Denying income tax exemption to The Forest Development Corporation of Maharashtra Limited, a division bench of the Bombay High Court held that income from turnkey- contract of plantation would not constitute ‘agricultural income’ for the purpose of section 2(1A)(b)(ii) and (iii) of the Income Tax Act, 1961.
Appellant-Company is engaged in the activity of turnkey 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. For the relevant assessment years, the Company did not filed IT returns on ground that the income earned by them constitutes ‘agricultural income’ under Sections 2(1A) of the Act and thus, not exigible to tax under Section 10 of the Income Tax Act.
However, the department rejected the contention and treated the entire receipt as business income on ground that the appellant is neither the owner of the land nor of the plantation rose on it but has merely executed the work and provided Services in terms of contract. Thus, it had received contractual payment for providing Services.
On first appeal, the CIT(A)held that the income attributable to the contract for plantation on turnkey basis could not be said to be an agricultural income, as it is not an income derived from land.
On second appeal, the ITAT partially allowed the claim of the appellants and held that exemption is available in the first stage where the appellant carries on operations which are agricultural on its own land. It observed that at the second stage, 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, the income in dispute is said to be derived from rendering of Service and not from land.
The above order was again challenged by the Assessee before the High Court.
The division bench comprising Justices M. S Sanklecha and Manish Pitale noted that the activity carried out at Stage I and II are two different processes.
Upholding the Tribunal order, the bench further observed that the 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.
It further noted that 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 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.”
Dismissing the appeal, the bench observed that “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.”
Read the full text of the Judgment below.
