Income Earned from Sale of Tissue-Cultured Plants is Agricultural Income, Exempted from Income Tax: Telangana HC [Read Order]

In a recent ruling, the Telangana High Court held that income earned from the sale of tissue-cultured plants constitutes agricultural income and is exempt from income tax.

A.G. Biotech Laboratories (India) Ltd., the assessee claimed that income earned from the sale of tissue-cultured plants was agricultural income exempt under Section 10(1) of the Income Tax Act, 1961.

The Assessing Officer rejected the claim and treated the income as business income. The officer held that the main activity was carried out in laboratories using scientific processes and was not derived directly from land. The Income TaxAppellate Tribunal upheld this view and confirmed the tax demand.

Aggrieved by the tribunal’s orders, the assessee approached the Telangana High Court.

Before the High Court, the assessee’s counsel argued that tissue culture is only a modern method of plant propagation and does not change the agricultural nature of the activity. The counsel argued that the entire process begins with cultivation of mother plants on land through basic agricultural operations.

They also argued that later stages of propagation and hardening are only a continuation of agricultural activity. Reliance was placed on earlier judgments dealing with nursery and plant cultivation activities.

The revenue counsel argued that the income was business income since the core activity was carried out in laboratories under controlled conditions. The revenue argued that cultivation of mother plants was only a preliminary step and that the commercial product was generated through scientific processes not connected to land. They also argued that classifications or benefits granted by other authorities were not relevant for income tax purposes.

The Division Bench comprising Justice P. Sam Koshy and Justice N. Tukaramji observed that agriculture is not confined to traditional methods and can include modern techniques. The court observed that cultivation of mother plants involved all basic agricultural operations required under law. The Court observed that tissue culture was only an advanced method of propagation and did not break the link between income and land.

The court explained that once basic agricultural operations are established, subsequent processes carried out in continuation of such operations also fall within the meaning of agriculture. The court observed that the Tribunal failed to appreciate the integrated nature of the assessee’s activity.

The court held that income from the sale of tissue-cultured plants qualifies as agricultural income. The appeals filed by the assessee were allowed and the orders passed by the Tribunal were set aside.

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