TaxTMI 
TaxTMI 
2007 (9) TMI 305
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.... Closing Stock of Seeds Rs. 24,83,760 55,51,771 ------------- Less: Opening Stock of Rs. 9,45,093 cultivated seeds + Cultivation Expenses Rs. 25,67,060 35,12,153 ------------- -------------- Net agriculture income of Rs. 20,39,618" 3. The Assessing Officer vide para 3 of the assessment order observed that the agricultural activities carried on by the assessee are as under: "In the first stage the assessee purchases germplasm. Germplasm is a group of seeding which can regenerate itself with similar characteristics. Any seed which is capable of passing on the characters to the next generation and is....
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....f process. Research activity involves the sequence of germ plasm collection evolution. Multiplication and utilization, hybridization, initial evaluation of hybrids and, varieties advance hybrid testing and on farm testing. Production activity involves parent seed multiplication, foundation seed multiplication and labelled/certified hybrid/seed production. The whole process of production and multiplication is carried on its own or on leased lands by implementing normal agricultural operations and with aid of improved/better farming practice. Agricultural income as defined under section 2(1A) of the Income-tax Act: (i) Any rent or revenue derived from land, which is situated in India and is used for agricultural purposes. (ii) any income derived from such land by agricultural operations including processing of agricultural produce raised or received as rent in kind so as to render it fit for the market. As the assessee is engaged in the cultivation up to basic seed stage (Foundation Seed) by undertaking all basic operations of agricultural on the land, the income derived by the assessee on sale of foundation seed is definitely agricultural income, in support of the ass....
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....hancement and development of new varieties, CMS sources and for specific traits. Hybrids developed from new germplasm are tested along with best available commercial hybrid/varieties of other companies. The hybrid that perform better than the commercially available hybrids are selected. At foundation stage: The assessee cultivates the selected seeds and produce foundation seeds on its own or on leased lands by implementing basic agricultural operations. The cultivated foundation seed are sold to the farmers, after necessary secondary operations for further cultivating hybrid seeds. At Hybrid seed production stage: the assessee purchases hybrid seed cultivated by farmers and a simple process of chemical treatment will be made and packed to suit and retain the traits of the seed. As per section 2(1) of the Income-tax Act, 1961 agricultural income means any rent or revenue derived from land, which is situated in India and is used for agricultural purposes. Any income derived from such land by agricultural operations including processing of agricultural produce raised or received as rent in kind so as to render it fit for the market. The prima sense in which, agricultura....
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....nd implemented in the process of cultivation, implementation and use of better forming practices need not disqualify the basic operations of the agricultural and the income so generated to be claimed as agricultural income. The basic object of the business All the products of the land which has some utility either for consumption or for trade, if they are based on land, would be agricultural products. If the assessee has sold seeds which were the result of the basic operations on the land, on expending human skill and effort labour and it is only after performing the basic and subsequent operations comprehended with the term agricultural (like weeding, water, manuring etc.) on the land, the resultant product grown (seed) after performing such operations are clearly the products of agriculture. Thus, we submit that though assessee is in the business of sale of commercial seeds, they need not be deprived of claiming income as agricultural income for the income earned by them from such agricultural operations." However, the Assessing Officer was of the view that the activity of the assessee is composite in nature. In the initial stages the assessee was doing extensive researc....
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....ed and termed as agricultural activity, just because they are produced in the fields leased in by the assessee-company. 6. The Assessing Officer further observed that the assessee ventures into this activity with an ultimate aim of selling the hybrid seeds. The profits earned by the company are primarily commercial and not agricultural. Up to the production of basic seed the assessee carries on extensive research activity on the lands owned by it or leased by it and thereafter under its supervision, the basic seed is developed into hybrid seed by the farmers. The entire hybrid seed cultivated by the farmer is taken back by the assessee and after processing it, the same is marketed under its brand name. The entire activity of the assessee is nothing, but, business activity as the essential ingredients like adventure in nature of trade, continuous and systematic activity and the profit motive are present. 7. The Assessing Officer further observed that plant breeding is an art and the science of changing and improving the heredity of the plant so as to increase its production and productivity. The technique of plant breeding lies in the ability of the plant breeder (the scientis....
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.... growing of foundation seed, and both activities, therefore, had to be considered together. Foundation seed would not be possible only through normal agricultural operations, but involvement of research based scientific techniques have to be invariably there in the process. According to the Assessing Officer, foundation seed production is "non-agriculture" and is a clear commercial activity. Therefore, he treated the income from the sale of foundation seed as an income from business and after rejecting the exemption claimed under section 10(1) of the Act, assessed income from production of foundation seed amounting to Rs. 20,39,618 as non-agricultural income and added the same to the income of the assessee and, accordingly, completed the assessment after set off of carry forward loss, at an income of Rs. 13,38,180 vide order dated 29-3-2004 passed under section 143(3) of the Act. 9. The assessee preferred an appeal before the CIT(A). The learned CIT(A) while holding that there is no denying the fact that the foundation seed is produced by the appellant by doing basic agriculture operations, upheld the order of the Assessing Officer and dismissed the appeal. 10. Being aggrieve....
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.... the assessee on the sale of basic seed is an agricultural income. He further submits that the language of section 2(1A)(b)(ii) of the Act did not warrant the conclusion that the process contemplated must be of such a character as just to make the produce marketable and that the additional income derived from any further process, is not exempt as agricultural income. The true test is whether the process employed in the particular case was one ordinarily employed by a cultivator. 13. He further submits that just because the formation of the basic seed involves a process which is research and technical oriented, it cannot be disqualified as an agricultural operation. These days highly technical equipment and operations are employed in the farms for the production of crops, but, that does not make them a non-agricultural produce. Implementation and use of better farming practices need not disqualify the income generated from basic agricultural operations from being claimed as agricultural income. Basic seed is definitely produced through normal agricultural operations with the involvement of research based scientific techniques. In today's time of advanced technology and support fr....
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....eeds sold by the assessee were the result of primary as well as subsequent operations comprehended within the term "agriculture" and they are clearly the products of agriculture. The reliance was also placed on the decision of Hon'ble Supreme Court in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466. He, therefore, submits that the agricultural income shown by the assessee amounting to Rs. 20,39,618 be exempted under section 10(1) of the Income-tax Act. 16. On the other hand, the learned Departmental Representative while strongly relying on the Order of the Assessing Officer and learned CIT(A) submits that the foundation seeds produced by the assessee are the result of intensive research and other technical inputs. The activity of research was inextricably linked with the process of growing of foundation seed, and both activities, therefore, had to be considered together. Foundation seed would not be possible only through normal agricultural operations, but involvement of research based scientific techniques have to be invariably there in the process. Therefore, the production of foundation seed is 'non-agriculture' and is a clear commercial activity and, hence, the income fr....
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....g that the assessee's activity of curing coffee amounts to manufacturing and the assessee is entitled to relief under section 32A of the Income-tax Act. It has been held by the Hon'ble Supreme Court that conversion of the raw berry into coffee beans was a manufacturing activity. The assessee was, therefore, entitled to investment allowance under section 32A. 20. In Abdul Ahad Najar's case, the assessee, a lessee, was engaged in the business of Forest exploitation. The assessee claimed deduction under section 80J for the assessment year 1995-96. The Assessing Officer held that the process of converting trees into logs did not involve any manufacturing process and, hence, negatived the assessee's claim. The Tribunal upheld the claim of the assessee. On a reference, it has been held by their Lordships that the activity of the forest lessees of extraction of timber from the forest and conversion of the same into logs and planks was a manufacturing process and, hence, the assessee was eligible for deduction under section 80J. 21. Both the decisions relied on by the learned D.R. are on different provisions of the Act and not on the impugned issue at all, therefore, the decisions th....
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....roduct of agriculture and the income derived from the sale of seeds, was agricultural income"." 25. In Proagro Seeds Co. Ltd.'s case, the assessee-company was engaged in growing various kinds of hybrid seeds and earning income from their sale. The income from sale of seeds was claimed as exempt under section 10(1) of the Income- tax Act. During the course of assessment, it was found that the sale of seeds were of two kinds, i.e., sale of parent seeds and the sale of foundation seeds also called commercial seeds and hybrid seeds. In terms of money the assessee had shown the sale of parent seed at Rs. 16,19,854, sale of hybrid seeds at Rs. 54,21,23,398 and sale of discarded seeds at Rs. 38,52,866. It was further observed by the Assessing Officer that the total sale includes sale of parent seeds amounting to Rs. 16,19,854 to M/s. Hybrid Rice International Pvt. Ltd. and there was another sale in respect of Germplasm seeds of paddy for an amount of Rs. 6,95,00,000 to the same party. The remaining sale pertained to commercial hybrid seeds. The Assessing Officer after detailed discussion treated the receipt of Rs. 6.95 crores pertaining to the sale of germplasm seed as non-agricultural....
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....however, are left to grow and mature by the forces of nature. It is apparent that in the assessee's case the initial activities may be akin to agriculture, but the major portion, therefore, is not and, therefore, the sale proceeds of Rs. 6.95 crores cannot be treated as agriculture income. The action of the CIT(A) is confirmed." 26. In Advanta (India) Ltd.'s case, the assessee-company was incorporated on 24-1-1994. The main object of the company is to carryon the business of development, production, processing and sale of hybrid seeds for agricultural purposes. The revenue authorities had treated the activity of the assessee up to basic seeds level, as agricultural activity. The production activity from the level of basic seeds to the level of hybrid seeds, was treated as non-agricultural activity of the assessee which has been upheld by the learned CIT(A). On second appeal to the Tribunal, the Tribunal after considering the various decisions including the decision of ITAT, Delhi Bench in Proagro Seeds Co. Ltd., has held vide paras 16 and 17 of its order as under: "23. In the case on hand, Basic seeds are given to the farmers by sale or otherwise. The farmers cultivate these ....