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TMI Blog2014 (7) TMI 637X X X X Extracts X X X X X X X X Extracts X X X X ..... the file of the AO to see whether the assessee taken land on lease from farmers, engaged the services of farmers for production of hybrid seed, took entire produce from the farmers, reimbursed the entire expenses of cultivation to the farmers and if the farmers are not given for the produce except reimbursement of the entire charges incurred by them and repayment of labour charges then only the assessee could be considered as it has carried on agricultural operations itself so as to treat income of the assessee as agricultural income – Decided partly in favour of Assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... AB). The Assessing Officer erred in holding that no R&D expenditure can be allowed against business income of the assessee as per the provisions of sec. 14A of the Income tax Act, in view of the fact that scientific research was carried out with regard to foundation seed as also hybrid seeds obtaining agricultural income as well as business income. 6. The CIT(A) observed that regarding the claim of exemption u/s 10(1), the AR relied on the decisions of the jurisdictional Tribunal in its own case for A.Y. 2001-02, reported in 314 ITR (AT) 231 and for the A.Ys. 2002-03, 2004-05 and 2005-06 in ITA Nos. 469/H/2008, 470/H/2008, 480/H/ 2008, 76/H/2008, 234/H/2009 dt. 18.6.2010 where the Tribunal held that the income from the sale of foundation seed was agricultural income and exempt u/s. 10(1) of the Act. The pattern of activities undertaken by the assessee during the relevant previous year has remained identical to those prevailing in the earlier years. The CIT(A), following the findings of the jurisdictional ITAT, directed the AO to treat the income of ₹ 56,27,97,619/- as agricultural income, exempt u/s. 10(1) and thus the CIT(A) allowed the ground taken by the assessee. 7. Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3CL from the competent authority certifying the amounts spent and the amount eligible for weighted deduction claimed u/s, 35(2AB) of the IT Act, the CIT(A) had directed the Assessing Officer that as and when the requisite Form No. 3CL was received by the assessee from the DSIR, the weighted deduction u/s. 35(2AB) would be given to the assessee, subject to such weighted deduction being available only in respect of the R & D Expenditure attributable to the Commercial division. Following the decision of her predecessor in assessee's own case, the CIT(A) directed the Assessing Office to allow the weighted deduction u/s. 35(2AB) as and when the requisite Form No. 3CL is received by the assessee from the DSIR. However, such weighted deduction would be available only in respect of the R & D Expenditure attributable to the Commercial division, to be computed in the manner as specified. 10. On giving relief to the assessee by the CIT(A), the Revenue is in appeal before us. For sustaining a portion of addition, the assessee is in appeal before us. 11. In support of the second additional ground, the assessee relied on the decision of Special Bench in the case of M/s Merilyn Shipping Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 43D, i.e., including the provisions of section 43B of the Act. In view of the above legal positions, in my considered view, exemption u/s. 10B has to be computed on the profits determined after taking into account the disallowances to be made u/s. 43B of the Act." 12. The AR submitted that assessee's additional grounds are to be admitted in view of the judgement of Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT (229 ITR 383) wherein held that Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the Income-tax authority and has a bearing on the tax liability of the assessee, the additional grounds taken by the assessee are to be admitted. 13. The learned AR submitted that the assessee since beginning claiming its income as agricultural income which is exempt from tax. It does not require any investigation of the facts so as to adjudicate the additional ground. 14. Further, he submitted that there is a substantial justice is involved in this case. Being so, technicalities are to be ignored. 15. The DR has seriously objected admission of the additional grounds. 16. Regarding the first additional ground cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 10(1) of the Act. However, the AO declined to grant exemption u/s. 10(1) of the Act based on the decision of Delhi Bench of this Tribunal in the case of Pro-Agro Seeds Ltd. vs. JCIT dated 11.11.2002 in ITA No.90/Del/2000 and Ors wherein the Tribunal held as under: "Agriculture on the other hand is the art and science of cultivating land and growing and harvesting crops. There are operations like weeding, irrigating and tending. The crops, however, are left to grow and mature by the forces of the nature. The farmer mostly gets three to four crops in a year from the same land. He retains the seeds and markets the produce for human or animal consumption. The fanner can also grow commercial products like jute, indigo, etc. It is difficult to accept the proposition that the activities of the appellant in agricultural research are similar to or in the same category as agriculture activities. The appellant may be carrying its research on the field through the medium of plants, but that is all. The subsequent operations are entirely mechanical. The male and female plants are identified, they are crossed in all possible combinations, the hybrid products are regrown, they are obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ethods in producing the seeds? The answer is an emphatic 'NO'. The judgment of the Hon'ble Supreme Court in the case of Raja Benoy Kumar Sahas Roy (Supra) is squarely applicable in spite of the fact that it was rendered in 1957 and we are few decades away as of today, but no decision to the contrary has been brought to our notice on behalf of the assessee and some of the decisions cited are not at all applicable having been rendered in different contexts. The Commissioner of Income-tax (Appeals) in her order has very rightly observed that whereas some part of the activities of the assessee may pertain to the 'field' the major operations are of a mechanical nature ruling out the role of nature. It has been very aptly emphasized that agriculture is the 'art and science of cultivating land and growing and harvesting crops'. It is apparent that in the assessee's case the initial activities may be akin to agriculture, but the major portion, therefore, is not and therefore the sale proceeds of ₹ 6.95 crores cannot be treated as agricultural income. The action of the Commissioner of Income- tax (Appeals) is confirmed". 20. Thus, relying on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving heard both the parties and having considered the rival contentions, we find that according to the AO, the assessee is undertaking the activity of producing the basic seeds in its own lands and hybrid seeds on the lands leased by it. According to the AO, the foremost objection is that the germplasm is generated out of scientific research and, therefore, it is not agricultural activity and further that the expenditure incurred for such scientific research has not been considered by the assessee while computing the agricultural income. As regards the production of basic seeds is concerned, the second objection of the AO is that the basis seeds are not fit for human consumption, and, therefore, it cannot be agricultural produce and further that they are not only grown on own lands but also on leased lands and, therefore, lease rentals should also be considered for computing the agricultural income As regards the production of hybrid seeds, the only objection of the AO is that the hybrid seeds are cultivated by the farmers on a contract basis and, therefore, the assessee cannot be said to have cultivated the hybrid seeds and, therefore, the entire operation cannot be considered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person and cannot be expected to do the cultivation by itself. The cultivation can be done by its agents or by labourers, to whom the assessee pays the wages. In the case before us, the assessee has taken the lands on lease from the farmers and in turn the farmers are employed by the assessee company to cultivate and produce the seeds. Therefore, the farmers can be said to be the agents of the assessee company and the production of hybrid seeds by the farmers cannot be said to be not on behalf of the assessee company. This issue had arisen in the assessee's own case for the assessment year 2002-03 and the Tribunal after considering the issue at length has held as under:- "3. The assessee is a company engaged in the business of production and sale of Hybrid Seeds. The company is engaged in the research, development, processing and marketing of Hybrid Seeds. The assessee company carried out studies and researches to find out the most suitable genetic composition of seeds in the respective local environment. The assessee procures germplasm prototype of the Hybrid Seeds from the laboratories for employing the same in its subsequent operations. The germplasm is sown in fields w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainly on account of international technology, marketing expertise assisted by the agricultural operations carried on by the growers mainly on their own lands. ii) The assessee does not undertake any agricultural activity by relying on the decision of the ITAT, Delhi in Proagro Seeds Company Ltd., v. JCIT in ITA No.90/Del/2000, dated11.11.2002. 8. On the issue of agricultural character of income, the CIT(A) confirmed the order of the assessing authority. The Commissioner of Income-tax(A) held that the income of the assessee is neither wholly nor partially agricultural income. It is against the above, the assessee has come in second appeal before us. 9. Even though the assessee has raised twenty two grounds of appeal, the issue in short is whether the entire income earned by the assessee out of production of Hybrid Seeds is agricultural in character or not. The alternative contention of the assessee is that at least income attributable to the production of Basic Seeds is agricultural in nature. 10. We heard Shri. P. J. Pardiwala, the Senior Counsel appearing for the Assessee and Smt. Swathi S. Patil, the learned counsel appearing for the Revenue. 11. An exactly similar issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch land by the assessee is agricultural income or not. For the purpose of deriving income from agricultural land there is no necessity that such land should be owned by the assessee. If the assessee has derivative interest in the land for the purpose of conducting agricultural operations on the said land, then the revenue generated from such land would be agricultural income. This has been so held by the Hon'ble Madras High Court in 20 ITR 151 (Commissioner of Income-tax v. Maddi Venkatasubbayya). Here it may be appreciated that the assessee entered into lease agreement with various agriculture land owners for the purpose of obtaining lands for doing the process of agricultural operations. The Government of Karnataka has also granted registration to the assessee thereby permitting the assessee to take up production and distribution of various seeds and crops. The assessee's representatives are there on the land to supervise the manual labour operations and to protect the assessee's interest and it may be appreciated that the sowing, growing and protecting the crop and the produce is also taken by the assessee and the assessee alone. Here the kind attention of the Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy (32 ITR 466) has considered comprehensively the concept of agricultural income for the purpose of Income tax Act. The Court held that agriculture in its primary sense denotes the cultivation of the field and is restricted to cultivation of the land in the strict sense of the term meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land. These are basic operations and require the expenditure of human skill and labour upon the land itself. The court further held that the performance of subsequent operations like tending, pruning, cutting, harvesting etc., would not be enough to characterize them as agricultural operations. In order to invest them with the character of agricultural operations, subsequent operations must necessarily taken in conjunction with and in continuation of the basic operations which are the effective cost of the produce being raised from the land. 15. If we examine the operations carried out by the assessee in the previous year relevant to the assessment year in appeal, we find that the production of Basic Seeds as well as Hybrid Seeds are the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds are worth noting. M/s Namdhari Seeds Pvt. Ltd. M/s Advante India Ltd. 1. It does not take land on lease from farmers It takes lands on lease from farmers 2. It engages the farmers for production of hybrid seeds It engages services of the farmers for production of hybrid seeds 3. It purchases the hybrid seeds which cater to its specifications at fixed prices It takes entire produce from the farmers. 4. It is not concerned with expenditure incurred by the farmers It reimburses the entire expenditure of cultivation to the farmers. 5. The seeds which do not meet the specification set out by M/s Namdhari Seeds are sold by the company in the open market and the consideration received is given to the farmers. The farmers are not given price for the produce except reimbursement of the entire charges and repayment the labour charges. 11. Taking the above differences into consideration, it can be seen that the decision of the Hon'ble High Court of Karnataka in the case of M/s Namdhari Seeds Pvt. Ltd., is based on the peculiar facts and circumstances of its case. The Hon'ble High Court has held that the assessee therein, i.e M/s Namdhari Seeds Pvt. Ltd., is in fact purchasin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in reading of Rule 11 of the ITAT Rules, 1963. Indeed on such a plea being taken, the Tribunal is under a statutory obligation not only to entertain the plea but also to decide the same after providing sufficient opportunity of being heard to the other side. Similar views have been taken by Hon'ble Delhi High Court (i) in the case of CIT v. Mahalakhshmi Sugar Mills Co. Ltd., (200 ITR 275), (ii) Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. v. CIT (199 ITR 351) and (iii) Hon'ble Rajasthan High Court in the case of Mewar Sugar Mills Ltd. v. CIT (203 ITR 45). Hon'ble Bombay High Court in the case of Baby Samuel v. Asstt. CIT (263 ITR 385) has held that when an issue was not specifically taken in the memorandum and grounds of appeal but mentioned in the written submissions filed before the Tribunal and specifically argued at the time of the final hearing of the appeal, the Tribunal cannot refuse to adjudicate upon that issue on the merits of the ground that no such ground has been taken specifically in the grounds of appeal. Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra) has held: "...The power of the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional ground on the reason that the assessee is not aware of the order of the Tribunal in the case of Advanta India Ltd. (cited supra) which was delivered on 29.6.2012 though the assessee filed the appeal before this date on 13.12.2012. It cannot be expected that every assessee is aware of all the decisions of the Tribunal though it was pronounced. Being so, considering the plea of the assessee and judgement of the Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT (229 ITR 383), we are inclined to admit the second additional ground also. 27. However, since this issue has been raised for the first time by the assessee before us, the AO has no occasion to examined this ground of the assessee. Being so, in view of this, it is appropriate to remit the issue to the file of the AO to see whether the assessee taken land on lease from farmers, engaged the services of farmers for production of hybrid seed, took entire produce from the farmers, reimbursed the entire expenses of cultivation to the farmers and if the farmers are not given for the produce except reimbursement of the entire charges incurred by them and repayment of labour charges then only the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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