2023 (4) TMI 1172 - AT - Income Tax

Exemption u/s 10(1) - Whether research and development activities of the assessee forms integral part of the agricultural activities for the purpose of section 10(1)? - HELD THAT - There is no dispute about the activities conducted by the assessee or the assessee conducting such activities year after the year. It is also not in dispute that for the earlier assessment year, 2012-13, initially, no such disallowance of claim under section 10(1) of the Act was made, but was made consequent to the order under section 263 of the Act. It is also not in dispute that the order under section 263 as well as the order under section 143(3) read with section 263 of the Act were quashed. It is also not in dispute that the activities conducted by the assessee in this case are similar to the activities of M/s. Nuziveedu Seeds Ltd. 2015 (3) TMI 938 - ITAT HYDERABAD It does not deny the fact that the activities of the assessee include such operations as are defined as the agricultural operations under section 2(1A) of the Act. Complaint of the learned Assessing Officer is that merely because the assessee is conducting the activities like sowing, weeding, irrigation, inter-cultivation etc., the same cannot be considered as agricultural operations u/s 2(1A) of the Act, because assessee conducts such activities as incidental to the main activity of producing foundation seeds which is a commercial activity in nature. We are unable to agree with this argument advanced on behalf of the Revenue. Hon ble High Court succinctly said that seed is a product of agricultural activity. When such agricultural activity is conducted and seeds are produced, merely because such seeds were sold commercially, the basic agricultural operations also cannot be dubbed as commercial activities , and not agricultural activities . Also see M/S PRABHAT AGRI BIOTECH LIMITED., HYDERABAD 2014 (2) TMI 1197 - ANDHRA PRADESH HIGH COURT - Decided against revenue.

Summary

Issues involved:
The appeal involves the interpretation of section 10(1) of the Income Tax Act, 1961 regarding the exemption claimed by the assessee for the assessment year 2013-14 based on the nature of its agricultural activities.

Summary of Judgment:

Issue 1: Claim of exemption under section 10(1) of the Act
The assessee, engaged in the production of hybrid seeds, claimed exemption under section 10(1) stating that its research and development activities are integral to agricultural operations. The Assessing Officer disallowed the claim, stating that the assessee's activities were commercial in nature and not agricultural. The CIT(A) upheld the assessee's contentions, referencing previous judicial decisions. The Tribunal, following precedent, found the CIT(A)'s decision valid, emphasizing that the basic agricultural operations involved in seed production cannot be considered commercial activities.

Issue 2: Disallowance of deduction under section 10(1)
The Revenue contended that the assessee's activities were commercial and not agricultural, as the seeds were procured from farmers. The assessee argued that previous assessment years did not disallow the deduction, and cited cases where similar activities were considered agricultural. The Tribunal noted that the activities were consistent year after year and similar to those of other seed companies. It upheld the CIT(A)'s decision based on the precedent set by the jurisdictional High Court, emphasizing that seed production, even if sold commercially, remains an agricultural activity.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the exemption claim under section 10(1) of the Act. The Tribunal found the order legal and consistent with previous decisions, emphasizing that the agricultural nature of the activities prevails over commercial aspects.