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Is income from sale of plants from nurseries taxable? [seeds are sown in trays]

07 June 2018

Hello Frnds,

I need help regarding taxability of Income from sale of Plants from Nurseries which were grown out from Trays [Seeds are sown on plastic trays] and use Green house to protect those and sell to the Customers.

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8 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160551 Points)
Replied 07 June 2018

Taxable as business income......

sonu kumar Choudhary (Chartered Accountant) (145 Points)
Replied 07 June 2018

But

Dear Sir,

After study of below metion article, it seems that income in question is agriculture income

The Supreme Court has, in CIT v. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466, held that the basic operations must be performed before any income can be called agricultural income. The basic operations involve cultivation of the ground, in the sense of tilling of the land, sowing of the seeds, planting and other similar operations on the land. Such basic operations demand the expenditure of human labour and skill upon the land itself and further, they are directed to make the crop sprout from the land. Therefore, income derived from sale of plants grown directly in pots would not be treated as agricultural income.

However, the Madras High Court, in CIT v. Soundarya Nursery (2000) 241 ITR 530, observed that nursing activity involves carrying out of several operations on land before the saplings were transplanted in suitable containers including pots and thereafter kept in shade or green house for further operation and growth. Therefore, income arising from nursery should be considered as agricultural income.

Explanation 3 to section 2(1A) provides that the income derived from saplings or seedlings grown in a nursery would be deemed to be agricultural income, whether or not the basic operations were carried out on land. This Explanation ratifies the view taken by the Madras High Court in favour of the taxpayer.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160551 Points)
Replied 07 June 2018

" Explanation 3 to section 2(1A) provides that the income derived from saplings or seedlings grown in a nursery would be deemed to be agricultural income, whether or not the basic operations were carried out on land. This Explanation ratifies the view taken by the Madras High Court in favour of the taxpayer." .......Not correct....

Read the Explanation 3 carefully...... 'Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.'

Basic condition As per section 2(1A)(b) of IT act... 'any income derived from such land by' ..that is the use of land....... be it nursery of any other agricultural product.......

In the cited case ...... Commissioner Of Income-Tax vs Soundarya Nursery on 5 August, 1998.....

Read:: the fact.......

2. The finding of the Tribunal is that the plants were not grown in the pots directly, but they are, after several operations carried out in the land, viz., cutting, gootying and inarching for the plants, transplanted in suitable containers, including pots and kept in the green house or in shade, and the trees were grown on the land directly........

8. 8. All the products of the land, which have some utility either for consumption or for trade or commerce, if they are based on land, would be agricultural products. Here, it is not the case of the Revenue that without performing the basic operations, only the subsequent operations, as described in the decision of the apex court have been performed by the assessee. If the plants sold by the assessee in pots were the result of the basic operations on the land on expending human skill and labour thereon and it is only after the performance of the basic operations on the land, the resultant product grown or such part thereof as was suitable for being nurtured in a pot, was separated and placed in a pot and nurtured with water and by placing them in the green house or in shade and after performing several operations, such as weeding, watering, manuring, etc., they are made ready for sale as plants all these questions would be agricultural operations all this involves human skill and effort. Thus, the plants sold by the assessee in pots were the result of primary as well as subsequent operations comprehended within the term "agriculture" and they are clearly the products of agriculture.

Case law attached.....

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sonu kumar Choudhary (Chartered Accountant) (145 Points)
Replied 08 June 2018

Sir,

Agree with your point but Explanation 3. to section 2(1A) is Specefic to nursery, it states "any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income."

and Sec. 2(1)(b) states

any income derived from such land by—

(i) agriculture; or

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause;

i have some query that mentioned, please.

1. Explanation 3. to section 2(1A) is Specefic to nursery, whether the basis condition of use of land is also aply on it.

2. if applies, soil used in the pot is also part of land , So, why not it can't be treated as agriculral income.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160551 Points)
Replied 08 June 2018

1. Yes......... (though there are some controversial judgements like Sudisha Farm Nursery case, which were negated by other court decisions). ......also refer: income-tax-agri-income

2. There is difference between soil and land; as far as act is concerned. Soil is derived from Land..... but not LAND.

1 Like