Thursday, September 15, 2011

growing of plant in lab by applying scientific method is an agriculture income

Whether growing of plant in lab by applying scientific method of tissue culture can be claimed as agricultural activity, exempt under I-T Act - NO, rules ITAT

BANGALORE, JULY 19, 2011: THE issues before the Tribunal are - Whether growing of plant in lab by applying scientific method of tissue culture can be termed as agricultural activity - Whether, to qualify as agricultural income, it is necessary for an operation to be carried on soil. Tribunal's answer for the first question is NO and YES for the latter one.

Facts of the case

Assessee is a company engaged in the business of growing and exporting of ornamental plants. It filed its return of income for the assessment year 2005-06 claiming the entire income as agricultural income and also exempt from Income-tax. The AO after visiting the premises of the assessee company and discussing the matter with Director of the company came to the conclusion that the assessee was carrying on tissue culture methodology and by this process, some of the activities carried on by the assessee are non-agriculture and, therefore, the entire income from the sale of plants cannot be termed as agricultural income. He, therefore, bifurcated the income into agricultural income and business income in the ratio of 70:30. The CIT(A) partly allowed the appeal of the assessee by restricting the business income to the tune of 10% only.

On appeal, the Tribunal held that,

++ it can be seen that the plant tissue culture is used to reproduce clones of a plant to get multiple plants with the same traits by placing various tissues of the mother plant in containers and required medium, which is definitely not consisting of land or soil. Such multiple plants which are generated or produced in the laboratories are then transferred to soil and after their adaptation to the natural conditions, they are allowed to be grown into mature plants to be sold to the customers;

++ thus, it can be seen that the subsequent argument of the assessee that the laboratories are only meant to keep the demonstration plants under controlled condition is not entirely correct. Where any operation is not carried out on land, such an operation cannot be called as agricultural operation. When the assessee is not carrying on the cultivation of land or plants in the soil in pots, the operations cannot be called as agricultural operations. The medium is not the soil or basic operations of agriculture such as tilling of the land, sowing of the seeds etc. are not carried out. Of course, once the sampling has been planted in the soil and is let to grow into a mature plant, this operation is definitely agricultural operation and income there-from has to be treated as agricultural income;

++ thus, we are in agreement with the finding of the assessing authority that the entire operation of the assessee is not agricultural income and, therefore, the entire income cannot be treated as agricultural income. AO had held that 30% of the income is non-agricultural income but he has not given any basis for such bifurcation. The criteria to bifurcate the income into agricultural and non agricultural income would be to take into account the expenditure incurred by the assessee on the micro propagation i.e tissue culture operation carried out by it and the expenditure incurred by it on growing of the plants after they are planted in the soil and in this proportion of expenditure only income can also be bifurcated into agricultural and non agriculture income. It is further observed that the assessee has filed an affidavit stating that no operations are carried on in the laboratories. This fact also needs verification by the AO. Therefore, the AO is directed to make a field inspection of the assessee's laboratory to see and observe the activities carried on by the assessee.

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