2002 (11) TMI 780 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from sale of paddy seeds as agricultural or non-agricultural.
2. Determination of expenditure attributable to the sale of paddy seeds.
3. Treatment of germ plasm seeds and related scientific research.
4. Levy of interest.

Summary:

Issue 1: Classification of Income from Sale of Paddy Seeds
The primary issue was whether the receipt of Rs. 6,95,00,000 from the sale of paddy seeds should be classified as agricultural income exempt u/s 10(1) of the Income-tax Act, 1961. The assessee argued that the income was agricultural, derived from growing and selling parent paddy seeds. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) (CIT-A) held that the income was non-agricultural, as it resulted from scientific agricultural research involving bio-technological techniques, not traditional agricultural operations. The Tribunal upheld the AO and CIT-A's view, emphasizing that the substantial research expenditure and high selling price indicated that the activity was not a normal agricultural operation.

Issue 2: Determination of Expenditure Attributable to Sale of Paddy Seeds
The assessee claimed a deduction of Rs. 8,67,53,447 as expenditure attributable to the sale of paddy seeds, while the AO allowed only Rs. 3,56,25,075. The Tribunal upheld the AO's method of determining the expenditure, agreeing that no further expenditure could be allowed beyond what was already permitted.

Issue 3: Treatment of Germ Plasm Seeds and Related Scientific Research
The AO noted that the sale of germ plasm seeds involved significant scientific research and high costs, making it a non-agricultural activity. The CIT-A agreed, stating that the activities were more mechanical and research-oriented rather than traditional agricultural operations. The Tribunal confirmed this view, noting that the production of germ plasm seeds involved substantial research and mechanical processes, thus not qualifying as agricultural income.

Issue 4: Levy of Interest
The assessee raised an additional ground regarding the levy of interest, which was not initially addressed by the CIT-A. The Tribunal admitted this additional ground and remanded the matter back to the CIT-A for adjudication after providing a reasonable opportunity to both parties.

Conclusion:
The Tribunal dismissed the assessee's appeal for the assessment year 1996-97, upheld the Revenue's appeal for the assessment year 1994-95, and partly allowed the assessee's cross-objection for statistical purposes.