Replies to Queries
on Income – Tax
By Subash Agarwal, Advocate
My regular feature on income tax in Feb 2016 issue of Anmi Journal - published every month by the Association of National Exchanges Members of India !
Query
No. 1:
Contract
Farming – tax implications
Snow White P Ltd is
engaged in “Contract Farming” for production of seeds wherein the list of
farmers together with land is prescribed by Government Agency. The
assessee-company purchases the foundation seed and deposits the tag with
certifying agency. These foundation seeds are given to farmers for cultivation
and in exchange of full crop a contract price for cultivation cost alongwith
10% above market price is given. The income generated is 150% of investment. In
the return of income filed by the assessee, it has shown the income as
Agricultural Income. The case was selected under scrutiny and the assessee is
in receipt of notice under section 143(3) and in which AO has enquired as to how
the income from contract farming will qualify as Agricultural Income?
REPLY:
The assessee company is into contract
farming for production of agricultural seeds. The assessee company purchases
foundation seeds and gives them to the farmers. Then the full grown crops are
purchased from the farmers at a pre-determined price i.e. cultivation cost +
10% above market price and then the crop are sold in the market. The land on
which the crop is being cultivated is neither owned by the assessee nor taken
on lease basis.
The assessee company must carry out any one
or more activity as per Section 2(1A) to be eligible for the exemption u/s
10(1). The assessee is not involved in any of the activity as mentioned in sec
2(1A) of the Act. The assessee company needs to own the land on ownership or
lease basis for the agricultural produce.
Reliance is placed
on the following decisions:
1) CIT vs Raja Benoy Kumar
Sahas Roy, 32 ITR 466, 508, Supreme Court,
2)
Consolidated Coffee Estates (1943) Ltd. vs. C. Agri. IT (1970) 76
ITR 29, 33, Mysore High Court,
3)
Bharat Timber Trading Co. v CIT, (2008) 296 ITR 676, Karnataka High
Court
The income earned by the assessee company
from the contract farming cannot be categorised as an agricultural income since
it is not involved in the agricultural activity and does not own the land on
which the agricultural activity is being done and hence, is not covered under
any of the sub-section which categorise an income earned as an agricultural
income.
Query
No. 2:
Income
from installation of tower on the roof
Rajiv Anand has filed his return of
income for the A.Y. 2008-2009 declaring a total income of Rs. 10,23,000/-. Assessee
has given the roof of his house on rent for installation of tower to BSNL.
Assessee has received a sum of Rs. 1,36,000/- from BSNL as rent and declared
the said amount under the head “income from house property” after claiming
deduction under Section 24. During the course of regular assessment, AO stated
that the amount received from BSNL was chargeable to tax as income from other
sources and the standard deduction claimed by the assessee u/s 24 was
disallowed by AO relying on the case of Mukherjee Estate P Ltd vs CIT, 244 ITR
1 by Calcutta High Court. Whether the Assessing Officer is right in his view
that the assessee is not entitled to deduction under Section 24?
REPLY:
Assessee has given the roof of his house
for installation of tower and the amount received is declared in the return
under head "income from house property" and claimed standard
deduction u/s 24. AO made the addition of the amount relying on the case of
Mukherjee Estate P Ltd vs CIT, 244 ITR 1 by Calcutta High Court.
In the instant case, the assessee has
let out the roof for installation of tower whereas in the case relied by the
AO, the roof was let out for placing the hoardings.
Reliance can be placed on the decision of the Delhi
HC in the case of Niagara Hotels & Builders P Ltd vs CIT (ITA 43/2014) and
decision of Kolkata Tribunal in the case of Taramani Jalan vs ITO (ITA No. 886/Kol/2015),
where it was held that the rent received by the assessee for giving top terrace
of his house property for installing space antenna is chargeable to tax under
the head "income from house property". It was held in these cases that
terrace cannot exist in air and it is very much a part of the building, which
has been constructed on the land beneath to super structure. Hence, the space
given on rent is considered to be a part of the building or land appurtenant
thereto, therefore the income received from such letting out is to treated as
income from house property u/s 22.
Query
No.3:
Rent
received for putting stalls by non-members in trade fair organized for charity.
Kolkata Rubber Trade Association is an association
duly registered u/s 12A of the Income Tax Act, 1961. Assessee holds a
certificate u/s 80G of the Act. The prime object of the assessee is to promote
rubber trade. Assessee has organized its 19th trade fair in the A.Y.
2009-2010. The stalls at fair were booked by members and non members. The fair
generated a business of Rs. 2crores. The non-members contributed only the rent
of the fair amounting to Rs. 10lacs and members contributed a total sum of Rs.
15lacs towards stalls whereas the expenditure incurred was almost Rs. 12lacs. AO was of the view that the
assessee was allowing non members to participate in the trade fair by selling
their stalls. AO therefore concluded that the assessee is deriving income by
carrying on activity in the nature of trade, commerce and business within the
meaning of proviso to Section 2(15) of the Act. Accordingly, AO denied the
benefit of exemption u/s 11. Pl. give your view.
REPLY:
Assessee is an Association duly
registered u/s 12A. Assessee holds a certificate u/s 80G. The prime object of
the association is to promote rubber trade.
The organisation of trade fair is one of
the declared object of the assessee on the basis of which it has been
registered u/s 12A and the donation to it are eligible for deduction u/s 80G.
In this regard, following recent decisions are worth
noting-
1) India
Trade Promotion Organisation vs DGIT (371 ITR 333, Delhi High Court)
2) ITO
vs Indian Leather Products Association (ITA No. 735/K/2013, Kolkata ITAT)
It was held in these decisions that proviso to
Section 2(15) will be attracted only when the assessee is found to be involved
in advancement of any other object of general public utility doing activities
in the nature of trade, commerce and business but where it is seen from the
bye-laws of the assessee trust that the dominant and prime objective of the assessee
is not profit making and actually it is seen that a part of the activity/ service
rendered is in the nature of trade, commerce and business but the same is
incidental to the dominant and prime
objective of the trust, the benefit of exemption u/s 11 cannot be denied. In
the instant case, assuming that the dominant and prime objective of the
assessee is not profit making as per its bye laws, the contribution that
assessee received from the non-members cannot be said to have constituted major
receipts. This is substantiated by the actual income received on operations and
the expenditure incurred. The proviso to Sec 2(15) is not applicable in this
case. Assessee is entitled to the benefit under Sec 11. AO has not disputed the
conditions necessary for allowing exemption u/s 11 except proviso to Sec 2(15).
Hence, the income is not includible in the total income.
Query
No. 4:
Applicability
of Section 2(47)(v)
Siya Transport Finance is a non banking financial
company. The fixed assets schedule as on 31.03.2015 shows ‘building and flat’.
In fact and in effect the head of accounts includes one flat and one parking lot
in one deed and subsequent acquisition of further one parking lot by another
deed which are registered. The assessee
company intends to sale the said assets under two deeds separately. The company
has received 50% as advance towards sale and has entered into two agreements of
sale on 10.01.2015. The company wants to know the applicability of section
2(47)(v) of the Income Tax Act.
REPLY:
In the instant case, the assessee is holding a flat
and two parking lots. The same is held under two registered deeds of
conveyance. The definition of transfer u/s 2(47) of the Act includes a
situation where there is handing over of possession of an asset as per sec 53A
of the Transfer of Property Act even if the sale deed is not registered .
The provision of sec 2(47)(v) is reproduced
hereunder
(v) Any transaction involving the allowing
of the possession of any immovable property to be taken or retained in part
performance of a contract of the nature referred to in section 53A of the Transfer
of Property Act, 1882 (4 of 1882)
As per the above provision, it is clearly evident
that even if the assessee does not register the conveyance deed but enters into
an agreement or does any act which results in allowing the possession of the
said assets to be taken in part performance of a contract as referred to in sec
53A of the Transfer of Property Act, 1882, the asset will be deemed to be
transferred for the purpose of Income Tax Act and capital gain on the same
would be computed and taxed.
It is pertinent to note here that as per Supreme
Court decisions in CIT Vs Bhurangya Coal Co. 34 ITR 802 and Alipati Venkataramiah Vs CIT 57
ITR 185, transfer of immovable property was considered to have been
taken place upon conveyencing and not on the date of agreement for sale. But
the scenario has changed after the insertion of clause (v) to section 2(47)
which has been explained here-in-above. So the capital gains tax liability will
accrue in the A.Y : 2015-16.
