- (1.)BY means of this reference, the Income -tax Appellate Tribunal has required the opinion of the High Court on the question, formulated as under:
Whether, on the facts and in the circumstances of the case, the Income -tax Appellate Tribunal was legally justified in confirming the view of the Commissioner of Income -tax (Appeals) who held that the sale proceeds of the plants raised in the nursery on the land constituted the income from agriculture

(2.)THE brief facts of the case are that the respondent -assessee is a private limited company which was incorporated on November 20, 1986, and the first return of income was filed for the assessment year 1988 -89 for the period from November 20, 1986, to October 31, 1987. The assessment in question is in respect of the previous year November 1 1987, to March 31, 1989, being transitional year of 17 months. The Assessing Officer noticed that the assessee -company was carrying on the activities of running of nursery and of extension service and deriving income therefrom. The assessee purchased plants in its nursery and reared them and then sold it to various parties including farmers. It provided extension service to those farmers who purchased ETPs. In respect on both the activities, separate profit and loss account have been filed for the period from November 1, 1988, to March 31, 1989, yielding from nursery at Rs. 92,836 the period of five months ending with March 31, 1988, and Rs. 2,25,904 for the year ending October 31, 1988. Both the above amounts totalling to Rs. 3,18,740 were shown as agricultural income from the sale of poplar plants. The Assessing Officer issued a notice dated November 19, 1990, to the assessee as to why the said income from nursery business be not taken as income from business instead of income from agriculture as claimed by the assessee. According to the Assessing Officer, the assessee failed to show that primary agricultural processes were carried on upon the land. He viewed that the assessee's action of preparing separate profit and loss account would not convert the activity into two activities, one being agriculture and the other business as such a separation into two activities was only an artificial one as could be seen from the facts that the agriculture requires the operations from rearing to harvesting and the assessee's case was not so and that the assessee's activity of nursery cannot be treated as agriculture in nature, particularly when the aim and object of the activity was business of providing extension service to the farmers and further that the profit and loss account for nursery revealed all elements of business like advertisement, salary, discount and depreciation. Hence, income from nursery was treated as business income and profits computed by the Assessing Officer. The assessee has also further shown loss from extension service of Rs. 2,29,947 the period of five months ending with March 31, 1989 and Rs. 3,48,146 the period of 12 months ending with October 31, 1988. The accounts of extension service were in respect of the ETPs sold and the extension charges Rs. 1,10,343 for five months and Rs. 1,66,432 for 12 months have been received from the farmers stated to have been approved by the rural bank. The loss/income under the head 'Extension service' was shown by the assessee as its business income. The state of affairs with the composite business was seen from the audited accounts for the period November 1, 1987, to March 31, 1989, besides quantitative details in respect of nursery account. It was found that as on October 31, 1988, closing of work -in -progress was shown at Rs. 24,743 cuttings and the assessee gave its working as required by the Assessing Officer. The assessee also gave working of closing of the work -in -progress of ETPs and also gave reconciliation besides the figures as per the auditors' report pertaining to the quantitative details for the period ending with October 31, 1988, for 12 months and March 31, 1989, for five months. The Assessing Officer noticed inconsistencies therefrom and ultimately concluded that the profits returned at Rs. 3,18,740 (Rs. 92,836 + Rs. 2,25,904) referred to above did not reflect the true profit of the assessee and further that the facts and circumstances of the case are such that income could not be properly deduced. Hence, he viewed that profit from nursery business shown did not represent true income as the method employed was such that true profits could not be arrived at. In respect of extension service, the Assessing Officer found that the accounts thereof did not give correct income and the income was, therefore, arrived at by the following proviso to Section 145(1) of the Act.
Aggrieved by the aforesaid assessment order, the assessee filed an appeal before the Commissioner of Income -tax (Appeals). The Commissioner of Income -tax (Appeals) directed the Assessing Officer not to tax the income from nursery as it is agricultural income and the income from extension services to be recomputed treating it as business income.

(3.)FEELING aggrieved by the aforesaid judgment and order of the Commissioner of Income -tax (Appeals) the Revenue Department preferred an appeal before the Income -tax Appellate Tribunal. The cross -appeals were also filed by the assessee. The Income -tax Appellate Tribunal consolidated the appeals together and decided the matter by the common judgment. The Income -tax Appellate Tribunal dismissed both the appeals, i.e., filed by the Revenue Department as well as by the assessee.
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