TaxTMI 
TaxTMI 
2022 (11) TMI 518
X X X X Extracts X X X X
X X X X Extracts X X X X
....onvenience. 4. First, we shall take up appeal by the Revenue in ITA No.2102/PUN/2017 for A.Y. 2013-14. 5. We note that the assessee is a company engaged in the business of production and marketing of agricultural hybrid seeds. The assessee filed return of income declaring at NIL and claimed agricultural income of Rs. 1,66,06,935/- as exempt . The A.O disallowed the said amount treating the same as business income vide his order dated 23-3-2016 passed u/s 143(3) of the Act, against which the assessee preferred an appeal before the CIT(A). 6. We note that the CIT(A) by placing reliance in the case of M/s. Nath Bio Genes (I) Ltd for A.Y. 2011-12 which is at para 5 of the impugned order held that the seed production is also an agricultural activity by virtue of seed production agreement entered into by the assessee with farmers. Being aggrieved the revenue is before us. 7. The ld. Sr. D.R submits that the assessee did not conduct agricultural activities which are spread over in Maharashtra, Karnataka and Andhra Pradesh entered into Seed Production Agreement with various owners of the land. The assessee itself submitted that the farmers have done agricultural activities on b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....showing any expenditure of basic agricultural operations were shown in the accounts and referred to page 17 of the paper book. He argued that the assessee shows purchase of seeds of Rs. 16,88,35,662/- but in the absence of any break up, the reimbursement as contended by the assessee is to be dis-believed. He vehemently argued that the assessee failed to bring on record any evidence before all the authorities including this Tribunal. Further, he argued, the CIT(A) did not analyze the confirmation submitted by the land owner (farmers) and drew our attention to page No. 7 of Annexure pointing out many discrepancies. 11. Shri Piyush Kumar submits that none of the normal agricultural activities were undertaken by the assessee excepting supplying foundation seeds and giving scientific advice from time to time and referred the terms and conditions of the agreement. Further, he argued that the farmer is not entitled to grow, except sowing seeds given by the assessee and farmer had to return the unused seeds. He submits that the farmer conducted cultivation and the assessee allowed machinery and advised for achieving better results. The farmer is only entitled for compensation for prepar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....seeds into finished goods is not an agricultural activity. He drew our attention to page 31 of depreciation chart regarding addition in machinery and plant and submits that farmer made addition only in tools to an extent of Rs.1,689/-. The said little expenditure indicates that these additional tools are not related to production of seeds by the farmer. The said little expenditure, he vehemently argued, is not sufficient for purchase of equipment such as sprinklers for irrigation, insecticide sprayers and weedicide sprayers and referred to point No. 9 of the seed purchase agreement. 15. The ld. A.R, Shri Nikhil Pathak submits that from the clause 4 in section 1 and clauses 3 and 5 of sec. 2 and clauses 2, 3, 9 and 15 of sec. 3, is clear that the farmer is cultivating the land on behalf of the assessee and produce belonging to the assessee. It is also clear that the assessee is required to pay compensation towards the use of land and the obligation performed by the farmer even if produce grown does not meet standard and the obligation of the agreement clearly indicates the farmer is cultivating the land on behalf of the assessee and it is not a case purchase of seeds from the far....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, he submits the assessee is reimbursing cultivation expenses to the farmers. He referred to the decision of Namdhari Seeds Pvt. Ltd. (supra) and argued that the assessee therein was paying fixed price per quintal to the farmer and not for use of land or any service charges was paid. In the present case, the assessee is paying rent for use of land as well as service charges and there is no fixed price which would be paid to the farmer, the fact of which is very important distinguishing between the case of the assessee and that of Namdhari Seeds Pvt. Ltd (supra) and referred to the payment and reimbursement of expenses. He supported the order of CIT(A) and prayed to dismiss the grounds raised by Revenue. 17. Heard both parties and perused the material available on record. In support of the contentions of ld. DR and AR, we shall examine the agreements between the assessee and the farmers which are filed by the assessee in its paper book from page Nos.33 to 167. As a lead agreement, we shall read the contents of Seed Production Agreement of Mr. C.H. Prabhakar Rao which are at page Nos.33 to 43 of paper book. We note that the said agreement is titled as 'Seed Production Agreement' ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er impositions such as land revenue vide clause 6 of section 3. 19. Further, we note from clause (11) of section 3 that the First Party shall pay the Second Party an amount calculated in the Schedule 4 attached thereon to for granting the exclusive right to use the land, for cultivating the produce and agreeing to render services. It is also agreed that the said compensation covers all expenses, costs, charges and all taxes that the Second Party may incur in relation to the services rendered to the First Party. 20. According to clause (16), we note that the First Party may make available for the cultivation costs incurred by the Second Party such as advance payments, fertilizers, pesticides or other similar materials, specialized equipments such as sprinklers for irrigation, insecticide sprayers and weedicide sprayers. 21. In view of our discussion above, we propose to examine the provision u/s 2(1A) for better understanding whether the income derived by the assessee is from agricultural operations amounting to agricultural income. Therefore, the provision u/s 2(1A) is reproduced herein below: "2 (1A) "agricultural income" means- (a) any rent or revenue d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Hon'ble Supreme Court held the primary significance of agriculture is that of cultivation of land, the process of agriculture and products raised upon the land, meaning thereby, the cultivation of land includes the tilling of land, sowing of seeds and planting are the basic operations and after the produce sprout from the land, the process of weeding, digging the soil around the growth, removal of undesirable under-growths and all operations that are preserving the growth from insects, pests, harvesting and rendering the produce fit for market are subsequent operations. The Hon'ble Supreme Court held that if the basic operations are there, the rest of operations found themselves upon the same. In the absence of basic operations, the subsequent operations do not acquire the characteristic of agricultural operations. Therefore, in our opinion, if that composite activity constitutes agriculture undertaken and performed in regard to any land that land can be said to have been used for agricultural purposes and the income derived thereon can be termed as agricultural income derived from the land by the agriculturists. 24. In the present case as we gathered from the terms a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s laid down by the Hon'ble Supreme Court that if the basic operations of the agriculture are not carried on by the assessee, then the hybrid seeds produced / purchased by way of compensation taking into account, usage of land services and expenses incurred by the land owner cannot be termed as integrated part of the foundation activity of agriculture. Therefore, the detailed reading of the agreement titled 'Seed Production Agreement' would only establishes that the assessee was interested for the purpose of development, production and distribution of proprietary hybrid or variety seeds of various crops which is evident from clause (1) of section 1 of the agreement, therefore, entire income amounts to business income as rightly held by the AO. 26. A perusal of the financial statements of the Respondent-assessee placed at page Nos.1 to 27 would reveal that the assessee only deals in seeds which means that it purchases seeds from the farmers and sells. In the Schedule No.19 forming part of the financial statements in the Schedule of cost of material consumed, it is clearly shown that the Respondent-assessee made purchase of seeds worth Rs.16,88,35,662/- and made sales of Rs.28,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld the order of Tribunal vide its order dated 18.06.2015. Therefore, it is clear the facts in the case of M/s. Nath Bio Genes (I) Ltd. (supra) and Ajeet Seeds Limited (supra) are similar, therefore, the Tribunal held the profits arising out of activity of production of foundation seeds or hybrid seeds produced in own land or lands taken on lease as agricultural income. As we discussed above, that is not the fact in the present case that the assessee herein paid only compensation taking into consideration the best quality of seeds and proportionate compensation on rejected seeds. The ld. AR could not point out any term or condition showing the assessee paid rent or lease amount to the farmers. Therefore, the finding of this Tribunal in the cases of M/s. Nath Bio Genes (I) Ltd. (supra) and Ajeet Seeds Limited (supra) is not applicable to the facts of the case. Therefore, the order of CIT(A) is not justified and it is set aside. We find the AO denied the claim of Rs.1,66,06,935/- as agricultural income and treated the same as business income by placing reliance on the decision of Hon'ble Supreme Court in the case of Raja Benoy Kumar Sahas Roy (supra) and the Hon'ble High Court of Karn....