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.
