I run a nursery. Explanation 3 to s.2(1A) says income from saplings or seedlings grown in a nursery is agricultural income. The Assessing Officer has treated half my receipts as business income because my contracts also cover planting and landscaping at the customer's site. Can he?
Yes. The Bangalore Tribunal held that by virtue of Explanation 3 to s.2(1A) only income derived from the sale of saplings and seedlings grown in the assessee's OWN nursery is deemed to be agricultural income, and that receipts under a composite contract that also covers preparing the client's site, supplying soil and fertiliser, making pits, planting, engaging horticulturists and insuring the plants are not. The ad hoc split of 50 per cent made by the Assessing Officer and confirmed by the Commissioner (Appeals) was upheld and the appeal was dismissed.
Decided by the ITAT (George George K, Judicial Member (Bangalore Benches 'SMC-A')) on 2021-03-04, reported as ITA No. 36/Bang/2020; date of hearing 3 March 2021. It bears on section 2(1A), section 10(1), section 143(2), section 142 of the Income Tax Act 1961, in Capital Gains Exemptions, How Tax Law Is Read and Evidence & Burden of Proof matters.
Explanation 3 is narrower than nursery operators read it. It deems income from saplings or seedlings GROWN IN A NURSERY to be agricultural income; it does not deem everything a nursery business earns to be agricultural. The Tribunal's route through Raja Benoy Kumar Sahas Roy is what makes the decision transferable. Agriculture in its primary sense means cultivation of the land — tilling, sowing, planting and similar operations on the land itself, requiring human skill and labour expended on the land. Those are the basic operations. Subsequent operations — weeding, digging the soil around the growth, removing undesirable undergrowth, tending, pruning, cutting, harvesting and rendering the produce fit for market — are agricultural operations only when taken in conjunction with and in continuation of the basic operations; divorced from them they cannot constitute agricultural operations by themselves. The Tribunal applied that to hold that once the plants had been planted at the client's site and had become the client's property, what the nursery did afterwards was maintenance, not a subsequent operation in the strict sense, and the income from it was not agricultural. Two practical points follow. First, the date: Explanation 3 was inserted by the Finance Act 2008 with effect from 1 April 2009, so it governs assessment year 2009-10 onwards, and this was assessment year 2016-17, comfortably inside it; for a year before that, the claim has to be made on s.2(1A) itself and the Benoy Kumar test without the deeming provision. Second, purchased stock: the Assessing Officer also noticed that some plants were bought in from other suppliers rather than grown, and that is a separate and equally effective attack on the exemption.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessment year was 2016-17. The assessee was a firm running a nursery which sold various types of plants and saplings. It filed a nil return on 6 March 2018 and claimed exempt agricultural income of Rs 20,11,009. On scrutiny the Assessing Officer found that the assessee had undertaken composite contracts under which it not only sold plants but also carried out softscape and landscaping work, and that some plants and saplings were not grown in its own nursery but bought from other suppliers. He held that the portion other than the supply of plants and saplings could not be agricultural income, treated Rs 10,05,509 as exempt and brought Rs 10,05,500 to tax as profits and gains of business. The Commissioner (Appeals), on 1 November 2019, examined the purchase order and invoices, held the receipts were under a composite contract covering supply of plants plus softscape and landscaping, held that only income from the sale of saplings and seedlings grown in the assessee's own nursery could be agricultural income, and relying on the Karnataka High Court in CIT v. Namdhari Seeds (P) Ltd. 341 ITR 342 upheld the 50 per cent split. Before the Tribunal the assessee filed a 256-page paper book and argued, on Raja Benoy Kumar Sahas Roy, that primary and subsequent operations form one integrated agricultural activity and that the softscape work at clients' premises was therefore an agricultural operation.
The appeal was dismissed and the order of the Commissioner (Appeals) confirming the assessment was upheld. Income derived by the assessee from activities other than the sale of plants raised in its own nursery is not agricultural income within s.2(1A) (paras 7.5 and 7.6).
The Tribunal set out s.2(1A) in full with its Explanations and noted that under Explanation 3 income derived from the sale of saplings and seedlings grown in a nursery is deemed to be agricultural income (paras 7 and 7.1). It then set out the passage from CIT v. Raja Benoy Kumar Sahas Roy on the meaning of agriculture: cultivation of the field in the strict sense, meaning tilling of the land, sowing of the seeds, planting and similar operations on the land, being the basic operations requiring the expenditure of human skill and labour upon the land itself; and subsequent operations — weeding, digging the soil around the growth, removal of undesirable undergrowth, operations fostering growth and preserving the produce from insects, pests and depredation, tending, pruning, cutting, harvesting and rendering the produce fit for the market — which are agricultural operations only when taken in conjunction with the basic operations, the mere performance of subsequent operations on products not raised by the basic operations being insufficient (para 7.1). It drew the conclusion that unless the basic operations have been carried out on the land, income is not agricultural income, and that subsequent operations by themselves do not qualify (para 7.2). Turning to the record, the Tribunal examined Annexure 1A of the final bill of quantity issued by M/s. Nam Estates Private Limited and found the assessee had undertaken composite contracts covering not merely the supply of saplings or seedlings grown in its nursery but preparing the client's site, supply of soil, supply of fertiliser, engaging manpower including senior horticulturists, insurance, making pits, planting and other related works (para 7.3). On that footing the primary operation in the assessee's nursery was confined to growing plants and saplings; everything else was carried out at the client's site on plants that had by then become the client's property, and what the assessee did thereafter was maintenance and not a secondary operation in the strict sense (para 7.5). The judicial decisions relied on by the assessee were distinguished because in those cases both primary and secondary operations had been carried out on the assessee's own land (para 7.6).
unless the assessee has carried out the basic operations upon the land, i.e., tilling of the land, sowing of the seeds, planting, etc., requiring the expenditure of human skill and labour upon the land, it cannot be said that the income earned by the assessee is agricultural income.
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Handle my notice → Ask a CA on WhatsAppYes. The Bangalore Tribunal held that by virtue of Explanation 3 to s.2(1A) only income derived from the sale of saplings and seedlings grown in the assessee's OWN nursery is deemed to be agricultural income, and that receipts under a composite contract that also covers preparing the client's site, supplying soil and fertiliser, making pits, planting, engaging horticulturists and insuring the plants are not. The ad hoc split of 50 per cent made by the Assessing Officer and confirmed by the Commissioner (Appeals) was upheld and the appeal was dismissed. This was decided by the ITAT (George George K, Judicial Member (Bangalore Benches 'SMC-A')) and bears on section 2(1A), section 10(1), section 143(2), section 142 of the Income Tax Act 1961. It is reported as ITA No. 36/Bang/2020; date of hearing 3 March 2021. Explanation 3 is narrower than nursery operators read it. It deems income from saplings or seedlings GROWN IN A NURSERY to be agricultural income; it does not deem everything a nursery business earns to be agricultural. The Tribunal's route through Raja Benoy Kumar Sahas Roy is what makes the decision transferable. Agriculture in its primary sense means cultivation of the land — tilling, sowing, planting and similar operations on the land itself, requiring human skill and labour expended on the land. Those are the basic operations. Subsequent operations — weeding, digging the soil around the growth, removing undesirable undergrowth, tending, pruning, cutting, harvesting and rendering the produce fit for market — are agricultural operations only when taken in conjunction with and in continuation of the basic operations; divorced from them they cannot constitute agricultural operations by themselves. The Tribunal applied that to hold that once the plants had been planted at the client's site and had become the client's property, what the nursery did afterwards was maintenance, not a subsequent operation in the strict sense, and the income from it was not agricultural. Two practical points follow. First, the date: Explanation 3 was inserted by the Finance Act 2008 with effect from 1 April 2009, so it governs assessment year 2009-10 onwards, and this was assessment year 2016-17, comfortably inside it; for a year before that, the claim has to be made on s.2(1A) itself and the Benoy Kumar test without the deeming provision. Second, purchased stock: the Assessing Officer also noticed that some plants were bought in from other suppliers rather than grown, and that is a separate and equally effective attack on the exemption. If it applies to you, the first step is this: Split the contract before the Assessing Officer does. Invoice and account separately for the sale of saplings and seedlings grown in your own nursery and for site work, landscaping, soil, fertiliser, manpower and insurance.
The assessment year was 2016-17. The assessee was a firm running a nursery which sold various types of plants and saplings. It filed a nil return on 6 March 2018 and claimed exempt agricultural income of Rs 20,11,009. On scrutiny the Assessing Officer found that the assessee had undertaken composite contracts under which it not only sold plants but also carried out softscape and landscaping work, and that some plants and saplings were not grown in its own nursery but bought from other suppliers. He held that the portion other than the supply of plants and saplings could not be agricultural income, treated Rs 10,05,509 as exempt and brought Rs 10,05,500 to tax as profits and gains of business. The Commissioner (Appeals), on 1 November 2019, examined the purchase order and invoices, held the receipts were under a composite contract covering supply of plants plus softscape and landscaping, held that only income from the sale of saplings and seedlings grown in the assessee's own nursery could be agricultural income, and relying on the Karnataka High Court in CIT v. Namdhari Seeds (P) Ltd. 341 ITR 342 upheld the 50 per cent split. Before the Tribunal the assessee filed a 256-page paper book and argued, on Raja Benoy Kumar Sahas Roy, that primary and subsequent operations form one integrated agricultural activity and that the softscape work at clients' premises was therefore an agricultural operation. The matter was decided on 2021-03-04 by the ITAT (George George K, Judicial Member (Bangalore Benches 'SMC-A')). On those facts the ITAT held as follows. The appeal was dismissed and the order of the Commissioner (Appeals) confirming the assessment was upheld. Income derived by the assessee from activities other than the sale of plants raised in its own nursery is not agricultural income within s.2(1A) (paras 7.5 and 7.6).
The Tribunal set out s.2(1A) in full with its Explanations and noted that under Explanation 3 income derived from the sale of saplings and seedlings grown in a nursery is deemed to be agricultural income (paras 7 and 7.1). It then set out the passage from CIT v. Raja Benoy Kumar Sahas Roy on the meaning of agriculture: cultivation of the field in the strict sense, meaning tilling of the land, sowing of the seeds, planting and similar operations on the land, being the basic operations requiring the expenditure of human skill and labour upon the land itself; and subsequent operations — weeding, digging the soil around the growth, removal of undesirable undergrowth, operations fostering growth and preserving the produce from insects, pests and depredation, tending, pruning, cutting, harvesting and rendering the produce fit for the market — which are agricultural operations only when taken in conjunction with the basic operations, the mere performance of subsequent operations on products not raised by the basic operations being insufficient (para 7.1). It drew the conclusion that unless the basic operations have been carried out on the land, income is not agricultural income, and that subsequent operations by themselves do not qualify (para 7.2). Turning to the record, the Tribunal examined Annexure 1A of the final bill of quantity issued by M/s. Nam Estates Private Limited and found the assessee had undertaken composite contracts covering not merely the supply of saplings or seedlings grown in its nursery but preparing the client's site, supply of soil, supply of fertiliser, engaging manpower including senior horticulturists, insurance, making pits, planting and other related works (para 7.3). On that footing the primary operation in the assessee's nursery was confined to growing plants and saplings; everything else was carried out at the client's site on plants that had by then become the client's property, and what the assessee did thereafter was maintenance and not a secondary operation in the strict sense (para 7.5). The judicial decisions relied on by the assessee were distinguished because in those cases both primary and secondary operations had been carried out on the assessee's own land (para 7.6). In the words reproduced by the source cited on this page: "unless the assessee has carried out the basic operations upon the land, i.e., tilling of the land, sowing of the seeds, planting, etc., requiring the expenditure of human skill and labour upon the land, it cannot be said that the income earned by the assessee is agricultural income." The decision followed or applied CIT v. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466 (SC) — applied; CIT, Central v. Namdhari Seeds (P) Ltd. 341 ITR 342 (Kar.) — relied on by the Commissioner (Appeals) and not disturbed.
It was decided by the ITAT on 2021-03-04 and is reported as ITA No. 36/Bang/2020; date of hearing 3 March 2021. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 2(1A), section 10(1), section 143(2), section 142, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed and the order of the Commissioner (Appeals) confirming the assessment was upheld. Income derived by the assessee from activities other than the sale of plants raised in its own nursery is not agricultural income within s.2(1A) (paras 7.5 and 7.6). It arises in Capital Gains Exemptions, How Tax Law Is Read and Evidence & Burden of Proof matters, on section 2(1A), section 10(1), section 143(2), section 142 of the Income Tax Act 1961, and was decided by George George K, Judicial Member (Bangalore Benches 'SMC-A'). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Keep the evidence of the basic operations in the nursery itself — land, tilling, sowing, potting, propagation records — because that is what Explanation 3 and the Benoy Kumar test require. Separate bought-in plants from home-grown plants in the stock records. Resale of plants purchased from other nurseries is not covered by Explanation 3. State the assessment year against 1 April 2009. Explanation 3 applies from assessment year 2009-10; for an earlier year the claim stands or falls on s.2(1A) and the basic-operations test alone. If an ad hoc percentage split is proposed, contest the percentage with the actual contract figures. The 50 per cent here was upheld because the assessee had not produced a workable apportionment, not because 50 per cent is a rule. Read Namdhari Seeds (Karnataka High Court) before arguing the point in that jurisdiction — it was relied on by the Commissioner (Appeals) and is already in this library.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator returns nothing. A name search returns two documents: the order itself and Jayanti Botanical Gardens v Additional/Joint/Deputy/Assistant CIT (Karnataka High Court, 3 September 2022). That writ petition was opened - it challenges a faceless assessment order, demand and penalty notice of 26 March 2021 for AY 2018-19 on the ground that an adjournment and personal-hearing request was ignored, and the orders were quashed and remitted on natural-justice grounds. It does not arise out of, or refer to, ITA No.36/Bang/2020, and says nothing about section 2(1A) or Explanation 3. No later Bench has applied the nursery / basic-operations reasoning. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read in full from the indiankanoon print view. The order reproduces s.2(1A) with all four Explanations, including Explanation 3 and the post-Finance Act 2013 text of the proviso to sub-clause (c) with the words 'measured aerially'; that reproduction is the corroboration used elsewhere in this batch for the current statutory text. The order quotes a long passage from Raja Benoy Kumar Sahas Roy at para 7.1 but does not close the quotation marks, so the extent of the quotation is judged from the text; the entry does not use that passage as a key quote for that reason. The report carries the usual slips ('depradation', 'basis operation' for 'basic operation', 'Buttom'-style typos). The order is an SMC-A single-member order, so it is written in the first person singular in places and the first person plural in others. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed and the order of the Commissioner (Appeals) confirming the assessment was upheld. Income derived by the assessee from activities other than the sale of plants raised in its own nursery is not agricultural income within s.2(1A) (paras 7.5 and 7.6).
TaxSphere, “M/s. Jayanti Botanical Gardens v ITO, Bangalore”, https://taxnotice.vittsphere.com/caselaw/case/jayanti-botanical-gardens-v-ito-nursery-explanation-3-and-basic-operations/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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