NDAMENTAL REQUIREMENT IS THAT IT SHOULD REMAIN CONNECTED WITH THE BASIC A GRICULTURE OPERATION. 6.3 CONNECTED EVIDENCES : ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 13 IN SUPPORT OF THE ABOVE FACTUAL BACKGROUND RESPONDE NT ASSESSEE HAS PLACED VEHEMENT RELIANCE ON SEVERAL CERTIFICATES IS SUED BY OTHER GOVERNMENT AGENCIES COPIES PLACED BEFORE US LISTE D BELOW:- NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD) AGRICULTURAL AND PROCESSED FOOD PRODUCTS EXPORT DEV ELOPMENT AUTHORITY (APEDA) MINISTRY OF COMMERCE GOVT. OF I NDIA. GUJARAT AGRO INDUSTRIES CORPORATION LTD. NAVSARI AGRIKCULTURAL UNIVERSITY ADDITIONAL DIRECTOR OF HORTICULTURE (FRUITS & FLORI CULTURE) DEPARTMENT OF HORTICULTURE GUJARAT STATE GANDHINA GAR CERTIFICATE FROM COLLECTOR NAVSARI THESE CERTIFICATES HAVE THUS CERTIFIED THAT THE GRE EN HOUSE FLORICULTURE UNITS ARE ELIGIBLE FOR BENEFITS IN RESPECT OF ELECT RICITY TARIFF WHICH ARE OTHERWISE AVAILABLE TO MAINSTREAM AGRICULTURAL ACTI VITIES. THE NATIONAL BANK FOR AGRICULTURAL AND RURAL DEVELOPMENT HAS STA TED THAT THE ASSESSEES UNIT IS AN INTEGRATED EOU WHERE THE ENT IRE RANGE OF ACTIVITIES FROM GROWING OF FLOWERS TO PACKING PRE- COOLING COOLING TRANSPORTATION IN REEFER VANS AND EVENTUAL EXPORT I S AN UNDIVIDABLE PROCESS WHICH REQUIRES UNINTERRUPTED POWER SUPPLY A ND THE GROWING OF FLOWERS IS LIKE ANY OTHER AGRICULTURE PURSUIT. THE COLLECTOR HAS ALSO ISSUED NO OBJECTION IN RESPECT OF EXTENSION OF FACI LITIES WHICH WOULD OTHERWISE AVAILABLE FOR ANY AGRICULTURAL ACTIVITY A ND DIRECTED THAT THE FLORICULTURE ACTIVITY IS A PART OF MAINSTREAM AGRIC ULTURAL ACTIVITY. RATHER IN A LETTER ISSUED BY HORTICULTURE COMMISSIONER IT WA S EXPRESSED THAT IT IS NOT KNOWN AS TO HOW THIS DOUBT HAS ARISEN THAT FLOR ICULTURE IS NOT A HORTICULTURAL ACTIVITY AND THAT THE ACTIVITY IS AN AGRICULTURAL ACTIVITY. GROWING OF FLOWERS OR ORNAMENTAL PLANTS IS FLORICUL TURE SIMILAR TO OLERICULTURE (GROWING OF VEGETABLE) AND PORAOLOGY ( GROWING OF FRUITS). 6.4 AN AMENDMENT IN THE ACT; AT THIS JUNCTURE WE MAY REFER THE AMENDMENT WHICH TOOK PLACE IN SECTION 2(1A) BY AN INSERTION OF EXPLANATION (III) WHICH READS AS UNDER:- ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 14 [(1A)] AGRICULTURAL INCOME MEANS (A) ANY RENT OR REVENUE DERIVED FROM LAND WHICH IS SITUATED IN INDIA AND IS USED FOR AGRICULTURAL PURPOSES; (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 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- IN-KIND OF THE PRODUCE RAISED OR RECEIVED BY HIM IN RESPECT OF WHICH NO P ROCESS HAS BEEN PERFORMED OTHER THAN A PROCESS OF THE NATURE DESCRI BED IN PARAGRAPH (II) OF THIS SUB-CLAUSE; .. (B) EXPLANATION 1 FOR THE REMOVAL OF DOUBTS IT IS H EREBY DECLARED THAT REVENUE DERIVED FROM LAND SHALL NOT INCLUDE AND SHA LL BE DEEMED NEVER TO HAVE INCLUDED ANY INCOME ARISING FROM THE TRANSF ER OF ANY LAND REFERRED TO IN ITEM (A) OR ITEM (B) OF SUB-CLAUSE ( III) OF CLAUSE (14) OF THIS SECTION. EXPLANATION 2 FOR THE REMOVAL OF DOUBTS IT IS HE REBY DECLARED THAT INCOME DERIVED FROM ANY BUILDING OR LAND REFERRED T O IN SUB-CLAUSE ARISING FROM THE USE OF SUCH BUILDING OR LAND FOR A NY PURPOSE (INCLUDING LETTING FOR RESIDENTIAL PURPOSE OR FOR THE PURPOSE OF ANY BUSINESS OR PROFESSION) OTHER THAN AGRICULTURE FALLING UNDER SU B-CLAUSE (A) OR SUB- CLAUSE (B) SHALL NOT BE AGRICULTURAL INCOME. EXPLANATION 3 FOR THE PURPOSES OF THIS CLAUSE AN Y INCOME DERIVED FROM SAPLINGS OR SEEDLINGS GROWN IN A NURSE RY SHALL BE DEEMED TO BE AGRICULTURAL INCOME; ( RELEVANT PORTIONS HIGH-LIGHTED) 6.5. AFTER INSERTION OF EXPL. 3 BY THE FINANCE ACT 2008 WHICH IS EFFECTIVE FROM 01-04-2009 THE CBDT HAS ISSUED A CIRCULAR NO.1 OF 2009 DATED 27 TH MARCH 2009 WHEREIN IT WAS CLARIFIED AS UNDER:- 4.1 AGRICULTURAL INCOME IS DEFINED IN SUB-SECTIO N (1A) OF SECTION 2 OF THE ACT TO MEAN INTER-ALIA INCOME DERIVED FR OM LAND WHICH IS SITUATED IN INDIA AND IS USED FOR AGRICULTURAL PURP OSES. SUCH AGRICULTURAL INCOME IS EXEMPT FROM TAX UNDER SUB-[S ECTION (1) OF SECTION 10 OF THE INCOME-TAX ACT 1961. IT HAS BEEN HELD BY ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 15 JUDICIAL AUTHORITIES THAT WHETHER INCOME FROM NURSE RY OPERATIONS CONSTITUTES 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 CA RRIED OUT IN CONTINUATION OF THE BASIC OPERATIONS THEN I NCOME FROM SUCH NURSERY WOULD BE AGRICULTURAL INCOME NOT LIABL E 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. ACCORDIN GLY IRRESPECTIVE OF WHETHER THE BASIC OPERATION HAVE BE EN CARRIED OUT ON LAND SUCH INCOME WILL BE TREATED AS AGRICULTURA L INCOME THUS QUALIFYING FOR EXEMPTION UNDER SUB-SECTION (1) OF S ECTION 10 OF THE ACT. 4.3 APPLICABILITY : THIS AMENDMENT HAS BEEN MADE AP PLICABLE WITH EFFECT FROM 1 ST APRIL 2009 AND SHALL ACCORDINGLY APPLY FOR ASSESSMENT YEAR 2009-10 AND SUBSEQUENT ASSESSMENT Y EARS. THOUGH THE APPLICABILITY OF THE SAID EXPLANATION IS EFFECTIVE FROM ASSESSMENT YEAR 2009-10 BUT THE INTENTION ABOUT THE ELIGIBILITY CAN BE ADJUDGED. WITH THIS LEGAL BACK GROUND WE THEREFORE HOLD THAT BASIC/ PRIMARY AGRICULTURE ACTIVITY AND SUBSEQUENT/ SECO NDARY AGRICULTURE OPERATIONS THUS CONSTITUTE AN INTEGRATED AGRICULTU RE ACTIVITY. PRIMARY AS WELL SECONDARY AGRICULTURE ACTIVITY BOTH CARRIED OU T CONJOINTLY THUS COMPREHEND AGRICULTURE OPERATION. SO A NEXUS IS NEEDED BETWEEN AGRICULTURE LAND WITH AGRICULTURE OPERATION TO TREA T AN INCOME AS AGRICULTURE INCOME. ON THESE PARAMETERS IN OUR HU MBLE OPINION ONE HAS TO EXAMINE THE FACTS OF SUCH CASES SO AS TO DEC IDE WHETHER ALLEGED AGRICULTURE ACTIVITY DO FALL WITHIN THE OPERATIONS DISCUSSED HEREINABOVE TO HOLD AS AGRICULTURE INCOME TO QUALIFY FOR DEDUCT ION U/S 10(1) OF THE ACT. THIS ASPECT OF AVAILABILITY OF EXEMPTION TO NU RSERY HAS BEEN DULY CONSIDERED IN THE CASE OF SOUNDARYA NURSERY (SUPRA) WHEREIN IT WAS HELD THAT THE PLANTS SOLD BY THE ASSESSEE-COMPANY I N POTS COULD BE SAID ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 16 TO BE A RESULT OF PRIMARY AS WELL AS SUBSEQUENT OPE RATION COMPREHENDED WITHIN THE TERMS AGRICULTURE . THUS IT WAS HELD THAT THE INCOME GENERATED FROM GROWING OF PLANTS IN POTS AND SALE OF SEEDS IS AN AGRICULTURAL INCOME. LIKEWISE IN THE CASE OF SOUNDARYA NURSERY 241 ITR 530 (SUPRA) THE LEGAL PROPOSITION LAID DOWN WAS THAT WH ERE SALE PROCEEDS OF PLANTS RAISED IN NURSERY ON LAND BELONG ING TO ASSESSEE CONSTITUTE NOTHING BUT AGRICULTURAL INCOME IT WAS CLARIFIED THAT BY PERUSING CLAUSES (A) AND (B) THE DEFINITION OF AGRI CULTURAL INCOME IN SECTION 2(1A) IT IS CLEAR THAT INCOME MUST BE DERI VED FROM LAND WHICH IS USED FOR AGRICULTURAL PURPOSE. BY REFERRING KAMAKHAYA NARAIN SINGH (RAJA BAHADUR) (SUPRA) IT WAS COMMENTED THOUGH IT MUST ALWAYS BE DIFFICULT TO DRAW THE LAND YET UNLESS THERE IS SO ME MEASURES OF CULTIVATION OF THE LAND SOME EXPENDITURE OF SKILLE D OR LABOUR UPON IT IT CAN BE SAID TO BE USED FOR AGRICULTURAL PURPOSES. T HE DECISION OF JYOTIKANA CHOWDHURARI (SUPRA) HAS ALSO BEEN DISCUSSED. 7. CASE- LAWS : CERTAIN DECISIONS AS CITED FROM THE SIDE OF THE REV ENUE ARE IN THE CONTEXT OF BUSINESS ACTIVITY NOT CONNECTED WITH THE LAND OPERATION OR NOT CONNECTED WITH THE BASIC AGRICULTURAL OPERATION. IN FACT THAT IS THE DISTINCTION WHICH HAS TO BE KEPT IN MIND WHILE ADJUDICATING UPO N THE ISSUE OF ASSSSABILITY OF 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 AGRIC ULTURAL 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 A N AGRICULTURAL ACTIVITY. EVE THE DECISION OF PROAGRO SEEDS CO. LTD.126 TAXMAN 37 (SUPRA) AS CITED FROM THE SIDE OF THE REVENUE HAS CLEARLY DRAWN THE DISTINCTI ON. 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 NA TURE APPLICABLE TO THAT ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 17 APPEAL ONLY. THAT VIEW OF THE HONBLE COURT MUST N OT BE GENERALIZED BUT THE GUIDELINES DEPICTED ARE TO BE REGARDED. 7.1 BEFORE WE CONCLUDE IT IS WORTH TO PLACE ON RE CORD A DECISION OF ITAT PUNE BENCH PRONOUNCED IN THE CASE OF K F BIOPLANTS PRIVATE LTD. (SUPRA) WHEREIN ONE OF US I.E. JUDICIAL MEMBER IS THE CO-S IGNATORY AND THE ISSUE WAS SQUARELY IDENTICAL DUE TO THE FAC T THAT IN THAT APPEAL AS WELL THE INCOME WAS FROM FLORICULTURE ACTIVITY. THE SAID ASSESSEE WAS ALSO SELLING FLOWERS AND PLANTS OUTSIDE INDIA. THE PLANTS BULBS TUBERS AND SEEDLINGS WERE STATED TO BE PLANTED IN THE SOIL AND IT WAS EXPLAINED THAT SUCH ACTIVITY WAS NORMAL AGRICULTURAL ACTIVITY LIKE PLANTING CUTTING WEEDING TILLING AND WATERING ETC. IN THAT CASE TH E PLANTS WERE GROWN IN THE GREEN HOUSE AND NURTURED BY GIVING REQUISITES N OURISHMENT LIGHT HUMIDITY ETC. FACTS AND THE CIRCUMSTANCES UNDER WHI CH THE FLOWERS ARE CULTIVATED IN THAT APPEAL BEING ALMOST IDENTICAL HE NCE A STRONG IS PLACED ON THE PUNE BENCH DECISION. FURTHER RELIANCE HAS AL SO BE PLACED ON THE DECISION OF SOUNDRAYA NURSERY 241 ITR 530 ( 123 TAXMAN 372) (MAD.) I N WHICH AS WELL THE DECISION WAS BASED UPON THE FAC TS PERTAINING TO PRIMARY AS WELL AS SUBSEQUENT OPERATI ON HELD COMPREHEND WITH IN AGRICULTURE. LIKEWISE THE DEC ISION OF CIT VS GREEN GOLD TREE FARMERS (167 TAXMAN 151) ALSO APPLIES FOR THE LEGAL PROPOSITION THAT WHERE MEASURES OF CULTIVATION OF L AND WERE TAKEN EXPENDITURE IS INCURRED ON HUMAN LABOUR AND SKILL T O CULTIVATE THE LAND THEN IN ITS ROOT SENSE THE ACTIVITY IS AGRICULTUR E ACTIVITY. 7.2 IN FACT ASSESSEES ACTIVITY HAS ALREADY BEEN EN DORSED AS AN AGRICULTURE ACTIVITY BY SEVERAL OTHER CONNECTED AUT HORITIES CERTIFYING IT AS AN AGRICULTURAL OPERATION. AFTER AN ELABORATE DISCU SSION OF THE FACTS AS WELL AS LAW PRONOUNCED BY SEVERAL COURTS AS ALSO T HE DECISIONS NOW CITED FROM THE SIDE OF THE REVENUE IT IS FINALLY H ELD THAT CONSIDERING THE ADVANCEMENT OF TECHNOLOGY AND THE USE OF THE ADVANC ED EQUIPMENT IN ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 18 CULTIVATION; COUPLED WITH THE CONVENTIONAL CULTIVAT ION METHOD PUT TOGETHER MADE THE OPERATION CARRIED OUT BY THE ASS ESSEE WAS AGRICULTURAL OPERATION IN NATURE. RESPECTFULLY PLAC ING RELIANCE ON THIS DECISION AS ALSO THE FEW DECISIONS CITED HEREINABOV E WE ARE OF THE CONSIDERED VIEW THAT THE INCOME IN QUESTION CANNOT BE INCLUDED IN TOTAL INCOME BEING WITHIN THE AMBITS OF THE PROVISIONS OF SECTION 10(1) OF THE ACT. THE VIEW TAKEN BY LD. CIT(A) IS HEREBY AFFIRME D AND THIS GROUND OF REVENUES APPEAL IS DISMISSED. 8. THE NEXT GROUND RAISED BY REVENUE IS AS UNDER:- 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED C.I.T.(APPEALS) ERRED IN DELETING ADDITION OF RS.249750/-. DEPRECIATION ON ROSE PLANT. 8.1 DEPRECIATION ON ROSE PLANT AS PER THE BOOKS WD V OF ROSE PLANT WAS AT RS.1 62 55 094/-. IT WAS FOUND BY THE ASSESSING OFFICER THAT ADDITION DURING THE YEAR WERE AT RS.71 82 689/- THEREFORE A GGREGATING TO RS.2 34 37 783/-. THE ASSESSEE HAS CLAIMED DEPRECIA TION @ 10% AT RS.23 43 778/-. IT HAS ALSO BEEN NOTED BY THE AO TH AT THE ASSESSEE HAD RECEIVED SUBSIDY FROM NATIONAL HORTICULTURE BOARD O F RS.24 97500/- DURING THE YEAR. THE OBSERVATION OF THE AO WAS THAT THE ROSE PLANTS WERE NOT ENTITLED FOR THE DEPRECIATION. IT WAS NOTE D 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 ENTITLE D FOR DEPRECIATION. FURTHER HE HAS ALSO NOTED THAT T AS PER EXPLANATIO N-10 TO SECTION 43 OF THE ACT ACTUAL COST MEANS THE COST REDUCED BY SUBS IDY. ASSIGNING THESE REASONS IT WAS HELD THAT THE DEPRECIATION WA S 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 FR OM THE NATIONAL HORTICULTURE BOARD ON THE ROSE PLANTS FOR RS.24 97 500/-. ACCORDINGLY THE COST OF THE ROSE PLANTS IS REDUCED BY THE AMOUN T OF SUBSIDY. ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 19 BALANCE OF COST OF ROSE PLANTS ARRIVED AT RS.2 09 40 283/- . THE ROSE PLANTS ARE NOT CONSIDERED AS DEPRECIABLE ASSETS AND THE LIFE OF THE SAID PLANTS IS ABOUT 7-10 YEARS AS STATED BY THE ASSESSE E. ACCORDINGLY THEE ASSESSEE WILL DERIVE ENDURING BENEFIT FROM THE SAID PLANTS FOR 7-10 YEAS AS SUCH THE EXPENDITURE INCURRED AT RS.2 09 40 283/- IS TREATED AS DEFERRED REVENUE EXPENDITURE AND REQUIRES TO BE AMO RTIZED OVER THE PERIOD OF BENEFIT TO BE DERIVED FROM THE SAID PLANT S. ACCORDINGLY THE COST OF ROSE PLANTS AFTER REDUCING SUBSIDY THE NET AMOUNT IS SPARED OVER FOR 10 YEARS AND 1/10 TH THEREOF IS ALLOWED AS DIFFERED REVENUE EXPENDITURE DURING THE YEAR UNDER CONSIDERATION AND BALANCE OF EXPENDITURE IS ALLOWABLE EQUALLY IN THE NEXT NINE F OLLOWING YEARS(S). ACCORDINGLY RS.20 94 028/- IS ALLOWED AS DEFERRED REVENUE EXPENDITURE DURING THE YEAR UNDER CONSIDERATION INSTEAD OF DEPR ECIATION AS CLAIMED BY THE ASSESSEE. 8.2 WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY IT WAS HELD THAT ASSESSING OFFICER WAS NOT JUSTIFIE D IN REDUCING AMOUNT OF SUBSIDY OF RS.24 97 500/-. HE HAS NOTICED THAT T HE AMOUNT OF SUBSIDY RECEIVED BY THE ASSESSEE DID NOT RELATE TO THE ACQU ISITION OF THE ROSE PLANTS BUT IN CREATING INFRASTRUCTURE I.E. GREEN HO USE ETC. ON THOSE FINDINGS HE HAS HELD THAT THE LOSS AMOUNT OF RS.23 43 783/- IS TO BE AMORTIZED OVER A PERIOD OF 10 YEARS. 8.3 ON HEARING THE SUBMISSIONS OF BOTH THE SIDES WE HAVE NOTICED THAT ALTOGETHER CERTAIN NEW FACTS IN RESPECT OF GRA NT OF SUBSIDY WERE RECORDED BY LD. CIT(A). BECAUSE OF THIS REASON WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE STAGE OF FIRST APPELLATE AUTHORITY SO THAT THE EXACT NATURE OF SUBSIDY GRANTED TO THE ASSESSEE SHO ULD FIRST BE VERIFY AND THEN ACCORDING TO LAW THE ISSUE SHOULD BE DECID ED. WE HOLD ACCORDINGLY. THIS GROUND OF THE REVENUE MAY BE TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. 9. NEXT GROUND NO.3 RAISED BY REVENUE WHICH READS AS UNDER:- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED C.I.T.(APPEALS) ERRED IN DELETING ADDITION OF RS.26900/- ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 20 DISALLOWANCE 40(A)(IA) AND ALSO ERRED IN TREATING T HE SAME AS PART AND PARTIAL OF AGRICULTURE INCOME. 9.1 THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS. 26 900/- TOWARDS PROFESSIONAL FEE. IT WAS NOTICED THAT THE S AID FEE WAS PAID TO THE DINESH VASANI & ASSOCIATES. SINCE THE FEES HAD EXCE EDED RS.20 000/- THEREFORE THE ASSESSING OFFICER HAS MENTIONED THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE @ 5% ON AN IMPUGNE D AMOUNT. THE PROVISION OF SECTION 194J WERE APPLIED AND HELD THA T 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 EXE MPTED 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. BO TH THE SIDES HAVE ADMITTED THAT THIS GROUND HAS CONSEQUENTIAL TAX EFF ECT IF THE GRANT OF EXEMPTION FOR AGRICULTURAL INCOME IS REJECTED OTHE RWISE ACADEMIC IN NATURE. AS FAR AS LEGALITY OF THE ISSUE IS CONCERNE D FOR NON-DEDUCTION OF TDS WE ARE NOT WITH THE ARGUMENTS OF ASSESSEE THE REFORE HEREBY AFFIRM THE FINDING OF LD. CIT(A). BUT LD. CIT(A) WA S IN RIGHT IN HOLDING THAT THE SAID DISALLOWANCE IS TO BE TREATED AS PART AND PARCEL OF AGRICULTURAL INCOME AND THEREFORE BENEFIT IS TO BE ALLOWED AS PRESCRIBED U/S.10(1) OF THE ACT. 10. THE NEXT GROUND OF REVENUES APPEAL HAS RAISED AS UNDER:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED C.I.T.(APPEALS) ERRED IN DELETING ADDITION OF RS.11099/- DISALLOWANCE ON CAR INSURANCE A ND ALSO ERRED IN TREATING THE SAME AS PART AND PARTIAL OF AGRICULTURE INCOME. ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 21 10.1 THE EXPENDITURE OF RS.11 099/- WAS DEBITED TO PROFIT AND LOSS ACCOUNT AS CAR INSURANCE EXPENSES. SINCE THEE WAS NO CAR AS AN ASSET FOUND IN THE BALANCE-SHEET THEREFORE THE CLA IM WAS DISALLOWED. THE FIRST APPELLATE AUTHORITY HAS REJECTED THE CLAI M OF THE ASSESSEE BUT DIRECTED TO GIVE THE BENEFIT ON THE SAID ADDITION U /S.10(1) OF THE ACT. 10.2 ON HEARING THE SUBMISSIONS OF BOTH THE SIDES WE FIND NO FALLACY IN THE SAID VIEW TO LD. CIT(A) THEREFORE CONFIRM TH E SAME. THIS GROUND IS ALSO DISMISSED. 11. THE NEXT GROUND OF REVENUES APPEAL HAS RAISED AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED C.I.T.(APPEALS) OUGHT TO HAVE UP-HELD AGGRE GATE ADDITION OF RS.13 53 354/- MADE BY THE ASSESSING OFFICER AS MEN TIONED ABOVE AND AS PER ASSESSMENT ORDER. TREATING THE BUSINESS INCO ME INSTEAD OF AGRICULTURE INCOME AS CLAIMED BY THE ASSESSEE. 11.1 CERTAIN AD HOC DISALLOWANCES WERE WORKED OUT BY THE ASSESSING OFFICER AND WHEN THE MATTER HAD REACHED BEFORE THE LD. CIT(A) BY REFERRING DINESH MILLS LTD. V. CIT (2002) 122 TAXMAN 384/254 ITR 673 (GUJ) IT WAS HELD BY LD. CIT(A) THAT AD HOC DISALLO WANCE WAS WITHOUT PINPOINTING SPECIFIC DEFECT THEREFORE HELD AS INVA LID. 11.2 HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDE S WE ARE AGAIN OF THE SAME VIEW THAT WHATSOEVER BE THE ADDITION THE SAME SHALL QUALIFY FOR THE EXEMPTED INCOME BEING PART AND PARCEL OF TH E AGRICULTURAL INCOME. THEREFORE IN CONSEQUENCE THEREOF THE DELET ION OF ADDITION IS HEREBY AFFIRMED. 12. REST OF THE GROUNDS GROUND NO.6 ARE GENERAL IN NATURE WHICH READS AS UNDER:- ITA NO.1975/AHD/2008 A.Y. 2005-06 DCIT NAVSARI V. BEST ROSES BIOTECH PVT. LTD. PAGE 22 :6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED C.I.T.(APPEALS) OUGHT TO HAVE UP-HELD AGGRE GATE ADDITION OF RS.13 53 354/- MADE BY THE ASSESSING OFFICER AS MEN TIONED ABOVE AND AS PER ASSESSMENT ORDER. TREATING THE BUSINESS INCO ME INSTEAD OF AGRICULTURE INCOME AS CLAIMED BY THE ASSESSEE. 12.1 THE SAID GRIEVANCE OF THE REVENUE HAS BEEN A LREADY DISCUSSED IN THE FOREGOING PARAGRAPHS THEREFORE NEEDS NO INDEPE NDENT ADJUDICATION. 13. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALLO WED. 0 !/ * .$ 1 2 30 / 11 /2011 '! 6 * 7 THIS ORDER PRONOUNCED IN OPEN COURT ON 30/11/ 2011 . SD/- SD/- ( . ) ( ) ( !' ) ( ) (A. MOHAN ALANKAMONY) (MUKUL KUMAR SHAWART) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) 1 2- 30/11/2011 DKP* !/ !/ !/ !/ * ** * (9 (9 (9 (9 :!9$ :!9$ :!9$ :!9$ / COPY OF ORDER FORWARDED TO:- 1. &' / APPELLANT 2. ()&' / RESPONDENT 3. < / CONCERNED CIT 4. <- / CIT (A) 5. 9?7 ( / DR ITAT AHMEDABAD 6. 7A# B0 / GUARD FILE. BY ORDER/ !/ ! C/ D