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Nurseries and exemption
April, 05th 2008

Justice Khanna, in the Keshavanand Bharti judgment in 1973, propounded the sanctity of the basic structure of the Constitution. Had he been alive today, he would have been aghast at the violence being done to the basic structure of income-tax law.

Wider definition

The definition of the term agricultural income says it must emanate from land situated in India which is used for agricultural purposes. Now the Finance Bill 2008 seeks to insert an Explanation deeming any income from saplings or seedlings grown in a nursery to be agricultural income.

The proposed amendment has been necessitated in view of the view expressed by a section of judicial opinion that where saplings and seedlings are grown on a pot and not on land as is the case in nurseries it obviously cannot be considered to be an agricultural activity and for that reason does not make the grade for income-tax exemption.

The exemption to agricultural income conferred by the Income-Tax Act, 1961 has been a powerful gravitas for city-slickers to don the robes of agriculturists. The mushrooming growth of farmhouses on the outskirts of big cities was the first manifestation of this dangerous proclivity which not only begot a wholly unmerited tax exemption to the farmhouse but also in addition provided a convenient alibi for explaining away ill-gotten and unaccounted income as emanating from agricultural activity.

Going overboard

That such people got the temerity to cock a snook at the taxman by claiming exemption on rent earned from letting out the farm houses for marriages was the insult that goaded the latter into a firm action rental income from non-agricultural activities albeit arising out of agricultural lands would no longer qualify for tax exemption.

This salutary provision was introduced by inserting Explanation 2 to Section 2(1A) by the Finance Act, 2000. And the proposed new provision curiously explained away by the Explanatory Memorandum to the Finance Bill 2008 as for socio-economic development would be contained in Explanation 3.

Contrasting Explanations

What a contrasting study these two Explanations placed one after another would make the first one checks tax evasion while the second one would give fillip to it. Now, those who cannot afford the luxury of buying an expensive farmhouse can achieve the same results (luxurious living excluded) from the comfort of their flats, balconies, terraces, etc., because land is no longer the basic infrastructure to make the grade as an agriculturist.

Helping nurseries can hardly merit the lofty appellation socio-economic development. Nurseries are urban spectacles. In nurseries, owing to paucity of land, pots filled with soil dispense with the basic infrastructure which incidentally has been the cornerstone of the idea of agricultural operation.

That such basic feature has been given the quietus is discomforting especially given the fact that no substantial mass interest is involved. What evidently is involved is the vested interests of a miniscule but powerful lobby.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)
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