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TMI Blog2022 (11) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... taka Namdhari Seeds Pvt. Ltd. (supra) is applicable to the facts of the present case. Thus, the order of AO is restored. Grounds 1 to 6 raised by the Revenue are allowed. - ITA No. 2102 & 2103/PUN/2017 - - - Dated:- 17-6-2022 - SHRI INTURI RAMA RAO, AM AND SHRI S.S. VISWANETHRA RAVI, JM Appellant by : Shri Piyushkumar Singh Yadav Respondents by : Shri Nikhil Pathak ORDER PER S.S. VISWANETHRA RAVI, J.M. : These two appeals by the Revenue arise against a common order dated 23-6-2017 passed by the CIT(A)-1 Aurangabad for A.Y. 2013-14 and 2014-15. 2. The appellant revenue raised as many as six grounds amongst which the only issue emanates for consideration is as to whether the CIT(A) is justified in holding the seeds production activity as exempt u/s 10(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) as against the business income as held by the A.O in the facts and circumstances of the case. 3. Since the issue raised in both the appeals is similar on same identical facts, therefore, upon hearing both the parties and with their consent, we proceed to hear both the appeals together and pass a consolidated order for the sake of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbursement deleted the addition made by the AO by treating the activity of the assessee as agricultural activity. Further he drew our attention to clause 15 of the said agreement and submits that the clause 15 clearly shows that in the event of failure the second party therein i.e. (land owner) of delivery of produce in terms of agreement upon receiving request letter from the first party (i.e. assessee). He argued that Schedule IV and clause 15 of the said agreement does not in any way show that the assessee paid compensation, it is only the payment on failure to deliver agricultural produce. 9. Referring to page 40 of the paper book, he argued that no risk and reward was associated with the assessee. It is only the compensation payable for any losses, injury, damages resulting from the use or handing of breeder seed/foundation seed or manuring, nutrition patterns, irrigation techniques and parental material supplied by the first party, he argued vehemently that in no event the assessee is liable to pay any incidental, consequential, special or punitive damages to the land owner. 10. The ld. D.R drew our attention to the accounts of the assessee and submits that no breakup s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court of Karnataka is applicable to the present case and prayed to allow grounds raised by the Revenue. 13. Further, without prejudice, the ld. D.R submits, processing of the raw seeds into finished seeds is manufacturing activity. Reliance placed in the case of CIT Vs. EID Parry (India) Ltd. (1996) 218 ITR 713 (Mad) and argued, if the order of the A.O is not restored, that the income from sale of processing raw seeds may be allowed as business income. 14. He drew our attention to page 9 and 17 of the paper book and submits, cost of material consumed is equal to purchase of raw seeds. He also drew our attention to page 16 of the paper book by referring to details of inventory. He argued that the assessee has not shown quantitative details in column No. 35 of the tax audit report but shown only inventory of raw-material and finished goods. Further, shown closing stock of cost of material consumed is only Rs. 13,90,10,447/-. Further he referred to Note No. 24 of P L a/c at page 18 and argued that the specific expenditure on processing and designing charges as shown by the assessee clearly suggests converting raw seeds into finished products meaning the processing of raw s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is paying fixed price of Rs. 3,200/- per quintal or any other price depending upon the terms and conditions of the agreement. The assessee therein has not paid any amount towards labour for supplying any input to the farmer. The only payment made is compensation at a specified rate per quintal as agreed. In such circumstanes, the Hon ble High Court of Karnataka held that the entire terms of agreement would indicate the foundation seeds grown by the farmer would be purchased by the assessee at the end for a certain price provided seeds quality the specifications as per the agreement. The facts therein are entirely different to the facts of the present case and the said decision is not applicable to the facts of the case on hand. By referring to schedule IV of the agreement, he submits that the assessee is required to pay compensation for land use at Rs. 15,000/- per acre, service charges of Rs. 3,000/- per acre and also reimbursement of cultivation expenses etc. He argued that no fixed price per quintal which would be paid by the assessee to the farmer and the assessee is paying separately for use of the land also service charges to the farmer. Further in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, threshing, etc. 18. Section (2) of the said agreement provides definitions to various activities, wherein it is noted clause (3) defines Produce as the proprietary hybrid or variety seeds / vegetables cultivated on the land from the foundation seeds by the First Party by employing the services of Second Party. Section (3) provides terms and conditions between both the parties as agreed. Clause (1) explains the term of agreement commencing on the effective date mentioned at serial number 3 of Schedule 1 annexed thereon to, which is from June, 2012 to May, 2015. Clause (2) refers to compensation in consideration to the Second Party for granting exclusive right to use the land during the term of cultivating the produce and for agreeing to perform and carry out the agricultural operations on behalf of the First Party. Sub-clauses of clause (5) of section (3) refers to the services to be rendered by the Second Party that the Second Party shall devote its time and attention in accordance with the best industries standards, use reasonable skill and care in providing the services, to keep the First Party promptly informed and the farmer shall liable to pay all taxes, cess and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be termed as agricultural income only in the hands of the owner, landlord, farmer or persons having derivative interest in such land. Supporting the same, we may take an example that if a person on agreement with the owner, landlord, farmer or persons having derivative interest on land, buys standing crops raised by the above said persons, the profit earned from the sale of such standing crops cannot be claimed as agricultural income in the hands of such person who purchased standing crops in agreement with the above said persons. 23. Section 2(1A)(b) suggests instances of income derived from performance of some agricultural processes. The said agricultural process should be usually employed by the cultivator or receiver of rent-in-kind. The first significant process must be one which is usually adopted by the cultivator and the second significant process is with the object of making agricultural produce marketable. The issue of agriculture, agricultural operations, basic operations, subsequent operations for agricultural purposes, income, etc. came up before the Hon'ble Supreme Court in the case of Raja Benoy Kumar Suhas Roy (1957) 32 ITR 466 (SC). The Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionately taking into best quality seeds. 25. We note that the assessee has no derivative interest in the land nor actually cultivate the land nor lessee of the land. Admittedly, the payment of compensation is subjected to the produce grown on the land meeting the specifications and standards of the assessee which is evident from clause (15) of section (2) of the agreement. Further, in clauses 26 and 27 of section (2) that if the rejected seeds are failed to meet the specified quality standard as per Schedule 5, the assessee is at the discretion to dispose of the same and disburse the proceeds proportionately taking into account the usage of land, services and expenses incurred by the land owner which is clear from the clause 29 of section (2) of the agreement. Therefore, we note the only interest of the assessee is to get best quality of hybrid seeds produced by the farmer meeting the specifications as described by the assessee, providing input or scientific instructions by way of an advice to the land owner, in our opinion, cannot be termed as either basic agricultural operations or subsequent operations ordinarily employed by the farmer or agriculturist. As laid down by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich held the growing of breeder and foundation seeds and making certified seeds on the lands owned by the landlords-cum-growers amounts to agricultural activity. He submits that the Hon ble High Court of Bombay at Aurangabad confirmed the order of Tribunal in the case of Ajit Seeds Limited vide order dated 18.06.2015. On perusal of the order of this Tribunal in the case of M/s. Nath Bio Genes (I) Ltd. (supra), it is noted that the assessee therein incurred an expenditure of Rs.2.21 crores on account of lease rent paid to landlords vide para 18 and held the activity constitutes agricultural activity as the assessee constitutes an agriculturist when the assessee pays land rent and also for labour. 28. The Pune Tribunal in the case of Ajeet Seeds Limited upheld the order of CIT(A), who in turn placed reliance in the case of Advanta India Limited reported in (2010) 5 ITR 57 (Bang. Trib) which held the foundation seeds or hybrid seeds produced in own lands or lands taken on lease will be the result of agricultural operations and the profits arising out of such activities shall be treated as agricultural income. The Hon ble High Court of Bombay was pleased to upheld the order of Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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