241 ITR 530 (MAD.)
HIGH COURT OF MADRAS
Commissioner of Income-tax v. Soundarya Nursery
TAX CASE NOS. 818 TO 822 OF 1992
AUGUST 5, 1998
R. Jayasimha Babu, J.—The question brought before us by the Revenue is, as to whether the income from sale of plants grown directly in the pots and the sale of seeds, can be treated as agricultural income within the meaning of section 2(1) of the Income-tax Act, 1961? The finding of the Tribunal is that the plants were not grown in the pots directly, but they are, after several operations carried out in the land, viz., cutting, gootying and inarching for the plants, transplanted in suitable containers, including pots and kept in the green house or in shade, and the trees were grown on the land directly.
The Assessee, during the relevant assessment years, viz., 1978-79 to 1982-83, was carrying on the business of a nursery under the name and style of “Soundaraya Nursery”. It had extensive farm land of 10 acres in Vengaivasal village on the outskirts of Madras city as well as 41 grounds in Nandanam, Madras, and various types of fruit plants, flower plants, vegetable plants and seedlings were grown. The method of propagation of the large varieties of plants grown by the Assessee has been extensively setout in the order of the Tribunal, the relevant portion whereof is as under:
“1. Layering: This is done for lemon, guava, and most flowering plants. The process is as follows: A branch of the mother plant is bent down and a slit is made in the node. This is pressed down to a pot containing soil so that the slit node is under the soil. Watering is done regularly till roots start emanating from the slit node. Then the new plant is separated by cutting at the node and the plant is sold.
2. Gootying or marcotage: This is done mainly for ficus docors, cananga, mussenda, etc. A branch of the mother plant is slit at the node and the node is covered with manure and soil and wrapped in ploythene. This is watered regularly till roots emerge at that point. Then it is cut and transferred to containers for sale.
3. Inarching: This is done mainly for mangoes, sappotas, etc. The seed is planted in seed beds. After the seeds germinate and grow, which takes about 15 months, the seedlings are transferred to pots and these are taken to the mother trees for inarching, i.e., a branch of mother plant is bent and tied with the seedling after both branches are slit. The slit branches are waxed together and tied with coconut fibre. The plant is watered regularly and the new plant is separated after three months. It is important to note that the new plant is of the same sub-species as the mother plant irrespective of the seedling. This is one type of grafting. Other types are bud-grafting, saddle-grafting, side grafting, cleft grafting, etc.
4. Cutting: This is done for some ordinary plants like bougainvillea, lantana, etc. A cutting is taken and planted in seed beds mainly of sand. After rooting (which takes several months), the plant is transferred to pots.
5. Hybridisation: Here pollen is transferred from the plant to the stigma of the other. Seeds from hybridised flowers are then planted. New varieties of flowers may develop. Several dozen attempts have to be made before one is successful.”
Soundarya Nursery have developed 32 new varieties of hibicus alone. A new variety developed called cossandra soundarya is popular, not just in India, but also in the U.S.A.
The Tribunal, after considering all the relevant facts, as also the applicable law, concluded that the Assessee’s activities are to prepare seedlings on scientific lines ; that the other plants are grown on prepared beds on lands owned by it and the plants are then grafted or budded ; that the resulting grafts are transplanted in suitable containers and are reared in green houses or in shade and after they take root, they are transmitted to large containers filled with top soil and manure, etc., till they establish themselves; and thereafter those plants are sold and that the primary source of the plant is the mother plant, which is reared on earth and for which activities, certainly contribution of human labour and energy are essential.
Learned counsel for the Revenue contended before us that the plants are only grown in pots and no matter the period for which they are so grown, that activity can never be regarded as agricultural operations. In support of that submission, counsel referred to the decision of the Allahabad High Court in H.H. Maharaja Vibhuti Narain Singh v. State of U.P.  65 ITR 364, wherein the court made an observation which was clearly obiter that agriculture cannot be carried on in pots, as in that case, a large number of coconut plants were nurtured on land in the nursery.Our attention was then invited by learned counsel to the decision of the Supreme Court in the case of CIT v. Raja Benoy Kumar Sahas Roy  32 ITR 466, which is the leading case of “agriculture” . It was held therein 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 and these are basic operations, which require the expenditure of human skill and labour upon the land itself. The apex court further held that besides the basic operations, the subsequent operations would also be comprehended within the terms of agriculture, and such subsequent operations are illustrated as weeding, digging the soil around the growth, removal of undesirable undergrowth and all operations which foster the growth and preservation of the same not only from insects and pests, but also from depradation, from outside, tending, pruning, cutting, harvesting and rendering the produce fit for the market, which would all be agricultural operations, when taken in conjunction with the basic operations.
All the products of the land, which have some utility either for consumption or for trade or commerce, if they are based on land, would be agricultural products. Here, it is not the case of the Revenue that without performing the basic operations, only the subsequent operations, as described in the decision of the apex court have been performed by the Assessee. If the plants sold by the Assessee in pots were the result of the basic operations on the land on expending human skill and labour thereon and it is only after the performance of the basic operations on the land, the resultant product grown or such part thereof as was suitable for being nurtured in a pot, was separated and placed in a pot and nurtured with water and by placing them in the green house or in shade and after performing several operations, such as weeding, watering, manuring, etc., they are made ready for sale as plants all these questions would be agricultural operations all this involves human skill and effort. Thus, the plants sold by the Assessee in pots were the result of primary as well as subsequent operations comprehended within the term “agriculture” and they are clearly the products of agriculture.
So far as the seeds are concerned, we are surprised that, that question should have been raised at all by the Revenue, as it is not possible for the seeds to exist without the mother plants, and the mother plant, it is nobody’s case, was not grown on land. It is also not the case of the Revenue that the seeds were the result of the wild growth and not on account of cultivation by the Assessee. The seeds were clearly a product of agriculture and the income derived from the sale of seeds, was agricultural income.
We answer the question referred to us in favour of the Assessee and against the Revenue.