TaxTMI 
TaxTMI 
2009 (11) TMI 82
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....ltural income as claimed by the assessee. This issue involved in the present appeal is also a subject-matter of dispute in the assessment years 1997-98, 1999-2000, 2000-01 and 2001-02. However, in those assessment years, the impugned order of the CIT(A) in this assessment year 1998-99 has been merely followed by the CIT(A) insofar as the issue involved in this appeal is concerned. Some other issues are also involved in assessment years 1997-98, 1999-2000, 2000-01 and 2001-02, and those appeals and cross-objections pertaining to those four years are being disposed of by us by a separate order. 3. In the present appeal, the assessee has taken as much as ten grounds, all revolving around the issue as to whether income of the assessee derives from production and sale of parent seeds is an agricultural income as contemplated under section 2(1A), read with section 10(1), of the Act. In the ground, the assessee has contended that CIT(A) has erred in law and in facts in confirming the Assessing Officer's order dated 8-3-2001 and in holding that the assessee's income from production of parent seeds is not agricultural income within the meaning of section 2(1A), read with section 10....
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....uishable. 9. That, the Commissioner of Income-tax (Appeals) XXIX erred in law and on facts of the case in holding that the appellant was not carrying on agricultural activities within the meaning of section 2(1A) and the Assessing Officer was justified in treating the income of the appellant as business income, even though the Department had consistently accepted this activity as agricultural in past several years. 10. That, the Commissioner of Income-tax (Appeals) erred in law and on facts of the case in disregarding the fact that the impugned income of the appellant has been taxed as agricultural income of the appellant in the United States of America at the applicable rates and that the action of the Assessing Officer in taxing the same income in India has resulted in double taxation of the same income." 4. Relevant facts emerging from the orders of the authorities below and submissions of both the parties are set-out in ensuing paras. 5. The assessee, Pioneer Overseas Corporation (in short 'POC'), is US Tax resident company. Since October 1992, it has a Branch Office in India, which as per RBI's approval dated 18-10-1992, inter alia, carries out activities to ....
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....e was dealing in the development of high yield variety of parent seeds, which are supplied to a joint venture company, viz., SPIC PHI Ltd., in which the assessee was having 50 per cent holding. Presently since 2001, the joint venture company has been converted into assessee's whole subsidiary company with assessee's 100 per cent shareholding therein. The assessee produces developed parent seeds that are capable of hybrid production and are grown and multiplied in production fields to obtain adequate quantities of parent seeds for producing/growing sufficient stock of the desired hybrid. The multiplied parent seeds are supplied to Joint Venture company, which used the parent seeds to grow hybrid seeds for supply to farmers. The parent seeds are crossed in the desired combination to obtain hybrid seeds. The farmers use the hybrid seeds to grow crops. In order to appreciate the controversy involved, the Assessing Officer made a reference to the term "agricultural income" as defined in section 2(1A) of the Act, and also taken note of the decision of Hon'ble Supreme Court in the case of CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466. 6. After careful examination of the....
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.... of the agricultural income as understood by the Assessing Officer, the Assessing Officer examined the activities carried out by the assessee-company to determine as to whether the activities carried out by the assessee are agricultural activity as contemplated under section 2(1A) of the Act. The Assessing Officer's order runs as under: "8. In the light of the above we should examine the activities carried out by the assessee-company. The assessee-company is a branch of a Non-Resident company who claim themselves to be world leaders in development of seeds. As mentioned above, the parent seeds have been developed by a series of technical steps involving use of the biological study of the property of seeds. These indicate that what has been sold to the joint venture company is highly technical information. The nature of transaction indicate that the assessee-company has been involved in the activity of research and development of high link variety of parent seeds which are supplied to joint venture company who in turn use the same for producing hybrid seeds for further utilization by the farmers. The assessee has stated that his research and development activities are duly rec....
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....s from it is used as seeds, the yields are much less. This indicates that the seeds are generated by certain involved process, which the farmer cannot do and he has to again revert back to the producer of the hybrid seeds for a subsequent crops if he wants similar results of high production in the subsequent crops. This indicates that the assessee-company has a well-defined identification process of parent seeds from which hybrid seeds can be generated by repeated generation through this process. This fact is further supported by the research and development expenses incurred for producing the parent seeds of high yielding variety. The research and development expenses indicated in the profit and loss account is Rs. 134,02,000 during the year. The mere quantum of the amount spent by the assessee on scientific research clearly indicate that the assessee has in addition to the basic agricultural operation made a major effort in terms of the resources for generating the parent seeds. Examined in the light of the judgment of Hon'ble Supreme Court in the case of Raja Binoy Kumar Sahas Roy, it will be clear that the assessee has departed from the basic agricultural operation and indu....
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....the unnecessary words from the said definition, agricultural income would mean any income derived from such land by the performance by a cultivator of any process ordinarily employed by him to render the produce raised by him to be taken to market. It is clear from the reading of the aforesaid statutory provision that what is taken to the market and sold must be produced which is raised by the cultivator. Even though for the purpose of making it marketable or fit for sale some process may have to be undertaken, the section does not contemplate the sale of an item or a commodity which is different from what is cultivated and processed". The above argument establishes beyond doubt that the production of parent and hybrid seeds by various bio-technological steps does not fall into the concept of agriculture as envisaged in section 2(1) of the Income-tax Act. The judgment of the Hon'ble Supreme Court in the case of CIT v. Raja Binoy Kumar Sahas Roy mentioned above is till date the foundation stone for determining whether an income is agricultural income or not, and as already mentioned any income derived by the basic agricultural operations of tilling and sowing, harvesting, etc., ....
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.... the exempting statute are completely and exclusively fulfilled, and there is no scope for extending the meaning of exempting statute, which are to be applied only when all the conditions are fulfilled. 9. In the light of the above view taken by the Assessing Officer, the Assessing Officer treated the income from production and sale of parent seeds as non-agricultural income and brought the same to tax. 10. Being aggrieved with the Assessing Officer's action in not accepting the assessee's claim that the activities carried out by the assessee are in the nature of agricultural activities within the meaning of section 2(1A) of the Act, the assessee preferred an appeal before the learned CIT(A). 11. Since the factual inferences derived by the Assessing Officer in the assessment order were disputed by the assessee before the learned CIT(A), the ld. CIT(A) called for a remand report from the Assessing Officer vide letter dated 3, 4-1-2002. The Assessing Officer then submitted his remand report stating as under : "The assessee is a non-resident company dealing in the development of high yielding variety of parent seeds which are supplied to the Joint Venture Company in which....
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....d in the remand report that in the course of the field visit by her she found that number of trained agricultural scientists were inspecting standing crops and making notes. The Assessing Officer, therefore, concluded that the entire research farm was by itself a scientific laboratory. The Assessing Officer also stated that the commercial hybrid seeds sold by the joint venture company invariably lose their vigour if those are replanted after obtaining the first crop. According to the Assessing Officer, the assessee was developing "Terminator Technology" seeds which involved higher sophisticated research in biotechnology. The Assessing Officer also made reference to the permission granted by RBI for opening the branch and then stated that the main activity for which RBI had given permission to the assessee was "to conduct agrigenetic research and to make available parent seeds to Joint Venture Company provided the results to these research works are made available to Indian Companies". The Assessing Officer also mentioned that RBI has specifically instructed that the branch office shall not indulge in any new trading, commercial or industrial activity other than what has been approv....
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....ll lease deeds was alike and it showed that the purpose for taking the lands on lease was 'agricultural research and not commercial exploitation of land for agricultural purpose'. She further reported that in the P&L account, assessee is showing high profit of Rs. 5,18,06,000, against which it is claiming direct farm expenses of Rs. 1,49,96,000; Farm wages of Rs. 42,13,000 and land lease rent of Rs. 21,32,000. All other expenses are such which do not indicate that they are committed to any agricultural activity - these are repairs, bonus, and contribution to PF, etc., even the bulk of research and farm expenses are actually office expenses, commission expenses, travelling expenses, auditor's remuneration, and misc. The P&L Account does not indicate that the assessee's activity are agricultural, but that it is research and development in the field of cereals and other crops." 15. In reply to the remand report submitted by the Assessing Officer, the assessee submitted its first reply vide letter dated 12-3-2002, and again vide letter dated 14-3-2002. 16. The assessee's contention made before the CIT(A) has been narrated by the CIT(A) in his order as under :- "....
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....ains a wide base of such germplasm seeds together with the research data obtained from its various research divisions. The proprietary research material is never shared with any outsider including production divisions of the company. At the very initial stage, the germplasms are characterized for local adaptation at various research farms of POC in India at Bangalore, Hyderabad, Ghaziabad, Aurangabad and now also in Ahmedabad. These characteristics are obtained by : (a) sowing and planting a vast variety of germplasm seeds individually after preparing the land for this purpose. The progress made by each plant along with inputs of fertilizers, etc., is duly recorded in the field book. (b) Evaluation and recording of the progress of growth and other agronomic traits of the plant such as plant height, leaf shape, size and orientation, stern colour of strength, flower colour and also resistance to the various diseases and pests to which the particular crop of cereal may be prone to. These traits are recording periodically under a protocol by agricultural experts who are trained to and observe these. (c) Each plant is harvested individually and various traits of the grain obtained....
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....rs in that area. The process of field trials and testing takes three to five years. It is only again repeated that during all these trials observational data is meticulously maintained. Once successful hybrid seed is concerned. The research unit is now ready to supply breeder seeds to the production unit as and when required. 3.7 No germplasm or the accompanying research data is sold to any person and continues to be the property of POC. The results of the research and the information regarding germplasms are highly confidential and are never disclosed to any entity including the parent seed production unit. It is explained that the results of development of germplasms, success or failures, i.e., all research material and information in field books, etc., is catalogued and stored/preserved by the PE. Based on market demand for the types of hybrids, the Production Unit, makes a requisition to the Research Unit for appropriate breeder seeds specifying the desired traits. A detailed note and flow chart explaining the interface between the two distinct units was also filed. The activities of the Production Unit are stated to be that of producing parent seeds in large quantities a....
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....e the hybrid seed to grow crops. (iv) The Production Unit grows parent seeds by performing the entire range of basic and secondary operations of agriculture. These are carried out upon agricultural land situated in India. 3.9 The appellant also relied on the judgments of CIT v. Soundarya Nursery [2000] 241 ITR 530 (Mad.) and CIT v. Venkateshwara Hatcheries (P.) Ltd. 237 ITR 174 (SC) to prove the points that income from sale of seeds in spite of using modern method is agriculture income. On the basis of above, it was argued by the appellant that income from the sale of seeds be treated as agriculture income." [Emphasis supplied] 17. After considering the Assessing Officer's order, remand reports submitted by the Assessing Officer, and assessee's submissions as well as counter submission to the remand report, the CIT(A) decided the issue by observing and holding as under : "4. I have considered the various submissions of the appellant, facts of the case and remand reports of the Assessing Officer carefully. The issue which is to be decided is whether the appellant's income from sale of parent seeds is from agricultural activities only? The appellant has bifurcate....
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.... Assessee is bound to sell its product only to the Joint Venture, as per RBI's permission. This issue becomes all the more relevant when we examine the pricing mechanism of the assessee. 4.1 The touchstone on which the department is seeking to test the nature of appellant's activities is the definition of Agriculture as given in section 2(1A)(b)(ii) of the Income-tax Act, which defines agricultural income as income derived from "land which is situated in India and is used for agricultural purpose" through "the performance by a cultivator . . . of any process ordinarily employed by a cultivator . . . to render the produce raised . . . by him fit to be taken to market." The appellant, on the other hand, in their rejoinder submissions, claimed that their case is fully covered under the definition of Agriculture as all the basic and secondary agriculture operation have been carried on by the appellant. Therefore, the appellant tried to show that the focus of the department in distinguishing the operations used by it from the process ordinarily employed by a cultivator are off the mark. 4.2 It would be seen that the term "agriculture" has nowhere been defined in the Income-t....
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....for export, such operations could not be regarded as process ordinarily employed by cultivators necessary to make the produce marketable. The income attributable to these operations cannot, therefore, be treated as agricultural income and should treated as business income." (iii) Maharaja Vibhuti Narayan Singh v. State of Uttar Pradesh 65 ITR: "Even if the keeping of the nursery necessarily involves the use of some land and earth for the purpose of rearing plants, that would not be itself amount to the carrying on a primary agricultural operation in the sense of cultivating the soil." (iv) K. Lakshmanan and Co. v. CIT 239 ITR 597 (SC) : "Agricultural income would include an income derived from such land by performance by a cultivator of any process ordinarily employed by him to render the produce raised by him fit to be taken to market. It is clear from the reading of the aforesaid statutory provision that what is taken to the market and sold must be the produce which is raised by the cultivator . . . . The agricultural produce of the cultivator would be mulberry leaves and by no stretch of imagination could the silk worms and certainly not the silk cocoons be regarded as t....
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....ssible to give the appellant the benefit of income falling within the definition of section 2(1A)(b)(ii), vide the analysis which follows : The process of development of parent seeds for hybridization are a far cry from the process ordinarily used by the cultivator for making the crop raised fit for market in the following major ways :- (a) These parent plants are produced through a series of self-pollination and selection cycles, to accomplish which technical knowledge is necessary. Homozygous and homogenous (or similar looking) plant population are built-up, which remain the same in terms of their character year after year. (b) Hybrid seeds in self-pollinated crops like rice, include changing natural gene sequence of chromosomes of plants through producing "inbred" homozygous parent plant having identical genes on both homologous chromosomes, which rarely occurs in nature. (c) Directional or Aided crossing of parent plant is involved, as opposed to the random crossing which occurs in nature and the practice of using homozygous plants and vegetatively propagated clones as parent material for hybrid seed production. (d) To ensure that the parent lines retain purity, vario....
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....ulture Income within meaning of section 2(1A) of the Income-tax Act. The appellant's reliance on the case of Soundarya Nursery (supra) and Venkateshwara Hatcheries (supra) also does not help to the appellant as the facts are quite distinguishable. In the case of Soundarya Nursery, the appellant was not carrying on any advanced agriresearch activity which is the main activity of the appellant as per RBI's letter while in the case of Venkateshwara Hatcheries, the main question was deduction under section 80J which is entirely a different issue. The appellant's arguments that research unit and production units are different is also no help to the appellant as only the extensive and detail research activities have helped the appellant to produce the parent seeds of desired traits and qualities and the two units are completely inter-linked, inter-laced and dependent on each other. Without the research the parent seeds of desired traits and qualities cannot be developed. It has also been noted that the appellant has taken all the agricultural land on lease for "agricultural research" purposes only as has been confirmed by the Assessing Officer. From the above discussion....
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.... a "cultivator" produce which is, "fit to be taken to market", the sale is of a "produce raised or received" by a cultivator and in respect of which "no process has been performed other than a process of the nature described in paragraph (ii)" of section 2(1A)(b)(ii). Sub-clause (ii) talks of "any process ordinarily employed by cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market." In the present case, we are talking of hybrid seeds/germplasm seeds, the production of which has come about as a result of a huge expenditure running into crores of rupees including that on research amounting to Rs. 3.56 crores. Can it be said on the facts of the present case that the assessee has employed conventional methods in producing the seeds? The answer is an emphatic "No", "the judgment of Hon'ble Supreme Court in the case of Raja Benoy Kumar Sahas Roy (supra) is squarely applicable in spite of the fact that it was rendered in 1957 and we are a few decades away as to say, but no decision to the contrary has been brought to our notice on behalf of the assessee and some of the decisions cited are not at all applicable having been rend....
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....Supreme Court in the case of Raja Benoy Kumar Sahas Roy (supra). He further pointed out that research development activity of the research unit and the production and sale of parents seeds by the production unit should not be treated as a single integrated activity of the assessee. He explained that the object of the research programme undertaken by the assessee-company in India is to develop the elite germplasm seeds/hybrid parent seed known as breeder seeds. A particular "research programme ends with the successful development of such seeds". For every successful development of a germplasm, there are large number of failures and the record of these failures is also maintained. Thereafter, the seeds and the related data is stored. The learned senior counsel for the assessee then explained that the breeder seed is developed through fixation of desired traits by raising successive generations of crops to arrive at pure in bred lines (elite germ-plasms) which are then hybrided with in bred lines of another set of desired traits and so on and so forth. In this process of producing hybrid breeder seeds, all basic and secondary activities of agriculture are used as in normal farming. He....
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....ar the assessee has leased 107 acres of agriland for research & development and field trials and 120 acres of land for production of parent seed and produced 1,81,319 Kgs. of various varieties of parent seed. (P.6/PB-1). 4. The expenditure on research has never been claimed as a charge on the income from sale of parent seed. The expenditure on research has always been accounted for separately and fully reimbursed by the POC, USA. Keeping in view the specific provisions of article 7(3) of the Indo-US Treaty, cultivation expenses net of cost of developing breeder seed is charged to P&L A/c. (Pl. see PP. 138-150, 157-160 & 164-176/PB-II and p. 232/PB - IVA). The risk involved in the Research & Development and the cost of failures is fully borne by the Head Office. It is also not possible to relate R&D expenditure with cultivation of parent seed in a particular year. This is so because of time gap of several years between research work and successful development of particular breeder seed and its utilization by the Production Unit as an input. 5. The Research Unit develops breeder seed and supplies them to the Production Unit as the necessary input required by Production Unit for c....
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....he notice of the lower authorities that there is absolutely no research involved in producing parent seed in bulk quantities. All operations (basic as well as secondary) are such which thousands of ordinary farmers of parent seed carry out. 8. There is clearly a distinction between the activity of research and development for bringing into existence a tried & tested "proto-type" say, of a motor car or a molecule or, as in this case, breeder seed for production and sale of motor car, medicine or crop of parent seed, respectively. In all these cases, research and development is preparatory and its precedes commercial production by several years. Research work, therefore, in any given year has no nexus with the production of parent seed in that year. In any case, development of breeder seed precedes even tilling of land and sowing of breeder seed for the purposes of production of parent seed. It is not possible even to contemplate commencement of production of parent seed until trial crops are raised by the Research Unit and it finally concludes that the breeder seed has been successfully developed for raising crops of parent seeds. Thereafter, the Research Unit has no further role,....
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....perations for preserving, controlling and fostering growth of crops by adopting scientific and modern techniques of crop management. 14. (a) Every cultivator of parent seeds needs breeder seed for the purpose of sowing. There are hundreds of thousands farmers who cultivate parent seed from the breeder seed purchased from various State Seed Corporation/Agricultural Institutes/Private companies, etc. (b) A cultivator of parent seed may obtain seed for the purpose of sowing by developing the seed himself or by purchasing it from third party. (c) The cultivator may be an individual or a company, whether MNC or a domestic company, it is not a relevant factor. (d) Crop management techniques may be traditional (archaic) or scientific or modern. But these are all secondary agri-operations. (e) Crop management techniques after sowing of the seed but prior to harvesting of the crops, whatever they may be, partake the character of secondary operations, which in conjunction with 'basic operations' carried out by the assessee, constitute 'agriculture'. (f) Modern agricultural practices and techniques are more and more followed in India by progressive farmers in incre....
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.... to which the post-harvest produce is subjected, the is (sic) : Whether a cultivator, who produces parent seed, ordinarily employs such process for taking the seed to the market. As to which process is 'a process ordinarily employed' by the farmer would depend on the nature of the produce and whether such a process is necessary for keeping the produce fit for market. However, income allocable to a process which an ordinary cultivator of seed does not employ for making the produce fit for the market would not be agricultural income. But only that much of income which is attributable to such process would be treated as business income (pl. see Rules 7, 7A, 7B & Rule 8 of the Income-tax Rules). 20. The case of K. Lakshmanan & Co. 239 ITR 597, relied on by the revenue in fact supports the above proposition. In that case, the Department took the view that income attributable to growing mulberry leaves alone was entitled to exemption under section 10(1), which was not interfered with by the Apex Court. Supreme Court held that 25 per cent of income was treated by the Assessing Officer as attributable to silk cocoons which were fed mulberry leaves after they were detached from ....
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....n market is available to purchase and sale them. He further invited our attention to the rejoinder submitted by the assessee to the Assessing Officer's remand report and reiterated what has been contended in the said rejoinder of the assessee. He emphasized that in order to decide the issue, what is relevant is the nature of activities carried out by the assessee and, not the purpose of activities. He further submitted that Assessing Officer's allegation that assessee was developing "terminator technology" is totally incorrect and not based on facts of the present case. Number of decisions were cited by him in support of claim that the income from producing parents seeds is an agricultural income. These decisions are as under:- 1. K. Lakshmanan & Co.'s case (supra). 2. Dooars Tea Co. Ltd. v. CAIT [1962] 44 ITR 6 (SC). 3. State of Tamil Nadu v. V.G.P. Housing (P.) Ltd. [1993] 201 ITR 412 (Mad.). 4. Raja Benoy Kumar Sahas Roy's case (supra). 5. CIT v. Soundarya Nursery [2000] 241 ITR 530 (Mad.). 6. Sudhisha Farm Nursery v. ITO [2004] 88 ITD 638 (Delhi). 7. CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 (SC). 8. Kanan Devan Hills Produce C....
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....ctly to the vendors but the sale of parent seeds has been made to its joint venture company, which in turn converts the parent seeds into the hybrid seeds and then sold to the farmers for the purpose of their cultivation. 26. At this stage, he emphasized upon the meaning of research, development and agri-genetic research and agricultural research operations, and then pointed out that having regard to the activities undertaken by the assessee, it is clear that the assessee was engaged in the agricultural research operations by producing or developing elite germplasm or parent hybrid seeds and the income arising therefrom cannot by any stretch of imagination can be said to be agricultural income as contemplated under section 2(1A), read with section 10(1)(a), of the Act. He further pointed out that during the course of various activities undertaken by the assessee, the assessee used to conduct continuous research with a view to obtain a desired result so that a particular quality of parent seed could be obtained and that could be used for the purpose of hybrid commercial seeds to be produced by the assessee's joint venture company. In this sense of the activity, he then pointed ....
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....sal of 10KG of each cultivar maize seed C.V. PHM 67 and PHM 6V for trial purposes from Lamphum, Thailand by the assessee-company, which goes to show that the assessee was engaged in the scientific and research development of seeds and not engaged in cultivation ordinarily employed by a cultivator. He further submitted that in capacity building on biosafety training needs assessment programmed organized by Ministry of Environment and Forests, Government of India, New Delhi, held in January, 2006, the assessee-company has been described as "industry" and not "farmer" though wherever any person as farmer participated in the said programme, he has been described as "farmer", which goes to establish that the assessee's activities are that of industry and not that of farmer. He further submitted that the assessee has not been paying any agricultural income-tax on the alleged agricultural income claimed to have been earned in any State of India. It was further contended by the ld. standing counsel for the revenue that the issue involved is fully covered by the decision of Tribunal, Delhi Benches in the case of Proagro Seeds Co. Ltd. v. Jt. CIT [2003] 126 Taxman 37 (Mag.), which has be....
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.... 29,637 300 29,337 1% 4. 1999-2000 35,988 356 35,632 1% 5. 2000-01 40,680 377 40,303 1% 6. 2001-02 44,343 621 43,722 1% 30. The ld. Sr. counsel for the assessee then pointed out that the sale of discarded seed is of relatively insignificant amounts because each plant was harvested separately in the research farm. Sale of discarded seed were of sunflower, mustered, maize, joint crops, mallet, etc. He, therefore, concluded that the income from sale of parent seeds to joint venture company is undoubtedly in the nature of agricultural income as contemplated under section 2(1A) of the Act and, accordingly, the assessee's claim of exemption under section 10(1) is justified. 31. Both the parties have also pointed out before us that the assessee has also made a reference under the Mutual Agreement Procedure (MAP) in terms of the convention for avoidance of the Double Taxation between United States of America and the Republic of India inasmuch as the agricultural income earned by the assessee has also been offered to tax in USA by the Head Office, and the said reference is still pending for decision. 32. Before we proceed to deal with rival contentions of the par....
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....e used for agricultural purchases and is situated in India as contemplated under clause (a) of section 2(1A) of the Act; and (ii) the income should be derived from such land (i.e., the land used for agricultural purposes and is situated in India) (a) by agriculture as provided in sub-para (i) of sub-clause (b) of section 2(1A) of the Act; or (b) by the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market as provided in sub-para (ii) of sub-clause (b) of section 2(1A) of the Act; or (c) by the sale by a cultivator or receiver of rent-in-land of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in para (ii) of sub-clause (b) of section 2(1A) of the Act, as contemplated in sub-para (iii) of sub-clause (b) of section 2(1A) of the Act. 36. In the case of any cultivator, after eliminating the unnecessary words from the said definition of 'agricultural income', the "agricultural income" may be defined, as under :- Agricultural income ....
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....table but in terms the clause does not refer to sale and does not require that the income should be obtained from sale as such though in a sense it contemplates the sale of the produce. That takes it to clause (iii). This clause in terms and expressly refers to the income derived from sale. It refers to the sale price realized either by the cultivator or the receiver of rent-in-kind by the sale of the produce in respect of which the process as contemplated by clause (ii) has been performed. It is significant that the sale to which clause (iii) refers must be the sale of produce which has not been subject to any process other than that contemplated by clause (ii). Thus, it may be stated that reading clauses (ii) and (iii) together they contemplate the sale of the produce - clause (ii) indirectly inasmuch as it refers to the process employed for making the produce marketable and clause (iii) directly inasmuch as it refers to the price realized by sale of the produce which has been subjected to the process contemplated by clause (ii). Therefore, it is clear that income derived from sale of agricultural produce has been provided for by clauses (ii) and (iii) and prima facie that woul....
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....its business. In this connection, we may incidentally refer to the provisions of sub-clauses (i), (ii) and (iii) of section 7(1) of the Act which provide for the computation of tax and allowances under the head "Agricultural income from agriculture". These three sub-clauses in terms correspond to the three sub-clauses of section 2(1)(b) and lend some support to the conclusion that clause (i) in section 2(1)(b) does not require that the agricultural produce should be sold and profit or gain received from such sale before it is included in the said clause. Therefore, we do not think that Mr. Mitra is justified in contending that the answer made by the High Court in reference to question No. 1 is wrong." 38. On plain reading of paragraphs (ii) and (iii) of section 2(1A)(b) of the Act and in the light of the aforesaid decision of Hon'ble Supreme Court in the case of Dooars Tea Co. Ltd. (supra), it is abundantly clear without any doubt that for the purpose of satisfying the conditions specified in paragraphs (ii) and (iii) of section 2(1A)(b) of the Act, the process to be performed by a cultivator to render the produce raised by him fit to be taken to market must be one which is or....
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....lberry leaves been subjected to some process and sold in the market as such, then certainly the income derived therefrom would be regarded as agricultural income but the case of the appellant before the authorities and in this Court, has been that mulberry leaves cannot be sold in the market and they can only be fed to the silkworms. The agricultural produce of the cultivator will be mulberry leaves and by no stretch of imagination can the silkworms and certainly not the silk cocoons, be regarded as the agricultural produce of the cultivator. 9. The aforesaid view finds support from the following observations of this Court in Dooars Tea Co. Ltd. v. CAIT [1962] 44 ITR 6 (SC) : '. . . Section 2(1)(b) consists of three clauses. Let us first construe clauses (ii) and (iii). Clause (ii) includes cases of income derived from the performance of any process therein specified. The process must be one which is usually employed by the cultivator or receiver of rent-in-kind; it may be simple manual process or it may involve the use and assistance of machinery. That is the first requirement of this proviso. The second requirement is that the said process must have been employed with the....
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.... below. In this case, the Hon'ble Supreme Court has observed and held as under :- "Held.-The primary sense in which the term 'agriculture' is understood is agar - field and cultra - cultivation, i.e., the cultivation of the field, and if the term is understood only in that sense agriculture would be restricted only to cultivation of the land in the strict sense of the term meaning thereby, tilling of the land, sowing of the seeds, planting and similar operations on the land. They would be the basic operations and would require the expenditure of human skill and labour upon the land itself. There are, however, other operations which have got to be resorted to by the agriculturist and which are absolutely necessary for the purpose of effectively raising the produce from the land. They are operations to be performed after the produce sprouts from the land, i.e., weeding, digging the soil around the growth, removal of undesirable under growths and all operations which foster the growth and preserve the same not only from insects and pests but also from depredation from outside, tending, pruning, cutting, harvesting, and rendering the produce fit for the market. The latter....
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....efore both in regard to the process of agriculture and the products which are raised upon the land, there is no warrant at all for extending it to all activities which have relation to the land or are in any way connected with the land. The use of the word 'agriculture' in regard to such activities would certainly be a distortion of the term. It the term 'agriculture' is understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and the raising on the lands of products which have some utility either for consumption for trade and commerce, it will be seen that the term 'agriculture' receives a wider interpretation both in regard to its operations as well as the results of the same. Nevertheless there is present all throughout the basic idea that there must be at the bottom of its cultivation of land in the sense of tilling of the land, sowing of the seeds, planting, and similar work done on the land itself. This basic conception is the essential sine qua non of any operation performed on the land constituting agricultural operation. If the basic operations are there, the rest of the operations found ....
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....ome. But then, it had also been found by the Tribunal that the forest was more than 150 years old, though portions of the forest had from time to time been denuded, trees had completely fallen and the proprietors had planted fresh trees in those areas, and they had performed operations for the purpose of nursing the trees planted by them. It could not be denied that so far as those trees were concerned, the income derived therefrom would be agricultural income. In view of the fact that the forest was more than 150 years old, the areas which had, thus, become denuded and replanted could not be considered to be negligible. The position, therefore, was that the whole of the income derived from the forest could not be treated as non-agricultural income. If the enquiry had been directed on proper lines, it would have been possible for the Income-tax authorities to ascertain how much of the income was attributable to forest of spontaneous growth and how much to trees planted by the proprietors. But no such enquiry had been directed and in view of the long lapse of time, it was not desirable to direct any such enquiry now. The expenditure shown by the assessee for the maintenance of the f....
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....are divorced from these basic operations they would nevertheless enjoy the characteristic of agricultural operations? Can one eliminate these basic operations altogether and say that even if these basic operations are not performed in a given case the mere performance of these subsequent operations would be tantamount to the performance of agricultural operations on the land so as to constitute the income derived by the assessee therefrom agricultural income within the definition of that term? We are of opinion that the mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations which we have described above would not be enough to characterize them as agricultural operations. In order to invest them with the character of agricultural operations, these subsequent operations must necessarily be in conjunction with and a continuation of the basic operations which are the effective cause of the products being raised from the land. It is only if the products are raised from the land by the performance of these basic operations that the subsequent operations attach themselve....
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....t for the further extension of the term "agriculture" to all activities in relation to the land or having connection with the land including breeding and rearing of live stock, dairy-farming, butter and cheese-making, poultry-farming, etc. This extension is based on the dictionary meanings of the term and the definitions of "agriculture" collated in Wharton's Law Lexicon, as also the dicta of Lord Cullen and Lord Wright in Lean & Dickinson v. Ball [1925] 10 Tax Cas. 341 and Lord Glanely v. Wightman [1933] AC 618 quoted above. Derbyshire, C.J., in Moolji Sicka & Co., In re [1939] 7 ITR 493 treated tendu plants growing on the soil as part of the soil and, therefore, considered the pruning of the shrub as cultivation of the soil in a legal and technical sense and this extension of the term "agricultural" was also approved by Viswanatha Sastri, J., in CIT v. K.E. Sundara Mudaliar [1950] 18 ITR 259. We are, however, of opinion that the mere fact that an activity has some connection with or is in some way dependent on land is not sufficient to bring it within the scope of the term and such extension of the term "agriculture" is unwarranted. The term "agriculture" cannot be dissocia....
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....c conception is the essential sine qua non of any operation performed on the land constituting agricultural operation. If the basic operations are there, the rest of the operations found themselves upon the same. But if these basic operations are wanting the subsequent operations do not acquire the characteristic of agricultural operations. All these operations no doubt require the expenditure of human labour and skill but the human labour and skill spent in the performance of the basic operations only can be said to have been spent upon the land. The human labour and skill spent in the performance of subsequent operations cannot be said to have been spent on the land itself, though it may have the effect of preserving, fostering and regenerating the products of the land. This distinction is not so important in cases where the agriculturist performs these operations as a part of his integrated activity in cultivation of the land. Where, however, the products of the land are of spontaneous growth, unassisted by human skill and labour, and human skill and labour are spent merely in fostering the growth, preservation and regeneration of such products of land, the question falls to....
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....es planted by the proprietors. But no such enquiry had been directed, and in view of the long lapse of time, we do not consider it desirable to direct any such enquiry now. The expenditure shown by the assessee for the maintenance of the forest is about Rs. 17,000 as against a total income of about Rs. 51,000. Having regard to the magnitude of this figure, we think that a substantial portion of the income must have been derived from trees planted by the proprietors themselves. As no attempt has been made by the Department to establish which portion of the income is attributable to forest of spontaneous growth, there are no materials on which we could say that the judgment of the Court below is wrong. The appeal is, accordingly, dismissed with costs." 41. From the said decision in the case of Raja Benoy Kumar Sahas Roy (supra), it is, thus, seen that agriculture is the basic idea underlying the expressions "agricultural purposes" and "agricultural operations" and it is pertinent, therefore, to enquire what is the connotation of the term "agriculture". The primary sense in which the term "agriculture" is understood is 'agar'-field and 'culture'-cultivation, i.e., t....
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....being raised from the land. It is only if the products are raised from the land by the performance of the basic operations indicated above that the subsequent operations attach themselves to the products of the land and acquire the characteristic of agricultural operations. The cultivation of the land does not comprise merely of raising the products of the land in the narrower sense like tilling of the land, sowing of the seeds, planting and similar work done on the land but also includes the subsequent operations set out above all of which operations, basic as well as subsequent, form one integrated activity of the agriculturist and the term "agriculture" has got to be understood as connoting this integrated activity of the agriculturist. One cannot dissociate the basic operations from the subsequent operations and say that the subsequent operation, even though they are divorced from the basic operations, can constitute agricultural operations by themselves. If this integrated activity which constitutes agriculture is undertaken and performed in regard to any land that land can be said to have been used for "agricultural purposes" and the income derived therefrom can be said to be....
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....dant on land. 45. Having noted the above proposition laid down by Hon'ble Supreme Court, let us now see as to whether the activity of producing parent seeds by the present assessee can be said to be in the nature of "agricultural operations" within the meaning of section 2(1A) of the Act. 45.1. The assessee has filed a note on its activities of producing parent seeds before the authorities below, and during the course of hearing of these appeals, our attention was drawn to that note by the ld. counsel for the assessee. The said note dated 15-12-2000 is placed at pages 10 to 18 of the Paper Book-I for assessment year 1998-99 filed before us. The assessee has also submitted some more notes on its activity, which are placed at pages 207 to 211 and pages 212 to 214 of the consolidated Paper Book - II for assessment year 1998-99 and page Nos. 121A - 121C of consolidated Paper Book - IVA for assessment year 1997-98, assessment years 1999-2000 and 2000-01. Before us, the assessee has reiterated its contentions and arguments as to the nature of its activity as were made before the authorities below. 46. The assessee has contended that the Branch Office of Pioneer Overseas Corporatio....
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....mission for conversion of its liaison office at New Delhi into a branch office for the purpose of undertaking the following activities :- "(i) to represent the parent company (PCC) on commercial and business matters in India; (ii) to conduct agri-genetic research for the development of new products and to make available parent seed to Joint Venture Company under a parent seed charge arrangement provided the results of these research work are made available to Indian companies; (iii) to undertaken export and import of PCC's products; (iv) to supervise and promote Pioneer's technical and financial collaboration with Indian Companies." 49. From the nature of activities for the purpose of which the assessee was allowed a permission for conversion of its liaison office into a branch office, it is evident that the assessee was allowed to conduct agri-genetic research for the development of new products and to make available parent seed to joint venture company under a parent seed charge arrangement provided the results of these research work are made available to Indian companies. Therefore, conducting agri-genetic research for the development of new products and making ....
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....at different places, sites, workshops, factory it would not mean that all such activities carried out to manufacture a final product are independent and distinct to each other. It is well-settled that in order to determine the true and correct nature of any activity, the treatment or label or name given by the assessee in its books or documents or papers is not conclusive and what is conclusive and relevant is the true nature and substance of the activity having regard to the intention of the party coupled with all relevant surrounding circumstances of a given case. Therefore, the treatment given by the assessee in its accounts or other documents cannot be a sole determinative factor to determine the true and correct nature of any transaction or activity but all other surrounding and relevant facts and circumstances of the case are to be taken note of and be considered. It is also equally true that purchase or acquisition of raw material in one particular year and manufacturing or producing final goods from those raw material in any later year would not make the activity of purchasing or acquiring raw material in one year and activity of manufacturing final goods using said raw mat....
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....t venture company is nothing but one single integrated activity where all operations are undertaken or carried out by the same assessee with a view to supply multiplied parent seeds to its joint venture company as per object and intention of the assessee specified in the approval granted by RBI. 50. In this view of the matter, we are in agreement with the CIT(A)'s finding that the two activities are completely inter-linked, inter-laced and dependent on each other, and cannot be divorced or dissociated from each other. The production of parent seeds is undoubtedly in continuation of the development and production of elite hybrid germplasms or hybrid parent seeds known as breeder seeds. These two activities of the assessee have got to be understood as connoting one integrated activity of making available parent seeds to its joint venture company. 51. Further, on perusal of the various components and stages of producing or developing breeder seeds as explained by the assessee, it is seen by us that based on the commercial need for developing certain types of hybrid seeds of desired traits, two seeds having two different particular traits are crossed over a certain number of gene....
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.... of obtaining desired trait in any plant after harvesting certain numbers of crops year after year and grains so obtained in one crop is used as seed for next crop until a desired result is obtained cannot be said to be in the nature of "Agricultural Operations" as contemplated under any of the clauses of section 2(1A) of the Act. 52. From the nature of activity of the assessee as explained by the assessee, it is seen that the assessee in India is engaged in the business of the production and sale of various varieties of parent seed sold to its Joint Venture Company. During the year under consideration, the assessee has produced 1,81,319 kgs. of seeds having opening stock of seed at 41,998 kgs., out of which 66,635 kgs. of seeds (including seeds for own consumption of 1,765 kgs.) have been sold to its joint venture company leaving a closing stock of seeds at 1,15,995 kgs. For production of parent seed in large quantities, the first requirement is the availability of "breeder seed" which would be then sown for raising crops of parent seeds. The "breeder seeds" are developed by the assessee as an ongoing research and development programme. As per assessee, it takes about 8-10 years ....
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....essee, it becomes clear that at the first level, the assessee produces seeds or grains containing one particular trait. The seeds or grains produced at the first level may contain a particular trait optimally but may not have another desired trait, which may be found in another seed or grain or plant. In other words, the seeds or grains so produced by the assessee have distinct identifiable traits to each other. Thereafter, two seeds or grains so obtained and having distinct identifiable traits are crossed and used as seeds for next crop and so on until the two traits of desired level or result are uniformly fixed in one seed. This makes it clear that at the first level of its producing breeder seeds, the assessee raises or produces from the land, one kind of seed or grain with a particular trait, and, thereafter, two seeds or grains having different trait to each other are crossed and a new crop is raised repeatedly so as to obtain two or more traits of desired level or result in one single seed or grain. At this juncture, a very pertinent and significant question arises as to whether after raising a particular produce from the land, it is necessary that two seeds or grains with t....
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.... 2(1A) of the Act must not alter the character of the produce. The produce must retain its original character and the only change that may have been brought about in the produce is to make it marketable. The change in the condition of the produce is only intended to make the produce a saleable commodity in the market. It is significant to note that the sale to which sub-paragraph (iii) of clause (b) of section 2(1A) of the Act refers must be the sale of produce which has not been subject to any process other than that contemplated by sub-paragraph (ii), i.e., it must subject to the process ordinarily employed by the cultivator for making the produce marketable or for rendering the produce raised by the cultivator fit to be taken to the market as so laid down by the Hon'ble Supreme Court in the case by the Hon'ble Supreme Court in the case of Dooars Tea Co. Ltd. (supra), wherein the scope and effect of clauses (i) to (iii) of section 2(1)(b) of the Indian Income-tax Act, 1922 [corresponding to present section 2(1A)(b) of 1961 Act] has been explained and analysed. 54. The ld. senior counsel for the assessee has contended that the provisions of section 2(1A)(b)(ii) and (iii) ....
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....nt from the original two seeds or grains produced by the assessee at the first level, nobody can say that in respect of the seeds or grains originally produced by the assessee, the assessee has performed such process which is ordinarily employed by a cultivator to render the said original produce raised by the assessee fit to be taken to market. In the instant case, what has been ultimately produced by the assessee is a breeder seed of desired result, which has altogether a different character and trait than that of the seeds or grains originally produced by the assessee at the first stage. The produce originally raised or produced by the assessee at the first level does not retain its original character and trait. The process of generating seeds or grains has brought about a complete change in the character of the produce originally produced by the assessee. It is nobody's case that the seeds originally produced by the assessee having only one distinct identifiable trait were not marketable. Therefore, the change so brought by the assessee to the produce or crops originally produced or raised by it by using them as seed in the next crop and so on through re-generating of the p....
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....or grains produced by the assessee fit to be taken to the market. After the produce is sprouted from the land, the subsequent operation to be resorted to by the agriculturist being absolutely necessary for the purpose of effectively raising the produce from the land in respect of any agricultural produce within the meaning of section 2(1A) of the Act as explained by the Hon'ble Supreme Court in the case of Raja Benoy Kumar Sahas Roy (supra) are weeding, digging the soil around the growth remove of undesirable under growths and all operations which foster and preserve the same not only from insects and pests but also from degradation from outside, tending, pruning, cutting, harvesting and rendering the produce fit for the market. In the present case, the assessee had performed subsequent operations till the stage of harvesting the crop and raising the seeds or grains, when the first crop of vast variety of seeds was raised. Each plant was harvested individually, and seeds or grains with various distinct traits were obtained. In other words, the agricultural produce of the assessee would be the original seeds or grains which have been produced by the assessee from cultivation of ....
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....f Hon'ble Supreme Court in the case of K. Lakshmanan & Co. (supra) is not applicable to the present case. The contention of the learned counsel for the assessee that the authorities below have not correctly applied the ratio of the judgment in the case of K. Lakshmanan & Co. (supra) to the present case is, thus, rejected. 57. It is well settled that intention of the assessee is a material factor to decide the true and real character or nature of any activity carried out by him, and each case has to be decided on its particular facts. The only enquiry which is relevant in the present case is whether the income in question is agricultural income within the terms of the definition thereof as given in the Act and that is to be determined in this case having regard to the facts and circumstances of the instant case before us. We have to see whether the activity of re-generating seeds or grains and re-cultivating of the same over a number of generations of crops to obtain a desired level of trait uniformly in any single seed, during course of which two seeds or grains having distinct identifiable trait are developed into a single seed or grain, which is different from the original t....
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....iginal seeds produced by it in the first crop as marketable, the assessee re-cultivated and re-generated them after two seeds were crossed over a certain number of generations of crops until the two traits available in two separate seeds were transformed into a single seed and such exercise was repeated so many times over a period of years till a desired result is obtained. Therefore, the very process undertaken by the assessee does not satisfy the test enumerated in sub-paragraphs (i), (ii) and (iii) of clause (b) of section 2(1A) of the Act. 58. If basic operations and secondary operations as explained in the decision of Hon'ble Supreme Court in the case of Raja Benoy Kumar Sahas Roy (supra) are assumed to have been carried out by the assessee in the course of re-generating of the original seeds already produced by the assessee in the very first crop, after the two seeds with different traits produced or raised in first crop are crossed over a certain number of generations of crops until the desired result is obtained, those, basic and secondary operations would be immaterial and irrelevant inasmuch as one has to look to the issue from the point of view as to whether these o....
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....dentity, and two seeds or germplasms have been developed into a single hybrid germplasms or seed which is different from the original two different and distinct seeds which were originally produced by the assessee from the land. Thus, the produce originally produced by the assessee did not retain its original character but have been transformed into a new produce with a different traits and quality. It is nobody's case that the seeds or grains having one particular trait or quality produced by the assessee at the first level had no market. In order to render the seeds or grains originally produced by the assessee fit to be taken to market, it was not at all necessary to undertake such kind of process of re-generating them by way of repeated crops to obtain a produce of desired result as done by the assessee. The process to which the original seeds or grains were subjected, whether manual or mechanical, should have been one which is ordinarily employed by a cultivator in order to render the produce fit to be taken to market and not for any other purpose. But, in the present case, the process adopted by the assessee cannot be said to be one which is ordinarily employed by a culti....
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.... these operations of developing/producing breeder seeds or hybrid germplasm or parent hybrid seed containing desired traits cannot be treated as agricultural income and should be treated as business income. 61. In our considered view, applying the decision of Hon'ble Supreme Court in the case of Raja Benoy Kumar Sahas Roy (supra) and Dooars Tea Co. Ltd.'s case (supra) and Andhra Pradesh High Court in Boggavarapu Peda Ammaiah's case (supra) and Madras High Court in Stanes Amalgamated Estates Ltd.'s case (supra) to the facts of the present case, such a process of re-generating the produce already raised and produced by the assessee at the very first stage with a view to obtain hybrid parent seed of altogether different traits does not fall within the scope of process referred to in sub-paragraphs (i), (ii) and (iii) of clause (b) of section 2(1A) of the Act, ordinarily employed by a cultivator either doing agriculture or rendering the produce raised by him fit to be taken to the market. It is significant to note that the mere facts that the activity of re-generating the original seeds or grains already harvested and produced by the assessee with a view to develop bre....
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....e sides and which are a part of the record have also been taken into account. In our opinion, there is substantial merit in the arguments advanced by the ld. Departmental Representative on behalf of the revenue although we must, at the outset, observe that during the course of hearing of the arguments quite impressed with the arguments advanced on behalf of the assessee since it prima facie appeared to be a case where the assessee had sold various types of seeds with a huge turnover and with the exception of sum of Rs. 6.95 crores pertaining to the sale of hybrid/germplasm seeds the assessee's stand had come to be accepted. The stand, as noted from the orders of the tax authorities and which we have indicated in so many words in the present order was that even the receipt from the sale of hybrid/germplasm seeds constituted income from agriculture. No doubt there have been technological and scientific advances over the year, but in exempting from tax agricultural income what has been kept in mind and contemplated is that income which arises from the use of land for agricultural purposes by conventional methods. Section 2(1A) has defined the term "agricultural income " and it m....
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....Assessing Officer and the income derived by the assessee from production and sale of hybrid seeds was brought to tax, the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act and ultimately he also levied penalty. The penalty so levied by the Assessing Officer was deleted by the Tribunal by observing as under :- "It is nowhere the case of the department that the assessee either made any covert concealment of its income or that it furnished any inaccurate particulars of its income. It is by way of analogy that the concealment has been imputed to the assessee by saying that in the light of the decision of Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466, the activity carried out by the assessee was not an agricultural activity. On the basis of this law of the land laid down by the Supreme Court, the assessee has been insinuated with the offence of concealment. Curiously though, the assessee has itself relied on Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466. It has been contended that the Supreme Court has, in very many details, discussed the concept of agriculture." "Still further, the conduct of the assessee as well as the department shows that there is ....
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....Delhi). 65. From the observation and decision made in the case of Proagro Seeds Co. Ltd. (supra) and in the case of Hybrid Rice International (P.) Ltd. (supra), it is clear that the decision of ITAT, New Delhi in the case of Proagro Seeds Co. Ltd. (supra) holding that the income from production and sale of hybrid/germplasm seeds was not in the nature of agricultural income has been accepted by the assessee M/s. Proagro Seeds Company Ltd. and even its subsidiary company and the claim of depreciation on germplasm seeds made by the Hybrid Rice International (P.) Ltd., the subsidiary of Proagro Seeds Company Ltd., in their revised return for the assessment year 2001-02 onwards wherein income from production of highbrid seeds were shown as business income as against agricultural income shown in earlier years, has been upheld by the Hon'ble Delhi High Court. 66. The ld. Senior counsel of the assessee has also urged that the decision of ITAT, Delhi Bench "D", Delhi in the case of Proagro Seeds Co. Ltd. (supra) is not applicable to the present case as so contended by the assessee before the authorities below. The assessee contended that the question as to whether income from sale of ....
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.... the ratio of the above decisions including the decision of the Tribunal in Proagro Seeds Co. Ltd. (supra) wherein there was no dispute in treating the sale of parent seeds of Rs. 16,19,854 as an agricultural income, we find that in the present case, the undisputed findings of the Assessing Officer and the learned Commissioner of Income-tax (Appeals) are that the basic seeds are produced by the assessee by doing basic agricultural operations, we are clearly of the view that the assessee is doing agricultural operations and growing basic seeds on the lands. It is not the case of the revenue that without performing the basic operations, the subsequent operations, have been carried on by the assessee. If the basic seeds are sold by the assessee, the same is the result of the basic operations, the subsequent operations, have been carried on by the assessee. If the basic seeds are sold by the assessee, the same is the result of the basic operations on the land on expending human skill and labour thereon and it is only after performing several operations such as weeding, watering, manuring, etc., the resultant product, is grown and made ready for sale in the form of basic seeds. Thus, th....
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....nt which are 'stringent' have been elaborated in the latter part of the order and it is this agreement that prevents the farmers from selling the hybrid seeds. Our conclusions and reasons for the findings are set out in the later part of this order. Once there is a sale and also a purchase of a product, then it cannot be termed as 'integral' or 'composite' activity, which is inseparable. Even in a case where it is held to be a integrated activity, the income receipts comprising of both agricultural and non-agricultural elements should be disintegrated. 23. On the issue as to whether the profit earned by the assessee-company up to this stage of basic seed production is agricultural income or not, though the revenue has advanced elaborate arguments and also filed the judgment of the Delhi Bench 'D' of the Tribunal in the case of Proagro Seeds Co. Ltd. and also furnished material as to what is genetic engineering, etc., the issue does not arise in these appeals as both the Assessing Officer and the Commissioner of Income-tax (Appeals) have concurrently upheld the claim of the assessee that the income in question, i.e., up to the stage of production of....
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....of different traits were crossed over a number of generations of crops until the two traits of desired level are uniformly concentrated or fixed in one seed and in that process, each crop is harvested after it going through procedure of sowing/planting, sprouting and of coming of age of the plant, and the grains so obtained are used as seeds for next crop and so on, we consider it fit to determine whether the seeds or grains so produced in first crop harvested by the assessee can be said to be produce raised by way of agricultural operations as contemplated under section 2(1A) of the Act. It is not in dispute that at the beginning of its overall activity of developing or producing hybrid parent seeds carried out by the assessee, the assessee uses to sow and plant a vast variety of germplasms seeds individually after preparing the land for this purpose. Each plant sown and/or cultivated by the assessee is harvested individually and certain grains or seeds with various traits are obtained. The grains so obtained are used as seeds for next crop in the process of developing hybrid parent seeds with desired traits which contain traits of two or more seeds. Thus, the grains so obtained f....
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....he present case, it is an admitted position that the grains or seeds originally produced or raised from the very first crop harvested by the assessee has been used or utilized for developing or producing hybrid parent seeds or breeder seeds. Therefore, the grains so originally produced would constitute agricultural income under section 2(1A)(b)(i) of the Act. It is the assessee's case that number of generations of crops were carried out from year to year until the two traits of desired level are concentrated or fixed in a single seed and this process takes anywhere from seven to ten years to develop an elite germplasm or hybrid parent seed known as breeder seeds. However, at this moment, we are only concerned with the question whether any part of income can be attributed to very grain or seed produced by the assessee at the first level. The assessee's overall activity of producing or developing hybrid parent seeds comprises mainly of process where two seeds are cross over a certain number of generations of crops to obtain a seed of desired quality, and this process of enhancing various traits and concentrating various traits in a few germplasms is carried out over a number ....