TaxTMI 
TaxTMI 
2025 (11) TMI 1776
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....08 is filed by the appellant / assessee under Section 260A of the Income Tax Act, 1961 (for short the 'Act') assailing the order passed by the Income Tax Appellate Tribunal, Hyderabad Bench 'B' Hyderabad (for short the 'ITAT') in I.T.A. No. 1172/Hyd/2006, for the assessment year 2002-03, decided on 28.09.2007. Similarly, Income Tax Tribunal Appeal No.92 of 2008 is filed by the same assessee under Section 260A of the Act assailing the order passed by the ITAT, in I.T.A.No.1173/Hyd/2006, for the assessment year 2003-04, which also stands decided on 28.09.2007. 3. Since the issue involved in both the Appeals is one and the same, the parties to be dispute being the same, and the contentions raised on either side also being the same, we proceed to decided the two Appeals by this common judgment. 4. For convenience, the facts in Income Tax Tribunal Appeal No.91 of 2008 are discussed hereunder. 5. The appellant M/s. A.G. Biotech Laboratories (P) Ltd. is engaged in the business of micro-propagation of plants through tissue culture technology. The primary dispute in the instant case is classification of income earned by the assessee from the sale of tissue-cultured plants for the a....
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....ese foundational agricultural activities carried out on land involving human skill and labor, their business would simply not exist. 9. Learned counsel for the appellant further contended that the tissue extracted from these mother plants was not an independent creation but a direct derivative of the agricultural produce grown on the land. Therefore, he argued that the resultant income from selling plants propagated from this agricultural source material should be treated as agricultural income, as the entire chain of production originated from and depended upon basic agricultural operations performed on land. 10. Learned counsel for the appellant relying upon the decision of the Gujarat High Court in Shri Puransingh M. Verma vs. CIT 2014 SCC OnLine Guj 13112 drew the attentions of this Bench in comparing with the nursery operations that were held to constitute agriculture income. He argued that just as nursery businesses involve basic agricultural operations like tilling, sowing, planting, watering, and manuring, which qualify the resulting income as agricultural despite involving pots and controlled environments, tissue culture operations similarly require fundamental agric....
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....amentally an agricultural technique which is more efficient, reliable, and productive method of plant propagation that serves the ultimate purpose as traditional agricultural methods, namely the production of plants for cultivation and consumption. Therefore, adopting a narrow or archaic definition of agriculture that excluded modern scientific methods would be contrary to the legislative intent behind Section 2(1A) of the Act. 13. Lastly, the learned counsel for the appellant contended that tissue culture technology provided substantial and critical support to Indian farmers and the agricultural sector as a whole by enabling the production of high-quality, disease-free, and genetically uniform planting material for fruits, spices, plantation crops, and other agricultural products. This technology has helped farmers significantly increase their productivity, reduce crop losses due to disease, ensure consistency in crop quality, and ultimately improve their per capita income and standard of living. Thus, treating their income other than agriculture income is illogical and unjust and that their activities had been officially recognized and classified as agricultural by multiple au....
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....ouse/shade house and skilled manpower and regular manures and fertilisers and watering 6. Production of the plants in containers/pots/poly bags in open area in polybags and containers with more soll, sometimes carry the pest and diseases. The Production of the plants in sterile containers that allows them to be moved with greatly reduced chances of transmitting diseases, pests and pathogens. 7. In the nursery production also, the mother plants are the result of the basic operations on the land on expending human skill and labour thereon and it is only after the performance the basic operations on the land, the resultant product grown or such part thereof as was suitable for being nurtured in a pots/poly bags for propagation, was separated and placed in a pots/poly bags and nurtured with water and by placing them in the green house or in shade and after performing several operations, such as weeding, watering, manuring, etc., they are made ready for sale as plants, all these agricultural operations Involves human skill and effort. Thus, the plants sold by through nursery propagation in pots/poly bags were the result of primary as well as subsequent operations comprehe....
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...., they are transmitted to large containers filed with top soil and manure, etc, till they establish themselves; and there after those plants are sold. Tissue culture activities are to prepare seedlings on scientific lines: that the mother plants are grown on prepared beds on lands owned by It and the plants are then micro-propagated that the resulting seedlings are transplanted in suitable containers and are reared in green houses or in shade and after they take root, they are transmitted to large containers filed with top soil and manure, etc, till they establish themselves; and there after those plants are sold. 15. Per contra, the learned Senior Standing Counsel for the Income Tax Department contended that the income derived from the sale of tissue culture plants constitutes as business income. The statutory definition of the agricultural income under Section 2(1A) of the Act requires that income must be derived from the land through the basic agricultural operations involving human skill and labour and that the appellant's activities failed to satisfy this fundamental requirement. Further, she argued that while the appellant did maintain some mother plants on leased agric....
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....rned Senior Standing Counsel rejected the appellant's reliance on classifications made by the State Government and various banking institutions that had treated the appellant's activities as agricultural for purposes of providing incentives, subsidies, and financial assistance. Therefore, these classification by other governmental departments and financial institutions while perhaps appropriate for the limited purposes for which they were made, such as determining eligibility for agricultural development schemes or agricultural credit facilities, had no bearing whatsoever on the proper classification of income under the Act which is governed by specific statutory definitions and judicial interpretations that must be applied uniformly across all taxpayers. 18. Thereafter, the learned Senior Standing Counsel argued that the definition of agricultural income in Section 2(1A) of the Act is a matter of central legislation that cannot be varied or modified by state government policies or banking practices and that permitting such external classifications to influence income tax assessments would create uncertainty, inconsistency, and opportunities for manipulation in tax administr....
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.... "4. Widening the scope of "agricultural income" 4.1 "Agricultural income" is defined in sub-section (1A) of section 2 of the Act to mean, inter-alia, income derived from land which is situated in India and is used for agricultural purposes. Such agricultural income is exempt from tax under sub-section (1) of section 10 of the Income-tax Act, 1961. It has been held by judicial authorities that whether income from nursery operations constitutes agricultural income or not. will depend on the facts of each case. If the nursery is maintained by carrying out basic operations on land and subsequent operations are carried out in continuation of the basic operations, then income from such nursery would be agricultural income not liable to tax under section 10. However, if the nursery is maintained independently without resorting to basic operations on land, then income from such nursery would not be agricultural income and would be liable to be included in the total income. 4.2 With a view to giving finality to the issue, an Explanation in section 2 of the Income-tax Act, has been inserted providing that any income derived from saplings or seedlings grown in a nursery s....
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....s, but also from depradation, from outside, tending, pruning, cutting, harvesting and rendering the produce fit for the market, which would all be agricultural operations, when taken in conjunction with the basic operations. 9. All the products of the land, which have some utility either for consumption or for trade or commerce, if they are based on land, would be agricultural products. Here, it is not the case of the Revenue that without performing the basic operations, only the subsequent operations, as described in the decision of the apex court have been performed by the assessee. If the plants sold by the assessee in pots were the result of the basic operations on the land on expending human skill and labour thereon and it is only after the performance of the basic operations on the land, the resultant product grown or such part thereof as was suitable for being nurtured in a pot, was separated and placed in a pot and nurtured with water and by placing them in the green house or in shade and after performing several operations, such as weeding, watering, manuring, etc., they are made ready for sale as plants all these questions would be agricultural operations all thi....
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....ld all be agricultural operations when taken in conjunction with the basic operations above described, and it would be futile to urge that they are not agricultural operations at all. But even though these subsequent operations may be assimilated to agricultural operations, when they are in conjunction with these basic operations, could it be said that even though they 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? 91. In considering the connotation of the term "agriculture" we have so far thought of cultivation of land in the wider sense as comprising within its scope the basic as well as the subsequent operations described above, regardless of the nature of the products raised on the land. These products may be grain or vegetab....
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....t 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 be considered whether these subsequent operations performed by the agriculturist are agricultural operations and enjoy the characteristic of agricultural operations." [Emphasis Supplied] 6.2 In the case of Green Gold Tree Farmers P. Ltd. (supra), similar case wherein the assessee also used to carry on nursery business came up for consideration before the Uttarakhand High Court. The Uttarakhand High Court relying upon the decision of the Apex Court in the case of Raja Benoy Kumar Sahas Roy (supra) held that sale proceeds of the land belonging to the assessee constituted income from agriculture and hence should be exempted from tax under the Act. The relevant paragraphs are quoted a....
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....he use of land as meadow or pasture land or orchard or osier or woodland or for market gardens, nursery grounds, or allotments, etc. In 57 and 58 Vict C 30 Section 22, the term "agricultural property" was" defined so as to include agricultural land, pasture, and woodland, etc." 24. This High Court also in the case of The Commissioner of Income Tax, Hyderabad vs. M/s. Prabhat Agri-Biotech Ltd. ITTA No.88 of 2014, decided on 21.02.2014 had an occasion of dealing with a similar issue which arose for consideration and while considering the said issue, it was held as under: "In this case, we find that the assessee claimed for exemption under Section 10 (1) of the Income Tax Act, 1961 treating the income generated from the sale of basic/foundation seeds as agricultural income. Therefore, the question is whether the income arising from out of the sale of seeds can be treated to be income otherwise than the agricultural income. No one can dispute that the seed is the product of agricultural activity and the seeds cannot be sold commercially, unless it is produced by agricultural activity. We are unable to accept this farfetched idea that artificial production of seeds ....
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....logical advancement and the introduction of tissue culture technology serves the same purpose as traditional agricultural methods, the production of plant material for cultivation, but achieves this objective with greater efficiency, uniformity, and disease-free quality. To deny the agricultural character of such operations merely because they employ modern scientific techniques would be ignoring the reality of contemporary agricultural practices and would create an arbitrary distinction that finds no support in the statutory language or legislative intent. 27. Interestingly, this very Bench recently in The Principal Commissioner of Income Tax vs. M/s. Nuziveedu Seeds Ltd. [2025] taxmann.com 486 (Telangana) regarding hybrid seeds has taken a remarkably progressive view on agricultural income classification and this perspective holds significant relevance for tissue culture operations. In the said case, this Bench recognized that even though the assessee company was not directly involved in agricultural operations but worked through farmers using scientific research, hybridization techniques, and extensive supervision and the income still qualified as agricultural income. The Ben....