The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) recently ruled that the production of foundation seeds qualifies as agricultural activity, making it eligible for tax exemption under Section 10(1) of the Income Tax Act, 1961.
The assessee Pravardhan Seeds is a business engaged in producing hybrid seeds and open-pollinated seed varieties of various crops across India. Due to the large amount of land required for its operations, the assessee leases land from farmers and enters into seed production agreements with them.
The farmers are provided with foundation seeds and are supervised by the assessee. In exchange for the land usage and cultivation expenses, the farmers deliver the final produced hybrid seeds to the assessee. The entire risk and reward of growing the hybrid seeds are borne by the assessee.
In the assessment year 2013-14, an assessee claimed exemption under Section 10(1) of the Income Tax Act, 1961 for research and development activities related to agriculture. The assessee argued that similar claims for previous assessment years were upheld and cited relevant legal precedents.
The Assessing Officer rejected the assessee’s claim, stating that the company only carried out scientific and technological processes on seeds, and the assessee departed from the basic agricultural operations and indulged into the production of the parent seeds by planned scientific and specialized procedures. Therefore the assessing officer disallowed the deduction under Section 10(1) of the Income Tax Act. The assessee preferred the appeal.
The CIT(A) considered the facts of the case and relevant judicial precedents, including the decision of the Tribunal in Nuziveedu Seeds Ltd. for the assessment year 2010-11 and the decision of the jurisdictional High Court in the case of Prabhat Agri Biotech Limited. Based on this, the CIT(A) upheld the contentions of the assessee and deleted the addition.
The Revenue preferred and appeal against the decision of the CIT(A), arguing that the development and marketing of seeds is a purely commercial activity and not agricultural. Counsel for the revenue contended that the assessee does not undertake any agricultural operation itself, but rather procures hybrid seeds from farmers, and thus the activities carried out by the farmers alone can be said to be agricultural activities, but not those of the assessee.
The two member tribunal Bench consisting of an Accountant Member Shri Rama Kanta panda, and Judicial Member Shri K. Narasimha Chary, observed that “Seed is a product of agricultural activity. When such agricultural activity is conducted and seeds are produced, merely because such seeds were sold commercially, the basic agricultural operations also cannot be dubbed as ‘commercial activities’, and not ‘agricultural activities’”. The appeal filed by revenue was dismissed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
