Case Law Details
Doloo Tea Company (India) Ltd Vs ACIT (ITAT Kolkata)
Admittedly, in this case in hand, the land has already been treated as agricultural land not capital in nature and the tea bushes have been cultivated by the assessee to obtain tea leaves and the shade trees are grown by the assessee for the protection of its tea crops. In our view, not only the tea leaves but the entire plant i.e. tea bushes is the agricultural produce and the shade trees has also been grown and cultivated by the assessee which is a part of its activity to grow and protect tea crops. In view of this, the action of the lower authorities in taxing compensation received on account of sale of tea bushes and shade trees cannot be held to be justified. The addition made by the lower authorities by taxing the sale of tea bushes and shade trees is ordered to be deleted.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The present appeal has been preferred by the assessee against the order dated 01.12.2019 of the Commissioner of Income Tax (Appeals)-17, Kolkata (hereinafter referred to as the ‘CIT(A)’) passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). The assessee in this appeal has taken the following grounds of appeal:
“1. That the Ld. CIT(A) erred in considering the receipt of Rs. 75,84,192/- from NHAI as business income without appreciating the fact that the same was on account of sale of Tea bushes, which is duly exempted u/s 10 of the IT Act,1961.
2. That the Ld. CIT(A) erred in considering the receipt of Rs. 17,47,763/- from NHAI as business income without appreciating the fact that the same was on account of sale of trees (Shade Trees), which is duly exempted u/s 10 of the IT Act, 1961
3. That the Ld. CIT(A) erred in considering the receipt of Rs. 51,36,869/- from NHAI as business income without appreciating the fact that the same was on account of sale of labour quarters, which is duly exempted u/s 10 of the IT Act, 1961.
4 On the facts and circumstances of the case, the Ld. CIT(A) erred in disallowing interest of Rs 19,32,000/- on account of interest payment to the related concern. The interest disallowed is 12% of Rs 1,61,00,000/-which is equal to Rs.19,32,000/-.
5. On the facts and circumstances of the case, the Ld. CIT(A) erred in disallowing interest of Rs 37,53,492/- on account of interest attributable to investments made in Subsidiary Company “Doloo Overseas Ltd”. The interest disallowed is 12°% of Rs 3,12,79,100/-which is equal to Rs 37,53,492/-.
6 Without prejudice to grounds No. 4 &5 of “Grounds of Appeal”, the Ld. CIT(A) erred in not considering the interest disallowance as mentioned above i.e. Rs 56,85,492/- (Rs.19,32,000 + Rs.37,53,492) as a disallowance leading to enhancement of income from tea business. In other words, the disallowance effectively should be restricted to 40% of Rs 56,85,492/- i.e. Rs 22,74,196/- as per Rule 8 of the Income tax Rules.
7. The appellant craves leave to add to, alter, to delete from or substantiate the above grounds of appeal.”
2. At the outset, the ld. Counsel for the assessee has submitted that as per the instruction of his client, he does not press Ground Nos.3, 4, 5 & 6. The ld. Counsel has also put a note against these grounds in the appeal file itself that the aforesaid Ground Nos.3, 4, 5 & 6 are not pressed. The Ground Nos.3, 4, 5 & 6 are accordingly dismissed as not pressed.
3. Now, we are left with Ground Nos.1 & 2. The assessee vide Ground Nos.1 & 2 has contested the action of the lower authorities in treating the receipt of Rs.75,84,192/- from National Highways Authority of India (NHAI) on account of sale of tea bushes and further another receipt of Rs.17,47,763/- received on account of sale of trees as business income of the assessee.
4. The brief facts of the case are that the assessee company during the year received a total compensation of Rs.4,45,53,602/- from NHAI on account of compulsory acquisition of agricultural land along with standing crops of tea bushes, shade trees and labour quarters constructed on land. The bifurcation of the amount is as under:
- Assessee has received Rs.3,00,84,778/- from NHAI as compensation against acquisition of agricultural land, which is not a capital asset by virtue of section 2(14) of the Income Tax Act, 1961.
- Assessee received Rs.75,84,192/- from NHAI against sale of tea bushes.
- Assessee received Rs.17,47,763/- from NHAI against sale of shade trees.
- Assessee received Rs.51,36,869/- from NHAI against sale of labour quarters.
5. Though the land of the assessee has been accepted by the Department as agricultural land which was not a capital asset as per section 2(14) of the Act and hence the compensation received by the assessee on acquisition of the land has not been taxed. However, the Assessing Officer treated the amount received from sale of tea bushes and sale of shade trees and sale of labour quarters as taxable business income of the assessee.
6. As noted above, the ld. Counsel has not pressed the Ground No.3 relating to the taxability of the amount received on account of sale of labour quarters.
7. So far as the amount received on account of sale of tea bushes and shade trees is concerned, we agree with the submission of the ld. Counsel for the assessee that since the land, in question, has already been treated as agricultural land, therefore, the produce thereupon i.e. the tea bushes and even the shade trees grown for the protection of the tea bushes would also fall in the definition of income from sale of agricultural produce which is exempt u/s 10 of the Act. Our above view is fortified by the decision of the Hon’ble Jurisdictional Calcutta High Court in the case of CIT vs. Kanan Devan Hills Produce Company Ltd. (1993) 200 ITR 453 wherein the Hon’ble High Court has held as under:
“……. But in the case before us, the trees are not of spontaneous growth. They have been planted by the assessee for the purpose of protecting the tea bushes. It cannot be doubted that agricultural operations have taken place on the land on which the trees have been planted. Basically, the land has been under cultivation for production of tea. In the case of Megh Raj v. Allah Rakhia AIR 1942 FC 27; [1942] FCR 53, the Federal Court confirmed a decision of the Punjab Chief Court to the effect that land used as a tea garden was used for “agricultural purposes”. In fact, there is no dispute in this case that the activity relating to planting, growing and nurturing of the tea bushes will come within the ambit of the expression “agricultural”. The planting of trees to protect the tea bushes must be regarded as part of the agricultural activity. The purpose of the planting of the trees was to protect the tea bushes from damage that may be caused by high winds. The planting of the trees in this case was part of the agricultural process of growing the crop of tea. Therefore, the income derived from sale of the trees will clearly come within the ambit of the expression “any income derived from such land by agriculture.”
8. Admittedly, in this case in hand, the land has already been treated as agricultural land not capital in nature and the tea bushes have been cultivated by the assessee to obtain tea leaves and the shade trees are grown by the assessee for the protection of its tea crops. In our view, not only the tea leaves but the entire plant i.e. tea bushes is the agricultural produce and the shade trees has also been grown and cultivated by the assessee which is a part of its activity to grow and protect tea crops. In view of this, the action of the lower authorities in taxing compensation received on account of sale of tea bushes and shade trees cannot be held to be justified. The addition made by the lower authorities by taxing the sale of tea bushes and shade trees is ordered to be deleted. Ground Nos.1 & 2 of the assessee’s appeal stands allowed.
9. In the result, the appeal of the assessee stands partly allowed.
Kolkata, the 10th November, 2022.
