COMMISSIONER OF INCOME TAX vs. DHIRAJLAL B. VADALIA

O/TAXAP/1291/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1291 of 2006 TO TAX APPEAL NO. 1299 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX....Appellant(s) Versus DHIRAJLAL B. VADALIA....Opponent(s) ================================================================ Appearance: MR PG DESAI, ADVOCATE for the Appellant(s) No. 1 MR TUSHAR P HEMANI, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER

Date : 01/12/2014 Page 1 of 5

O/TAXAP/1291/2006 JUDGMENT

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Heard Mr. P.G. Desai, learned advocate appearing for revenue and Mr. Tushar Hemani, learned advocate appearing for the assessee. 2. By way of these appeals, the appellant-Revenue has challenged the judgment and order dated 28.02.2006 passed by the Income-tax Appellate Tribunal, Rajkot Bench, in ITA Nos. 860/Rjt/04, 861/Rjt/04, 862/Rjt/04, 863/Rjt/04, 864/Rjt/04, 865/Rjt/04, 866/Rjt/04, 867/Rjt/04, 868/Rjt/04 for AY 1990-91, 1991-92, 1992-93, 1993-94, 1994-95, 1995-96, 1996-97, 1997-98, 1998-99. 2.1 While admitting these appeals on 27.06.2007, this Court has framed the following substantial question of law: “Whether on facts and circumstances of the case the Income Tax Appellate Tribunal was right in law and on facts in holding that the activity of growing roses, chikkus is an agricultural income exempt from tax?” 3. The facts of the present case are that during the course of assessment proceedings, the Assessing Officer observed that the income from nursery was not allowable as exempt income since the same could not be treated as agricultural income. Against the said order of assessment, the assessee preferred appeals before the CIT(A) which were allowed, against which, Page 2 of 5

O/TAXAP/1291/2006 JUDGMENT the Revenue preferred appeals before ITAT which came to be dismissed and the order of CIT(A) was upheld. Against the said order of ITAT, the Revenue has preferred the present Tax Appeals. 4. Heard the learned advocates appearing for the parties and considered the submissions. The Tribunal vide impugned order has observed that no material whatsoever has been brought by the revenue on record to disbelieve the contention of the assessee about the cultivation of roses whereas the assessee has produced photograph in support of his contention that he cultivated roses. The Tribunal observed that in fact the revenue has not disputed the fact that the assessee had developed various varieties of roses and made substantial investments in his activity. The Tribunal has considered the decisions in the case of CIT vs. Soundarya Nursery (241 ITR 530) wherein the decision in the case of CIT vs. Raja Benoy Kumar Sahas Roy (32 ITR 466) was considered. 5. An identical issue also came up for consideration before this Court in Income Tax Reference No. 40 of 2000 with Tax Appeal No. 24 of 2003, where this Court vide judgement and order dated 11.11.2014 has observed as under: “8. Considering the decisions cited hereinabove, we come to the conclusion that a careful reading of the above clearly shows that unless the assessee has carried out the basic operations upon the land i.e., tilling of the land, sowing of the seeds planting, etc. requiring the expenditure of human skill and labour upon the land, it cannot be said that the income earned by the assessee is agricultural income. Further, it is also clear that subsequent Page 3 of 5

O/TAXAP/1291/2006 JUDGMENT operations would also be agricultural operations if taken in conjunction with basic operations. However, subsequent operations by itself would not be considered as agricultural operations. Hence, if any income is earned by carrying out the subsequent operations without carrying out the basic operations then such income would not be considered as agricultural income. The gist of the decisions cited hereinabove further declares that the nature of the product is irrelevant. The agricultural product would not only include products for sustenance of human being but also products of utility for a trade and commerce. 9. In the present case, the plants have been grown on land owned by the assessee. The assessee during the course of growing and nurturing the plants on the land carried out certain functions such as tilling the soil, weeding, watering, manuring etc and finally the plants are made ready for sale. It goes without saying that all this involves human skill and effort. When plants are established in the soil only then they are shifted in suitable containers or appropriate place in land. ... 11. Once the assessee had shown that the agricultural operations were carried out then income from the sale of agricultural produce would amount to agricultural income. The judgment of Allahabad High Court in the case of Maharaja Vibhuti (supra) is distinguishable inasmuch as in that case necessary facts were not on the record for reaching a particular conclusion. In the said judgement the Bench referred to two types of nurseries-one which may be maintained by a farmer as an aid or necessary adjunct to the primary process of agriculture while the other one which may be maintained and run as a business quite independently of agriculture. After such discussion, they went on to mention that there was no discussion of the type of nursery involved. In view of the same, the answer to the question was given in negative. Hence, that case does not help the Revenue. Page 4 of 5

O/TAXAP/1291/2006 JUDGMENT .... 13. Therefore on the facts of the case as well as on the basis of the judicial pronouncements detailed above, we have no hesitation in holding that the sale proceeds from the business of nursery carried on by the assessee constitute income from agriculture. Therefore the question of law framed in the reference and the tax appeal is answered against the Revenue and in favour of the assessee. Reference and appeal stand disposed of accordingly.” 6. In that view of the matter, no elaborate reasons are required and we answer the question in favour of the assessee and against the Revenue. The present Tax Appeals are dismissed accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 5 of 5