1981 PLP (Trib (PTD)

MIAN ABDUL KHALIQ (MEMBER).-This further appeal filed at the instance of the assessee pertaining to the assessment year 1970-71 arises out of the order of learned A. A. C. of Income-tax Range . . . .

2. The appellant is an A. O. P. deriving income running a Nursery. Proceedings were initiated by the Income-tax Department on the basis of survey report. Notices under sections 34 and 22(4) of the Income-tax Act, 1922 (hereinafter referred to as the "Act") were served on the assessee by affixture for the charge years 1968-69 through 1974-75. In response thereto the assessee filed return only for the charge year 1968-69 claiming exemption from levy of income-tax as income derived from Nursery constituted agricultural income, which was not assessable to income-tax. For the year under con sideration the assessee neither filed any return nor made appearance on the fixed date of hearing. The

1. T. O. while proceeding ex parte under sec tion 23(4) of the Act, held that the assessee's income from nursery not being agricultural income was subject to levy of income-tax. Estimate of the assessee's net income was adopted at Rs. 14,

000. This assessment success fully stood the test of appeal before the learned A. A. C.

3. The main submission of the appellant's learned counsel was that income derived from Nursery constitutes agricultural income which is exempt from levy of income-tax under section 4(3)(viii) of the Act. The learned counsel for the appellant contended that all the saleable items, planted and produced from a nursery under-went the agricultural process such as ploughing of land, seeding, plantation and grafting etc. It was further submitted on behalf of the assessee that agricultural income as defined in subsection (1) of section 2 of the Act fully cover the assessee's case as the land covered by the nursery was subject to payment of the land revenue and water rate. The appellant learned counsel quoted definition of `Nursery'. 'Agricultural' and 'Rate' from the various dictionaries. In this behalf reliance was also placed on some reported cases which will discuss in the latter part of this order. The learned D. R. reiterated the plea advanced by the officers below and submitted that growing of flowers in certain piece of land will neither be agriculture nor income derived therefrom will be agricultural income, rendering the nursery products to be exempt from levy of income-tax. The learned D. R. further contended that plantation of flowers in a nursery was a regular trade involving no element of agriculture and as such the officer below rightly subjected income therefrom to Income-tax.

4. For decision of the issue involved, it is pertinent to bring on record the definition of (agricultural income 'as prescribed in subsection (1) of section 2 of the Act Agricultural income means- (a) any rent on revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in Pakistan or subject to a, local rate assessed and collected by the officers of the Government, as such. (b) Any income derived from such land by agriculture. The main controversy to be resolved is whether income from running a nursery is agricultural income or not. In nutshell the word `agricultural income' as mentioned in sub-clause (a) of subsection (1) of section 2 of the Act specifies three conditions; (i) the rent or revenue should be derived from the land used for agri cultural purposes. (ii) the land should be either assessed to land revenue or subjected to local rate. (iii) the income from such land should be derived by agriculture.

5. The words `Agriculture' and `Nursery' have not been defined in the Act. Before entering into discussion and merits of the case, we would like to point out the dictionary meanings of the words involving interpretation. These are as under: (i) Agriculture.

In Ballantive's Law Dictionary at page 54, `Agriculture' has been defined as the science or art of cultivating the soil and its fruits, especially in large areas or fields and the raising feeding and management of livestock thereon, including every process and step necessary and incident to the completion of products therefrom for consumption or market and the incidental turning of them to account. In Black's Law Dictionary at page 91, agriculture has been defined a the cultivation of soil for food products or any other useful or valuable e growth of the field or garden, tillage, husbandry and also by extention farming including any industry practised by a cultivator of the soil in con nection with such cultivation as breeding of livestock dairing etc. (ii) Nursery.

As per Webster Encyclopedic Dictionary of English Langu age `Nursery' means a place where trees, shurbs and flowering plants are raised from seeds or otherwise in order to be transplanted or sold. In Ballantives Law Dictionary at page 874 `Nursery' has been defined as a place where shrubs, trees, plants and so forth are propagated from seed or otherwise for transplanting for use as stock, for grafting and for sale.

6. As per dictionary meanings `agriculture' and `nursery' are co- relatable terms. When exemption is sought as agriculture income, primary condition to .be complied with is that the land in question must be used for agricultural purposes. In the case of C. I. T. v. Kumar Ram Nayan Rai Choudhary and others ((1959) 1 Taxation 207), word `agriculture' has been interpreted holding that "its primary sense denotes the cultivation of the land in strict sense of the term, meaning thereby, tilling of the land, sowing of the seeds, planting any similar operations on the land. These are basic operations and require the expenditure of human skill and labour upon the land itself". In the case of C. I. T. v. Benoy Kumar Sahas Roy ((1932) I T R 466) following principles were laid down for determining the meaning of the land used for agricultural purposes: (a) some basic operations, prior to germination, involving expenditure of human skill and labour on the land itself and not merely on the growths from the land, is essential to constitute agriculture: illustrative instances of such basic operations are tilling of the land, sowing or disseminating of seeds, and planting. (b) Agriculture connotes not merely raising of grain and food products for men and animals but also the raising of ail commercial crops i.e. the cultivation of a casuarina plantation, tea, coffee, tobacco, cotton, toddy trees, rubber and jute etc. In this very case, denuded parts of the forest trees were replanted and sub sequent operations in foresrty were carried: Income from the sale of such replanted tree was held to be agricultural income. In another case reported as (1960) 2 Tax. Part. V 221, income from orchards taken on lease was held to be agricultural income. The Privy Council in the case of Mustafa Ali Khan v. C. I. T. (16 I T R 330), laid down the following principles:- (i) No assistance is to be got from the meaning ascribed to the word `agriculture' in other statues. (ii) Through it must always be difficult to draw the line, yet, unless there is some measure of cultivation of the land, some expenditure of skill and labour upon it, it cannot be said to be used for agricultural purposes within the meaning of the Income-tax Act.

7. For determining whether a particular income is, agricultural income, the prerequisite condition when viewed in the light of different pronounce ments will be that the process must be one, which is ordinarily employed by a cultivator. It may be manual or involve use of machinery. The process involved must be employed to render the produce to be taken to the market. The produce must be out-come of tilling and cultivation, sowing or dis semination of seeds, grafting and-watering of the land.

8. The learned A. A. C. erred in holding that process involved in Nursery was not of agricultural nature. No doubt the words `agricultural', `agriculture' have not been defined in the Act but taking into consideration the interpretation given in judicial pronouncements alongwith meanings given in the various dictionaries farming, horticulture, forestry, dairying etc. could be included in agriculture as process involved therein is the similar. The term agriculture has been understood to mean art or science of cultivating the ground, especially in fields or large quantities including preparation of the soil, the planting of trees, the raising and harvesting of crops thrashing, feeding and management of livestock, tillage husbandry and farming. In a Nursery, plants are raised from seed or transplanted by cultivating and the entire process involved is similar to that of agriculture. In its general sense, the word `agriculture' also includes gardening, or horticulture.

9. The learned A. A. C. was also wrong in attributing limited meanings to the word `agricultural'. The word having not been defined in the Act, the general meaning as mentioned in various dictionaries alongwith judicial pronouncements lead to be given for the purposes of the Act as well. The learned A. A. C. took an erroneous view in holding that Nursery run on commercial lines is an activity in the nature of trade of horticulture having down distinct identity not amounting to agricultural income. If this interpretation of the learned A. A. C. is accepted cultivation of any particular item in land will not come within the ambit of agriculture, as for example; if a person undertakes rice plantation, it cannot be said that as he has planted only a food item, the same is not an `agriculture' rather, a trade in rice. 'The process involved in agriculture items i.e. wheat, rice and plantation of trees and flowers is the same. Very few flowers of plants can be sown in the pots otherwise all the horticulture items are usually sown in the land involving the same process of cultivation as of other agricultural items. In Nursery, process of tilling of the soil, plantation and breeding is fully involved. Regular breeding is required and there after some of the plants are transferred from land to pots otherwise entire fruits plants are sold after taking away from the land. On this basis, we have no hesitation in holding that entire operations employed in running a nursery are that of agriculture and income derived therefrom is agriculture income.

10. This brings us to the requirements as prescribed under clause (a) of subsection (1) of section 2 of the Act for determining whether the income derived from running a Nursery will be agricultural income or not. On this issue only two things are required; these are payment of land revenue or local rate. From 1-7-1977 by Finance Act, 1977 condition of payment of land revenue was abolished. In the instant case, the Assessing Officer having proceeded ex parte no opportunity could be afforded to the assessee to establish the factum of payment of land revenue. It was, therefore, erron eously assumed that land being ownership of the Government land revenue was payable by the Provincial Government. The alleged substituted service of notices is invalid being not in conformity, with the requisite procedure for substituted service. Neither the place of affixture of notices was mentioned nor presence of witnesses of service was recorded. There was only a vague report of the Process-Server that he had effected service by affixture. This type of service is nullity in the eye of law. In this view of the matter, we are of the view that the assessee was not afforded any opportunity to adduce evidence and he was prevented by a sufficient cause in not producing evidence at the assessment stage. On our record, certificate from Tehsildar, was placed to establish that land revenue was regularly paid by the assessee for the land underneath the Nursery. We entertain the certificate issued by the Revenue Authorities in support of plea of payment of land revenue by the assessee for the year under review. After perusal of the certificate, we hold that findings of the officers below on the objection of non-payment of land revenue by the assessee stands belied. Condition of payment of land revenue for the land underneath the Nursery thus stood duly complied with. The alternate ingredient is payment of local rate. As per dictionary meanings local rate means; a sum assessed or payable .to a body having local jurisdiction where the land is situated. The assessee's case was that local rate was regularly collected by the officers of the Irrigation Department and as such the requisite condition of payment of local rate also stood duly complied with. In the case of Province of West Pakistan v. Malik Khizar Mayat Tiwana (P L D 1963 S C 423) it was held that `for the purposes of Punjab Agricultural Income- tax Act, 1950, Khush Haisiyyati must be included in the land revenue for the assessment of agricultural income-tax. Khush Kaisiyyati was imposed as part of the land revenue on irrigated lands and the imposition derived its authority from the Punjab Lard Revenue Act. In another case of C. L T., New Delhi v. Bakhshi Blragchand ((1961) 42 I T R 657) it was held that the assessee's land was subject to a local rate or cess which was collected by the Government or its officers within the meaning of section 2(1)(a) of the Income-tax Act and the assessee was, therefore, entitled to exemption of his income from those land under section 4(3)(viii) of the Act. The dictionary meaning of local rate when considered in the light of various decisions, will include the water rate paid by the assessee to the Irrigation Authorities of the Government. Even otherwise, payment of water advantage rate is nothing short of payment of land revenue on account of Irrigation of land. In this view of the matter the alternate condition of payment of local rate also stood duly complied with by the assessee.

11. The upshot of the above discussion is that the income derived by the assessee from running a Nursery falls within the ambit of agricultural income as defined in subsection (1) of section 2 of the Act. Agricultural income being exempt from levy of income-tax under section 4(3)(viii) of the Act, income derived by the assessee was not liable to income-tax.

12. As a result of the above discussion, the orders of the officers below are vacated and the assessee's income is declared to be exempt from levy of income-tax. The appeals succeeds accordingly. Appeal allowed.