Income from contract farming cannot be treated as agricultural income

Namdhari Seeds Pvt. Ltd. Vs DCIT (ITAT Bangalore)

The assessee is in the business of cultivation, production and marketing of hybrid seeds. It earns revenue from following 3 kinds of activities:

i. Growing, processing and sale of seeds from owned lands and leased lands;

ii. Growing, processing and sale of seeds from contract farming and

iii. Purchase and sale of imported seeds purchased from the market.

At the outset, the Ld.AR submitted that, identical issue has been dealt by coordinate bench of this Tribunal for assessment year 2000-01. She submitted that except for the quantum of disallowance, facts in the present case are same and the issue of disallowance of deduction under section 10(1) was the subject matter of appeal before this Tribunal, which travelled till Hon’ble Karnataka High Court and pending before Hon’ble Supreme Court at the behest of assessee. She placed reliance on the facts narrated by coordinate bench of this Tribunal by order dated 29/10/2018 in ITA No.1949/Bang/2018 for assessment year 2000-01.

The Hon’ble Karnataka High Court in assessee’s own case for assessment year 1998-99 to 2004-05 reported in (2012) 341 ITR 342 had held that contract farming done by assessee cannot be treated as agricultural income and that assessee is not eligible to claim exemption under section 10(1) of the Act in respect of revenue generated from contract farming.

Adverting to the present facts of the case for year under consideration, it is noted that the authorities below in the present facts of the case made categorical observation that assessee has not provided any details regarding about the revenue generated out of each streams of land. Admittedly, assessee still carries out the activities under the same 3 categories, as has been considered in the preceding assessment years by Hon’ble High Court. The only income upheld by Hon’ble High Court to be in the nature of business income in the preceding years, is the revenue generated from contract farming.

We note that the issue needs to be remanded to the Ld. AO for years under consideration for categorising the income earned by assessee under the 3 categories. For that assessee is directed to file the bifurcation of income generated from growing, processing and sale of seeds from owned and leased lands as well as contract lands. The Ld. AO is then directed to disallow of the deduction claimed under section 10 (1) in respect of the income earned from growing, processing and sale of seeds from contract lands as per the observations of Hon’ble Karnataka High Court (supra)in assessee’s own case.