Cultivation of banana saplings held as agricultural activity after Plantlets left laboratory – ITAT
In a recent judgment, the ITAT Hyderabad dealt with the question whether cultivation of banana saplings is an agricultural activity or not and held that income derived from the operations conducted after the Plantlets left the laboratory, till the Sapling is sold in the nurseries is agricultural income.
ABCAUS Case Law Citation:
4266 (2024) (10) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) NFAC in holding that the income derived from sale of banana sapling represents income from business and not income from agriculture.
The appellant assessee was engaged in the activity of production and sale of Banana Sapling. The assessee filed his return of income declaring agricultural income. The case was selected for limited scrutiny under CASS to verify the agricultural income.
The Assessing Officer (AO) completed the scrutiny proceedings u/s143(3) of the Act accepting the returned income. Subsequently the CIT by order u/s 263 of the Act set aside the order of the AO with a direction to redo the assessment de novo, treating the income from agricultural income as business income.
The AO in compliance of the order u/s 263 passed order u/s 143(3) r.w.s. 263 r.w.s. 144B of the Act treating the agriculture income as business income. Aggrieved, the assessee filed appeal before the CIT(A) who affirming the findings of the AO, dismissed the appeal of the assessee.
Before the Tribunal, the only issue was whether cultivation of banana saplings is an agricultural activity or not.
The assessee furnished the photographs of the banana saplings cultivated and submitted the various stages of cultivation of banana saplings to claim that income was agricultural.
It was submitted that the sucker is originally grown in the soil and is only for the purpose of multiplication of the same, some process in the laboratory is being done, but after the process in the laboratory the multiplied saplings are taken to the soil, where all the operations are conducted to make the saplings ready for sale in the nursery. Since the sucker is originally developed in the soil and ultimately taken to the soil for growing the saplings by conducting all the agricultural operations, the income derived is agricultural income.
The assessee placed reliance on Explanation 3 to section 2(1A) of the Act to say that any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income. He also relied on the decision of Special Bench of the Tribunal in support of his contentions.
On the other hand the Revenue contended that the assessee had grown banana saplings using chemicals in a lab by adopting tissue culture methodology and not naturally on land. Therefore, the growing of banana saplings and further sale of it should be treated as business activity.
It was further submitted that the plant tissue culture is used by the assessee to reproduce clones of plant to get multiple plants (“Plantlets”) with same traits by placing various tissues of the mother plant in container and require medium which is definitely not consisting of land or soil. Relying on the decision of the Hon’ble Supreme Court the Revenue contended that till generation of Plantlets from Suckers the basic operations i.e. tilling of the land, sowing of the seeds, planting and similar operations on the land were missing in the case of the assessee and in the absence of the basic operation, the subsequent operations do not acquire the characteristic of agricultural operations.
The Tribunal noted that the activity of the assessee involved two stages. First one is from purchase of sucker till generation of Plantlets thereof in the laboratory and the second stage was generation of banana sapling from Plantlets. In the first stage, there was no involvement of soil and events necessary to describe a process as agriculture not to be found to have been performed during this laboratory stage.
In the second stage, the Tribunal observed that after Plantlets left the laboratory, the process was akin to the normal agricultural operations, because the soil was used, watering was done, weeding performed, labour employed and all other necessary things were performed. Apart from this Explanation 3 to section 2(1A) of the Act clarifies that any income arriving from sapling or seedling grown in nursery shall be deemed to be agricultural income. Income derived from this activity is agricultural income. The Tribunal opined that the second stage comes within the description of agriculture by the two decisions of the Special Bench.
Accordingly, following the ratio of the said two decisions, the Tribunal held that stage two operations conducted by the assessee fell in the definition of agriculture. It was held that income derived by the assessee from the operations conducted after the Plantlets left the laboratory, till the Sapling is sold in the nurseries was agricultural income and the Assessing Officer was directed to take this income only as agricultural income.
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