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Income-Tax Officer v/s Pods Biotech Pvt. Ltd.

    I.T.A. No. 675/Bang/2011 (Assessment Year 2006-2007)
    Decided On, 07 September 2012
    At, Income Tax Appellate Tribunal ITAT Bangalore Bench
    By, N.V. VASUDEVAN (JUDICIAL MEMBER) AND JASON P. BOAZ (ACCOUNTANT MEMBER)
    For Petitioner: Shiva Rao and For Respondents: Smt. Susan Thomas Jose


Judgment Text
Jason P. Boaz (Accountant Member)

1. This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-III, Bangalore, dated February 11, 2011 for the assessment year 2006-07. The facts of the case, in brief, are as under :

2. The assessee-company (hereinafter referred to as "assessee") engaged in the business of production of agricultural goods filed its return of income for the assessment year 2006-07 on November 29, 2006 declaring nil income. The case was taken up for scrutiny by issue of notice under sections 143(2) and 142(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") on May 5, 2008. The assessee, in the relevant period, entered into a lease agreement on September 15, 2005 with Sri S.N. Harish, one of the directors of the assessee-company, for taking 20 acres of land on lease. Before the Assessing Officer, the assessee contended that it had generated income from this land through agricultural activity and therefore this income was exempt. The Assessing Officer, however, did not agree with the assessee's contention as he was of the opinion that in view of the provisions of the Karnataka Land Reforms Act, 1961, in section 79(b), thereof, the assessee could neither hold agricultural land nor obtain any agricultural land on lease as it was prohibited from doing so unless so notified by the State Government, which was not the situation in the instant case. In this view of the matter, the Assessing Officer completed the assessment by an order under section 143(3) of the Act dated November 12, 2008 treating the agricultural income of Rs. 27,70,100 returned by the assessee as non-agricultural income and brought the same to tax under the head "Income from other sources".

3. Aggrieved by the order of assessment, the assessee went in appeal before the Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) held that the income derived in the relevant period was "agricultural income" and not "income from other sources" as held by the Assessing Officer and allowed the assessee's appeal.

4. Aggrieved with the order of the learned Commissioner of Income-tax (Appeals), the Revenue is now in appeal before us. The grounds raised by the Revenue in this appeal are as under :

1. The order of the learned Commissioner of Income-tax (Appeals) is opposed to law and facts of the case.

2. The Commissioner of Income-tax (Appeals) erred in holding the income derived from land taken on lease by the company from one of the directors as agricultural income without appreciating that the company is barred by law in holding the land and the intention of lease is to enable the company to covert this agricultural income to non-agricultural land as is evident from the lease agreement.

3. The Commissioner of Income-tax (Appeals) erred in treating this income as agricultural income despite the company carrying out agriculture as a commercial activity which is in the nature of contract farming and such income takes a character of business income.

4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the Commissioner of Income-tax (Appeals) in so far as it relates to the above ground may be reversed and that of the Assessing Officer may be restored.

5. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above.

5. The grounds raised at S. Nos. 1, 4 and 5 are general in nature and therefore no adjudication is called for thereon.

6. The grounds raised at S. Nos. 2 and 3 by the Revenue challenge the findings of the learned Commissioner of Income-tax (Appeals) in holding that the income derived from land taken on loan by the assessee from one of the directors as agricultural income without appreciating that the assessee was barred by law from holding agricultural land. The learned Departmental representative reiterated the grounds raised submitting that the assessee's intention of taking the land on lease was to convert this land from agricultural to non-agricultural land. It was also submitted that the learned Commissioner of Income-tax (Appeals) erred in treating the income as agricultural income despite the assessee carrying on agriculture as a commercial activity in the nature of contract farming and such income takes the character of business income.

7. Learned counsel for the assessee, on his part supported the finding in the order of the learned Commissioner of Income-tax (Appeals). In support of the assessee's claim that the income derived by it from carrying on agricultural operation was agricultural income. Learned counsel for the assessee placed reliance on the following judicial pronouncements.

(i) CIT v. K. S. Imam Saheb (1969) 71 ITR 742 (Mad) wherein it had been held that income derived from land which is used for agricultural purposes is agricultural income.

(ii) CIT v. Associated Metals Co. (1989) 177 ITR 428 (All) wherein a company entering into agreement with Bhumidars of land for not only filling and clearing but also for sowing, growing and protecting crops have been held to be agricultural income though the assessee in fact was not the owner of the land.

(iii) CIT v. All India Tea and Trading Co. Ltd. (1978) 113 ITR 545 (Cal) wherein it was held that where the effective source is the land, the income has to be agricultural.

(iv) Advanta India Ltd. v. Deputy CIT (2010) 5 ITR (Trib) 57 (Bang).

8. We have heard both parties and carefully perused and considered the material on record including the judicial pronouncements relied on by the assessee and the authorities below. It appears from the order of the assessment that the Assessing Officer was of the view that the assessee owned land when in fact, as pointed out by the learned Commissioner of Income-tax (Appeals), the assessee did not own any land, but rather had leased 20 acres of land from one of its directors to carry out agricultural operations thereon. It is also seen that the learned Commissioner of Income-tax (Appeals) noted that concerned village authorities had granted permission to the assessee to carry out agricultural activities in the said land. Further, we also find that the learned Commissioner of Income-tax (Appeals) had examined of the assessee's books of account for the financial year 2005-06 and confirmed the fact that the assessee had carried out only agricultural activities on the land in the relevant period, growing thereon red, yellow and green capsicum, culinary herbs, etc., which were both sold in the domestic market and exported to the Netherlands. We also find that the learned Commissioner of Income-tax (Appeals) has recorded that the assessee has furnished proper evidence in respect of purchase of material for green house, agricultural equipment, seeds, wages as well as evidence for sale of final agricultural production to various entities which establishes it that the assessee has received agricultural income from agricultural operation carried out during the relevant period. All these facts narrated above go to establish that the assessee had only carried out agricultural activities during the relevant period and earned agricultural income therefrom. In this view of the matter, we are of the considered opinion that the facts of the case and the finding of the co-ordinate Bench of the Bangalore Tribunal in the case of Advanta India Ltd. (2010) 5 ITR (Trib) 57 (Bang) are squarely applicable to the case on hand. In the case of Advanta India Ltd., it was held that "the immediate source of the income is agricultural operation conducted by the assessee on the land and land alone and consequently the same is liable to be treated only as agricultural income". This is an est

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ablished fact in the instant case of the assessee also. We agree with the view of the learned Commissioner of Income-tax (Appeals) that the Assessing Officer's contention that the assessee cannot own agricultural land, as per the Karnataka Land Reforms Act, 1961, has no relevance to the issue on hand. Taking into consideration the facts of the case as discussed above and respectfully following the decision of the co-ordinate Bench of the Tribunal in the case of Advanta India Ltd., we concur with the view of the learned Commissioner of Income-tax (Appeals) that the income derived by the assessee in the relevant period, viz., assessment year 2006-07 is "agricultural income" and not "income from other sources" as was held in the order of assessment. 9. In the result, the Revenue's appeal is dismissed. The order pronounced in the open court on September 7, 2012.
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