PCIT-4 Vs Nuziveedu Seeds Limited (Supreme Court of India)
The dispute concerns whether income earned from the production and sale of hybrid seeds constitutes agricultural income exempt under Section 10(1) of the Income Tax Act, 1961, or business income. The assessee-company was engaged in research, production and sale of agricultural seeds. For Assessment Year 2011-12, it claimed exemption of Rs.39.26 crore under Section 10(1). The Assessing Officer rejected the claim, holding that the assessee was not directly involved in agricultural activity and that production of hybrid seeds involved scientific and specialised operations, including research, hybridisation and physical and chemical processing before commercial sale. The assessment was completed under Section 143(3) on 30.03.2014.
The CIT(A) allowed the exemption, relying upon Prabhat Agri-Biotech Ltd., holding that the seed-production operations constituted agricultural activity. The Tribunal also upheld the exemption in respect of income from basic/foundation seeds. The Revenue challenged the Tribunal’s order before the Telangana High Court under Section 260A, contending that the assessee’s activities involved scientific research, development and commercial exploitation of hybrid seeds, while agricultural operations were actually performed by farmers under agreements with the assessee.
The High Court considered whether the assessee’s production and marketing of seeds was a commercial activity or agricultural activity and whether the assessee could claim exemption under Section 10(1). The Revenue argued that agriculture required basic operations such as tilling, sowing and planting on land and that the assessee itself did not perform those operations. The assessee submitted that it used land under agreements with farmers, supplied seeds, supervised cultivation, provided technical guidance and bore the relevant costs and risks. It relied upon Section 2(1A), under which agricultural income includes income derived from land by agriculture and specified processes ordinarily employed by a cultivator.
The High Court referred to Commissioner of Income-Tax v. Raja Benoy Kumar SahasRoh, in which the Supreme Court discussed the primary meaning of agriculture as cultivation of land involving operations such as tilling, sowing and planting. It also considered decisions concerning seed production and contract farming, including CIT V. Maddi Venkatasubbayya, Advanta India limited V/s CIT, Indo American Exports and Namadhari Seeds (P) Ltd., and Commissioner of Income Tax-IV, Hyderabad v. M/s. Prabhat Agri-Biotech Ltd, Hyderabad. The High Court noted that the assessee’s parent/foundation seeds were produced through agricultural operations and that farmers cultivated the seeds under the assessee’s supervision, technical guidance and control.
The High Court held that although the assessee was not directly undertaking cultivation, it was involved indirectly through the farmers with whom it had agreements for utilisation of land and production of hybrid seeds. It found a direct nexus between the cultivation activities and the assessee’s operations. The substantial questions of law were therefore answered in favour of the assessee and against the Revenue, and the Revenue’s appeal was dismissed, confirming the Tribunal’s order dated 20.03.2015.
The matter subsequently reached the Supreme Court. The Revenue submitted that the High Court had relied upon the ITAT decision in Indo American Exports and Namdhari Seeds (P) Ltd. dated 14.07.2006, but that decision had subsequently been set aside by the Karnataka High Court on 24.10.2011 and the civil appeal against that order was pending before the Supreme Court as Civil Appeal No.356 of 2015. The assessee submitted that the Namdhari decision was distinguishable because the land in the present case was leased by the assessee and farmers cultivated it on behalf of the company, enabling the company to qualify as a cultivator.
The Supreme Court, at this stage, did not finally determine whether the processed seed-sale income was agricultural or business income. It observed that the issues raised could be better examined after receiving the response. The Court condoned the delay, granted leave and issued notice returnable in six weeks. Thus, the supplied Supreme Court order records the initiation of consideration of the appeal and does not contain a final ruling reversing, affirming or modifying the Telangana High Court’s judgment.
Cases Discussed
- Commissioner of Income-Tax v. Raja Benoy Kumar SahasRoh, 1957 32 ITR 466 (SC)
- Commissioner of Income Tax-IV, Hyderabad v. M/s. Prabhat Agri-Biotech Ltd, Hyderabad, ITTA No.88 of 2014, dated 21.02.2014
- Advanta India limited V/s CIT, (2010 ) 5 ITR(Trib) 57 ITAT (Bang )
- CIT V. Maddi Venkatasubbayya, (20)ITR 151
- Indo American Exports and Namdhari Seeds (P) Ltd., order dated 14.07.2006 passed in ITA No. 1040/Bang?2002 and ITTA 3102 /Bang/2004
- Indo American Exports and Namdhari Seeds (P) Ltd., dated 14.07.2006
Read HC Judgment in this case: PCIT Vs Nuziveedu Seeds Ltd (Telangana High Court)
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
The submission on behalf of the appellant is that the issue whether income from sale of seeds after processing the same would amount to agricultural income or business income, arises for our consideration. It has been submitted that the High Court in its impugned order has placed reliance on the decision of the Income Tax Appellate Tribunal in the case of Indo American Exports and Namdhari Seeds (P) Ltd. dated 14.07.2006. It is submitted that the said decision of ITAT was subject to an Income Tax Appeal before the Karnataka High Court and was set aside by the Division Bench of the Karnataka High Court vide order dated 24.10.2011. It has also been submitted that the civil appeal against the said order is pending in this Court as Civil Appeal No.356 of 2015.
2. The learned counsel for the assessee/respondent submits that the case of Namdhari on which reliance has been placed is distinguishable on facts because here the land over which the seeds were cultivated were leased out by the assessee company. It is also submitted that the farmers are cultivating the land on behalf of the assessee company and, therefore, the assessee company itself can qualify as a cultivator.
3. All the aforesaid aspects can be better examined after the receipt of response.
4. Delay condoned.
5. Issue notice, returnable in six weeks.
6. Notice on behalf of respondent has been accepted by Mr. E. C. Agrawala, Advocate.
