ITO, Bangalore V. M/s Pods Biotech Pvt. Ltd., Bangalore

ITA 675/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63669 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 23-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA RAO
• Assessee Lawyers: SUSAN THOMAS JOSE
• Keywords: Business income
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO.675/BANG/2011 (ASSESSMENT YEAR : 2006-07) INCOME TAX OFFICER, WARD 12(1), BANGALORE. . APPELLANT. VS. M/S. PODS BIOTECH PVT. LTD., NO.325/1, 4THCROSS, RMV EXTN., BANGALORE-560 052. .. RESPONDENT. PAN AADCP 0423C APPELLANT BY : SHRI SHIVA RAO. RESPONDENT BY : SMT. SUSAN THOMAS JOSE. DATE OF HEARING : 28.8.2012. DATE OF PRONOUNCEMENT : 07.09.2012. O R D E R PER SHRI JASON P. BOAZ : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, BANGALORE DT.11.2.2011 FOR ASSES SMENT YEAR 2006-07. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE COMPANY (HEREINAFTER REFERRED TO A S ASSESSEE) ENGAGED IN THE BUSINESS OF PRODUCTION OF AGRICULTURAL GOODS FILED ITS RETUR N OF INCOME FOR ASSESSMENT YEAR 2006-07 ON 29.11.2006 DECLARING NIL INCOME. THE CASE WAS T AKEN UP FOR SCRUTINY BY ISSUE OF NOTICE UNDER SECTION 143(2) AND 142(1) OF THE INCOME TAX A CT, 1961 (HEREIN AFTER REFERRED TO AS 'THE ACT') ON 5.5.2008. THE ASSESSEE, IN THE RELE VANT PERIOD, ENTERED INTO A LEASE AGREEMENT ON 15.9.2005 WITH SRI S.N. HARISH, ONE OF THE DIREC TORS OF THE ASSESSEE-COMPANY, FOR TAKING 2 ITA NO. 675/BANG/11 20 ACRES OF LAND ON LEASE. BEFORE THE ASSESSING OF FICER, THE ASSESSEE CONTENDED THAT IT HAD GENERATED INCOME FROM THIS LAND THROUGH AGRICULTURA L ACTIVITY AND THEREFORE THIS INCOME WAS EXEMPT. THE ASSESSING OFFICER, HOWEVER, DID NOT AGREE WITH THE ASSESSEES CONTENTION AS HE WAS OF THE OPINION THAT IN VIEW OF THE PROVISIONS O F KARNATAKA LAND REFORMS ACT, 1961, IN SECTIONS 79(B), THEREOF, THE ASSESSEE COULD NEITHER HOLD AGRICULTURAL LAND NOR OBTAIN ANY AGRICULTURAL LAND ON LEASE AS IT WAS PROHIBITED FRO M DOING SO UNLESS SO NOTIFIED BY THE STATE GOVERNMENT, WHICH WAS NOT THE SITUATION IN THE INST ANT CASE. IN THIS VIEW OF THE MATTER, ASSESSING OFFICER COMPLETED THE ASSESSMENT BY AN OR DER UNDER SECTION 143(3) OF THE ACT DT.12.11.2008 TREATING THE AGRICULTURAL INCOME OF R S.27,70,100 RETURNED BY THE ASSESSEE AS NON-AGRICULTURAL INCOME AND BROUGHT THE SAME TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT, THE A SSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE LEARNED CIT(A) 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 ASSESSEES APPEAL. 3. AGGRIEVED WITH THE ORDER OF THE LEARNED CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. THE GROUNDS RAISED BY REVENUE IN THIS APPEAL A RE AS UNDER : 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE CIT(A) ERRED IN HOLDING THE INCOME DERIVE D FROM LAND TAKEN ON LEASE BY THE COMPANY FROM ONE OF THE DIRECTORS AS AGRICULTUR AL INCOME WITHOUT APPRECIATING THAT THE COMPANY IS BARRED BY LAW IN HOLDING THE LA ND 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 ITA NO. 675/BANG/11 3. THE CIT(A) ERRED IN TREATING THIS INCOME AS A GRICULTURAL INCOME DESPITE THE COMPANY CARRYING OUT AGRICULTURE AS A COMMERCIAL AC TIVITY 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 CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUND MAYBE REVERSED AND THAT OF THE ASSESSING OFFICER MA Y BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 4. THE GROUNDS RAISED AT S.NOS.1, 4 AND 5 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5.1 THE GROUNDS RAISED AT S.NOS.2 AND 3 BY THE REVENUE CHALLENGE THE FINDINGS OF THE LEARNED CIT(A) IN HOLDING THAT THE INCOME DERIVED F ROM LAND TAKEN ON LOAN BY THE ASSESSEE FROM ONE OF THE DIRECTORS AS AGRICULTURAL INCOME WI THOUT APPRECIATING THAT THE ASSESSEE WAS BARRED BY LAW FROM HOLDING AGRICULTURAL LAND. THE LEARNED DEPARTMENTAL REPRESENTATIVE REITERATED THE GROUNDS RAISED SUBMITTING THAT THE A SSESSEES 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 CIT(A) ERRED IN TREATING THE INCOME AS AGRICULTURAL INCOME DESPITE THE ASSESSEE CARRYING ON AGRICULTURE AS A COMMERCIA L ACTIVITY IN THE NATURE OF CONTRACT FARMING AND SUCH INCOME TAKES THE CHARACTER OF BUSI NESS INCOME. 5.2 THE LEARNED COUNSEL FOR THE ASSESSEE, ON HIS PA RT SUPPORTED THE FINDING IN THE ORDER OF THE LEARNED CIT(A). IN SUPPORT OF THE ASSESSEES C LAIM THAT THE INCOME DERIVED BY IT FROM CARRYING ON AGRICULTURAL OPERATION WAS AGRICULTURAL INCOME. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. I) CIT VS. K S INAMSAHEB (1969) 72 ITR (MAD) WHEREIN IT HAD BEEN HELD THAT INCOME DERIVED FROM LAND WHICH IS USED FOR AGRICULTURAL PU RPOSES IS AGRICULTURAL INCOME. 4 ITA NO. 675/BANG/11 II) CIT VS. ASSOCIATED METAL CO. (1989) 177 ITR 428 (AL L) 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 OWNER OF THE LA ND. III) CIT VS. ALL INDIA TEA & TRADING CO. LTD (1978) 113 ITR 454 (ALL) WHEREIN IT WAS HELD THAT WHERE THE EFFECTIVE SOURCE IS THE LAND, T HE INCOME HAS TO BE AGRICULTURAL. IV) ADVANTA INDIA LTD VS. DCIT (2010) 5 ITR (TRIB) 57 ( BANGALORE). 5.3 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSE D 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 ASSESSMENT THA T THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE OWNED LAND WHEN IN FACT, AS POINT ED OUT BY THE LEARNED CIT(A), THE ASSESSEE DID NOT OWN ANY LAND, BUT RATHER HAD LEASED 20 ACRE S OF LAND FROM ONE OF ITS DIRECTORS TO CARRY OUT AGRICULTURAL OPERATIONS THEREON. IT IS A LSO SEEN THAT THE LEARNED CIT(A) NOTED THAT CONCERNED VILLAGE AUTHORITIES HAD GRANTED PERMISSIO N TO THE ASSESSEE TO CARRY OUT AGRICULTURAL ACTIVITIES IN THE SAID LAND. FURTHER, WE ALSO FIND THAT THE LEARNED CIT(A) HAD EXAMINED OF THE ASSESSEES BOOKS OF ACCOUNT FOR FINANCIAL YEAR 2005 -06 AND CONFIRMED THE FACT THAT THE ASSESSEE HAD CARRIED OUT ONLY AGRICULTURAL ACTIVITI ES ON THE LAND IN THE RELEVANT PERIOD, GROWING THEREON RED, YELLOW AND GREEN CAPRICORN, CULINARY H ERBS ETC. WHICH WERE BOTH SOLD IN THE DOMESTIC MARKET AND EXPORTED TO NETHERLANDS. WE AL SO FIND THAT THE LEARNED CIT(A) HAS RECORDED THAT THE ASSESSEE HAS FURNISHED PROPER EVI DENCE IN RESPECT OF PURCHASE OF MATERIAL FOR GREEN HOUSE, AGRICULTURAL EQUIPMENT, SEEDS, WAG ES AS WELL AS EVIDENCE FOR SALE OF FINAL AGRICULTURAL PRODUCTION TO VARIOUS ENTITIES WHICH E STABLISHES IT THAT THE ASSESSEE HAS RECEIVED AGRICULTURAL INCOME FROM AGRICULTURAL OPERATION CAR RIED OUT DURING THE RELEVANT PERIOD. ALL 5 ITA NO. 675/BANG/11 THESE FACTS NARRATED ABOVE GO TO ESTABLISH THAT THE ASSESSEE HAD ONLY CARRIED OUT AGRICULTURAL ACTIVITIES DURING THE RELEVANT PERIOD AND EARNED AG RICULTURAL INCOME THEREFROM. IN THIS VIEW OF THE MATTER, WE ARE OF THE CONSIDERED OPINION THA T THE FACTS OF THE CASE AND THE FINDING OF THE CO-ORDINATE BENCH OF THE BANGALORE TRIBUNAL IN THE CASE OF ADVANTA INDIA LTD. (SUPRA) ARE SQUARELY APPLICABLE TO THE CASE ON HAND. IN THE CAS E OF ADVANTA INDIA LTD (SUPRA), IT WAS HELD THAT THE IMMEDIATE SOURCE OF THE INCOME IS AGRICUL TURAL OPERATION CONDUCTED BY THE ASSESSEE ON THE LAND AND LAND ALONE AND CONSEQUENTLY THE SAM E IS LIABLE TO BE TREATED ONLY AS AGRICULTURAL INCOME. THIS IS AN ESTABLISHED FACT IN THE INSTANT CASE OF THE ASSESSEE ALSO. WE AGREE WITH THE VIEW OF THE LEARNED CIT(A) THAT THE ASSESSING OFFICERS CONTENTION THAT THE ASSESSEE CANNOT OWN AGRICULTURAL LAND, AS PER THE K ARNATAKA LAND REFORMS ACT, 1961, HAS NO RELEVANCE TO THE ISSUE ON HAND. TAKING INTO CONSI DERATION THE FACTS OF THE CASE AS DISCUSSED ABOVE AND RESPECTFULLY FOLLOWING THE DECISION OF TH E CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ADVANTA INDIA LTD (SUPRA), WE CONCUR WITH T HE VIEW OF THE LEARNED CIT(A) THAT THE INCOME DERIVED BY THE ASSESSEE IN THE RELEVANT PERI OD VIZ. ASSESSMENT YEAR 2006-07 IS AGRICULTURAL INCOME AND NOT INCOME FROM OTHER SO URCES AS WAS HELD IN THE ORDER OF ASSESSMENT. 6. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH SEPT., 2012. SD/- SD/- (N.V. VASUDEVAN) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER *REDDY GP 6 ITA NO. 675/BANG/11 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - B BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R SR. PRIVATE SECRETARY, ITAT, BANGALORE