M/s Invitro International (P) Ltd., Bangalore V. ACIT, Bangalore

ITA 587/BANG/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5586 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G V GOPALA RAO
• Assessee Lawyers: H GURUSWAMY
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A MOHAN ALANKAMONY, ACCOUNTANT MEMBER SN ITA NO. & ASSESSMENT YEAR APPELLANT RESPONDENT 1 724/B/2010 2002-03 M/S INVITRO INTERNATIONAL PVT. LTD. NO.12/44, RAJIV GANDHI NAGAR, BOMMANAHALLI, BANGALORE D.C.I.T, CLE-11(4), BLORE 2 827/B/2010 2002-03 D.C.I.T, CLE-11(4), BLORE M/S INVITRO INTERNATIONAL PVT. LTD., BLORE 3 557/B/2010 2005-06 D.C.I.T, CLE-11(4), BLORE M/S INVITRO INTERNATIONAL PVT. LTD., BLORE 4 558/B/2010 2006-07 D.C.I.T, CLE-11(4), BLORE M/S INVITRO INTERNATIONAL PVT. LTD., BLORE 5 587/B/2010 2005-06 M/S INVITRO INTERNATIONAL PVT. LTD. BLORE. D.C.I.T, CLE-11(4), BLORE 6 588/B/2010 2006-07 M/S INVITRO INTERNATIONAL PVT. LTD. BLORE. D.C.I.T, CLE-11(4), BLORE REVENUE BY : SHRI G.V GOPALA RAO ASSESSEE BY : SHRI H GURUSWAMY ITA NOS.724, 827, 557, 558, 587 &588/B/10 2 O R D E R PER SMT. P MADHAVI DEVI, JUDICIAL MEMBER THESE ARE CROSS APPEALS FILED BY BOTH THE ASSESSEE AS WELL AS THE REVENUE. THE RELEVANT ASSESSMENT YEARS ARE 2002-03 , 2005-06 AND 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) I AT BANGALO RE DATED 31.12.2009 AND 06.04.2010. THE APPEAL ARISES OUT O F THE ASSESSMENTS COMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF GROWING AND EXP ORTING OF ORNAMENTAL PLANTS. THE ASSESSEE FILED ITS RETURN O F INCOME FOR THE ASSESSMENT YEAR 2005-06 CLAIMING THE ENTIRE INCOME AS AGRICULTURAL INCOME AND ALSO EXEMPT FROM INCOME-TAX. THE AO WAN TED TO EXAMINE THE CASE IN DETAIL AND, THEREFORE, VISITED THE PREMISES OF THE ASSESSEE COMPANY AND ALSO HAD DISCUSSION WITH THE DIRECTOR OF THE COMPANY DR. JITENDRA PRAKASH. AFTER CONSIDERING TH E VARIOUS SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE ASSESSEE IS CARRYING ON TISSUE CULTURE METHODOLOGY AND BY THIS PROCESS, SOME OF THE ACTIVITIES CARRIED ON BY THE ASSESSEE ITA NOS.724, 827, 557, 558, 587 &588/B/10 3 ARE NON AGRICULTURE AND, THEREFORE, THE ENTIRE INCO ME 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. 3. AGGRIEVED BY THE ASST. ORDER, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO THAT SOME OF THE ACTIVITIES OF THE ASSESSEE ARE NON AGRICULTURAL AND, THEREFORE, ENTIRE INCOME CANNOT BE HELD AS AGRICULTURAL INCOME. HOWEV ER, HE RESTRICTED THE BUSINESS INCOME TO 10% OF THE TOTAL INCOME. AGA INST THE FINDING OF THE CIT(A) THAT THE ACTIVITIES CARRIED ON BY THE AS SESSEE IN ITS LABORATORIES ARE NON AGRICULTURAL OPERATIONS, THE A SSESSEE IS IN APPEAL BEFORE US, WHILE AGAINST RESTRICTING THE BUSINESS INCOME TO 10% AS AGAINST 30% AS HELD BY THE AO, THE REVENUE IS IN AP PEAL BEFORE US. 4. FOR ALL THE YEARS, THE ISSUES ARE COMMON AND, T HEREFORE, THEY ARE HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON AND CONSOLIDATED ORDER. 5. THE LEARNED DR PLACED RELIANCE UPON THE ORDER O F THE AO WHO HELD THAT THE ASSESSEE IS NOT ONLY RUNNING NURSERY BUT IS ALSO ADOPTING ITA NOS.724, 827, 557, 558, 587 &588/B/10 4 TISSUE CULTURE METHODOLOGY TO GROW BETTER PLANTS AN D TO CULTIVATE CROPS. HE SUBMITTED THAT DIFFERENT PHASES OF TISSU E CULTURE FOLLOWED BY THE ASSESSEE AS EXPLAINED IN THE ASSESSMENT ORDE R IS AS UNDER : A) PHASE ZERO : THESE ARE THE STEPS TAKEN BEFORE THE ACTUAL PROCESS OF TISSUE CULTURE IS INITIATED. IT INVOLVES SELECTION OF APPROPRIATE PLANT AND KEEPING IT DECEASE FREE IN NATURAL CONDITIONS OF LAND. B) PHASE ONE : THIS PHASE COVERS ISOLATION OF BIOLOGICAL PARTS OF THE PLANT, SUCH AS MERISTEM, SH OOT TIP, EXPLANT ETC. TO ENABLE THESE PARTS TO HAVE UNCONTAMINATED DISEASE FREE METHOD AND DEVELOPMENT . C) PHASE TWO : IN THIS PHASE, THE ACTUAL TISSUE CULTURE IS DONE WHEREBY MANY PLANTS CAN BE OBTAINE D. THIS IS CALLED THE PROPAGATION PHASE AND INVOLVES OBTAINING MANY MICRO SEGMENTS THROUGH TISSUE CULTUR E FROM THE MOTHER PLANT AND EACH OF WHICH IS CAPABLE OF DEVELOPING INTO AN INDEPENDENT PLANT. THIS PROPAGA TION ITA NOS.724, 827, 557, 558, 587 &588/B/10 5 OR MULTIPLICATION OF MOTHER PLANT WITHOUT LOSING IT S GENETIC CHARACTERISTICS IS THE MOST IMPORTANT PHAS E. D) PHASE THREE : THE PLANTS OBTAINED IN PHASE TWO ARE NOW TRANSFERRED BACK TO THE SOIL AND ROOT FORMA TION IS INDUCED. HOWEVER STEPS ARE TAKEN TO CUT DOWN UNNECESSARY GROWTH OF THE PLANT THROUGH AUXILIARY S HOOT FORMATION ETC. E) PHASE FOUR : GROWTH OF THE MICRO PLANT, IN THE SOIL TILL IT ATTAINS SUSTAINABILITY AND CAPABIL ITY TO SURVIVE WHEN TRANSFERRED TO THE MAIN FILED. 6. THUS, THE LEARNED DR EXPLAINED THAT THE MICRO PR OPAGATION OR TISSUE CULTURE BEGINS AND ENDS WITH FIELD OPERATIO NS BUT PART OF THE INTERMEDIARY ACTIVITIES ARE CARRIED OUT IN THEIR LA BORATORY FOR BETTERMENT OF PLANTS, WHICH ARE ULTIMATELY PRODUCED AND, THEREFORE, THE AO WAS RIGHT IN ESTIMATING 30% OF THE INCOME AS NO N AGRICULTURAL INCOME BY TAKING INTO CONSIDERATION VARIOUS PROCESS ES EMPLOYED BY PROFESSIONAL SCIENTISTS USING TECHNICAL SKILLS. H E SUBMITTED THAT AS SEEN FROM THE ASSESSMENT ORDER, ASSESSEE COMPANY HA D AGREED TO THE ITA NOS.724, 827, 557, 558, 587 &588/B/10 6 VIEW TAKEN BY THE AO AND ACCORDINGLY THE ASSESSMENT WAS COMPLETED BUT HOWEVER, BEFORE THE CIT(A), THE ASSESSEE CONTEN DED THAT THE BIFURCATION OF THE INCOME WAS NOT PROPER AND THE CI T(A) HAS ERRONEOUSLY RESTRICTED THE NON AGRICULTURAL INCOME TO 10%. HE SUBMITTED THAT FOR GIVING SUCH A RELIEF, THE CIT(A) HAS FOLLOWED THE DECISION OF ITAT, BANGALORE BENCH IN THE CASE OF M /S NAMDHARI SEEDS PVT. LTD., THOUGH THE DECISION IS NOT APPLICA BLE TO THE FACTS OF THE CASE BEFORE US. 7. THE LEARNED DR SUBMITTED THAT AGRICULTURE IN ITS PRIMARY SENSE DENOTES THE CULTIVATION OF THE FEILD AND IS RESTRIC TED TO CULTIVATION OF THE LAND IN THE STRICT SENSE OF THE TERM MEANING TH EREBY TILLING OF THE LAND, SOWING OF SEEDS, PLANTING AND SIMILAR OPERAT IONS ON THE LAND. HE SUBMITTED THAT WITHOUT THESE OPERATIONS BEING IN VOLVED ONLY THE PROCEEDINGS SUBSEQUENT TO THE GERMINATION OF PLANT, SUCH AS WEEDING, DIGGING THE SOIL AROUND THE GROWTH, REMOVAL OF UNDE SIRABLE UNDERGROWTH ETC. WILL NOT AMOUNT TO AGRICULTURAL OP ERATIONS. FOR THIS PROPOSITION, HE PLACED RELIANCE UPON THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAJA BENOY KUM AR SAHAS ROY, 32 ITR 446. HE THUS, PRAYED THAT THE ORDER OF THE AO BE UPHELD. ITA NOS.724, 827, 557, 558, 587 &588/B/10 7 8. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHE R HAND REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEF ORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE DOES NOT CARR Y OUT ANY OPERATIONS IN THE LABORATORIES BUT THE LABORATORIES ARE USED ONLY FOR PRESERVING THE PLANTS MEANT FOR DEMONSTRATION. HE S UBMITTED THAT MAINTAINING THE SAPLING PLANT IN THE LABORATORY UND ER THE CONTROLLED CONDITIONS IS NECESSARY TO EXHIBIT THE SAME TO POTE NTIAL CUSTOMERS. TO THIS EFFECT THE ASSESSEE HAS ALSO FILED AN AFFIDAVI T STATING THAT THE ASSESSEE IS ONLY GROWING THE PLANTS BY WAY OF TISSU E CULTURE WHICH IS THE PRACTICE USED TO PROPAGATE PLANTS UNDER NATURAL CONDITIONS WITH THE AID OF THE BASIC AGRICULTURAL OPERATIONS. HE SUBM ITTED THAT THE ASSESSEE HAS NOT BEEN GROWING THE PLANTS IN THE LAB ORATORY, BUT IT IS ONLY BEING USED TO PRESERVE THE PLANTS FOR DEMONSTR ATION TO PROTECT DEMONSTRATION PLANTS FOR A LONGER DURATION OR OTHER WISE, AS THE PLANTS IF KEPT OUTSIDE, THEY WOULD NOT SURVIVE ON ACCOUNT OF ADVERSE EFFECTS OF NATURE. THUS, ACCORDING TO THE ASSESSEE, THE GROWING OF THE PLANTS OR VEGETATION IS NOT POSSIBLE IN THE LABORATORY WIT HOUT THE MEDIUM OF MOTHER PLANT. THEREFORE, INCOME EARNED BY THIS PROC ESS IS CONSIDERED AS AGRICULTURAL INCOME. ITA NOS.724, 827, 557, 558, 587 &588/B/10 8 9. THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE F OLLOWING DECISIONS IN SUPPORT OF HIS CONTENTION THAT THE INC OME EARNED BY THE ASSESSEE IS AGRICULTURAL INCOME. 1) CIT VS. SOUNDARYA NURSERY, 241 ITR 530 (MAD) 2) CIT VS. GREEN BOLD PRE-FARMERS PVT. LTD. (20 00) TREE 299 ITR 262 3) CIT VS. K.E SUNDHARA MUDALIAR, 18 ITR 259 4) M/S K LAKASHMANSA & CO. VS. DCIT IN ITA NO.23/BANG/2000 DT. 17.9.2003 (ITAT, BANGALORE BENCH) 5) ACIT VS. M/S NAMDHARI SEEDS PVT. LTD IN ITA NO.3102/BANG/2004 DATED 14.7.2006 (I TAT, BANGALORE BENCH) 10. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO F ILED COPIES OF THE SAID DECISIONS AND HAS DRAWN OUR ATTENTION TO THE R ELEVANT PORTIONS THEREOF TO DRIVE HIS POINT. 11. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIAL ON RECORD, WE FIND THAT THE DEFINITION OF AGRICULTURAL INCOME IS GIVEN UNDER SEC. 2(1A) OF THE INCOME-TAX ACT TO MEA N - ITA NOS.724, 827, 557, 558, 587 &588/B/10 9 SECTION 2(1) - 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 AND ORDINARILY EMPLOYED BY A CULTIVATOR OR RECEIVER OF RENT-IN-KIND TO REND ER THE PRODUCE RAISED OR RECEIVED BY HIM FIT TO BE TA KEN TO MARKET; OR III) THE SALE BY A CULTIVATOR OR RECEIVER OF RENT -IN-KIND OF THE PRODUCE RAISED OR RECEIVED BY HIM, IN RES PECT OF WHICH NO PROCESS HAS BEEN PERFORMED OTHER THA N A PROCESS OF THE NATURE DESCRIBED IN PARAGRAPH (II) OF THIS SUB-CLAUSE; --------------------------- ------ 12. FROM A LITERAL READING OF THE ABOVE PROVISION, THE MEANING THAT CAN BE GATHERED IS THAT THE INCOME HAS TO BE DERIVE D FROM LAND (EMPHASIS GIVEN BY US) BY OPERATION OF AGRICULTURE. THUS, THE EMPHASIS IS ON THE POSSESSION OF LAND AND THE AGRIC ULTURE OPERATIONS, IF ITA NOS.724, 827, 557, 558, 587 &588/B/10 10 ANY, HAVE TO BE CARRIED OUT IN THE SAID LAND AND IN COME HAS TO BE DERIVED FROM THE PRODUCE OF SUCH LAND ONLY. THE RAT IO OF DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. R AJA BENOY KUMAR SAHAS ROY, 32 ITR 466, IS THAT AGRICULTURE I N ITS PRIMARY SENSE DENOTES THE CULTIVATION OF THE FIELD AND IS RESTRIC TED TO CULTIVATION OF THE LAND IN THE DIRECT SENSE OF THE PRIMARY OPERATI ONS MEANING THEREBY THAT TILLING OF THE LAND, SOWING OF THE SEEDS, PLAN TING AND SIMILAR OPERATIONS ON THE LAND ARE THE BASIC OPERATIONS REQ UIRED ALONG WITH USING THE EXPENDITURE OF HUMAN SKILL AND LABOUR UPO N THE LAND ITSELF. 13. THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASS ESSEE IS THAT THE JUDGMENT OF THE HONBLE SUPREME COURT IS ALSO APPLI CABLE TO THE FACTS OF THE CASE BEFORE US BECAUSE THE HUMAN SKILL AND L ABOUR HAS BEEN EMPLOYED TO GENERATE NEW PLANTS AND, THEREFORE, THE SE OPERATIONS ARE TO BE CONSIDERED AS AGRICULTURAL OPERATIONS. HOWEV ER, WE ARE OF THE OPINION THAT THE LEARNED COUNSEL FOR THE ASSESSEE H AS MISINTERPRETED THE WORDS USED BY THE HONBLE APEX COURT TO MEAN TH AT THE BASIC OPERATIONS REQUIRED ARE THE EXPENDITURE OF HUMAN SKILL AND LABOUR UPON THE LAND AND THAT THE MICRO-PROPAGATION OF PL ANTS BY USE OF HUMAN SKILL EVEN IN LITERARY SENSE WOULD AMOUNT TO AGRICULTURAL ITA NOS.724, 827, 557, 558, 587 &588/B/10 11 OPERATION. THE LEARNED COUNSEL FOR THE ASSESSEE HA D ALSO PLACED STRONG RELIANCE ON HIS ARGUMENT THAT TISSUE CULTURE DOES NOT MEAN GERMINATION OF THE PLANTS IN THE LABORATORY BUT TH AT IT MEANS THAT THE MOTHER PLANT, AFTER SELECTION, IS CUT INTO SEVERAL PORTIONS AND EACH TISSUE IS PLANTED IN THE SOIL AGAIN TO GET ANOTHER PLANT, WHICH ARE GROWN IN THE NORMAL CONDITIONS IN THE SOIL AND AFTER GROW ING INTO A MATURE PLANT ARE SOLD AS ORNAMENTAL PLANTS. HOWEVER, THIS ARGUMENT IS CONTRARY TO THE ASSESSEES SUBMISSION BEFORE THE AS SESSING OFFICER, WHEREIN THE DIFFERENT PHASES OF TISSUE CULTURE INVO LVING PHASE ZERO TO PHASE 4 HAVE BEEN EXPLAINED IN DETAIL. 14. FURTHER ON A RESEARCH MADE BY US ON THE ISSUE O F PLANT TISSUE CULTURE, WE FIND THAT IT IS THE FOLLOWING IS THE PR OCESS OF TISSUE CULTURE: IT IS A PRACTICE USED TO PROPAGATE PLANTS UNDER STERILE CONDITIONS, OFTEN TO PRODUCE CLONES OF A PL ANT. PLANT TISSUE CULTURE RELIES ON THE FACT THAT MANY P LANT CELLS HAVE THE ABILITY TO REGENERATE A WHOLE PLANT. SING LE CELLS, PLANT CELLS WITHOUT CELL WALLS, PIECES OF LEAVES, O R ROOTS CAN OFTEN BE USED TO GENERATE A NEW PLANT ON CULTUR E MEDIA GIVEN THE REQUIRED NUTRIENTS AND PLANT HORMON ES. ITA NOS.724, 827, 557, 558, 587 &588/B/10 12 THE DIFFERENT TECHNIQUES IN PLANT TISSUE CULTURE OF FER CERTAIN ADVANTAGES OVER TRADITIONAL METHODS OF PROPAGATION AND THESE TECHNIQUES ARE - 1) THE PRODUCTION OF EXACT COPIES OF PLANTS THAT PRODUCE PARTICULARLY GOOD FLOWERS, FRUITS, OR HAVE OTHER DESIRABLE TRAITS. 2) TO QUICKLY PRODUCE MATURE PLANTS. 3) THE PRODUCTION OF MULTIPLES OF PLANTS IN THE ABSENCE OF SEEDS OR NECESSARY POLLINATORS TO PRODUCE SEEDS. 4) THE RE-GENERATION OF WHOLE PLANTS FROM PLANT CELLS THAT HAVE BEEN GENETICALLY MODIFIED. 5) THE PRODUCTION OF PLANTS IN STERILE CONTAINERS THAT ALLOWS THEM TO BE MOVED WITH GREATLY REDUCED CHANCES OF TRANSMITTING DISEASES, PESTS, AND PATHOGENS. 6) THE PRODUCTION OF PLANTS FROM SEEDS THAT OTHERWISE HAVE VERY LOW CHANCES OF GERMINATING AND GROWING, I.E ORCHIDS AND NEPENTHES. 7) TO CLEAN PARTICULAR PLANT OF VIRAL AND OTHER INFECTIONS AND TO QUICKLY MULTIPLY THESE PLANTS AS CLEANED STOCK FOR HORTICULTURE AND AGRICULTURE. THE MODERN TISSUE CULTURE IS PERFORMED UNDER ASEPT IC CONDITIONS UNDER FILTERED AIR. LIVING PLANT MATERI ALS FROM THE ITA NOS.724, 827, 557, 558, 587 &588/B/10 13 ENVIRONMENT ARE NATURALLY CONTAMINATED ON THEIR SUR FACES (AND SOMETIMES INTERIORS) WITH MICROORGANISMS. SO SURFAC E STERILIZATION OF STARTING MATERIALS IN CHEMICAL SOLUTION IS REQUIRED . THESE PLANTS ARE THEN PLACED ON THE SURFACE OF A SOLID CULTURE MEDIU M, BUT ARE SOMETIMES PLACED DIRECTLY INTO A LIQUID MEDIUM, PAR TICULARLY WHEN CELL SUSPENSION CULTURES ARE DESIRED. SOLID AND LIQUID MEDIA ARE GENERALLY COMPOSED OF INORGANIC SALTS PLUS A FEW ORGANIC NUTR IENTS, VITAMINS AND PLANT HORMONES. SOLID MEDIA ARE PREPARED FROM LIQU ID MEDIA WITH THE ADDITION OF A GELLING AGENT, USUALLY PURIFIED AGAR. 15. THUS IT CAN BE SEEN THAT THE PLANT TISSUE CUL TURE 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 PRODUC ED IN THE LABORATORIES ARE THEN TRANSFERRED TO SOIL AND AFTER THEIR ADAPTATION TO THE NATURAL CONDITIONS, THEY ARE ALLOWED TO BE GROWN I NTO MATURE PLANTS TO BE SOLD TO THE CUSTOMERS. THUS, IT CAN BE SEEN THA T THE SUBSEQUENT ARGUMENT OF THE ASSESSEE THAT THE LABORATORIES ARE ONLY MEANT TO KEEP THE DEMONSTRATION PLANTS UNDER CONTROLLED CONDITIO N IS NOT ENTIRELY CORRECT. WHERE ANY OPERATION IS NOT CARRIED OUT ON LAND, SUCH AN ITA NOS.724, 827, 557, 558, 587 &588/B/10 14 OPERATION CANNOT BE CALLED AS AGRICULTURAL OPERATIO N. WHEN THE ASSESSEE IS NOT CARRYING ON THE CULTIVATION OF LAND OR PLANTS IN THE SOIL IN POTS, THE OPERATIONS CANNOT BE CALLED AS AGRICUL TURAL 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 S OIL AND IS LET TO GROW INTO A MATURE PLANT, THIS OPERATION IS DEFINIT ELY AGRICULTURAL OPERATION AND INCOME THERE-FROM HAS TO BE TREATED A S AGRICULTURAL INCOME. THUS, WE ARE IN AGREEMENT WITH 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 I NCOME 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 ACCOU NT THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE MICRO PROPAGATION I .E TISSUE CULTURE OPERATION CARRIED OUT BY IT AND THE EXPENDITURE IN CURRED 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 B IFURCATED INTO AGRICULTURAL AND NON AGRICULTURE INCOME. IT IS FUR THER OBSERVED THAT THE ASSESSEE HAS FILED AN AFFIDAVIT STATING THAT NO OPE RATIONS ARE CARRIED ON ITA NOS.724, 827, 557, 558, 587 &588/B/10 15 IN THE LABORATORIES. THIS FACT ALSO NEEDS VERIFICAT ION BY THE AO. THEREFORE, THE AO IS DIRECTED TO MAKE A FIELD INSPE CTION OF THE ASSESSEES LABORATORY TO SEE AND OBSERVE THE ACTIVI TIES CARRIED ON BY THE ASSESSEE. IF THE ASSESSEES OPERATIONS ARE ALL CARRIED ON IN THE LAND AS STATED BY HIM IN THE AFFIDAVIT, THEN ASSESSEE IS ELIGIBLE FOR EXEMPTION OF ENTIRE INCOME OTHERWISE THE INCOME HAS TO BE BIFURCATED IN THE RATIO OF INVESTMENT AND EXPENDITURE THEREFO RE, WE DEEM IT FIT AND PROPER TO REMIT THE ISSUE BACK TO THE ASSESSING OFFICER ONLY FOR THE PURPOSE OF MAKING A FIELD INSPECTION OF THE ASS ESSEES SITE AND THEREAFTER IF HE FINDS THAT ANY OF THE AGRICULTURAL ACTIVITIES ARE CARRIED ON IN THE LABORATORY, THEN HE SHALL COMPUTE THE RAT IO OF THE EXPENDITURE BETWEEN THE AGRICULTURAL AND NON AGRICULTURAL OPERA TIONS AND WE ALSO DIRECT HIM TO APPORTION THE AGRICULTURAL INCOME IN THE SAME RATIO. 16. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE S AS WELL AS THE APPEALS OF THE REVENUE ARE SET ASIDE TO THE FILE OF THE ASSESSING AUTHORITY AND ARE TREATED AS ALLOWED FOR STATISTICA L PURPOSES. ITA NOS.724, 827, 557, 558, 587 &588/B/10 16 ORDER PRONOUNCED IN THE OPEN COURT ON 31ST MAY, 2011. SD/- SD/- (A MOHAN ALANKAMONY) (P MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 31/05/2011 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.