Law:

Section:

Section 2(1A) of the Income-tax Act, 1961 - Agricultural income - Assessment years 1993-94 to 1998-99 Where though assessee had, under an agreement, earmarked certain lands belonging to it for growing teak trees but later on it transferred responsibility of growing and maintaining trees to another concern, income arising to assessee by this arrangement was not agricultural income [In favour of revenue] The assessee claimed that it was engaged in growing and maintenance of teak farms. The assessee admitted the total income for the relevant years and claimed that it was exempt as agricultural income. Later the assessee's assessment was reopened. The case of the Department was that they came into possession of the information, subsequent to the rectification of the assessment, that the assessee's claims were factually incorrect. The assessee had entered into agreements with the owners of lands pursuant to which they were also put into possession of the same. STM, a company engaged in the business of growing and selling teak, introduced a scheme promising its investors specified return from the rearing of teak trees. The assessee agreed to earmark the lands in its possession for the purpose of the scheme. It also agreed to plant and grow the saplings in accordance with the know-how and guidance of STM and the irrigation facilities provided by STM. The trees would be inspected by STM. STM would appropriate the profits and the assessee had no right to create any encumbrance on the said lands. The assessee then entered into another agreement with 'WRF' which was admittedly a sister concern of STM. By this agreement, the assessee shifted the entire responsibility of growing and maintaining the trees to WRF. The assessee agreed to pay an agreed amount to WRF towards maintenance charges. WRF had to honour the commitments under the assessee's contract with STM. The assessee treated the resultant surplus arrived at by deducting the amounts paid to WRF from the amounts received from STM as agricultural income. The Assessing Officer treated the non-utilisation charges being licence fees and maintenance charges as remuneration paid by STM and assessed them as business income…

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