Taxability of Income of nursery growing and selling flowers, flowers pants

There are two type of operations are generally carried out in nursery or greenhouse operations. In the case where soil is removed from the land and kept in various pots etc and subsequent operations are carried out in pots. In such a scenario income from sale of flowers or nursery products will be considered as agriculture income because basic operation had been done on the soil and there is no relevance of subsequent operation hence sapling or seeding grown is considered as deemed agricultural income but if flower plants are sold after purchased it from farm house will be business income.

Income from Sale of forests, trees, wild grasses, fruits and flowers grown spontaneously and without human effort will be taxed under Section 28 of the Act as income from Business or Profession.

Income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income [Explanatory notes to the provisions of the Finance Act, 2008 - Circular No. 1/ 2009, dated 27.03.2009]

4. Widening the scope of “agricultural income”

4.1 “Agricultural income” is defined in sub-section (1A) of section 2 of the Act mean, inter-alia, income derived from land which is situated in India and is used agricultural purposes. Such agricultural income is exempt from tax under sub-section (1) of section 10 of the Income-tax Act, 1961. It has been held by judicial authorities that whether income from nursery operations constitutes agricultural income or not, will depend on the facts of each case. If the nursery is maintained by carrying out basic operations on land and subsequent operations are carried out in continuation the basic operations, then income from such nursery would be agricultural income not liable to tax under section 10. However, if the nursery is maintained independently without resorting to basic operations on land, then income from such nursery would not be agricultural income and would be liable to be included in the total income.

4.2 With a view to giving finality to the issue, an Explanation in section 2 of Income-tax Act, has been inserted providing that any income derived from saplings seedlings grown in a nursery shall be deemed to be agricultural income. Accordingly, irrespective of whether the basic operations have been carried out on land, such income will be treated as agricultural income, thus qualifying for exemption under sub-section (1) of section 10 of the Act.

4.3 Applicability: This amendment has been made applicable with effect from April, 2009 and shall accordingly apply for assessment year 2009-10 and subsequent assessment years.

Income  from flower and petals, growing of -  Where assessee, a landscaping architect, declared income derived from flowers and petals grown in plots as agricultural income and produced details of expenditure incurred in this regard, said income was agricultural income and was exempted under section 10(1)

Assessee, a landscaping architect, was running two business concerns viz. plant scape and flowers and petals. He filed return of income declaring taxable income from plant scape business and agricultural income from flowers and petals grown in plots. It produced details of expenditure incurred in raising flowers and petals in plots. Assessing Officer treated income derived from flowers and petals grown in plots as business income. Tribunal held that even plants grown in plots was an agricultural activity and, therefore, income derived from flowers and petals grown in plots was agricultural income and same was exempted under section 10(1). Since it was not case of Assessing Officer that assessee had not produced any details of expenditure incurred in raising flowers and petals in plots, he was not justified in his view. In peculiar facts of case order of Tribunal deserved to be upheld. [In favour of assessee] (Related Assessment year : 2004-05) - [CIT v. K.N. Pannirselvam (2017) 77 taxmann.com 24 (Mad.)]

Growing of plants in pots of nursery involves all activities of agricultural farming

Agricultural income (Nursery) - Growing of plants in nursery is an agricultural activity as this involves all activities of agricultural farming. Assessee owned agricultural land and claimed agricultural income from agricultural operation in nursery of flower and petals in pots. Revenue contended that assessee did not submit any document with regard to expenditure incurred towards agricultural operations of nursery. Where revenue had not raised issue of expenditure on income from flowers and petals of nursery during assessment proceedings and even during appeal, it could not be introduced for first time in appeal under section 260A. [In favour of assessee] (Related Assessment year : 2007-08) – [CIT v. K. N. Pannirselvam (2016) 243 Taxman 219 : 75 taxmann.com 98 (Mad.)]

Where assessee-company constructed a green house floriculture project and it grow rose flowers on bridge of plastic trays erected with help of M. S. stand 2-3 ft. above said land, operation carried out by assessee was agricultural operation

Assessee acquired agricultural land from agriculturist on lease and constructed a green house floriculture project on said land - It started growing of rose flowers/plants on bridge of plastic trays erected with help of M.S. stand 2-3 ft above said land - According to assessee, for plantation of roses a very well treated soil was required, manures were mixed in soil for preparing a base for growing rose plants, trays were filled with a mixture of soil, insecticides were sprinkled on plants to save plants from any disease, root stocks were brought from market and placed in green house, mother plant was otherwise reared on earth, subsequently saplings were planted on plastic trays, which were kept at height of 2-3 ft. placed on M.S. stand, purpose of growing rose plants at a height was primarily to avoid pest and to develop in a controlled atmosphere, and green house was used for various benefits so that sun-light and humidity level both could be maintained - Assessee claimed that income earned from sale of rose flowers was an agricultural income eligible for exemption under section 10(1) - Assessing Officer held that rose plants were not planted on earth land and no basic agricultural operation was carried out by assessee on land. He, therefore, concluded that in absence of basic agricultural operation, income in question was not an agricultural income and, thus, was not eligible for exemption under section 10(1). On due consideration of activity as explained by assessee, it was evident that operation carried out by assessee was agricultural operation in nature. Therefore, income in question was an agricultural income eligible for exemption under section 10(1). [In favour of assessee] (Related Assessment year : 2005-06) - [DCIT, Navsari v. Best Roses Biotech (P) Ltd. (2012) 17 taxmann.com 56 (ITAT Ahmedabad)]

Section 2(1A) : Definitions – Agricultural income – Nursery – Subsequent operations

In the present case, the Assessing Officer found that the assessee was maintaining a nursery at his residence in Kanpur. The Assessing Officer found that the assessee was not deriving income from any land used for agriculture. He was of the view that the nursery was maintained and run as a business quite independently of agriculture. Even if keeping of the nursery necessarily involves the use of some land and earth for the purposes of rearing plants, that would not by itself amount to carrying on a primary agricultural operation in the sense of cultivation of the soil. The Commissioner of Income-tax (Appeals) reversed the order of the Assessing Officer relying on the decision of the Madras High Court in CIT v. Soundarya Nursery (2000) 241 ITR 530 (Mad.).

In further appeal, the Tribunal has held vide paragraphs 19 and 20 of its order that the Assessing Officer should bring on record the nature of the operations, viz., primary as well as secondary on the specific land area, and thereafter apply the law laid down in the above cases to the facts of the present case. He has observed that the Assessing Officer has to examine how the assessee can be said to be carrying on agriculture in the primary sense, i.e., tilling of the land, sowing of seeds and planting and doing other operations on the land. After examining this aspect, the Assessing Officer has to examine the secondary operation carried out by the assessee. Mere performing of the secondary operation will not make the assessee's activity an agricultural activity as held by the Supreme Court.

Tribunal set aside the matter to the Assessing Officer to examine how the assessee could be said to be carrying on agricultural operation in the primary sense, i.e. tilling of the land, sowing of seeds and planting and doing similar other operations on the land. After examining that aspect, the Assessing officer had to examine the subsequent operations carried out by the assessee. Mere performing of the subsequent operations would not make the assessee’s activity an agricultural activity. The High court upheld the order of Tribunal. (Related Assessment year : 1997-98) – [Jugal Kishore Arora v. DCIT (2004) 269 ITR 133 : 192 CTR 174 : 141 Taxman 187 (All.)]

Where nursery is maintained by carrying out basic operations, and subsequent operations in pots are carried out in continuation of basic operations, then income from such nursery would be agricultural income not liable to tax

Where nursery is maintained by carrying out basic operations, and subsequent operations in pots are carried out in continuation of basic operations, then income from such nursery would be agricultural income not liable to tax. Assessee was engaged in running a nursery. Its main activities were to prepare seedlings on scientific basis, grow plants on prepared beds and after several operations carried on land, viz., cutting, layering, ghootying and inarching, such plants were transferred/transplanted either in suitable containers or replanted in land at an appropriate position considering requirement of sunshine, shade, etc.. Assessee could be said to have carried out basic operations upon land, viz., tilling of land, sowing of seeds, planting, etc., requiring expenditure of human skill and labour upon land and same amounted to agricultural activities. Subsequent operations carried out by assessee were in continuation of basic operations. Once assessee has shown that agricultural operations are carried out, then income from sale of agricultural produce will amount to agricultural income. However, portion of profit, arising from purchase and sale of plants, is assessable to tax even though such plants are maintained in nursery for sometime. (Related Assessment year : 1998-99) – [Sudisha Farm Nursery v. ITO (2004) 88 ITD 638 : (2003) 81 TTJ 714 (Del.)]

All products of land, which have some utility either for consumption or for trade or commerce, if they are based on land, would be agricultural products - Plants sold by assessee-nursery in pots could be said to be result of primary as well as subsequent operations comprehended within term ‘agriculture’ - Therefore, income from plants grown in pots and income from sale of seeds is agricultural income

The assessee was carrying on business of a nursery and various types of plants and seedlings were grown and sold in pots. It claimed that income derived from the sale of plants and seedlings should be treated as agricultural income. The revenue contended that plants were grown directly in pots and that activity could never be regarded as agricultural operation and that 'agriculture' denotes the cultivation of the field and is restricted to cultivation of land in the strict sense of the term. However, the Tribunal being of the view that the plants were not grown in pots directly but only after several operations carried out in the land, allowed the assessee's claim. On reference :

Held : All the products of the land, which have some utility either for consumption or for trade or commerce, if they are based on land, would be agricultural products.

If the plants sold by the assessee in pots were the result of the basic operations on the land on expending human skill and labour thereon and it was only after the performance of the basic operations on the land, the resultant product grown or such part thereof as was suitable for being nurtured in a pot, was separated and placed in a pot and nurtured with water and by placing them in the green house or in shade and after performing several operations, such as weeding, watering, manuring, etc., they were made ready for sale as plants, all these operations would be agricultural operations that involved human skill and effort. Thus, the plants sold by the assessee in pots were the result of primary as well as subsequent operations comprehended within the term 'agriculture' and they were clearly the products of agriculture.

So far as the seeds are concerned, it is not possible for the seeds to exist without the mother plants, and the mother plant is grown on land. It was not the case of the revenue that the seeds were the result of the wild growth and not on account of cultivation by the assessee. The seeds were clearly a product of agriculture and the income derived from the sale of seeds, was agricultural income. (Related Assessment years : 1978-79 to 1982-83) – [CIT v. Soundarya Nursery (2000) 241 ITR 530 (2002) 123 Taxman 372 (Mad.)]

Thus, cultivation of flowers of artistic and decorative value has been held to be an agricultural operation. Therefore, there can be no doubt that if you undertake floriculture and grow flowers for sale even in cities, the income derived from such operations would be exempt from tax.

Needless to add, no tax exemption would be available if you merely trade in flowers grown by others or even if you export such items because the deduction for export profits is no longer available from the assessment year 2005-06.