Namdhari Seeds and Advanta India Limited V. Assistant Commissioner of Income Tax Circle 2(1) and Joint Commissioner of Income Tax (OSD) Range-2, Circle 2(1) and Additional Commissioner of Income Tax Range-2 and Commissioner of Income Tax and Deputy Commissioner of Income Tax Circle-11(1) and Deputy Commissioner of Income Tax Circle-1(1)

ITA/346/2012

AI Insights

The case involves multiple Income Tax Appeals (ITAs) filed by M/s. Namdhari Seeds and M/s. Advanta India Limited against the orders of the Income Tax Appellate Tribunal (ITAT), which had classified the income derived from the sale of seeds as business income rather than agricultural income. The primary legal question was whether the income from these activities should be classified as agricultural income, which is exempt under Section 10(1) of the Income Tax Act, 1961, or as business income, which is taxable. The court considered the definitions of agricultural income under the Income Tax Act and the impact of various agrarian reforms and state-specific laws on these definitions.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 810202 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 18-07-2014
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX AND ANOTHER VS. NAMDHARI SEEDS P. LIMITED
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Keywords: Agricultural income; Business income; Hybrid seeds; Income tax exemption; Agrarian reforms
• Section: 10(1); 2(1A)(a); 260-A; 2(1A)(b)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 18TH DAY OF JULY, 2014 PRESENT THE HON’BLE MR. JUSTICE N KUMAR AND THE HON’BLE MR. JUSTICE B MANOHAR ITA No. 346/2012 C/W ITA Nos. 200/2012, 199/2012, 174/2012, 173/2012, 172/2012, 387/2012, 388/2012, 411/2010, 287/2013, 436/2012, 19/2012, 434/2012 IN ITA NO.346/2012 BETWEEN: M/S. NAMDHARI SEEDS REP. BY ITS PARTNER SRI. UDAY SINGH SRI SAI ARCADE, NO.8, 12TH CROSS, 1ST PHASE, IDEAL HOMES TOWNSHIP, RAJARAJESHWARI NAGAR, BANGALORE 560 098. …APPELLANT (BY SRI A. SHANKAR & SRI M. LAVA, ADVS.) AND: THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1) NO.59, HMT BHAVAN, BELLARY ROAD, GANGANAGAR, BANGALORE 560 032. …RESPONDENT 2 (BY SRI K.V. ARAVIND, ADVOCATE) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 31.05.2012 PASSED IN ITA NO.443/BANG/2011 FOR THE ASSESSMENT YEAR 2004-05, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.443/BANG/2011 DATED 31.05.2012. IN ITA NO.200/2012 BETWEEN: M/S. NAMDHARI SEEDS REP. BY ITS PARTNER SRI. UDAY SINGH SRI SAI ARCADE, NO.8, 12TH CROSS, 1ST PHASE, IDEAL HOMES TOWNSHIP, RAJARAJESHWARI NAGAR, BANGALORE 560 098. …APPELLANT (BY SRI A. SHANKAR & SRI M. LAVA, ADVS.) AND: THE JOINT COMMISSIONER OF INCOME TAX (OSD) RANGE-2, CIRCLE 2(1) NO.59, HMT BHAVAN, BELLARY ROAD, GANGANAGAR, BANGALORE 560 032. …RESPONDENT (BY SRI K.V. ARAVIND, ADVOCATE) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 27.02.2012 PASSED IN ITA NO.514/BANG/2011 FOR THE ASSESSMENT YEAR 2008- 09, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.514/BANG/2011 DATED 27.02.2012, IN THE INTEREST OF JUSTICE AND EQUITY. 3 IN ITA NO.199/2012 BETWEEN: M/S. NAMDHARI SEEDS REP. BY ITS PARTNER SRI UDAY SINGH SRI SAI ARCADE, NO.8, 12TH CROSS, 1ST PHASE, IDEAL HOMES TOWNSHIP, RAJARAJESHWARI NAGAR, BANGALORE 560 098. …APPELLANT (BY SRI A. SHANKAR & SRI M. LAVA, ADVS.) AND: THE JOINT COMMISSIONER OF INCOME TAX (OSD) RANGE 2, CIRCLE 2(1) NO.59, HMT BHAVAN, BELLARY ROAD, GANGANAGAR, BANGALORE 560 032. …RESPONDENT (BY SRI K.V. ARAVIND, ADVOCATE) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 27.02.2012 PASSED IN ITA NO.513/BANG/2011 FOR THE ASSESSMENT YEAR 2007- 08, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.513/BANG/2011 DATED 27.02.2012, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO.174/2012 BETWEEN: M/S. NAMDHARI SEEDS REP. BY ITS PARTNER SRI UDAY SINGH SRI SAI ARCADE, NO.8, 12TH CROSS, 1ST PHASE, 4 IDEAL HOMES TOWNSHIP, RAJARAJESHWARI NAGAR, BANGALORE 560 098. …APPELLANT (BY SRI A. SHANKAR & SRI M. LAVA, ADVS.) AND: THE ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-2, NO.59, HMT BHAVAN, BELLARY ROAD, GANGANAGAR, BANGALORE 560 032. …RESPONDENT (BY SRI K.V. ARAVIND, ADVOCATE) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 01.02.2012 PASSED IN ITA NO.385/BANG/2011 FOR THE ASSESSMENT YEAR 2008- 09, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.385/BANG/2011 DATED 01.02.2012, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO. 173/2012 BETWEEN: M/S. NAMDHARI SEEDS REP. BY ITS PARTNER SRI UDAY SINGH SRI SAI ARCADE, NO.8, 12TH CROSS, 1ST PHASE, IDEAL HOMES TOWNSHIP, RAJARAJESHWARI NAGAR, BANGALORE 560 098. …APPELLANT (BY SRI A. SHANKAR & SRI M. LAVA, ADVS.) AND: THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1), 5 NO.59, HMT BHAVAN, BELLARY ROAD, GANGANAGAR, BANGALORE 560 032. …RESPONDENT (BY SRI K.V. ARAVIND, ADVOCATE) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 01.02.2012 PASSED IN ITA NO.383/BANG/2011 FOR THE ASSESSMENT YEAR 2007- 08, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.383/BANG/2011 DATED 01.02.2012, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO. 172/2012 BETWEEN: M/S. NAMDHARI SEEDS REP. BY ITS PARTNER SRI UDAY SINGH SRI SAI ARCADE, NO.8, 12TH CROSS, 1ST PHASE, IDEAL HOMES TOWNSHIP, RAJARAJESHWARI NAGAR, BANGALORE 560 098. …APPELLANT (BY SRI A. SHANKAR & SRI M. LAVA, ADVS.) AND: THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1), NO.59, HMT BHAVAN, BELLARY ROAD, GANGANAGAR, BANGALORE 560 032. …RESPONDENT (BY SRI K.V. ARAVIND, ADVOCATE) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 01.02.2012 PASSED IN ITA NO.382/BANG/2011 FOR THE ASSESSMENT YEAR 2002- 03, PRAYING TO (i) FORMULATE THE SUBSTANTIAL 6 QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.382/BANG/2011 DATED 01.02.2012, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO. 387/2012 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX C.R. BUILDING, QUEENS ROAD, BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-11(4), C.R.BUILDING, QUEENS ROAD, BANGALORE. …APPELLANTS (BY SRI K.V. ARAVIND, ADVOCATE) AND: M/S. ADVANTA INDIA LIMITED NO.405, 4TH FLOOR, ‘A’ WING, CARLTON, TOWERS, NO.1, AIRPORT ROAD, BANGALORE. …RESPONDENT (BY SRI PERCY PARDHIWALA, SR. ADV. FOR SRI P. DINESH, ADV.) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 29.06.2012 PASSED IN ITA NO.819/BANG /2010 FOR THE ASSESSMENT YEAR 2003-04, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.819/BANG/2010 DATED 29.06.2012 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE 7 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(4), BANGALORE. IN ITA NO. 388/2012 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD, BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-11(4), C.R.BUILDING, QUEENS ROAD, BANGALORE. …APPELLANTS (BY SRI K.V. ARAVIND, ADVOCATE) AND: M/S. ADVANTA INDIA LIMITED NO.405, 4TH FLOOR, A WING, CARLTON TOWERS, NO.1, AIRPORT ROAD, BANGALORE. …RESPONDENT (BY SRI PERCY PARDHIWALA, SR. ADV. FOR SRI P DINESH, ADV.) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 29.06.2012 PASSED IN ITA NO.820/BANG/2010 FOR THE ASSESSMENT YEAR 2004-05, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.820/BANG/2010 DATED 29.06.2012 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(1), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. 8 IN ITA NO. 411/2010 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD, BANGALORE. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(1), C.R.BUILDING, QUEENS ROAD, BANGALORE. 3. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1(1), HYDERABAD. …APPELLANTS (BY SRI K.V. ARAVIND, ADVOCATE) AND: M/S. ADVANTA INDIA LIMITED NO.405, 4TH FLOOR, A WING, CARLTON TOWERS, NO.1, AIRPORT ROAD, BANGALORE 560 008. …RESPONDENT (BY SRI PERCY PARDHIWALA, SR. ADV. FOR M/S. PDS LEGAL, ADVS.) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 29.06.2010 PASSED IN ITA NO.335/HYD/2005 FOR THE ASSESSMENT YEAR 2002-03, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.335/HYD/2005 DATED 29.06.2010 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), HYDERABAD, IN THE INTEREST OF JUSTICE AND EQUITY. 9 IN ITA NO. 287/2013 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD, BANGALORE. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-1(1), NO.59, HMT BHAVAN, 6TH FLOOR, BELLARY ROAD, GANGANAGAR, BANGALORE 560 032. …APPELLANTS (BY SRI K.V. ARAVIND, ADVOCATE) AND: M/S. ADVANTA INDIA LIMITED “UNICORN HOUSE”, PLOT NO.3-5, NO.157/5, BALAJI ENCLAVE, TRANSPORT ROAD, NEAR GUNROCK DIAMOND POINT, SECUNDERABAD, ANDHRA PRADESH – 500 009. …RESPONDENT (BY SRI PERCY PARDHIWALA, SR. ADV. FOR SRI P. DINESH, ADV.) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 31.12.2012 PASSED IN ITA NO.999/HYD/2004 FOR THE ASSESSMENT YEAR 2001-02, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.999/HYD/2004 DATED 31.12.2012 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), BANGALORE. 10 IN ITA NO. 436/2012 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD, BANGALORE. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-1(1), C.R.BUILDING, QUEENS ROAD, BANGALORE. …APPELLANTS (BY SRI K.V. ARAVIND, ADVOCATE) AND: M/S. ADVANTA INDIA LIMITED UNICORN HOUSE, PLOT NO.3-5, NO.157/5, BALAJI ENCLAVE, TRANSPORT ROAD NEWAR, GUNROCK DIAMOND POINT, SECUNDERABAD – 09. NOW AT: NO.405, 4TH FLOOR, A WING, CARLTON TOWERS, NO.1, AIRPORT ROAD, BANGALORE. …RESPONDENT (BY SRI PERCY PARDHIWALA, SR. ADV. FOR SRI P. DINESH, ADV.) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 31.07.2012 PASSED IN ITA NO.1197/BANG/2011 FOR THE ASSESSMENT YEAR 2007-08, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.1197/BANG/2011 DATED 31.07.2012 CONFIRMING THE ORDER OF THE APPELLATE 11 COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX OFFICER, CIRCLE- 11(1), BANGALORE. IN ITA NO.19/2012 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD, BANGALORE. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(1), C.R.BUILDING, QUEENS ROAD, BANGALORE. …APPELLANTS (BY SRI K.V. ARAVIND, ADVOCATE) AND: M/S. ADVANTA INDIA LIMITED UNICORN HOUSE, PLOT NO.3-5, NO.157/5, BALAJI ENCLAVE, TRANSPORT ROAD NEWAR, GUNROCK DIAMOND POINT, SECUNDERABAD – 09. …RESPONDENT (BY SRI PERCY PARDHIWALA, SR. ADV. FOR SRI P. DINESH, ADV.) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 10.10.2011 PASSED IN ITA NO.227/BANG /2011 FOR THE ASSESSMENT YEAR 2006- 07, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER DATED 10.10.2011 PASSED BY THE ITAT, BANGALORE IN ITA NO.227/BANG/2011 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1(2), BANGALORE. 12 IN ITA No.434/2012 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX C.R.BUILDING QUEENS ROAD BANGALORE 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(1) C.R.BUILDING QUEENS ROAD BANGALORE ...APPELLANTS (BY SRI.K.V.ARAVIND, ADV.) AND: M/S. ADVANTA INDIA LTD., UNICORN HOUSE, PLOT NO.3-5 157/5, BALAJI ENCLAVE TRANSPORT ROAD NEWAR GUNROCK DIAMOND POINT SECUNDERABAD – 09 NOW AT: NO.405, 4TH FLOOR, ‘A’ WING CARLATION TOWERS, NO.1, AIRPORT ROAD BANGALORE ...RESPONDENT (BY SRI.PERCY PARDHIWALA, SR.ADV., FOR SRI.P.DINESH, ADV.) THIS APPEAL IS FILED UNDER SEC.260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 31/07/2012 PASSED IN ITA NO.226/BANG/2011, FOR THE ASSESSMENT YEAR 2005-2006, PRAYING TO: i.) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. ii.) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.26/BANG/2011 13 DATED 31/07/2012 CONFIRMING THE ORDER OF THE APPELALTE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX OFFICER, CIRCLE -11(1) BANGALORE. THESE ITAS COMING ON FOR ADMISSION THIS DAY, N. KUMAR J DELIVERED THE FOLLOWING: J U D G M E N T In this batch of appeals as a common question of law is involved, they are taken up for consideration together and disposed of by this common order. 2. In I.T.A.Nos. 346/12, 200/12, 199/12, 174/12, 173/12 and 172/12, the assessee is M/s. Namdhari Seeds which is a partnership firm engaged in cultivation and growing of seeds. In I.T.A.Nos.387/12, 388/12, 411/10, 287/13, 436/12 and 19/12, the assessee is M/s. Advanta India Limited, a public limited Company engaged in development and production of basic seeds and hybrid seeds. 3. The Assessee - Namdhari Seeds has filed this appeal against the order passed by the Tribunal holding 14 that the income derived amounts to business income by the assessee and not agricultural income, following the judgment of this Court in their own case in the case of COMMISSIONER OF INCOME TAX AND ANOTHER VS. NAMDHARI SEEDS P. LIMITED reported in (2012) 341 ITR 342 (KARN). 4. In the case of M/s. Advantaka India Limited, the Tribunal has held, the judgment of this Court in the aforesaid case has no application as there is a marked difference between the facts of each case. Thereafter they proceeded to hold the issue involved is covered in favour of the assessee by the decision of the Tribunal in the assessee’s own case for the assessment year 2002-03 and therefore, the claim for exemption under Section 10 of the Income Tax Act was upheld. 5. In both the cases assessees are engaged in the research, development, processing and marketing of hybrid seeds. In the first stage i.e., research and development into generic composition, it is best suited for local environment and agronomic practices in varying climatic zones in India. 15 The research and development starts at the germplasm stage, which is multiplied into nucleus and then into pre- basic seed and then into basis seed. Upto basic seed activity, all the primary operations are performed by the assessee on its own lands or lands leased to it under its own direct supervision and guidance with the help of causal labour engaged by it. Then 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 the cost of production is reimbursed to them and the produce is taken back by the company. The company thereupon cleans the hybrids seeds i.e., removes the mud, stones and non-standards sized seeds and then treats the seeds with chemicals to prevent infestation, packs the seeds into cloth bags to suit market requirements and dispatches the seeds to consignee agents located all over the country for sale to the distributors. Therefore, the question for consideration is whether the income derived by the assessee by sale of such seeds constitutes agricultural income or business income. 16 6. Agricultural income is defined under the Income Tax Act, 1961 (for short hereinafter referred to as ‘the Act’). Section 2(1A)(a)(b) reads thus: “[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 or 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 17 process of the nature describe din paragraph (ii) of this sub-clause.” 7. Section 10 of the Act, which finds place in Chapter III, deals with income which do not form part of total income. It reads as under: “Incomes not included in total income 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (1) agricultural income” 8. In the light of the aforesaid statutory provision, it is the contention of the assessee that the income derived from the aforesaid operations constitutes agricultural income as defined under the Act and therefore, the same cannot be included in the total income of the assessee in view of Section 10(1) of the Act. In the case of M/s. Namdhari Seeds, the said contention is negatived. In the case of M/s. Advanta India Limited, the said contention is accepted. 18 9. It is in this background, the substantial question of law that arises for our consideration in these batch of appeals is; Whether such an income will constitute an agricultural income or business income? 10. We have heard the learned counsel for the parties. 11. Several judgments of the Supreme Court and other Courts were relied upon including the judgment of this Court in M/s. Namdhari Seeds case itself. The Income Tax Act was enacted in the year 1961. Subsequently, throughout the country, laws are brought by each legislature bringing about agrarian reforms, because agricultural land falls in List-II of Schedule-VIII. The parliament kept the agricultural income out side the purview of the Income Tax Act. It is because Entry-82 of List-I of Schedule-VII expressly says that taxes and income other than the agricultural income falls within the purview of the Union list. Entry – 46 empowers State legislature to impose taxes on agricultural income. By virtue of the said 19 provisions, Karnataka Agricultural Income-Tax Act, 1951 is enacted. 12. Under the provisions of the Karnataka Land Reforms Act, lease of the agricultural land is totally prohibited, except to the extent provided in Section 5 of the Act. Though, each State has passed such Land Reforms Act, its provisions vary from State to State. The main policy before this agrarian reforms is to abolish absentee land lords and to confer tiller the ownership of the land. It is in this back ground, when we look at the provisions of the Income Tax Act and the exemption granted to agricultural income and the agricultural income having been defined specifically, the said provisions required to be interpreted in the light of the agrarian reforms. In case, where the assessee ploughs the land and in case, where the law permits taking agricultural leases of land and if the assessee cultivates the land, raises the crops and seeds and hence, income derived therefrom will fall within the definition of agricultural income and the assessee would be entitled to the benefit of Section 10(1)(a) of the Act. 20 13. But, if the assessee is not owning the land and in law, he cannot take the land on lease, but still he enters into contract with the land owners, gives them the monitory assistance and those land owners physically cultivate the land and grow the crops and when the assessee contends that crops grown belongs to him and he is selling them and therefore, it is an agricultural income, the question arises as to whether the exemption under Section 10(1) is attracted to such income? 14. Though, several judgments were cited contending that it is an agricultural income, we do not see in any of those judgments, they have taken note of this agrarian reforms. Most of the judgments are anterior to agrarian reforms. At any rate, the authorities have not applied their minds to these fundamental facts which are in the nature of jurisdictional facts before valid order is passed under the said Act. In the absence of the authorities applying their minds to these facts, it would be inappropriate for this Court to record any findings on the 21 basis of the submissions made at the Bar or by looking into the documents, now being produced. 15. Therefore, we are of the view that the proper course would be to set-aside all the impugned orders, remit the matters back to the Assessing Authority, so that Assessing Authority would formulate proper points for consideration, give an opportunity to the assessee to produce evidence in support of their contention. The Assessing Authority would look into agrarian reforms passed in each State which is relevant for passing the assessment order and then, pass an order keeping in mind all the decisions relied by the parties. In our view, it would meet the ends of justice. 16. Tribunal has recorded a finding in the case of M/s. Advanta India Ltd., to the effect that “even if the seeds grown are treated with chemicals to prevent infestation and therefore, they are sold, it does not seize to be an agricultural produce”. In support of their contention, they have relied on the judgments of the Apex Court. 22 17. We are of the view that the Assessing Authority shall re-examine the said view, in the light of the judgments of the Apex Court, after hearing both the parties. When we are setting aside the impugned order, it does not mean that we are setting aside the findings of the Tribunal, on the ground that it is erroneous. We are not expressing any opinion over that aspect, we are only remanding the matter. Consequently, we set-aside the orders and it is open to the Assessing Authority, if it is convinced, after looking into the judgments of the Apex Court to record the very same findings. Therefore, the said question is kept open to be decided by the Assessing Authority, without in any way being influenced by the observations made by this Court in this order. 18. The Assessing Authority shall record a finding on the following facts: a) What is the extent of land these assessees hold in the States where they are growing seeds and then looking into the relevant Land Reforms Act to find out whether they are entitled to hold such land or if so, under what 23 provisions of the Act. Consequently, what would be the legal effect in respect of excess land held by them? b) In cases where there is a total prohibition of taking the land on lease, if the assessee has entered into an arrangement with the land owners irrespective of the nomenclature given, whether the income derived from such agricultural operation would be construed as an agricultural income as defined under Section 2(1)(A) of the Act to be eligible for exemption under Section 10(1) of the Act? c) Whether the processes undergone by hybrid seeds before it is sold in the market would in any way take away the character of an agricultural produce of the seeds to be kept away from the application of the provision of Section 2(1)(A) of the Act? d) In answering these points, the Assessing Authority shall take note of the provisions of the Land Reforms Act of that particular State, the judgments relied on by the parties and then in the light of the facts of each case, shall decide the case on merits and in accordance with law, without being in any way influenced 24 by any of the findings recorded either by this Court or by the impugned orders. e) If the Assessing Authority comes to the conclusion that a seed is an agricultural produce, after it undergoes a chemical process and then, the seeds are sold, the portion of it, is to be apportioned to the business income to the extent, the process has taken place and the remaining portion being the agricultural income. In the facts of the cases, keeping in mind the law on point, the Assessing Authority is at liberty to apportion the said income, accordingly. f) If the Assessing Authority were to hold that income is an agricultural income in accordance with law, whatever, benefit to which they are entitled to, should be granted to them, which may in the form of deductions which the assessee is entitled to or in the form of losses. 19. In ITA No.434/2012: The second substantial question of law which arises in this appeal is as under: Whether the Tribunal was correct in holding that the assessee is entitled to 25 deduction u/s.43B of the Act, in respect of belated remittance of employees contribution towards ESI, when the employees contribution is income of the assessee u/s.2(24)(x) of the Act and allowable as deduction u/s.36(1)(va) of the Act, if remitted within the due date prescribed under the ESI Act, and recorded a perverse finding? 20. The said question is already answered by this Court in ITA No.4077/2013 and ITA No.480/2013 and is held in favour of the assessee. Accordingly, we do not find any substance in the said question of law and the finding of the Tribunal is affirmed. Consequently, all the appeals are disposed of. Sd/- JUDGE Sd/- JUDGE VP/GH 26 NKJ/BMJ 2.8.2014 ORDER ON FOR ‘BEING SPOKEN TO’ This case is posted for ‘being spoken to’ for the reason that all the connected appeals were disposed of as common questions of law was involved. In so far as this appeal (ITA No. 434/2012) was concerned, there was an additional question. Answering the additional question we had said the said question is already answered by this Court in ITA No. 4077/2013 and ITA No. 480/2013 and is held in favour of the assessee. Instead of typing the said paragraph in the end of the common order passed, i.e., in ITA Nos. 346/2012 and connected matters, it has been separately typed as if it is an order passed in ITA No. 434/2012. It is for correction of the said mistake, the matter is being listed. 27 2. Para 2 in ITA No. 434/2012 should become the last para in the common order which is passed and ITA No. 434/2012 should be shown as connected with those appeals. Ordered accordingly. Sd/- JUDGE Sd/- JUDGE ckl/- "