INCOME FROM SALE OF SEEDS AMOUNTS TO AGRICULTURAL INCOME

[Mr. M. GOVINDARAJAN]

Section 10(1) of the Income Tax Act, 1961 provides that in computing the total income of a previous year of any person, agricultural income shall not be included.  Section 2(1A) of the Act defines the term ‘agricultural income’ as-

1. any rent or revenue derived from land which is situated in India and is used for agricultural purposes;
2. any income derived from such land by-

1. agriculture; or
2. the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or
3. the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause ;

(c)    any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on:

Provided that-

1. the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and
2.  the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated-

1. in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand; or
2. in any area within the distance, measured aerially,-

1. not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or
2. not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or
3. not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten lakh.

Explanation 1.-For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section ;

 Explanation 2.-For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income;

 Explanation 3.-For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income;

 Explanation 4.-For the purposes of clause (ii) of the proviso to sub-clause (c), “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year.

In this article the issue to be decided is whether the income from the sale of seeds amounts to agricultural income with reference to decided case law.

In ‘Assistant Commissioner of Income Tax V. Prabhat Agri Biotech Limited’ -  2015 (9) TMI 640 - ITAT HYDERABAD the assessee is a company engaged in the business of seed production, research, marketing of field, vegetable crops and wind power generation.  The assessee declared an agriculture income of ₹ 37,54,466 from the production of basic seeds and claimed exemption under Section 10(1) of the Act.  The same was disallowed by the assessing officer.  On appeal the Commissioner of Income Tax (Appeals) allowed the appeal of the assessee.

The Commissioner (Appeals) allowed the appeal on the basis of earlier decisions of Tribunals.  The Tribunals have held that the income from seed production as agricultural income and eligible for exemption under Section 10(1) of the Act and delete the addition on the income generated from the production of basic/foundation seeds by the appellant which were generated out of the cultivation made by the appellant.

Against the order of Commissioner (Appeals) the Revenue filed appeal before the Tribunal.  The assessee contended the following:

• Right from the assessment year 2003 – 04 the same dispute with regard to the claim of exemption under Section 10(1) is going on;
• For the previous assessment years it has been held that the income generated on cultivation of basic foundation seeds is agricultural income and as such is exempt under Section 10(1) of the Act.

The High Court considered the question for discussion as to whether the assessee’s claim of exemption under Section 10(1) of the Act by treating the income generated from sale of basic/foundation seeds as agricultural income.  The High  Court observed that during the assessment proceedings the Assessing Officer has stated that the claim of the assessee was allowed by the Income Tax Appellate Tribunal for the assessment years 2003 – 04 to 2006 -07.  The Assessing Officer has disallowed the claim of the appellant stating that the Department had not accepted the decision of the Hon’ble Tribunal and filed further appeals before the High Court of Andhra Pradesh.

The Tribunal found the decision in the case of ‘Swagath Seeds Private Limited’ relied upon by the assessee.   In this case the Tribunal observed that the assessee is cultivating by performing agricultural operation in order to generate basic foundation seeds.  The same were distributed to farmers for further generation of seeds.  The assessee is not claiming any exemption for the seeds which are purchased from other farmers.   The assessee claimed exemption under Section 10(1) in respect of basic foundation seeds which were generated by performing agricultural operation on the land by the assessee.

Following the above said order of the Tribunal in ‘Swagath Steels Private Limited’ case the Tribunal held that the assessee is entitled to exemption under Section 10(1) of the Act and that income generated on cultivation of basic/foundation seeds has to be treated as agricultural income.   The Tribunal did not found any reasons to interfere with the orders of the Commissioner (Appeal).