DCIT., Circle-16(1), Hyderabad, Hyderabad V. M/s Nuziveedu Seeds Limited, Hyderabad

ITA 1594/HYD/2014

• Counselvise Citation: 159422514 RSA 2014
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-02-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 16-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Business income; Earning of tax free income; Benefit of exemption; Revised return
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1594/HYD/14 : ASSESSMENT YEAR 2011 - 12 DY. COMMISSIONER OF INCOME - TAX CIRCLE 16(1), HYDERABAD V/S. M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD (PAN AACCN 7214 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI D.SUDHAKAR RAO DR RESPONDENT BY : SHRI V.RAGHAVENDRA RAO DATE OF HEARING 25.2.2015 DATE OF PRONOUNCEMENT 20.03.2015 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : TH IS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - V HYDERABAD DATED 11.8.2014 ON THE FOLLOWING GROUNDS - 1. THE LEARNED CIT(A) ERRED BOTH IN LAW AND ONFA CTS OF THE CA S E. 2. THE LEARNED CIT(A) SHOULD H A VE APPRECIATED T H A T THE ASSESSEE HAS DEPARTED FROM THE B A SIC AGRICULTURAL OPERATION AND IN D ULGED INTO PRODUCTION OF P A RENT SEEDS BY PLANNED SCIENTIFIC AND SPECIALIZED PROCEDURES. 3. THE CIT(A) OUGHT TO H A VE NOTICED T HAT THE ASSESSEE ITSELF IS NO T CARRYING ON ANY AGRICULTURAL OPERATION S BUT ONLY PROCURING THE M ULTIPLIED HYBRID PARENT SEED FROM TH E FARMERS AS SUCH, TH E ACTIVITY O F THE ASSESSEE DOES NO T FALL UN D ER AGRICULTURAL OPERATIONS SO AS TO QUALIFY THE INCOME AS EX E MPT U/S. 10(1) OF THE ACT. 4. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE RATIONALE OF JUDGMENT RENDERED BY T HE HON'BLE SUPREME COURT IN TH E CASE OF CIT VS. RAJA BENOY K UMAR SAHAS ROY(1957)32 ITR 466(SC). I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 2 5. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED T H A T THE BOARDS CLARIFICATION VIDE C IRC ULAR NO5 OF 2014 THAT EVEN IF THERE IS NO EXEMPT INCOME PROVISIONS OF SECTION 14A R.W.S. 8D OF THE RUL E S APPLY. HENCE, DISALLOWANCE U/S. 14A IS IN ORDER. 6. ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIME OF HEARING. 2. AS SUB MI T TED BY TH E LEARNED DEPARTMENTAL REPRESENTATIVE, GROUNDS NO.1 AND 6 RAISED BY TH E REV ENUE IN THIS APPEAL ARE GENERAL, WHI C H REQUIRE NO SPE C I F IC ADJUDICATION. THE ISSUE RAISED IN GROUN D S NO.2 TO 4 RELATES TO THE CLAIM O F THE ASSESSEE FOR EXEMPTION UN D ER S .10(1 ) OF THE AC T ON ACCOUNT OF IN C OM E GENERATED FROM THE P R O D U C TION OF SEEDS, TREATING THE SAME AS AGRICULTURAL INCOME. 3. THE ASSESSEE IN TH E PRESENT CA S E IS A COMPANY, WHI C H IS ENGAGED IN TH E BU S I NE SS OF RESEARCH, PRODU C TION AND SALE O F AGRI C ULTURAL SEEDS. RETURN OF INCOM E FOR THE Y E AR UN D ER CON S I DE RATION WAS FILED BY IT ON 30.9.2011 DECL A RING TOTAL INCOME OF RS .5,78,6 7 ,231 UN D ER NORMAL PROVI SI ON S OF THE AC T AND BOOK PROFIT OF R S .6,10,85,898 UN D ER S.115JB OF TH E ACT. IN TH E SAID RETURN, INCOME EARNE D FROM THE P R O D U C TION AND S A LE OF S E EDS AMOUNTING TO RS.39.26 CRORES WAS CL A IM E D TO B E E X EMPT BY TH E ASSESSEE UNDER S.10(1 ) OF THE AC T. DU R IN G TH E COU R SE OF ASSESSMENT PROCEEDINGS, THE SAID CL A IM OF TH E ASSESSEE WAS EXAMINED BY TH E ASSESSING OFFICER AND ON SUCH EXAMINATION, HE FOUN D TH A T THE ASSESSEE IS CARRYING ON RE S EARCH AND DEVELOPMENT ACTIVITY, WHICH INVOLVES SCIENTIFIC STUDY OF P A RENT SEED AND HYBRID IZATION OF DIFFE RE NT VARIET IES OF PARENT SEED S SO AS TO EVOLVE THE HIGH YIELDI NG VARIETY OF HY B RID SEEDS. HE ALSO NOTED THAT THE ASSESSEE HAS ENTERED INTO CERTAIN SEED PRO D U C TION AGREEMENTS WITH THE FARMERS FOR UTILISIN G THE LANDS OWNED BY THEM. AS FURTHER NO T ED BY HIM FR O M SUCH I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 3 AGREEMENTS, LANDS BELONGING TO THE FARMER S WERE BEIN G UTILI S ED BY TH E ASSESSEE COMPANY FOR THE PRODUCTION OF HYBRID SEEDS ON MASS SCALE FROM THE FOUNDATION SEEDS ON PAYM E N T OF C ERTAIN COMPENSATION. THE CULTIVATION EXPENSES INCURRED FOR THIS PURPOSE WE RE ALSO BEING REIMBURSED BY THE ASSESSEE COMPANY TO THE FARMERS AND AS PER THE AGR E EMENT MADE FOR A SPECIFI E D SEASON, THE FARMERS HAD AGREED TO UNDERTAKE THE CROP PRODUCTION AS PER THE SPECIFICATIONS OF THE ASSESSEE COMPANY. THE PRO D U C TION OF HYBRID SEEDS WAS DONE BY TH E FARMERS AS PER THE S PECIFICATIONS AND C ONTROL OF THE ASSESSEE COMPANY, FOR WHICH THEY WERE DULY COMPENSATED MAINLY FOR THE LABOUR INPUTS. ON THE BASIS OF THESE FACTS EMERGING FROM TH E RELEVANT AGR E EM E NTS, TH E ASSESSING OFFICER WAS OF THE OPINION T H A T THE ASSESSEE IS NO T DIRECTLY INVOLVED IN ANY AG R I C ULTURAL ACTIVITY AND THE IN C OM E E A RNED BY IT FR O M THE P ROD U C TION OF SEEDS WAS NO T IN TH E NATURE OF AGRICULTURAL INCOM E . 4. THE ASSESSING OFFICER, THEREFORE, REQUIRED THE ASSESSEE CO M P A NY TO EXPLAIN AS TO WHY ITS CLAIM FOR EXEMPTION UN D ER S.10(1) OF THE ACT SHOULD NOT B E DISALLOWED. IN REPLY, THE FO L LOWING EXPLANATION IN W R IT I N G WAS OFFERED BY TH E ASSESSEE C OMPANY, VIDE I T S LETTER DATED 26.3.2014 - I ) FOR THE PURPOSE OF DERIVING INCOME FROM AGRICULTURAL LAND THERE IS NO REQUIREMENT UNDER THE ACT THAT SUCH LAND SHOULD BE OWNED BY THE ASSESSEE. IF THE ASSESSEE HAS AN INTEREST IN THE LAND FOR THE PURPOSE OF CONDUCTING AGRICULTURAL OPERATIONS ON THE SAID LAND, THEN THE REVENUE GENERATED FROM SUCH LAND WOULD BE AGRICULTURAL LAND; II ) ASSESSEE ENTERED INTO AGREEMENTS WITH FARMERS WHO UNDERTAKE FARMING ON BEHALF OF THE COMPAN Y; AND RISK AND REWARDS ASSOCIATED WITH THE AGRICULTURAL I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 4 OPERATIONS CARRIED ON BY THE COMPANY BELONGS TO COMPANY; III ) THE R & D ACTIVITIES CARRIED ON BY THE COMPANY ARE PART OF THE PROCESS BEFORE THE AGRICULTURAL PRODUCE IS GENERATED; IV ) ALL THE GENOTYPES RES EARCHED AND DEVELOPED BY R & D ARE TAKEN TO MULTIPLICATION THROUGH THE AGRICULTURAL ACTIVITY; V ) PRODUCE AND RESIDUE BELONG TO ASSESSEE; VI ) ACTIVITY CARRIED OUT BY THE COMPANY IS NOT IN THE NATURE OF PURCHASE OF PRODUCE ; VII ) THE ACT DOES NOT RESTRICT USE OF TEC HNOLOGY IN AGRICULTURAL PROCESS; 5. THE EXPLANATION OFFERED BY THE ASSESSEE AS ABOVE WAS NO T FOUND ACCEPTABLE BY THE ASSESSING OFFICER. ACCOR D ING TO HIM, TH E P RODU C TION OF HYBRID SEE D S WAS MARKEDLY M ARKEDLY DIFFERENT FROM NORMAL AGRICULTURAL C R OP PRODUCTION IN THE SENSE IT INVOL V ED ELABORATE SCIENTIFIC, TECHNICAL AND SP E CIALISED OPERATION UN D ER REGULAR TECHNICAL SUPERVISION BY TH E ASSESSEE COMPANY . H E HELD THAT THOUGH T H E OP ER ATION S OF TH E ASSESSEE COMPANY INVOLVED IN PRODUCTION OF SEEDS WERE AKIN TO CULTIVATION, THEY WERE COMP L ETELY DIFFERENT F R OM THE NORMAL AG R ICULTURAL O P ERATION S . HE HELD THAT THE PROCESS OF R E CULTIVATING THE PRODUCE ALREADY RAISED BY THE ASSESSEE FROM THE AGRICULTURAL LAND WITH A VIEW TO CONCENTRATE TWO OR MORE TRAITS IN ON E S INGLE SEED FROM TWO DIFFERENT PARENTS HAVING TWO DISTINCT IDENTIFIABLE TRAITS CANNOT BE SAID TO B E A P R OCESS WHICH IS ORDINARILY EMPLOYED BY A CULTIVATOR. HE ALSO NO T ED THAT THE HIGH YIELD ING HYBRID SEEDS FINALLY P R O D U C ED BY THE ASSESSEE UN D ERWENT A SERI ES OF PHYSICAL AND CHEMICAL TREATMENTS BEFORE T HEY ARE SOLD IN TH E OPEN MARKET AS COMMERCIAL HYBRID SEEDS. HE ALSO H E LD TH A T THE P R O D UC T ION OF HYBRID SEEDS ON TH E L A N D OWN E D BY THE O T H E R FARMERS CO U L D NOT B E TREATED AS AG R I C ULTURAL OP ER ATION S CARRIED ON BY THE I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 5 ASSESSEE COMPANY, GOING BY THE TERMS AND CON D ITIONS O F THE RELEVANT AGREEMENTS ENTERED INTO BY IT WITH TH E FARMERS. HE HELD THAT THE ASSESSEE COMPANY TH E R E FORE, C OULD NOT B E SAID TO B E EITHER CULTIVATING T HE SEEDS OR DERIVING ANY AGRICULTURAL INCO M E. ACCO RD INGLY, TH E CLAIM O F TH E ASSESSEE F O R EX E MPTION OF IN C OM E EARNED FORM THE P ROD U C TION AND SALE OF SEEDS UN D ER S.10(1)OF THE AC T WAS DISALLO W E D BY THE ASSESSING OFFICER IN TH E ASSESSMENT COMPLETED UN D ER S.143(3) VIDE O R DER D A TE D 30 TH MARCH, 2014. 6 . AGAIN S T THE ORDER PAS S ED BY THE ASSESSING OFFICER UN D ER S.143(3 ) , AN APPEAL W AS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(A), AND THE FOLLO W IN G SUBMI S SION S WE R E INT ER A LIA MADE ON ITS BE HALF BEFORE THE LEARNED CIT(A) IN SUPPORT OF ITS CLAIM FOR EX E MP T ION UN D ER S.10(1) OF THE AC T IN RESPECT OF INCOME EARNED FROM THE P R O D U C TION AND SALE OF SEEDS - SINCE THE SEEDS ARE DERIVED FROM MOTHER PLANTS GROWN ON LAND, THEY ARE CONSIDERED AS AGRICULTURAL PRODUCE AND HENCE THE PRODUCTION OF SEEDS BY FARMING IS AN AGRICULTURAL ACTIVITY OF THE COMPANY FURTHER; SINCE THE COMPANY GETS THE CULTIVATION DONE UNDER ITS SUPERVISION AND AT ITS OWN COSTS AND RISKS AS STATED ABOVE, THE COMPANY CAN BE SAID TO BE A GROWER OF AGRICULTURAL PRODUCE AND HENCE IS CONSID ERED AS AN ' AGRICULTURIST '. SINCE THE RISKS AND REWARDS ASSOCIATED WITH THE AGRICULTURAL OPERATIONS LIES WITH THE COMPANY AND ARE BORNE BY THE COMPANY AND THE COMPANY HAS AN INSURABLE INTEREST ON THE FARM PRODUCE, 'THE ACTIVITIES CARRIED ON BY THE COMPANY WAS IN THE NATURE OF AGRICULTURAL ACTIVITIES' AND 'THE SALE OF THE AGRICULTURAL PRODUCE FALL WITHIN THE SCOPE OF AGRICULTURAL INCOME'. SINCE THE ABOVE SATISFY THE CONDITION MENTIONED IN SUB - CLAUSE (JII) OF CLAUSE (B) OF SECTION 2( 1 A) OF THE INCOME - TAX ACT; 1961, THE INCOME ARISING THERE FROM WOULD FALL WITHIN THE AMBIT OF 'AGRICULTURAL INCOME' AS WAS HELD BY THE APEX COURT IN 'CITVS RAJA BENOY KUMAR SAHAS ROY, 32 ITR 466' . THE PRODUCTION OF SEEDS AND MARKETING IS REGULATED BY THE SEEDS ACT; 1966 A ND THE SEEDS C A NNOT BE MARKETED UNLESS THEY ARE PROCESSED, TESTED AND LABELLED I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 6 ON AGRICULTURAL PROCESSING, THE APEX CO URT HAD AN OCCASION TO CONSIDER THE IMPORT AND SCOPE OF THE 'PROCESS ORDINARILY EMPLOYED BY THE CULTIVATOR': IN 'DOOERS TEA COMPANY LIMITED VS. COMMISSIONER OF AGRICULTURE, INCOME - TAX, 44 ITR 6' AND ' K . LAKSHMAN & CO. AND ANOTHER VS CIT, 239 MR 597' THE APEX COURT HELD THAT THE PROCESS SHOULD BE TO MAKE PRODUCE MARKETABLE. IT SHOULD NOT CHANGE THE CHARACTER AND NATURE OF THE PRODUCE WITHOUT RESULTING IN AN ALTOGETHER NEW PRODUCT. THEN IT WOULD BE AGRICULTURAL INCOME. APPLYING THE ABOVE PRINCIPLES, IT CAN BE CONSTRUED THAT THE PROCESSING CARRIED ON BY THE COMPANY IS ORDINARY PROCESS EMPLOYED BY THE CULTIVATOR TO BE FIT FOR MARKETING, FOR THE FOLLOWING REASONS: THE PROCESSES CARRIED ON BY THE COMPANY ARE MUCH NORMAL PROCESS CARRIED ON BY A CULTIVATOR AND AS REQUIRED BY THE STATUTE IE. THE SEEDS ACT; 1966. THE PRODUCTS REMAIN THE SAME EVEN AFTER PROCESSING WHERE WE REMOVE U NFILLED SEEDS AND FOREIGN MATTER. THE SEEDS REMAIN AS SEEDS EVEN AFTER PROCESSING. IT RETAINS ITS NATURE AND CHARACTER AS SEEDS AS PRODUCED ON PLANTS IN THE FIELD. NO NEW PRODUCT HAS EVOLVE D OR EMERGED FROM THE SEEDS ON ACCOUNT OF THE PROCESSING . THEREFORE, THE OPERATIONS CARRIED OUT BY THE PROCESSING DIVISION OF THE COMPANY FALLS WITHIN SUB - CLAUSE (TI) OF CLAUSE (B) OF SECTION 2 (LA) O F THE INCOME - TA X A C T , 1961. IN VIEW OF THE FOREGOING , SINCE THE ACTIVITIES CARRIED ON BY THE COMPANY WAS IN THE NATURE OF 'AGRICULTURAL ACTIVITIES' AND THE INCOME ARISING THERE FROM FALLS WITHIN THE AMBIT OF 'AGRICULTURAL INCOME' ; THE COMPANY IS ELIGIBLE FOR CLAIM OF EXEMPTION UNDER SECTION 10(1) OF THE INCOME - TAX ACT , 1961 ' : II . DEFINITION OF AGRICULTURAL INCOME / BASIS FOR CLAIM OF EXEMPTION U/S. 1 0( 1 ) : ( A ) 'T HE DEFINITION OF 'AGRICULTURAL INCOME' IS SPECIFIED IN SECTION 2( 1 A) O F THE INCOME - TAX ACT, 1961 , WHICH MEANS ( A ) ANY RENT OR REVENUE DERIVED FROM LAND WHICH IS SITUATED IN IN D IA AND IS USED FOR AGRICULTURAL PURPOSES,' I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 7 (B) ANY INCOME DERIVED FROM SUCH LAND BY - ( I ) AGRICULTURE: OR (I I) THE PERFORMANCE BY A CULTIVATOR OR RECEIVER OF RENT - IN - KIND OF ANY PROCES S ORDINARILY EMPLOYED BY A CULTIVATOR OR RECEIVER OF RENT - IN - KIND T O RENDER THE PRODUCE RAISED OR RECEIVED BY HIM FIT TO BE TAKEN TO MARKET; OR (III) THE SALE BY A CULTIVATOR OR RECEIVER OF RENT - IN - KIND OF THE PRODUCE RAISED OR RECEIVED BY HIM, IN RESPECT OF WHICH NO PROCESS HAS BEEN PERFOR M ED OTHER THAN A PROCESS OF THE NATURE DESCRIBED IN PARAGRAPH ( I I) OF T H IS SUB - CLAUSE . (C) ANY INCOME DERIVED FROM ANY BUILDING O W NED AND OC C UPI E D B Y THE RECEI VER OF RENT - IN - KIND, OF ANY LAND WITH RESPECT TO WHI C H, OR THE P RO DUC E OF WHICH , ANY PROCESS MENTIONED IN PARAGRAPHS 9II) AND (III)OF SUB - C LAUSE (B) IS CARRIED ON. THE AGRICULTURAL OPERATIONS INVOLVE IDENTIFICATION OF THE SUITABLE LAND, PLOUGHING OR CULTIVATING OF THE SOIL, FERTILISATION, SOWING SEED OR PLANTATION, PEST CONTROL, POLLINATION OF THE CROP FOR BETTER YIELD AND QUALITY, WEEDING, HARVESTING OF THE CROP, TH RASHING, ETC. IN THE COMPANY'S CASE, IT PRODUCES THE HYBRID COMMERCIAL SEEDS AND SELLS THE SAME TO VARIOUS PARTIES. HENCE, THE PRODUCTION OF THESE SEEDS, SINCE THEY HAVE DIRECT NEXUS WITH THE LAND OWNED BY IT OR ON THE LEASED LANDS BY SUPPLYING SEEDS TO THE FARMERS AND GETTING THEM CULTIVATED UNDER ITS SUPERVISION AND CONTROL, ALSO FALLS WITHIN THE AMBIT OF AGRICULTURAL INCOME AS SPECIFIED IN SUB - CLAUSE (HI) OF CLAUSE (B) OF SECTION 2(LA) OF THE INCOME - TAX ACT; 1961. THE PRIMARY SOURCE OF SEED IN THE ACTIVITIES OF THE COMPANY IS THE MOTHER PLANT; WHICH IS REARED ON EARTH FOR WHICH CERTAINLY CONTRIBUTION OF HUMAN LABOUR AND ENERGY ARE ESSENTIAL. ALL THE PRODUCTS OF THE LAND, WHICH HAVE SOME UTILITY EITHER FOR CONSUMPTION OR FOR TRADE OR COMMERCE, IF THEY ARE BASED ON LAND WOULD BE AGRICULTURAL PRODUCTS. I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 8 IN THE CASE OF THE COMPANY, THE SEEDS ARE DERIVED FROM MOTHER PLANTS GROWN ON LAND, WHICH ARE CONSIDERED AS AGRICULTURAL PRODUCE AND HENCE THE PRODUCTION OF SEEDS BY FARMING IS AN AGRICULTURAL ACTIVITY OF THE COMPANY. FURTHER, SINCE THE COMPANY GETS THE C ULTIVATION DONE UNDER ITS SUPERVISION AND AT ITS OWN COSTS AND RISKS, THE COMPANY IS CONSIDERED TO BE A GROWER OF AGRICULTURAL PRODUCE AND HENCE IS CONSIDERED AS AN 'AGRICULTURIST': HERE, IT MAY BE MENTIONED THAT THE RISKS AND REWARDS ASSOCIATED WITH THE AGRICULTURAL OPERATIONS LIE WITH THE COMPANY AND ARE BORNE BY THE COMPANY AND THE COMPANY HAS AN INSURABLE INTEREST ON THE FARM PRODUCE AND 'THUS, 'THE ACTIVITIES CARRIED ON BY THE COMPANY ARE IN THE NATURE OF AGRICULTURAL ACTIVITIES' AND 'THE SALE OF THE AGRICULTURAL PRODUCE FALL WITHIN THE AMBIT OF AGRICULTURAL INCOME': THUS, THE 'AGRICULTURAL ACTIVITIES' AND 'AGRICULTURAL INCOME' OF THE COMPANY AS ABOVE FALL WITHIN THE AMBIT OF SUB - CLAUSE (III) OF CLAUSE (B) OF SECTION 2(LA) OF THE INCOME - TAX ACT, 1961. FURTHER, THE COMPANY GENERATES THE HYBRID SEED BY CERTAIN INVOLVED PROCESS BY THE PROCESSING DIVISION OF THE COMPANY, WHICH FALLS WITHIN SUB - CLAUSE ( I I) OF CLAUSE (B) OF SECTION 2(LA) OF THE INCOME - TAX ACT; 1961 AND PROCESSING CARRIED ON BY THE COMPANY IS ORDINARY PROCESS EMPLOYED BY THE CULTIVATOR TO BE FIT FOR MARKETING FOR THE FOLLOWING REASONS: THE PROCESS CARRIED ON BY THE COMPANY ARE MUCH NORMAL PROCESS CARRIED ON BY A CULTIVATOR AND AS REQUIRED BY THE SEEDS ACT, 1966. THE PRODUCTS REMAIN THE SAM E EVEN AFTER PROCESSING WHERE THE UNFILLED SEEDS AND FOREIGN MATTER ARE REMOVED. THE SEEDS REMAIN AS SEEDS EVEN AFTER PROCESSING. IT RETAINS ITS NATURE AND CHARACTER AS SEEDS AS PRODUCED ON PLANTS IN THE FIELD. NO NEW PRODUCT HAS EVOLVED OR EMERGED FRO M THE SEEDS ON ACCOUNT OF THE PROCESSING. THUS , THE ACTIVITIES CARRIED OUT BY THE COMPANY THROUGH A SERIES OF SCIENTIFIC AND SPECIALISED PROCESSES FALL WITHIN THE AMBIT OF SUB - I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 9 CLAUSE (II) OF CLAUSE (B) OF SECTION 2(LA) OF THE INCOME - TAX ACT 1961. FROM THE ABOVE IT COULD BE ASCERTAINED THAT THE ACTIVITIES CARRIED ON BY THE COMPANY ARE IN THE NATURE OF 'AGRICULTURAL ACTIVITIES' AND THE INCOME ARISING THERE FROM FALLS WITHIN THE AMBIT OF 'AGRICULTURAL INCOME' AS PER THE PROVISIONS OF SECTION 2( 2 A) OF THE I NCOME - TAX ACT, 1961. IN LIGHT OF THE ABOVE SUBMISSIONS, THE COMPANY IS ENTITLED FOR CLAIM OF EXEMPTION UNDER SECTION 10(1) OF THE INCOME - TAX ACT 1961. (B) SINCE THE COMPANY CANNOT CARRY OUT THE AGRICULTURAL OPERATIONS ON ITS OWN THROUGH OUT THE COUNTRY, IT TAKES THE LAND ON LEASE FROM THE FARMERS. AFTER TAKING THE LAND ON LEASE FROM THE FARMERS , THE COMPANY SUPPLIES THESE TO THE FARMERS, WHO CARRY OUT THE CULTIVATION OF THE SEED UNDER THE SUPERVISION OF THE COMPANY AND THE EXPENSES INCURRED BY THE FARMERS IN CONNECTION THERE ' W I TH ARE REIMBURSED BY THE COMPANY APART FROM LEASING OUT THE LANDS TO THE COMPANY, THE FARMERS ALSO CARRY OUT THE AGRICULTURAL OPERATIONS FOR ENRICHING THEMSELVES WITH ADDITIONAL INCOME, SINCE THE COMPANY COMPENSATES THEM FOR THEIR PERSONAL INVOLVEMENT IN THE OPERATIONS CARRIED OUT BY THEM. SINCE THE FARMERS WOULD NOT BE FULLY VERSED WITH THE PROCEDURES, TECHNICAL KNOW - HOW AND QUALITY ASPECTS, THEY CARRY OUT THE AGRICULT URAL OPERATIONS UNDER THE ABLE G UID A NCE OF THE COMP ANY WHEN THE FARMERS ARE PAID LEASE RENTALS FOR THEIR LANDS AND ALSO COMPENSATED FOR CARRYING OUT THE AGRICULTURAL OPERATIONS, IT CANNOT BE CONSTRUED AS JOB WORK EXECUTED BY THE FARMERS AND TERMING IT AS PROCUREMENT OF THE PRODUCE THROUGH CONTRACT. HERE , IT COULD BE ASCERTAINED THAT THE RISKS AND REWARDS IN CONNECTION WITH THE LEASE OF THE LANDS AND THE AGRICULTURAL OPERATIONS THERE ON ARE TO THE ACCOU N T O F THE COMPANY ONLY AND NOT TO THE FARMERS. FURTHER, AS COULD BE VERIFIED FROM THE SEED PRODUCTION AGREEMENT - MASTER AGREEMENT, CLAUSE 12 THEREOF ENTITLES THE COMPANY TO TERMINATE THE LEASE AGREEMENT IN A CASE WHERE THE CULTIVATION OF THE PRODUCE ON ANY ACRE OF LAND IS LESS , THE COMPANY WOULD BE ENTITLED TO TERMINATE THE LEASE. I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 10 IN VIEW OF THE ABOVE , IT CANNOT BE CONSTRUED THAT THE AGRICULTURAL OPERATIONS CARRIED OUT BY THE FARMERS IS SYNONYMOUS TO THAT OF THE JOB WORKS DONE BY THEM. FURTHER, WHEN THE COMPANY PAYS LEASE REN TALS TO THE FARMERS FOR LEASE OF T HEIR LANDS, IT CANNOT BE CONSTRUED THAT THE COMPANY THE PRODUCE THROUGH CONTRACT. C) THE TECHNICAL KNOW - HOW PROCURED FROM M/S. MAYHCO MONSANTO BLOTECH (INDIA) LIMITED IS ONLY FOR SUPPLEMENTING THE TECHNOLOGY IN CARRYING OUT THE IMPROVEMENT TO THE SEED IN ORDER TO ENHANCE THE YIELD AND QUALITY OF THE SEED IN THE AGRICULTURAL OPERATIONS. AS MENTIONED IN ITEM B ABOVE, IT IS REITERATED THAT COMPANY TAKES THE LAND ON LEASE FROM THE FARMERS. AFTER TAKING THE LAND ON LEASE FRO M THE FARMERS , THE COMPANY SUPPLIES THE SEED TO THE FARMERS , WHO CARRY OUT THE CULTIVATION OF THE SEED UNDER THE SUPERVISION OF THE COMPANY TO ENRICH THEMSELVES WITH A DDITIONSL INCOME. FURTHER, THE EXPENSES INCURRED BY THE FARMERS IN CONNECTION THERE W ITH ARE REIMBURSED BY THE COMPANY IT MAY BE MENTIONED THAT WHEN ALL THE RISKS AND REWARDS CONNECTION WITH THE LEASE OF THE LANDS AND THE AGRICULTURAL OPERATIONS THEREON ARE TO THE ACCOUNT OF THE COMPANY ONLY AND NOT TO THE FARMERS, IT CANNOT BE CONSTRUED T HAT THE COMPANY IS NOT INVOLVED IN ANY AGRICULTURAL ACTIVITY AND IS NOT DERIVING ANY AGRICULTURAL INCOME ' : THUS, IT CANNOT BE DISPUTED THAT THE SEED IS THE PRODUCT OF AGRICULTURAL ACTIVITY AND THE SEED CANNOT BE SOLD COMMERCIALLY, UNLESS IT IS PRODUCED BY AGRICULTURAL ACTIVITY IN THIS REGARD, RELIANCE IS PL A CED ON THE DECISION OF THE JURI S DI C TIONAL HIGH COURT, I.E. THE HONOURABL E AN D HRA PRADESH HIGH COU R T IN CIT VS. PRABHAT AGRI BIOTECH LIMITED, IT.T.A.NO.88 OF 2014 DATED 21 - 02 - 2014 I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 11 THE APPELL A N T A CCOR D INGLY PRAYS FOR GRANTING THE EX E MPTION UN D ER SECTION 10(1) OF THE ACT IN RESPECT OF THE AG R ICULTURAL INCOME OF RS .39,26,47,266. 7 . TH E LEARNED CIT(A) FOUND MERIT IN THE SUBMI S SION S MADE ON BEHALF OF THE ASSESSEE AND RELYING IN T ER ALIA ON THE DECISION OF THE TRIBUNAL IN TH E CA S E OF PRABHAT AGRI - BIOTECH L T D RENDERED VIDE ORDER DATED 14.1.2013, PASSED IN ITA NO.1288 AND 1289/ H YD/2010 FOR ASSESSMENT YEARS 2008 - 09 AND 2009 - 10, AS AFFIRMED BY THE HON'BLE ANDH R A PRADESH HIGH COURT, HE HELD THAT THE O P E RA TION S O F TH E ASSESSEE COMPANY INVOLVED IN THE P R O D U C TION OF S E EDS WAS IN TH E N A TURE OF AGRICULTURAL AC T IVITY AND THE INCOME EARNED FROM SUCH ACTIVITY WAS IN THE NATURE OF AGRICULTURA L INCOME, ELIGIBLE FOR EX E MPTION UN D ER S.10(1)OF THE A C T. AGGRI E VED BY THE ORDER OF THE LEARNED CIT(A), THE REVENUE HAS RAISED THIS ISSUE IN THE PRESENT APPEAL FILED BEFORE THE TRIBUNAL. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSE D THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LEARNED REPR E SENT AT IVES OF BOTH THE SIDES, THIS ISSUE INVOLVED IN TH E APPEAL O F THE REVENUE IS SQU A RELY COVERED BY VARIOUS DECISION S OF THE TRIBUNAL AS WELL AS THE DECISION OF THE HON'BLE ANDHRA P RA D ESH HIGH COURT IN TH E CASE OF PRABHAT AGRI - BIOTECH LTD (I T T A NO.88 OF 2014 DAT E D 21.2.2014) . COPIES OF THE RELEVANT DECISION S OF THE TRIBUNAL ARE PL A CED ON RECORD BY THE ASSESSEE AND A PERUSAL O F TH E SAME SHOWS T HAT A SIMILAR ISSUE AROSE FOR CON S I D ERATION IN TH E CA S E OF PRABHAT AGRI - BIOTECH LTD , HYDERABAD FOR DIFFE RE NT YEARS. WHILE DECIDING THE ISSUE FOR ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 VIDE ITS COMMON ORDER DATED 4.1.2 0 13 (SUPRA), THE COORDINATE BENCH OF THE TRIBUNAL TOOK NO T E O F THE DECISION RENDER E D IN ASSESSEE S OWN CA S E FOR TH E EARLIER YEAR AND DECIDED THE SAME IN FAVOUR OF THE I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 12 ASSESSEE BY RECORDING THE FOLLO W IN G OBSERVATIONS IN PARAGRAPH 5 OF ITS ORDER - 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, THE ONLY DISPUTE IN THE PRESENT APPEALS IS WITH REGARD TO ASSESSEES CLAIM OF EXEMPTION U/S 10(1) OF THE ACT BY TREATING THE INCOME GENERATED FROM SALE OF BASIC/FOUNDATION SEEDS AS AGRICULTURAL INCOME. ON PERUSAL OF THE ORDERS PASSED BY THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASE OF THE SAME ASSESSEE FOR THE EARLIER ASSESSMENT YEARS, IT IS SEEN THAT IDENTICAL DISPUTE AS INVOLVED IN THE PRESENT ASSESSMENT YEAR CA ME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL. THE TRIBUNAL HAS CONSISTENTLY HELD THAT THE INCOME GENERATED FROM THE CULTIVATION OF BASIC/FOUNDATION SEEDS ARE AGRICULTURAL INCOME. IN ITS LATEST ORDER IN ITA NO.1214 AND 1215/HYD/2010 DATED 13 - 4 - 2012, THE TRIBUNAL HELD IN THE FOLLOWING MANNER: - WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. THE ISSUE BEFORE US IS WITH REGARD TO ELIGIBILITY OF ASSESSEE FOR EXEMPTION U/S S.10(1) IN RESPECT OF THE VALUE OF F OUNDATION/BASIC SEEDS PRODUCED BY THE ASSESSEE. WE FIND THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF SWAGATH SEEDS (P) LTD. RELIED UPON BY THE LEARNED AR, BEFORE US, SQUARELY COVERS THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. PARA - 4 OF THE ORDER OF THE TRIBUNAL DATED 16.5.2008 READS AS UNDER: 4....... ADMITTEDLY, THE ASSESSEE IS CULTIVATING BY PERFORMING AGRICULTURAL OPERATION IN ORDER TO GENERATE BASIC FOUNDATION SEEDS. THE SAID FOUNDATION SEEDS WERE DISTRIBUTED TO FARMERS FOR T HE PURPOSE OF GENERATING FURTHER SEEDS. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE CLARIFIED THAT IN RESPECT OF SEEDS WHICH ERE PURCHASED FROM OTHER FARMERS, THE ASSESSEE IS NOT CLAIMING ANY EXEMPTION U/S 10(1) OF THE IT ACT. THE ASSESSEE IS ADMITTEDLY CLAIMING EXEMPTION U/S 10(1) IN RESPECT OF BASIC FOUNDATION SEEDS WHICH WERE GENERATED BY PERFORMING AGRICULTURAL OPERATION BY THE LAND BY THE ASSESSEE. THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001 - 02 CONSIDERED THIS ISSUE AND FOUND THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10(1) WITH REGARD TO THE BASIC SEEDS WHICH WERE GENERATED OUT OF CULTIVATION MADE BY THE ASSESSEE. IN OUR OPINION, THE I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 13 DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2001 - 02 IN THE ASSESSEES OWN CASE IS EQUA LLY APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN ITA NO.943/HYD/2004 DATED 18.1.2008, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10(1) ONLY IN RESPECT OF BASIC FOUNDATION SEEDS W HICH ARE GENERATED OUT OF THE CULTIVATION MADE BY THE ASSESSEE. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE HOLD THAT THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 10(1) OF THE ACT AND THAT INCOME GENERATED ON CULTIVATION OF BASIC /FOUNDATION SEEDS HAS TO BE TREATED AS AGRICULTURAL INCOME. WE ORDER ACCORDINGLY. FACTS INVOLVED IN THE IMPUGNED ASSESSMENT YEAR BEING IDENTICAL WE RESPECTFULLY FOLLOW THE AFORESAID DECISIONS OF THE TRIBUNAL AND HOLD THAT THE INCOME GENERATED FROM SALE OF BASIC SEEDS BEING AGRICULTURAL INCOME IS EXEMPT U/S 10(1) OF THE ACT. ACCORDINGLY, WE DISMISS THE GROUND RAISED BY THE DEPARTMENT. 9. AGAI N S T THE AFORESAID ORDER OF THE TRIBUNAL D A TED 4.1.2013, PASSED IN THE CA S E OF PRABHAT AGRI - BIOTECH LTD (SUPRA), THE DEPARTMENT FIL E D AN APPEAL B E FOR E THE HON'BLE ANDHRA PRA D ESH HIGH COU R T AND VIDE ORDER DATED 21.2.2014 P A SSE D IN IT T A NO. 88 OF 2014, THEIR L ORDSHIPS UPHELD THE DECISION OF THE T RI B UNAL BY OBSERVING AS UN D ER - 'WE ARE UNABLE TO ACCEPT THE FARFETCHED IDEA THAT ARTIFICIAL PRODUCTION OF SEEDS CAN BE SOLD OR USED FOR COMMERCIAL PURPOSE. MAY BE A FEW HYBRID SEEDS COULD BE PRODUCED BY ARTIFICIAL METHOD IN A LABORATORY. TH E SEEDS SO PRODUCED WITH NON - AGRICULTURAL ACTIV ITY AGAIN WILL HAVE TO BE SOWN IN THE AGRICULTURE FILED TO HAVE A LARGER QUANTITY FOR SALE IN THE MARKET. ACCORDINGLY, WE HOLD THAT THE SEED IS A PRODUCT OF AGRICULTURAL ACTIVITY. THEREFORE, THE SALE OF THE SAME CANNOT BE BROUGHT UNDER THE PROVISIONS OF TH E INCOME - TAX ACT. WE, THEREFORE, UPHOLD THE DECISION OF THE LEARNED TRIBUNAL IN THIS MATTER.' I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 14 SIMILAR ISSUE AGAIN AROSE IN TH E CA S E OF PRABHAT AGRI - BIOTECH LTD TD. FOR ASSESSMENT YEAR 2010 - 11 AND THE TRIBUNAL FOLLO W IN G THE DECISION OF THE HON'BLE ANDHRA P RADESH HIGH C OURT RENDERED VIDE ORDER DATED 21.2.2014 (SUPRA) DECIDED THE SAME IN FAVOUR OF TH E ASSESSEE VIDE ITS ORDER DATED 28.8.2014 PASSED IN ITA NO. 7 52 / HYD/2014. 10 . IT IS TRUE THAT IN TH E CASE OF PRABHAT AGRI - BIOTECH LTD DECI D ED BY TH E TRIBUNAL AS WELL AS BY THE HON'BLE ANDHRA P R ADESH HIGH COU R T, THE ASSESSEE WAS PRO D U C ING ONLY TH E FO UN DATION/BASIC SEEDS AND THE H YBRID SEEDS W E RE PU R CH A SED BY T H E SAID COMPANY IN THE RELEVANT YEARS F R OM TH E FARMERS, UNLIKE THE ASSESSEE COMPANY IN THE PRESENT CA S E WHICH P R O D U C ED EVEN THE H YBRID SEEDS BY TAKING THE L A N D S F R OM TH E FARM E RS ON CERTAIN TERMS AND CONDITIONS AS STIPULATED IN THE RELEVANT AGREEMENT. HOWEVER, A SIMILAR FACT SITUATION AS INVOLVED IN THE CASE OF THE ASSESSEE COMPANY WAS INVOLVED IN THE THREE CASES DECIDED BY THE BANGALORE BENCH OF THE TRIBUNAL AND CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WHEREIN EXEMPTION UN D ER S.10(1) WAS CLAIMED BY THE ASSESSEE IN RESP E CT OF INCOME DERIVED FROM THE P R O D U C TION OF HYBRID SEEDS TAKEN ON THE FARMS OW N ED BY OTHER FARMERS AND THE SAID CLAIM WAS ACCEPTED BY THE TRIBUNAL . A SIMILAR ISSUE WAS THUS INVOLVE D IN THE CONTEXT OF ASSESSEES CL A IM FOR EX E MPTION UN D ER S.10 ( 1) IN RESP E CT OF INCOME DERIVED FROM PRODUCTION OF HYBRID SEEDS AND THE SA M E WAS INITIALL Y ALL OWED BY THE BANGALORE BENCH O F THE TRIBUNAL IN TH E CA S E S OF INDO AMERICAN EXPRESS AND NAMDHARI SEEDS PVT . L TD. VI D E I T S COMMON ORDER D A TED 14.7.2006 PASSED IN ITA NO.1040/BANG/200 2 AND ITA NO.3102/BANG/2004, AFTER CON S I D ERING THE FACTS OF TH E CA S E IN THE LIGHT OF THE DEFINITION OF AGRICUL T URAL INCOM E GIVEN IN S.2( 1A) AS WELL AS TH E D ECISION OF THE HON'BLE MADRAS HIGH COU R T IN TH E CA S E OF CIT V/S. M ADDI VENKATASUBBA YYA (20 I T R 151 ) . T HE RELEVANT I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 15 OB S ERVATION S OF TH E TRIBUNAL AS RECORDED IN THI S CON T EXT ARE REPRODUCED BELOW - '5.4. AFTER HEARING BOTH THE SIDES, WE ARE OF THE VIEW THAT THE ONLY QUESTION TO BE DECIDED BY THE TRIBUNAL IS AS TO WHETHER THE SEEDS PRODUCED BY THE ASSESSEE AND SOLD IN MARKET GENERATES AGRICULTURAL INCOME OR IS IT A BUSINESS INCOME. THE PROVISION OF SECTION 2(1A) OF THE I. T ACT IS QUOTED BELOW : (1A) 'AGRICULTURAL INCOME' MEANS : - (A) ANY RENT OR REVENUE DERIVED FROM LAND WHICH IS SITUATED IN INDIA AND IS USED FOR AGRICULTURAL PURPOSES ; (B) ANY INCOME DERIVED FROM SUCH LAND BY - (I) AGRICULTURE; OR (II) THE PERFORMANCE BY A CULTIVATOR OR RECEIVER OF RENT - IN - KIND OF ANY PROCESS ORDINARILY EMPLOYED BY A CULTIVATOR OR RECEIVER OF RENT - IN - KIND TO RENDER THE PRODUCE RAISED OR RECEIVED BY HIM FIT TO BE TAKEN TO MARKET; OR (III) THE SALE BY A CULTIVATOR O R RECEIVER OF RENT - IN - KIND OF THE PRODUCE RAISED OR RECEIVED BY HIM, IN RESPECT OF WHICH NO PROCESS HAS BEEN PERFORMED OTHER THAN A PROCESS OF THE NATURE DESCRIBED IN PARAGRAPH (II) OF THIS SUB - CLAUSE ; (C) ANY INCOME DERIVED FROM ANY BUILDING OWNED AND OCCUPIED BY THE RECEIVER OF THE RENT OR REVENUE OF ANY SUCH LAND, OR OCCUPIED BY THE CULTIVATOR OF THE RECEIVER OF RENT - IN - KIND, OF ANY LAND WITH RESPECT TO WHICH, OR THE PRODUCE OF WHICH, ANY PROCESS MENTIONED IN PARAGRAPHS (II) AND (III) OF SUB - CLAUSE (B ) IS CARRIED ON : PROVIDED THAT - (I) THE BUILDING IS ON OR IN THE IMMEDIATE VICINITY OF THE LAND, AND IS A BUILDING WHICH THE RECEIVER OF THE RENT OR REVENUE OR THE CULTIVATOR, OR THE RECEIVER OF RENT - IN - KIND, BY REASON OF HIS CONNECTION WITH THE LAND, REQUIRES AS A DWELLING I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 16 HOUSE, OR AS A STORE - HOUSE, OR OTHER OUT - BUILDING, AND (II) THE LAND IS EITHER ASSESSED TO LAND REVENUE IN INDIA OR IS SUBJECT TO A LOCAL RATE ASSESSED AND COLLECTED BY OFFICERS OF THE GOVERNMENT AS SUCH OR WHERE THE LAND IS NOT SO ASSESSED TO LAND REVENUE OR SUBJECT TO A LOCAL RATE, IT IS NOT SITUATED IT MAY BE APPRECIATED THAT AGRICULTURAL INCOME INCLUDES ANY RENT OR REVENUE DERIVED FROM THE LAND WHICH IS USED FOR AGRICULTURAL PURPOSES. THE ISSUE IS WHETHER THE REVENUE DERIVED F ROM SUCH LAND BY THE ASSESSEE IS AGRICULTURAL INCOME OR NOT. FOR THE PURPOSE OF DERIVING INCOME FROM AGRICULTURAL LAND THERE IS NO NECESSITY THAT SUCH LAND SHOULD BE OWNED BY THE ASSESSEE. IF THE ASSESSEE HAS DERIVATIVE INTEREST IN THE LAND FOR THE PURPOSE OF CONDUCTING AGRICULTURAL OPERATIONS ON THE SAID LAND, THEN THE REVENUE GENERATED FROM SUCH LAND WOULD BE AGRICULTURAL INCOME. THIS HAS BEEN SO HELD BY THE HON'BLE MADRAS HIGH COURT IN 20 ITR 151 (COMMISSIONER OF INCOME - TAX V. MADDI VENKATASUBBAYYA). HER E IT MAY BE APPRECIATED THAT THE ASSESSEE ENTERED INTO LEASE AGREEMENT WITH VARIOUS AGRICULTURE LAND OWNERS FOR THE PURPOSE OF OBTAINING LANDS FOR DOING THE PROCESS OF AGRICULTURAL OPERATIONS. THE GOVERNMENT OF KARNATAKA HAS ALSO GRANTED REGISTRATION TO TH E ASSESSEE THEREBY PERMITTING THE ASSESSEE TO TAKE UP PRODUCTION AND DISTRIBUTION OF VARIOUS SEEDS AND CROPS. THE ASSESSEE'S REPRESENTATIVES ARE THERE ON THE LAND TO SUPERVISE THE MANUAL LABOUR OPERATIONS AND TO PROTECT THE ASSESSE E'S INTEREST AND IT MAY BE APPRECIATED THAT THE SOWING, GROWING AND PROTECTING THE CROP AND THE PRODUCE IS ALSO TAKEN BY THE ASSESSEE AND THE ASSESSEE ALONE. HERE THE KIND ATTENTION OF THE HON'BLE TRIBUNAL IS DRAWN TO THE DECISION OF THE ALLAHABAD HIGH CO URT REPORTED IN 177 ITR 428 (COMMISSIONER OF INCOME - TAX V. ASSOCIATED METALS CO.) (ALL) WHEREIN IT HAS BEEN HELD THAT THE ASSESSEE COMPANY THEREIN HAD ENTERED INTO AGREEMENT WITH BHUMIDHARS OF LAND FOR SOWING AND GROWING AND PROTECTING CROPS AND THEREAFTER THE MAJOR SHARE OF THE PROFIT WAS TO BE OF THE COMPANY THEREIN. IN THAT CASE IT WAS HELD THE INCOME OF THE COMPANY WAS AGRICULTURAL INCOME. THE ASSESSEE'S CASE HEREIN STANDS ON A MUCH BETTER FOOTING. IT MAY ALSO BE APPRECIATED BY THE HON'BLE TRIBUNAL THE ASSESSING AUTHORITY HIMSELF DOES NOT DISPUTE THE FACT THAT THE ASSESSEE IS UNDERTAKING THE AGRICULTURAL OPERATIONS. IN FACT THE ASSESSING AUTHORITY I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 17 HIMSELF HAS ACCEPTED THE AGRICULTURAL INCOME DECLARED BY THE ASSESSEE ON THE CONTRACT PRODUCTION DONE OUTSID E THE STATE OF KARNATAKA. IT IS ONLY IN REGARD TO THE STATE OF KARNATAKA THAT THE ASSESSING AUTHORITY HAS HELD THAT AS PER THE LAND REFORMS ACT THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF EXEMPTION U/S.2(1A) OF THE ACT. THE BAR LEVIED BY THE KARNATAKA LAND REFORMS ACT WOULD BE MORE HOLD GOOD IN SO FAR AS THE GOVERNMENT OF KARNATAKA HAS GRANTED CERTIFICATE TO THE ASSESSEE FOR PRODUCTION AND DISTRIBUTION OF THE SPECIFIED HYBRID SEEDS AND PLANTS. HERE IT MAY ALSO BE APPRECIATED THA T THE NEXUS BETWEEN THE INCOME CLAIMED BY THE ASSESSEE AS NOT INCLUDIBLE IN THE TOTAL INCOME AND THE AGRICULTURAL OPERATIONS CONDUCTED BY THE ASSESSEE AND THE LANDS FROM WHICH THE INCOME AS SO GENERATED HAVE NOT BEEN DISPUTED BY THE REVENUE. THE IMMEDIATE SOURCE OF THE INCOME IS THE AGRICULTURAL OPERATIONS CONDUCTED BY THE ASSESSEE ON THE LAND AND LAND ALONE AND CONSEQUENTLY THE SAME IS LIABLE TO BE TREATED ONLY AS AGRICULTURAL INCOME.' 'IN VIEW OF SUCH DISCUSSION, FOUNDATION SEEDS OR HYBRID SEEDS PRODUCED IN OWN LAND OR LANDS TAKEN ON LEASE I.E., ON CONTRACT FARMING WILL BE THE RESULT OF AGRICULTURAL OPERATIONS AND THE PROFIT ARISING OUT OF SUCH ACTIVITIES SHALL BE TREATED AS AGRICULTURAL INCOME.' 1 1 . IN TH E CA S E OF A D VANTA INDIA L TD. V/S. CIT (2010) 5 ITR (TRIB) 57 (ITAT BANG) , A SIMILAR ISSUE AGAIN CAME UP FOR CONSIDERATION OF THE TRIBUNAL INVOLVING IDENTICAL FACTS, AS IS EVIDENT FORM PARA NOS.4 AND 5 OF THE O R DER OF THE TRIBUNAL WHICH READ AS UN D ER - 4 . THE ASSESSEE IS A COMPANY ENGAGED IN THE BU S IN ES S OF PRODUCTION AND SALE OF HYBRID SEEDS. THE COMPANY IS ENGA G ED IN TH E R E SEARCH, DEVELOPMENT, P R OCESSING AND M A RKETIN G OF HYBRID SEEDS. THE ASSESSEE - COMPANY CARRIED OUT STUDIES AND RESEARCHES TO FIND OUT THE MOST SUITABLE GENETIC COMPOSITION OF SEEDS IN TH E R E SPECTIVE LO C AL ENVIRONMENT. THE ASSESSEE PROCURES GERMPLASM PROTOTYPE OF THE HYBRID SEEDS FROM LABORATORIES FOR EMPLOYING THE SAME IN ITS SUBSEQUENT OPERATIONS. THE GERMPLASM IS SOWN IN FIELDS WHICH GROWS INTO WHAT I S CALLED THE BASIC SEED. THE BASIC SEEDS ARE GAIN REPLANTED TOG ROW THE HYBRID I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 18 SEEDS. THE HYBRID SEEDS ARE SOLD BY THE ASSESSEE - COMPANY, TO FARMERS AT LARGE. THIS I S THE FRAME OF OP E RATION S CARRIED ON BY THE ASSESSEE DURING THE PRE V IOUS Y E AR RELEVANT TO THE ASSESSMENT YEAR IN APPEAL. IN THE P A ST, THE ASSESSEE HAD CARRIED OUT BU S IN E SS IN DIFFERENT FORMULATION S , LIKE DISTRIBUTING BASIC SEEDS TO FARM E RS TO GRO W INTO HYBRID SEEDS AND BUYING THEM BACK FROM TH E FARM E RS, ETC. BUT THOSE BU S IN E SS DYNAMICS ARE NO T R ELEVANT FOR THE IMPU G N E D ASSESSMENT YEAR. AS FAR AS THE IMPU G N E D ASSESSMENT YEAR IS CONCERNED, THE ASSESSEE ITSELF IS GROWING BASIC SEEDS AS WELL AS HYBRID SEEDS. 5. UP TO THE BASIC SEED ACTIVITY, ALL TH E PRIMARY OP E RATION S ARE PERFORMED BY THE ASSESSEE IN ITS OWN LANDS OR LANDS LEASED BY IT, UN D ER ITS OWN DIRECT SUPERVISION AND GUIDANCE ENGAGING CASUAL LABOUR. THE HYBRID SEEDS ARE GROWN BY TH E FARMERS IN TH E IR OWN LANDS BUT LEASED OUT TO TH E ASSESSEE COMPANY. THE ENTIRE CO ST OF P R O D U C TION WAS TO B E REIMBUR S ED BY THE ASSESSEE TO THE FARM E RS. THER E FORE, DE FACTO SPEAKING THE HYBRID SEED OPERATION S WAS CARRIED ON BY THE ASSESSEE IN ITS LEASEHOLD L A NDS. 1 2 . ON THE ABOVE FACTS AND CIR C UM S TAN C ES INVOLVED IN TH E CA S E OF ADVANTA INDIA L T D FOR ASSESSMENT YEAR 2002 - 03, WHICH ARE IDENTI C AL TO THE FACTS INVOLVED IN THE PR E SEN T CA S E, THE TRIBUNAL BESIDES FOLLO W IN G THE DECISION OF THE COORDINATE BENCH IN TH E CA S E S OF INDO AMERICAN EXP O RTS AND NAMADHARI SEEDS P. L TD. (SUPRA) , A LSO G A VE THE FOLLOWING REASONS IN PARAGRAPHS 15 TO 19 OF ITS ORDER, TO ALLOW THE CLAIM OF THE ASSESSEE THAT THE INCOME FROM THE P R O D U C TION OF FOUN DA TION/BASIC SEEDS AS WELL AS HYBRID SEEDS FROM THE LAND TAKEN FROM TH E FARMERS ON CERTAIN TERMS AND CONDITIO NS IS AGRICULTURAL INCOME ELIGIBLE FOR EX E MPTION UN D ER S.10(1) 15. THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. RAJA BENOY KUMAR SAHAS ROY [1957] 32 ITR 466 HAS CONSIDERED COMPREHENSIVELY THE CONCEPT OF AGRICULTURAL INCOME FOR THE PURPOSE OF THE INCOME - TAX ACT. THE COURT HELD THAT AGRICULTURE IN ITS PRIMARY SENSE DENOTES THE CULTIVATION OF THE FIELD AND IS RESTRICTED TO CULTIVATION OF TH E LAND IN THE STRICT SENSE OF THE I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 19 TERM MEANING THEREBY TILLING OF THE LAND, SOWING OF THE SEEDS, PLANTING AND SIMILAR OPERATIONS ON THE LAND. THESE ARE BASIC OPERATIONS AND REQUIRE THE EXPENDITURE OF HUMAN SKILL AND LABOUR UPON THE LAND ITSELF. THE COURT FURTHER HELD THAT THE PERFORMANCE OF SUBSEQUENT OPERATIONS LIKE TENDING, PRUNING, CUTTING, HARVESTING, ETC., WOULD NOT BE ENOUGH TO CHARACTERISE THEM AS AGRICULTURAL OPERATIONS. IN ORDER TO INVEST THEM WITH THE CHARACTER OF AGRICULTURAL OPERATIONS, SUBSEQU ENT OPERATIONS MUST NECESSARILY BE TAKEN IN CONJUNCTION WITH AND IN CONTINUATION OF THE BASIC OPERATIONS WHICH ARE THE EFFECTIVE COST OF THE PRODUCE BEING RAISED FROM THE LAND. 16. IF WE EXAMINE THE OPERATIONS CARRIED OUT BY THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN APPEAL, WE FIND THAT THE PRODUCTION OF BASIC SEEDS AS WELL AS HYBRID SEEDS ARE THE' RESULTS OF BASIC AGRICULTURAL OPERATIONS CARRIED ON BY THE ASSESSEE - COMPANY IN ITS OWN LAND AS WELL AS IN LEASEHOLD LAND. THE METHOD OF CONTRACT FARMING DOES NOT TAKE AWAY THE CHARACTER OF THE BASIC OPERATIONS CARRIED OUT BY THE ASSESSEE - COMPANY WHICH ARE AGRICULTURAL IN NATURE. THE ASSESSEE - COMPANY PROCURES GERM PLASM AND SOWS IT IN ITS OWN FIELDS, AND CARRIES ON ALL AGRICULTURAL OPER ATIONS AND PRODUCES THE BASIC SEEDS. THE BASIC SEEDS SO HARVESTED ARE AGAIN PUT THROUGH AGRICULTURAL OPERATIONS INTIMATELY CONNECTED WITH LEASEHOLD LAND FOR FINALLY BRINGING OUT THE HYBRID SEEDS. ONLY FOR THE REASON THAT THE BASIC SEEDS ARE SOWN IN LEASE HOLD LAND AND THE MANPOWER REQUIRED IS ARRANGED THROUGH CONTRACT FARMING, IT DOES NOT MEAN THAT THE OPERATIONS CARRIED OUT BY THE ASSESSEE - COMPANY ARE NOT AGRICULTURAL OPERATIONS. AS A MATTER OF FACT, IT IS TO BE SEEN THAT THE ASSESSEE - COMPANY HAS CARRIED OUT BASIC AS WELL AS SECONDARY AGRICULTURAL OPERATIONS. THEREFORE, WITHOUT ANY FEAR OF CONTRADICTION, IT IS POSSIBLE FOR US TO HOLD THAT SUCH ENTIRE INCOME OF THE ASSESSEE IS AGRICULTURAL IN NATURE WHICH IS TO BE EXCLUDED FROM THE NATURE OF TOTAL INCOME. 17. THE ASSESSEE IS SUCCESSFUL IN ITS APPEAL: 18. AS THE MAIN GROUND OF THE ASSESSEE ITSELF IS DECIDED IN ITS FAVOUR, WE HAVE NOT CONSIDERED THE ALTERNATIVE CONTENTION REGARDING APPLICATION OF RULE 7 AND PROPORTIONATE EXEMPTION OF INCOME. 19. THE REASONS POINTED OUT BY THE ASSESSING AUTHORITY TO DENY THE CLAIM OF EXEMPTION MADE BY THE ASSESSEE - COMPANY ARE THAT THE ASSESSEE IS FOLLOWING INTERNATIONAL TECHNOLOGY, MARKETING I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 20 EXPERTISE, INTEGRATED SCIENTIFIC AND COMMERCIAL ACTIVITY, ETC. THESE ARE ALL MATTERS STRANGE TO THE STRICT CODE OF INCOME - TAX. THOSE PREMISES DO NOT HAVE ANY ROLE IN DECIDING THE NATURE OF INCOME WITHIN THE FRAMEWORK OF THE INCOME - TAX ACT, 1961. THE REASONS POINTED OUT BY THE ASSESSING OFFICER ARE BY AND LARGE ISSUES TO BE DECIDED BY THE P OLICY MAKERS IN THE GOVERNMENT. 1 3 . IN TH E CA S E OF A D VANTA INDIA L IMITED, A SIMILAR ISSUE AGAIN CAME UP FOR CON S I DE RATION BEFORE TH E TRIBUNAL FOR THE ASSESSMENT YEAR 2003 - 04, INVOLVING IDENTI C AL FACTS AND CIR C UM S TANCES AS IS EVIDENT FROM PARA 2 OF THE TRIBUNALS ORDER DATED 29.6.2012 P ASSED IN ITA NOS.819 AND 820/BANG/2010, EXTRACTED BELOW - 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WHICH IS ENGAGED IN DEVELOPMENT AND PRODUCTION OF BASIC AND HYBRID SEEDS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003 - 04 ON 27.11.2003 DECLARING A LOSS OF RS.3,59,00,900/ - . THE RETURN WAS PROCESSED U/S 143(1) ON 23.1.2004. SUBSEQUENTLY A REVISED RETURN WAS FILED ON 21.10.2004 DECLARING A LOSS OF RS.2,83, 38,977/ - . THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY U/S 143(3) OF THE INCOME - TAX ACT. DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THERE IS NO CHANGE IN THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY COMPARED TO THE IMMEDIATELY PRECEDING YEAR I.E ASSESSMENT YEAR 2002 - 03. HE OBSERVED THAT THE ASSESSEE WHICH IS ENGAGED IN THE RESEARCH, DEVELOPMENT, PROCESSING AND MARKETING OF HYBRID SEEDS IS CARRYING OUT ACTIVITIES FROM THE FIRST STAGE I.E RESEARCH AND DEVELOPMENT INTO THE GENETIC COMPOSITION WHICH I S BEST SUITED FOR LOCAL ENVIRONMENT AND AGRONOMIC PRACTICES IN VARYING CLIMATIC ZONES IN INDIA. HE OBSERVED THAT THE RESEARCH AND DEVELOPMENT STARTS AT THE GERMPLASM STAGE, WHICH IS MULTIPLIED INTO NUCLEUS AND THEN INTO PRE - BASIC S EEDS AND THEN INTO BASIC SEED. HE OBSERVED THAT UP TO THE BASIC SEED ACTIVITY, ALL THE PRIMARY OPERATIONS ARE PERFORMED BY THE ASSESSEE COMPANY ON ITS OWN LANDS OR LANDS LEASED BY IT UNDER ITS OWN DIRECT SUPERVISION AND GUIDANCE WITH THE HELP OF CASUAL LAB OUR ENGAGED BY IT AND THEN THE BASIC SEEDS ARE GIVEN TO FARMERS FOR PRODUCING HYBRID SEEDS, WHICH ARE CARRIED OUT BY THE FARMERS ON THEIR OWN LANDS WHICH ARE LEASED TO THE COMPANY AND I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 21 THE COST OF PRODUCTION IS REIMBURSED TO THEM AND THE PRODUCE IS TAKEN BA CK BY THE COMPANY. THE COMPANY THEREUPON CLEANS THE HYBRID SEEDS I.E REMOVES THE MUD, STONES AND NON - STANDARD SIZED SEEDS AND THEN TREATS THE SEEDS WITH CHEMICALS TO PREVENT INFESTATION, PACKS THE SEEDS INTO CLOTH BAGS TO SUIT MARKET REQUIREMENTS AND DISPA TCHES THE SEEDS TO CONSIGNEES AGENTS LOCATED ALL OVER THE COUNTRY FOR SALE TO THE DISTRIBUTORS. FROM THE RECORDS OF THE ASSESSEE, THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.3,62,21,263/ - AS EXEMPT U/S 10 BEING INCOME FROM AGRICULTURE. HE OBSERVED THAT THE ASSESSEE HAS TAKEN DIFFERENT STANDS, RELYING HEAVILY ON THE DECISIONS OF THE VARIOUS APPELLATE AUTHORITIES AND, THEREFORE, HE HELD THAT THE ASSESSEE IS TOTALLY CONFUSED AS TO THE HEADS OF THE INCOME UNDER WHICH THE PROFITS FROM OPERATION S ARE TO BE DECLARED. FOR COMING TO THIS CONCLUSION, HE PLACED RELIANCE UPON THE DECISION OF THE HON'BLE ITAT, HYDERABAD BENCH IN ASSESSEE'S OWN CASE FOR THE EARLIER YEARS. HE ALSO CONSIDERED THE ASSESSEE'S CLAIM THAT THERE IS SUBST ANTIAL CHANGE IN THE ACTIVITIES CARRIED ON BY THE ASSESSEE FROM THE ASSESSMENT YEAR 2002 - 03 BUT ACCORDING TO HIM, THE RECORDS REVEAL NO CHANGE IN THE ACTIVITY CARRIED ON BY THE ASSESSEE AS THE ENTIRE AGRICULTURAL OPERATIONS FOR PRODUCTION OF HYBRID SEEDS W ERE CARRIED ON BY THE RESPECTIVE HOLDERS OF THE LANDS WHICH HAVE BEEN TAKEN ON LEASE UNDER THE SUPERVISION OF THE ASSESSEE. HE, THEREFORE, HELD THAT THE SUPERVISION CARRIED ON BY THE ASSESSEE CANNOT BE TERMED AS THAT OF A CULTIVATOR. HE PLACED RELIANCE UPO N THE ASSESSEE'S OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR AND HAS HELD THAT THE ENTIRE INCOME OF THE ASSESSEE IS INCOME FROM BUSINESS . THE CLAIM OF EXEMPTION U/S 10 WAS REJECTED AND ENTIRE INCOME WAS SUBJECTED TO THE TAX UNDER THE HEAD 'BUSINESS'. FURT HER HE OBSERVED THAT THE BASIC SEEDS PRODUCTION EMANATES FROM GERMPLASM AND THE VARIATIONS AND GENETIC MANIPULATIONS ACHIEVED BY THE ASSESSEE ARE BY SCIENTIFIC RESEARCH ACTIVITY AND, THEREFORE, THE EXPENDITURE INCURRED ON EXTENSIVE RESEARCH HAS NOT BEEN CO NSIDERED BY THE ASSESSEE WHILE COMPUTING THE CLAIM OF AGRICULTURAL INCOME. FURTHER HE ALSO OBSERVED THAT THE ASSESSEE IS CARRYING ON THE PRODUCTION OF BASIC SEEDS IN THE ASSESSEE'S OWN LANDS AND FOR THE PRODUCTION OF HYBRID SEEDS, THESE BASIC SEEDS ARE GIV EN TO THE FARMERS FOR CULTIVATION UNDER CONTRACT FARMING. ACCORDING TO HIM, CULTIVATION OF HYBRID SEEDS UNDER CONTRACT FORMING CANNOT BE TERMED AS CULTIVATION DONE BY THE ASSESSEE. HE, THEREFORE, REJECTED THE ASSESSEE'S CLAIM OF EXE MPTION U/S 10 OF I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 22 THE INCOME - TAX ACT AND TREATED THE ENTIRE INCOME AS BUSINESS INCOME. AFTER TAKING INTO CON S I D ERATION THE ABOVE FACTS AND CIRCUMSTANCES OF THE CA S E, A SIMILAR ISSUE AGAIN WAS DECID E D BY THE BANGALORE B ENCH OF TH E TRIBUNAL IN FAVOUR OF TH E ASSESSEE FOLLO W IN G THE DECI SI ON OF THE COORDINATE BENCH IN THE CA S E S OF AMERICAN EXP ORTS AND N AMDH A R I SEEDS P . LTD. (SUPRA) AS WELL AS IN ASSESSEES OWN CA S E FOR ASSESSMENT YEAR 2002 - 03, HOLDING THAT THE INCOM E DERIVED BY TH E ASSESSEE F R OM THE P R O D U C TION OF FOUN D ATION/BASIC SEEDS AS WELL AS HYBRID SEEDS CON S TITUTE D INCOME ELIGIBLE FOR EX E MPTION UN D ER S.10(1) OF THE ACT, BEING AGRICULTURAL INCOME. 1 4 . THE ISSUE INVOLVED IN THE PRESENT CASE RELATING TO THE ASSESSEES CLAIM FOR EX E MPTION UN D ER S.10 (1) IN RESP EC T OF INCOME DERIVED F R OM THE P R O D U C TION OF FOUNDATION/BASIC SEEDS AS WELL AS HYBRID SEEDS BEIN G AGRICULTURAL INCOME, TH U S IS SQU A RELY COVERED BY T H E VA R IOUS DECISION S OF THE TRIBUNAL AS WELL AS THE DECISION OF THE HON'BLE ANDHRA PRA D ESH HIGH C OU R T AND THIS POSIT I ON IS NO T DISPU T ED EVEN BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AT THE T I M E O F H EA RING B E FORE US. WE THER E FOR E , RESPECTFULLY FOLLOW THE JUDICIAL PRONOUNCEMENTS ON THE ISSUE DISCUSSED ABOVE AND UPHOL D THE IMPUGNED ORDER OF THE LEARNE D CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER S.10(1) IN RESPECT OF INCOME DERIVED F R OM THE PRODUCTION OF SEEDS. GROUNDS NO.2 TO 4 OF THE R E VENUES APP E AL ARE ACCORDINGLY D I SMI SS ED. 1 5 . IN GROUND NO.5, THE REVENUE HAS CHALLENGED THE AC TION OF THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.14A READ WITH RULE 8D OF THE INCOM E - TAX RULES, 1962. I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 23 1 6 . DURING THE Y E AR UN D ER CON S I DE RATION, TH E ASSESSEE COMPANY H A D RECEI V ED DIVIDEND IN C OM E OF RS .1 ,77,472 ON INVESTMENT OF R S .2 0 .30 CRORES., WHICH WAS CLAIMED TO B E EXEMPT UN D ER S.10(33) OF TH E AC T. NO DISALLOWANCE ON ACCOUN T O F EXPENDITURE INCURRED IN REL A TION TO TH E SAID EXEMPT INCOME HO W EVER , WAS OFFERED BY TH E ASSESSEE AS REQUIRED BY TH E P R OVI SI ON S OF S.14A. I N THIS REGARD, IT WAS ALSO NO T ED BY TH E ASSESSING OFFICER THAT THE ASSESSEE HAS INCURRED A HUGE EXPENDITURE OF RS.32.45 CRORES ON ACCOUNT OF INTEREST. H E THEREFORE, APPLIED RUL E 8D AND WORKED OUT A DISALLOWANCE TO B E MADE UN D ER S.14A AT RS.1 ,48, 00, 979 ON AC C OUN T OF INTEREST AND RS.5, 07 ,695 ON AC C OU N T OF OTHER COMMON EXPENSES. 1 7 . ON APP E AL, THE LEARNED CIT(A) DELETED THE DISALLOWANCE MA D E BY THE ASSESSING OFFICER UN D ER S.14A R E AD WITH RULE 8D, AFTER HAVING FOU N D ON VERIFIC A TION OF THE RELEVANT BALANCE SHEET OF THE ASSESSEE COMPANY TH A T IT H A D SUF F I C IENT OWN FUN D S OF R S .259.75 CRORES IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS AS ON 31.3.2011 TO MAKE INVESTMENT OF RS.20.30 CRORES. IN SUPPO R T OF THIS CON C LU S ION, HE RELIED INT ER ALIA ON THE DECISION OF THE BOMB A Y HIGH COURT IN TH E CA S E OF R EL IANCE UTILITIES POWER LTD (313 ITR 314). 1 8 . WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OB S ERVED T H AT A FIN D IN G H A S BEEN GIVEN BY THE LEARNED CIT(A) IN HIS IMPUGN E D ORDER ON VERIF I CATION O F THE R ELEVANT B AL A N C E SH E ET OF THE ASSESSEE COMPANY THAT IT H A D SUFFICIENT OWN FUN D S IN THE FORM OF SHARE CAPITAL, R E SERVES AND SURPLUS TO MAKE IN VE STMENT OF R S .20.30 CRORES, AND THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NO T B E EN ABLE TO REBUT OR CONTROVERT THI S FINDIN G OF FACT REC ORDED BY THE LEARNED CIT(A) . A S HELD BY THE HON'BLE BOMBAY HIGH COURT IN TH E I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 24 CASE OF RELIANCE UTILITIES POWER LTD (SUPRA) , IF IT IS A CASE O F MI X ED FUN D S MAINTAI NED BY THE ASSESSEE, TH E RE IS A PR E SUM P TION THAT THE OWN FUN D S O F TH E ASSESSEE ARE U T I LI SED FOR MAKIN G T HE IN VE STM E NT WHICH HA S FETCHED THE TAX FREE INCOME. FOL L OWI N G THIS RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT AND KEEPING IN VIEW THE FACTS OF T HE ASSESSEE , WE ARE OF THE VIEW THAT THE IN VE STMEN T O F RS .20.30 CRORES HAVING BEEN PRESUMABLY MADE BY TH E ASSESSEE OUT O F ITS OWN FUN D S, NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE UN D ER S.14A CAN JU S TIFIABLY BE MADE. W E TH E R E FORE , UPHOLD TH E IMPU G N E D O R DER O F TH E LEARNED CIT(A) DELETING THE DISALLOWANCE OF R S .1,4 8 , 00, 979 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST UN D ER S.14A READ WITH RUL E 8D. 1 9 . AS R E GARDS THE B A LAN C E DISALLOWANCE OF RS.5,07,695 MADE BY THE ASSESSING OFFICER ON AC C OUN T OF OTHER COMMON EXPENSES BY AP P LYING CLAUSE ( III) OF RULE 8D, WE ARE OF THE VIEW THAT THE COMMON EXPENSES INCURRED BY TH E ASSESSEE SUCH AS OFFICE AND ADMINI S TRATIVE EXPEN S ES ETC. CAN REASONABLY BE ATTRIBUTED TO SOME EXTENT TO TH E ACTIVITY OF MA K ING INVESTMENT AND THE SAME TH E R E FORE, ARE LIABL E TO BE DISALLOWED BY APPLYING THE FORMULA GIVEN IN CLAU S E (III) OF RULE 8D. AS SUCH, THE CIT(A), IN OUR OPINION, IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THIS BEHALF. W E, THEREFORE, MODIFY THE IMPU G N E D ORDER O F TH E LEARNED CIT(A) ON THI S ISSUE AND R E S T ORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UN D ER R ULE 14A R E AD WITH RULE 8D TO THE EXTENT OF RS. 5 , 0 7, 695 , GROUND NO.5 OF THE REVENUE IN THIS APPEAL IS THUS PARTLY ALL OWED. I TA NO. 1594/H YD/20 14 M/S. NUZIVEEDU SEEDS LIMITED, HYDERABAD 25 20 . IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED ORDER PRONOUNCED IN THE COURT ON 2 0 TH MARCH, 2015 SD/ - SD/ - ( ASHA VIJAYARAGHAVAN ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER D T/ - 20 TH MARCH, 201 5 COPY FORWARDED TO: 1. M/S. NUZIVEEDU SEEDS LIMITED, SURVEY NO.69, GUNDLA POCHAMPALLY, VILLAGE MEDCHAL MANDAL, RR DISTRICT, HYDERABAD 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 1 6 (1) HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) V HYDERABAD 4. COMMISSIONER OF INCOME - TAX I, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S