Agricultural Income

2026 PTD 724 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 41 & 111(1)(d), provisoAgricultural land within Islamabad Capital TerritoryAgricultural incomeWhether liable to tax or notExpression "paid tax under the provincial law"Effect

Whether the agricultural income earned by the taxpayer from land situated within Islamabad Capital Territory is subject to income tax under the Income Tax Ordinance, 2001

Held: Section 41 of the Income Tax Ordinance, 2001, clearly provides an exemption for agricultural income; however, this exemption is subject to the application of S. 111(1) of the Ordinance, 2001, which carries the key phrase as "paid tax under the provincial law"; thus, refers to agricultural income tax levied by the provinces

However, in the present case, the appellant's agricultural land is not located within the jurisdiction of any of the provinces of Pakistan

Instead, the land is situated within Islamabad Capital Territory, which does not fall under provincial control

Significantly, there is no existing law that imposes agricultural income tax within the boundaries of Islamabad Capital Territory

Unlike the provinces, which are empowered to levy agricultural income tax under their respective laws, Islamabad Capital Territory is governed by federal law and no corresponding federal legislation has been enacted to impose such a tax

Consequently, the agricultural income derived from land within this territory cannot be subject to agricultural income tax, as no mechanism or law exists to impose or collect it

Since no tax is payable under any provincial law due to the specific location of the land, the proviso to subsection (1)(d) of S.111 of the Ordinance 2001, which concerns unexplained income or assets, does not apply

Thus, in the present case, income-in-question is explained and fully accounted for and is not subject to taxation under the law

Importantly, even the tax department had not asserted that the appellant's agricultural land was located within the jurisdiction of any province, which would make it subject to provincial laws regarding the levy of agricultural income tax

If the department had claimed that the appellant's land was situated in a province, the appellant would have been liable to pay agricultural income tax in accordance with that province's tax laws, however, since no such claim had been made, and the land was within Islamabad Capital Territory, where no provincial laws apply, the imposition of agricultural income tax did not arise in the present case

Therefore, the tax demand created by the Assessing Officer was not sustainable in law

Appellate Tribunal Inland Revenue deleted the addition made by the Assessing Officer and annulled the orders of the tax authorities

Appeal, filed by taxpayer, was allowed.

2015 PTD 1223 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 111(1)(b), 122(1), 122(5), 120 & 41Punjab Agricultural Income Tax Act (I of 1997), S.4-AUnexplained income or assetsDefinite informationAgricultural incomeIssuance of repeated notices for produce-books of accountsTotal of credit entries in bank relating to agriculture receiptsAdditionValidity

Taxpayer had declared net agricultural income as Rs.35,00,000 being exempt income under S.41 of the Income Tax Ordinance, 2001 along with information regarding his bank accounts

Said declared information was filed well before the initiation of proceedings under S.122 of the Income Tax Ordinance, 2001

Net agricultural income could only be arrived at after deducting expenditure, allowances and deductions from the gross receipts of the sale of agricultural produce on the same way as the net business income was arrived at after deducting expenses from the gross receipts

No column existed in the income tax return for the tax year 2001 which required the taxpayer to declare gross agricultural receipts but only a column under the heading "Exempt income/loss" was available in the return for declaring agricultural income and the taxpayer had accordingly declared net agricultural income therein

By no stretch of imagination it could be held that the net agricultural income could be arrived at without bearing any expenditure or allowances

Section 4-A of the Punjab Agricultural Income Tax Act, 1997 allowed a taxpayer to made deductions while computing net agricultural income

Assessing authority while examining the bank statement had ignored such aspect of the case and presumed that the entire credit entries in the bank statement were suppressed and were undisclosed business receipts

Assessing Authority asked the taxpayer to produce books of accounts and other supporting documents by issuing several notices

Assessing Officer had not shown any doubt with regard to the receipts from the sale of agricultural produce, but had rejected the same only on the ground that the taxpayer had failed to produce the books of accounts in that regard and bifurcation of the bank deposits relatable to agricultural receipts

Such type of treatment itself proved that the Assessing Officer had no "definite information" or any other corroborated evidence showing that the receipts were concealed business receipts instead of "exempt agricultural receipts"

First Appellate Authority had affixed the stamp on the doubt assumption and presumption of the Assessing Officer

Any information which created doubt or provided reason to suspect that the income or receipts had been concealed or suppressed did not form part of the term "definite information"

Deemed assessment was amended by presuming that the difference between the declared receipts and of total of credit entries were suppressed business receipts ignoring the fact of declared agricultural income which did not constitute 'definite information' but was a departmental opinion evolved on the basis suspicion, presumption and assumption

Taxpayer having declared agricultural income in his return of income was not legally required to declare gross agricultural receipts in his return

Notices for initiation of proceedings under S.122(5) of the Income Tax Ordinance, 2001 were void ab initio and of no legal effect

Proceedings initiated on the basis of illegal notices and superstructure constructed thereon in the shape of amended order under S.122(1)/(5) of the Income Tax Ordinance, 2001 were nullity in law

Order of First Appellate Authority was vacated and amended order passed by the Assessing Officer was annulled by the Appellate Tribunal by declaring to have been passed against the spirit of Income Tax Ordinance, 2001.

2015 PTD 1223 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 41, 114 & 122(5A)Agricultural incomeAmendment of assessmentBooks of accounts

Assessing Officer required books of accounts in respect of agricultural income which was exempt income under S.41 of the Income Tax Ordinance, 2001 and taxpayer was not legally obliged to prepare books of accounts in respect of exempt agricultural income

Taxpayer had voluntarily declared agricultural income in his return of income along with his business income

If the taxpayer earned only agricultural income covered by S.41 of the Income Tax Ordinance, 2001 he was legally not required to file return of income under S.114 of the Income Tax Ordinance, 2001.

2012 PTD 1301 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S. 41Khyber Pakhtunkhwa, Land Tax and Agricultural Income Tax Ordinance, 2000 Second Sched.Agricultural incomeJurisdiction of Taxation Officer

No doubt, the actual agricultural income was exempt from federal taxation under S.41 of the Income Tax Ordinance, 2001, but it did not mean that the taxpayer was scotfree to declare such income at his sweet will

Taxation Officer was vested with the jurisdiction to check the veracity and quantum of correct income as exemption from income tax was provided only on true and correct agricultural income

Taxation Officer for the purpose could lend support from the Provincial statute of Land Tax and Agricultural Income Tax Ordinance, 2000

Any income which did not come under the provincial statute of agricultural income taxation could not be considered or accepted as agricultural income under any other law

Computation and payment of Government taxes under the two statutes and Government agencies could not be at variance with each other

Income Tax Ordinance, 2001 which was a Federal Statute of taxation was dependent upon the provincial legislation for assessment of true and correct amount of agricultural income which suffered the agricultural income tax

Taxpayer could not be allowed to misclassify his taxable income of federal legislation as being exempt from taxation under the garb of agricultural income thereby to avoid payment of lawful tax

If it was proven fact that the income declared was not the agricultural income then such income was taxable under provision of Income Tax Ordinance, 2001

Declaring agricultural income different under one legislation than other legislation was against the ethics and was violation of income tax law as embodied in Income Tax Ordinance, 2001

If the income declared was found under-assessed or it was inflated and the element of avoidance was involved then the Taxation Officer was well within the authorization to add such income towards the taxable income of the taxpayer.

2012 PTD 1301 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S. 41Agricultural incomeDeclaration of agricultural income

Objection regarding declaration of agricultural income per history did not carry weight because at the relevant period there was no Provincial Agricultural and Land Income Tax Ordinance, 2000 in the field

First time provincial tax law had been promulgated in the year 2000, while each tax year was independent year and it should be dealt with in accordance to its own fact and law

If something had been overlooked, in the history, it should be cured in future

If it was overlooked that would amount to grant of amnesty for wrong doing, one could not be left at his sweet will to misclassify, or to make mis-declaration, which was not the mandate of law, whereas the mandate of law was that the Income Tax Ordinance, 2001 gave the jurisdiction and authority to the Taxation Officer to investigate and probe the correct income.

2012 PTD 1301 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 41, 120(1)(B), 122(5) & 122(9)Khyber Pakhtunkhwa Land Tax and Agricultural Income Tax Ordinance, 2000, Second Sched.Agricultural incomeDefinite informationPayment of agricultural income taxAgricultural income was imputed on the basis of such paid taxValidityInformation obtained from District Officer Revenue and Estate, about payment of agricultural income tax was definite

Under the obligation of Khyber Pakhtunkhwa Agricultural Income Tax Ordinance, 2000, taxpayer had paid tax of Rs.10,800 against which imputable agricultural income came to Rs.23,000, whereas it had been declared at Rs.1,800,000 which suggested the avoidance of taxation under the Income Tax Ordinance, 2001

Taxpayer could get the credit of imputable agricultural income under the Income Tax Ordinance, 2001; it stood proved that Taxation Officer had taken the action and had amended the order on the basis of "definite information" and for the reason of under assessment, which could not be disproved

Declaration of agricultural income over and above Rs.223,000 under the Income Tax Ordinance, 2001 i.e. at Rs.1,800,000 was inflated and was liable to addition toward the income of the taxpayer, which had rightly been subjected to addition by the Taxation Officer

No iota or any doubt existed to the effect that First Appellate Authority had committed a grave mistake by vacating the order of the Taxation Officer

Order of First Appellate Authority was set aside, which resulted in restoration of the amended order passed by the Taxation Officer.

1961 PTD 679 SUPREME-COURT-INDIA Judicial Precedent

S. 2 (1) (a)-Agricultural income - "Assessed to land revenue" - Meaning - Permanently settled land-Acquisition by Government for municipal authority­ Conveyance by Government after receiving capitalized value of land revenue from Municipal authority, "for ever discharged from all Government land revenue"-Effect-Whether land deemed to be still assessed to land revenue.

1948 PLD 178 PRIVY-COUNCIL Judicial Precedent

S. 2 (1)-" Agricultural income "-Income of assessee must itself be of that character

Source or method of calculation not relevant. Where an assessee receives income, not itself of a character to fall within the definition of agricultural income contained in the Act, such income does not assume the character of agricultural income by reason of the source from which it is derived, or the method by which it is calculated. But if the income received falls within the definition of agricultural income it earns exemption, in whatever character the assessee receives it. In the present case the assessee received no agricultural income as defined by the Act ; it received remuneration under a contract for personal service calculated on the amount of profits earned by the employer, pay' able, not in specie out of any item of such profits, but out of any moneys of the employer available for the purpose. The remuneration therefore is not agricultural income and is not exempt from tax.