Bombay High Court
The Forest Development ... vs The Addtional Commissioner & 2 ... on 3 August, 2017
Bench: M.S. Sanklecha
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY,
NAGPUR BENCH, NAGPUR
INCOME TAX APPEAL NO.77 OF 2004
The Forest Development Corporation of
Maharashtra Limited, through its
Managing Director, Shri J.N.Saxena,
Rawel Plaza, Plot No.12, Kadbi
Chouk, Kamptee Road, Nagpur........... APPELLANT
// VERSUS //
1. The Additional Commissioner of
Income Tax, Special Range-I,
Nagpur.
2. The Deputy Commissioner of Income Tax,
Circle No.II, Nagpur.
3. The Commissioner of Income Tax
(Appeals) I, Nagpur. ........... RESPONDENTS
::: Uploaded on - 03/08/2017 ::: Downloaded on - 06/08/2017 00:43:17 :::
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Mr.K.H.Deshpande, Senior Counsel with Mr.Ashwin Deshpande,
Advocate for the Appellant.
Mr.Anand Parchure, Senior Counsel with Mr.Bhushan Mohta,
Advocate for Respondent Nos. 1 to 3.
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Date of reserving the Judgment : 24.7.2017.
Date of pronouncement of the Judgment : 3.8.2017.
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CORAM : M.S.SANKLECHA
& MANISH PITALE, JJ.
JUDGMENT (Per M.S.Sanklecha, J) :
1. This appeal under Section 260A of the Income Tax Act,
1961 ("the Act") assails the order dated 23.4.2004 passed by the
Income Tax Appellate Tribunal ("the Tribunal"). The impugned order
is a common order relating to Assessment Years 1998-99 and 1999-
2000. The appellant has, as undertaken by them on 24.7.2017, paid
the additional court fee. Thus, this appeal is being treated as a
common appeal for the two Assessment Years.
3 itl77.04.odt
2. This appeal was admitted on 19th April, 2005 on the
following two substantial questions of law :
1)Whether in the facts and circumstances of the case and in
law the ITAT and the Authorities below were right in
splitting the income derived from the turn key contract of
plantation in two different stages to determine whether
such income is from the Agricultural operations ?
2)Whether in the facts and circumstances of the case and in
law the ITAT and the Authorities below erred in holding
that the income derived by the appellant from the turn-key
contract of plantation is not the agricultural income as
defined under Section 2(1A)(b)(ii) and (iii) of the Income
Tax Act, 1961 ?
3. For the sake of convenience, we will refer to the facts
relating to Assessment Year 1998-99. It is an agreed position between
the parties that the facts for both the Assessment Years are similar.
4 itl77.04.odt
Therefore, the facts in one year can be conveniently referred to for
answering the above substantial questions of law.
4. Briefly stated, the facts are as under :
(a) The appellant/assessee is a company incorporated under
the Companies Act wholly owned by the Government of Maharashtra.
The appellant is inter alia engaged in the activity of turn-key
plantation i.e. to create and develop plantations, rock gardens etc. for
companies/institutions such as Western Coal fields Ltd. (WCL Ltd.),
ONGC etc. in terms of a contract entered into with them.
(b) Typically, as reflected in the contract dated 23.7.1999
entered into by M/s. WCL Ltd. with the appellant, the activity carried
out is as under :-
(i) Appellant undertakes the work of sowing seeds
and developing Nurseries on its own land. The appellant
tend to these plants till they achieve a certain height and
health.
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(ii) Thereafter, the appellant transplants the plants
grown on its land in the areas identified by WCL Ltd.
Thereafter, the appellant maintains the plant using its own
men and material for a period of 2-3 years. This, according
to the appellant, is sufficient period for transplanted plants
to reach the desired health and height not requiring
professional care. At that time, the care of the transplanted
plants on the land of WCL Ltd. is handed over to WCL Ltd.
(iv) The payments/consideration under the contract
received by the appellant was as under :-
"16.The payment for plantation and maintenance will be
made by WCL to FDCM Ltd. in the following manner :
Date of payment of instalment Amount
Ist instalment on start of work (50%) Rs.12.435 Lacs
(Mobilisation advance) after
execution of agreement.
2nd Instalment on or before
31 October, 1996. (20%) Rs.4.974 -do-
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3rd Instalment on or before
31st March, 1997. (10%) Rs.2.487 -do-
4th Instalment on or before
31st October, 1997 (10%) Rs.2.487
-do-
5th Instalment on or before
completion of contract period (10%) Rs.2.487 -do-
Payments will be released by the company within one month
of submission of bills."
(b-1) The appellant was of the view that the above
income received by it was agricultural income. Therefore,
not exigible to Income tax under the Act.
(c) On 27.1.1999, the appellant filed its return of income for
the Assessment Year 1998-99 declaring the income of Rs.31.52 Lakhs.
The appellant did declare gross receipts of Rs.1,28,57,580/- from
turn-key contract of plantation and after deducting direct expenses of
Rs.71,82,523/- had earned an income of Rs.56,75,348/-. However,
the same was not offered for tax on the ground that it was an
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agricultural income as defined under Sections 2(1A) of the Act and
thus, not exigible to tax under Section 10 of the Act.
(d) However, the Assessing Officer, by an order
dt.29.12.2000 passed under Section 143(3) of the Act, held that the
amount of Rs.1.28 Crores received on account of its activity of turn-
key plantation cannot be considered to be receipts on account of
agricultural activity. This on the basis that the appellant is neither the
owner of the land nor of the plantation raised on it but has merely
executed the work and provided Services in terms of contract. Thus, it
had received contractual payment for providing Services. However,
the Assessing Officer did not bring the entire gross receipt of Rs.1.28
Crores to tax, but reduced the direct expenses of Rs.71.82 Lakhs and
proportionate common expenses of Rs.7.46 Lakhs incurred to carry
out the activity of turn-key plantation and added the amount of
Rs.49.29 Lakhs to its business income bringing it to tax.
(e) Being aggrieved, the appellant/assessee filed an appeal to
the Commissioner of Income Tax (Appeals) [CIT(A)]. By an order
dated 21.11.2002, the CIT(A) dismissed the appellant/assessee's
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appeal holding that the income attributable to the contract for
plantation on turn-key basis could not be said to be an agricultural
income, as it is not an income derived from land. Further the
consideration received by the appellant was for the work executed in
terms of the contract i.e. to provide Services as held by the Assessing
Officer. Moreover, the CIT (A) also drew support from the fact that
the amounts received under the contract for turn-key plantation were
subjected to deduction of tax under the Act by the payer of the
consideration.
(f). Being aggrieved with the order dated 21.11.2002 of the
CIT (A), the appellant/assessee filed a further appeal to the Tribunal.
The impugned order of the Tribunal, after examining the process by
which the turn-key plantation contracts are executed by the appellant,
held that the entire activity of turn-key plantation executed by the
appellant could be divided into two stages/parts as under :-
(i) Stage-I was where the appellant sows seeds and
develops the plants (in nurseries) on lands belonging to it,
with its own men and material. These plants, after they
reach a certain height and/or health, are transplanted
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(after about one year) to the land belonging to the
companies/institutions for further care.
(ii) Stage-II is where the trees/plants transplanted on
lands belonging to the companies/institutions i.e.
appellant's customers from its nurseries. On such transfer,
ownership of the trees also stands vested in the customers
by virtue of notional sale. Thereafter also the respondent
carries out operation necessary for survival and growth of
the trees upto certain height for a period of 2 to 3 years.
The impugned order holds that, so far as the first stage is concerned,
the activity carried out by the appellant would be an agricultural
activity and the income arising therefrom would be an agricultural
income outside the ambit of the Act. However, so far as the receipt
attributable to second stage is concerned, it held that income is not
derived from land but on account of Services rendered under the
Contract. Thus, on the aforesaid bifurcation, the impugned order
holds that no tax is payable on the income attributable to the first
stage, as it is agricultural income. However, as there was no
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bifurcation of income as between the first and the second stage, it
being a consolidated contract, the entire amount which was expended
at stage I was reduced from the gross income earned under the
contract and only the balance was held to be taxable under the Act.
Accordingly, the appeal of the assessee was dismissed on 23.4.2004.
5. Being aggrieved with the impugned order dated 23 April
2004 of the Tribunal, the assessee is in appeal before us.
6. Mr.Deshpande, learned Senior Counsel appearing in
support of the appeal submits :
a) The entire operation carried out in execution of the
plantation contract by the appellant is an agricultural operation.
Thus, the income arising therefrom is agricultural income. Thus, this
artificial division of holding that stage I income is agricultural income
and Stage-II is not, is uncalled for, as the entire operation is an
indivisible. In any event, once Stage-I is considered to be an
agricultural operation, Stage-II also becomes so, in view of the
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Supreme Court decision in CIT vs. Raja Benoy Kumar Sahas Roy, 32
ITR 466 ;
(b) Ownership of land and/or interest therein is irrelevant for
the purposes of determining whether the operation carried out by the
appellant is an agricultural activity or not. This alone has been the
basis of the holding part activity as agricultural (Stage-I) and part i.e.
Stage-II is not agricultural. The ownership and/or interest in land is
irrelevant consideration to determine whether the income is derived
from land. The ownership of land is irrelevant test. The only test is
whether the activity carried out by the appellant is agricultural
operation or not ;
c) In any event, without prejudice to the above, the contract
itself indicates an area in which the plantation program is to be
carried out by the appellant at the stage II would be earmarked in
terms of the contact by WCL. This area is given to the appellant for
exclusive use to enable the successful implementation of the
plantation project. Therefore, the appellant has an interest in the land
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and its income is, therefore, derived from the land on which
agricultural activity is carried out;
(d) In any view of the matter, the activity at the so called
stage II of the contract carried out by the appellant is an activity which
would be performed by any cultivator to render the produce received
or raised marketable. Thus falling under Section 1A(b)(ii) of the Act
as agricultural income. Alternatively, it is submitted that the activity is
of a nature (other than those specified under Section 1A(b)(i) of the
Act) which the cultivator sells. This is the mandate of Section 1A(b)
(iii) of the Act. Thus, it is agricultural income.
7. As against the above, Mr.Anand Parchure, learned Senior
Counsel appearing for the Revenue in support of the order submits as
under :
(A) The impugned order has correctly split the entire
transaction arising out of the contract dated 23.7.1993 into two
stages/parts. Stage I is where the appellant carries on operations
which are agricultural on its own land and therefore, the income is
13 itl77.04.odt
derived from land. At stage II is the activity not carried by the
appellant on its land. Thus, the income is received by the appellant for
rendering of services under the contract. Therefore, derived from
rendering of Service and not from land ;
(B) Section 2(1A)(b)(ii) of the Act would only have
application where agricultural activity is carried out by a Cultivator.
Admittedly, in this case, the appellant/assessee is not a Cultivator and
therefore, Section 2(1A)(b)(ii) of the Act will have no application ;
(C) The test for income to be treated as agricultural income is
only whether income is derived from land and on which land the
person claiming the income to be agricultural income has interest. In
this case, the income is derived from rendering of Service. Further also
the appellant has no interest in the land belonging to the
company/institution to whom it renders Service ;
(D) The immediate and effective source of income in this case
is amounts received under the contract dated 23.7.1999. That 80% of
the consideration received by the appellant is within a period of one
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year when the appellant has carried out activity only on its land and
developed the plants before transposing it on the land belonging to the
company/institution. Thus, the impugned order of the Tribunal
correctly holds that the consideration for the sale has been received
when the plants are transposed on to the land belonging to
company/institution, thereafter it is only Service carried out stage-II
by the appellant.
8. Before we consider the rival submissions, it would be
useful to refer to Sections 2(1A) and 10 of the Act which defines the
meaning of 'agricultural income" and incomes which are excluded
from total income respectively as under :
Definitions :
In this Act, unless the context otherwise requires:-
(1) ...............
(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 -
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(i) agriculture, or
(ii)the performance by a cultivator or receiver or rent-in-
kind of any process ordinarily employed by cultivator or
receiver or rent-in-kind to render the produce raised or
received by him fit to be taken into market; or
(iii)the sale by a cultivator or receiver or rent-in-kind of
the produce raised or received by him, in respect of which
no process has been performed other than a process or the
nature described in paragraph (ii) of this sub-clause.
(c) ............."
Incomes not included in total income.-
10. In computing the total income of a previous
year of any person, any income falling within any of the
following clauses shall not be included--
(i) agricultural income ;
(2) ...............;
(3) to (50) ........;
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From the above sections, it is clear that agricultural income cannot be
subjected to tax under the Act. This, ofcourse, subject to the income
satisfying definition of agricultural income as provided in Section
2(1A) of the Act.
9. A bare reading of the aforesaid definitions clearly
indicates that Section 10(1) of the Act excludes agricultural income
from the total income under the Act. However, the agricultural
income which is to be excluded under the aforesaid provision is not a
popular or technical understanding of it but only of a nature as
defined under Section 2(1A) of the Act.
10. A plain reading of the definition of agricultural income
under Section 2(1A) of the Act would indicate that it is a restrictive
definition as indicative from it being defined by word "means". It is a
settled position that the definition clause using the word "mean" is to
be read in restrictive sense and therefore, has to be construed strictly
unless the context otherwise requires. Nothing has been shown to us
that the context requires it to be read as inclusive or differently from
17 itl77.04.odt
restrictive. Thus, agricultural income as defined under clause (a) of
Section 2(1A) of the Act would mean :
(I) any rent/revenue derived from land;
(II) the land is used for agricultural purposes and
(III) the land is situated in India.
Clause (b) of Section 2(1A) of the Act seeks to include any income
(other than rent or revenue) derived from such land either by :-
(i) agriculture; or
(ii) the performance by a cultivator/receiver of rent in kind of any
process ordinarily carried out by a cultivator to make agricultural
product/produce fit to be taken into market; or
(iii) sale by a cultivator of any agricultural produce in respect of which
the process is carried out other than the process indicated in (ii)
above. Clause (b) of the above definition restricts the three classes of
income as specified in sub-clauses (i), (ii) and (iii) thereof only to any
income derived from such land. Such land would indicate the land
which has been described in clause (a) of Section 2(1A) of the Act i.e.
the land which is situated in India, used for agricultural purposes and
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the income derived from such land should be other than rent or
revenue indicated in Section 2(1A)(a) of the Act. However, the sine
qua non for any income to be considered as an agricultural income is
that it should be derived from land situated in India and used for
agricultural purposes. The words 'derived from' as held by the Apex
Court in Liberty (I) Ltd. vs. CIT, 317 ITR 218 is narrower than the
words "attributable to". The use of the words "derived from' indicates
that it does not cover sources beyond the first degree.
11. Keeping the above position of law in mind, we shall now
deal with the two substantial question of law arising in this appeal.
12. Regarding Question No.1 :
(a) In the present case, the activity carried out by the
appellant as set out hereinabove under the contract dt.23.7.1999
entered into with M/s.WCL requires it to undertake the work of
sowing seeds and developing plants on it's own land by tending to
them till such time as it achieves a certain health and height normally
i.e. within a period of one to two years. Thereafter, these very plants
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are transplanted to the areas identified by WCL on land owned by
WCL (end of Stage I as held by Tribunal).
(b) After transplanting the plants on the land owned by the
WCL, the appellant tends to the same using its own men and material
for a period of two to three years i.e. till the plants would have
reached the desired health and height. The care of the plants is
thereafter handed over to M/s. WCL (end of stage II as held by
Tribunal).
(c) So far as stage I is concerned, the impugned order of the
Tribunal holds it is an agricultural income as it is derived from it's
own land on agricultural operations carried thereon. The
consideration relating to this part of the activity is in fact income
derived from land as the plants obtained from land are handed over
by transplantation to WCL. Therefore, agricultural income.
(d) However, so far as the stage II is concerned, the appellant
has no interest in the land where the plants have been transplanted.
The appellant does not derive any income from the land but receive
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consideration for taking care of the plants after transplantation of the
same on the land belonging to WCL. Thus, the obligation is to render
Service under the contract i.e. to take care of the plants belonging to
the WCL Ltd. and on the lands of WCL. Therefore, the income
attributable to Stage-II of the contract would not fall under the
definition of agricultural income. Therefore, includable in the total
income of the appellant/assessee as business income.
(e) Mr.K.H.Deshpande, learned Senior Counsel appearing for
the appellant submits that this artificial split/division in the integrated
process of turn-key project is not called for. It is submitted that in
case Stage-I is concerned with agricultural operation then Stage-II
must also be considered to be agricultural operation. In support,
reliance is placed upon the decision of the Apex Court in Raja Binoy
Kumar Sahas Roy (supra) to contend that where the basic operation
is agricultural operation then subsequent operations even if by
themselves they may not constitute agricultural operations, if it is an
integrated activity.
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(f) According to us, the above submission on the part of the
appellant overlooks the basic fact in the present case that the
operations which are carried out on the land belonging to WCL after
transplanting the plants is an activity different and not an activity in
continuation of Stage-I activity of sowing the seeds and developing
plants on it's own land and thereafter, transplanting those plants on
the land of WCL Ltd. It is not one continuous seamless integrated
operation. The activity carried out at Stage-I and II are two different
processes. The appellant could in a given case not take up the activity
at Stage-II, as it is not necessary that the same agency should do both
Stages. In fact, Stage-II could be carried out by some other agency.
Therefore, the activity at Stage-II is not so linked in the present facts
with the agricultural operation carried out at Stage-I. We may also
refer to Raja Binoy Kumar Sahas Roy (supra), where the Apex Court
observed that the income received from the sale of forest growth
could be ideally divided into those arising out of spontaneous growth
and that arising from human effort of planting trees etc. and it rued
the fact that the bifurcation exercise had not been done by the
Tribunal. In this case, the impugned order of the Tribunal has done
the bifurcation exercise.
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(g) Further the contract dt.23.7.1999 is also indicative of the
fact that over 80 % of the consideration payable under the contract is
made available to the appellant within one year of starting the work
on its own land by sowing seeds. Thus, the consideration which is
paid for the agricultural produce is what is payable at the ends of
Stage-I. So far as the balance 20% of the consideration is concerned, it
is paid after Stage-I on account of Service rendered under the contract
dated 23.7.1999 and cannot be said to be for agricultural income. The
test is not the nature of activity but the primary/immediate source of
income.
(h) In any case, the income received at the second stage i.e.
Stage-II cannot even remotely be said to be derived from land.
Therefore, the splitting of the entire activity by the Tribunal into two
stages cannot be found fault with.
(i) Further without prejudice to the above, in this case,
during stage II, the appellant takes care of plants and receives
consideration for the same. The contract itself is indicative of the fact
that the appellant has to provide service to WCL Ltd. by taking care of
23 itl77.04.odt
the plants which have been transplanted on its premises for a period
of two to three years till such time as it is of required height and/or
health. Thereafter, care of plants is taken over by WCL Ltd. Therefore,
the income which is received by the appellant is not derived from the
land but is derived from service which the appellant renders to WCL
in taking care of its plants.
(j) The learned Counsel for the appellant placed reliance
upon the decision of Privy Council in CIT .vs. Kameshwar Singh, 2 ITR
305 wherein the money lender, to whom agricultural property had
been mortgaged by lease for a period of 15 years, was entitled to hold
and enjoy the leased properties which gave rise to agricultural
produce. The mortgagee-leasee received some portion of the
agricultural produce as thika rent and the balance was received as
consideration for the loan. The Revenue contended that thika rent is
not agricultural income as it is received by a money lendor. The Privy
Council negatived the contention of the Revenue in view of the fact
that Section 2(1)(a) of the Act confers exemption to a kind of income
i.e. agricultural income and it has no relation with the character of the
recipient. Therefore, in the facts before it, the Privy Council held that
24 itl77.04.odt
if business of money lending brings in income which has been derived
from land then it is exempt from income tax. The aforesaid decision is
completely distinguishable from the facts herein. In the present case,
the appellant/assessee does not receive any income out of agricultural
produce derived from the land. The income received by the
appellant/assessee is for providing Services under the contract dated
23.7.1999. It is not an income which has been derived from the land.
In this case, primary source of the appellant's income is the rendering
of Service under the contract and not from any land. Therefore, the
aforesaid decision being completely distinguishable is of no assistance
to the appellant.
(k) On the other hand, the Privy Council in Premier
Construction Co. vs. CIT, 16 ITR 380 while dealing with the definition
of agricultural income as defined in Section 2(i) of the Indian Income
Tax Act, 1922, which is similar to that found under Section 2(1A) of
the Act, had held that the remuneration earned by the Managing
agent of a Company which is engaged in agricultural operations
cannot be treated as agricultural income. The Court held that the
assessee therein received remunertion for rendering of Service under
25 itl77.04.odt
the contract. The aforesaid decision would apply on all fours to the
present dispute. However, Mr.Deshpande, learned Senior Counsel
attempted to distinguish the aforesaid decision by pointing out that
the contract dt.23.7.1999 between the WCL and the appellant is a
comprehensive contract for plantation and at both stages i.e. on it's
own land (stage I) and also on the land of the WCL (Stage-II), the
appellant is carrying on agricultural operations. Even if we assume
that the activity carried out at stage II are agricultural operations, yet
the income which the appellant/assessee gets is not derived from the
land but is derived from Service contract dt.23.7.1999 entered into
between the WCL and the appellant. Consequently, the consideration
received by the appellant at stage II does not have the character of
agricultural income. Merely because the activity of serving WCL may
have some relation to and/or be agricultural operations.
(l) Further in the case of Javed Ali vs. CIT, 18 ITR 95, the
Allahabad High Court followed decision of the Privy Council in
Premier Construction Co. Ltd. (supra) to hold that the remuneration
received by the assesse who was a Mutawali of the waqf property for
managing and supervising the agricultural activity of wafq, could not
26 itl77.04.odt
be treated as agricultural income. This on the basis that it was not
derived from land but was in a nature of salary paid to the mutawali
and not derived from the land. Mr.Deshpande tried to distinguish the
aforesaid decision on the ground that the income in the present facts
is derived from the agricultural operations. Thus, the income would be
classified as agricultural income. However, this submission of the
appellant does not address the basic question that the income in this
case is not derived from land but derived from the contract for
providing service and cannot be characterised as agricultural income.
(m) In E.C.Danby .vs. CIT, 12 ITR 351, the Patna High Court held
that the payment received by an assessee as remuneration for managing
agricultural properties of partnership firm could not be said to be
derived from land so as to classify it as agricultural income. The
remuneration received was in the nature of salary. Mere fact that the
ultimate source of salary was agricultural property would not make any
difference. This is because the income was not received out of profits or
sale of agricultural produce but remuneration due to Manager as a salary
for looking after the property. The distinction sought to be drawn by the
appellant is that, in the above case, the income received in the hands of
27 itl77.04.odt
the Manager is for managing agricultural property where as in the
present case the appellant is a cultivator performing only agricultural
operations and therefore, the source of his income in his hands is
agricultural income. This distinction overlooks the fact that no income
has been derived from the agricultural land in which the agricultural
produce has been generated. If agricultural produce has been sold the
income which arose therefrom would be in the nature of agricultural
income. In the present case, the appellant is only providing Services and
it is assured of its income on rendering of the Services in terms of the
contract dated 23.9.1999. Therefore, the decision of the Patna High
Court would squarely apply to the present facts.
(n) Further before the Supreme Court in Maharajadhiraj Sir
Kameshwar Singh .vs. CIT, 41 ITR 170 the assessee was an Executor of a
Trust deed which inter alia included agricultural properties. Under the
deed, the Executor had a right to receive remuneration for management
of the trust and its properties. The Assessee's contention was that the
income received by him is agricultural income was negatived by the
Apex Court as it held that he had no interest in the land and what the
Executor received was the salary/remuneration to take care of the
28 itl77.04.odt
properties of the trust. The source of income was provided in Trust deed
i.e. right to receive remuneration to mange the property. The Court held
that the Assessee therein did not have right to receive and/or
appropriate to himself agricultural income which would arise from the
agricultural properties belonging to the trust. The aforesaid decision is
sought to be distinguished by the appellant on the ground that the
appellant is deriving its income from actually cultivating the land. The
income received is for agricultural activity and for no other activity. This
distinction does not take note of the fact that the activity carried out by
the appellant would not decide whether the remuneration received is
agricultural income or not, but whether the income is derived from land.
For any income to be classifiable as agricultural income, it has primarily
to be derived from land. In the present facts, no agricultural income is
derived by the appellant from the land. It receives consideration for
providing Services under the contract dated 23.7.1999. For providing
Services relatable to agricultural operations is still not income derived
from the land. The words "derived from" would mean direct
linkage/immediate source of income and not an indirect source of
income.
29 itl77.04.odt
(o) In the above view, the substantial question of law at 1
above is answered in the affirmative i.e. in favour of the Revenue and
against the appellant-assessee.
13. Regarding Question No.2 :
(a) From the question as urged by the appellant and
admitted by this Court, it is not the appellant's case that the
consideration received by it at stage II is classifiable under Section
2(1A)(b)(i) of the Act.
(b) It is the appellant's case that, in any case, the
consideration received for activity carried out at stage II of the contact
split by the Tribunal would still be agricultural income. This by virtue
of Section 2(1A)(b)(ii) and (iii) of the Act.
(c) So far as Section 2(1A)(b)(ii) of the Act is concerned, the
appellant submits that the consideration is received for the activity
carried out by it at stage II is an activity which would be carried out
30 itl77.04.odt
by any cultivator ordinarily to render agricultural produce fit to be
taken to the market.
(c) We note that activity carried out Stage-I is an agricultural
activity and income at that stage is derived is from the land owned by
the appellant. Thus, classified as agricultural income. So far as activity
carried out at Stage-II is concerned, there is no evidence on record to
indicate that taking care of the plants after they have been
transplanted on the land owned by the WCL would be an activity
ordinarily employed by a cultivator in taking care of the plants to
render it to be fit to be taken to the market. On a bare reading of sub-
section, the burden would be upon the appellant to show that it is a
cultivator and similar activities are being carried out by cultivators or
receiver on rent in kind and this activity of taking care of plants at
Stage-II is to render the produce fit to be taken to the market.
(d) Therefore, in the present facts, even if one assumes that
the appellant is a cultivator, yet, in absence of any evidence on record
that the activity carried out by it at Stage-II is ordinarily carried out by
a cultivator to render the produce fit to be taken to the market.
31 itl77.04.odt
Therefore, the income cannot fall under Section 2(1A)(b)(ii) of the
Act.
(e) Similarly, so far as Section 2(1A)(b)(iii) of the Act is
concerned, the appellant claims that the consideration received by it
for its activity would stand covered by the above clause.
(f) We note that for Section 2(1A)(b)(iii) of the Act to apply
the income should be derived from land by the sale of agricultural
produce. In this case, admittedly, the appellant/asseessee has not sold
any agricultural produce even if one assumes agricultural produce has
derived from the the land of WCL at stage II. The consideration
received cannot be classified as agricultural income under 2(i)(a)(iii)
of the Act.
(g) Moreover, the reasons indicated in para 11(i) to (n)
while deciding question (1) would equally apply to the present
question. The income received by the appellant is for rendering of
Service and not for carrying out of operations as listed in Section
2(1A)(b)(ii) or (iii) of the Act.
32 itl77.04.odt
14. In the above view, the substantial question of law at no.1
is answered in the affirmative i.e in favour of the respondent/revenue
and against the appellant/assessee. The substantial question of law at
no.2 is answered in the negative i.e. in favour of the
respondent/revenue and against the appellant/assessee.
15. The appeals relating to Assessment Years 1998-99 and
1999-2000 are dismissed. No order as to costs.
JUDGE JUDGE
jaiswal
