TMI Blog2010 (6) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... AT, Hyderabad B Bench the basic question i.e., whether growing of basic seeds is an agricultural activity was not before ITAT as held by CIT(A). The issue has been answered in favour of revenue in the case of Pro Agro Seeds Ltd., by ITAT, Delhi Bench." 3. In assessee appeals in ITA Nos. 480, 481/Hyd./2008 and 234/Hyd./2009, raised the ground that the learned CIT(A) has erred in holding that no research and development expenditure can be allowed against the business income of the assessee in view of the provisions of section 14A of the Income-tax Act and accordingly, directed the Assessing Officer to disallow the research expenditure claimed by the assessee. 4. The issues raised in the revenue appeals has been squarely covered by the order of the Tribunal in assessee s own case for the assessment year 2001-02 in Vibha Agrotech Ltd. v. ITO [2009] 120 ITD 182 (Hyd.) wherein it was held that : "The assessee was carrying on agricultural operations and growing basic seeds on the lands. It was not the case of the revenue that without performing the basic operations, the subsequent operations had been carried on by the assessee. The basic seeds were sold by the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses are also hit by section 14A as the same had been incurred for earning income which is claimed by the assessee as exempted under section 10(1) of the Income-tax Act. However, since the entire income of the assessee was treated by him as business income, the expenses claimed under section 35 were allowed and no disallowance was made. On appeal to CIT(A), since he directed the Assessing Officer to treat the income from basic seed as agriculture income and allow exemption under section 10(1) thereupon, he directed the Assessing Officer that no R D expenditure to be allowed against the business income in view of the presence of section 14A of the Act. Against this findings of the CIT(A) the assessee is in appeal before us. 7. The learned Authorised Representative submitted that the research activity carried on by the assessee is for the purpose production of hybrid seeds which is the end result of commercial activity of the assessee and therefore, the entire expenditure is related to the assessee s business and it is to be allowed as a deduction. The learned AR submitted that the assessee company has been carrying on an integral business of developing and producing hybrid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterfall Estates Ltd. v. CIT [1996] 219 ITR 563 (SC). 3. CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 (SC). 4. CIT v. K.C.P. Ltd. [1991] 192 ITR 648 (SC). 5. Addl. CIT v. Challapalli Sugars Ltd. [1979] 116 ITR 255 (AP). 8. The DR submitted that the research activity is aimed at development of foundation seed. Once the foundation seed is developed and tested, then only it is produced on a mass scale as per the production process, out of various hybrid seeds developed, the one which performs better than the commercially available hybrid only is selected, from which foundation seeds are cultivated further. These cultivated foundation seeds are sold to the farmers to produce hybrid seeds. The hybrid seed is merely foundation seed produced on a mass scale. The research and development process ends with the production of foundation seeds only. Since the income of the assessee was bifurcated into agricultural income and business income as held by ITAT in the relevant assessment year 2001-02, no R D expenditure could be allowed against such income in view of the provisions of section 14A. Further, she submitted that provisions of section 43(4)( i ) is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax as agricultural income. The Tribunal found that the cultivation of sugarcane and the manufacture of sugar by the assessee company constituted one single and indivisible business and, therefore, the entire managing agency commission was laid out or expended for the purpose of the business carried or, by the assessee and therefore, the entire managing agency commission was laid out or expended for the purpose of business carried on by the assessee and was allowable as deduction. Upholding the said finding, the Hon ble Supreme Court held that the fact that income from a part of the business was not eligible to tax under the Act was not relevant circumstances. As pointed out by the learned counsel for the assessee, the court observed in that case that there is no basis for the view that only expenditure incurred in respect of business activity giving rise to income, profit or gain taxable under the Income-tax Act, can be allowed as deduction and not otherwise. The court held that to find out whether a deduction claimed is permissible under the Act or not, all that has to be done is to examine the relevant provisions of the Act. That equitable consideration are wholly out of place i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, the principle laid down by the Hon ble Supreme Court in Waterfall Estates Ltd. s case ( supra ) should apply to this case inasmuch as the R D Expenditure has to be apportioned between agricultural and non-agricultural activities and the portion attributable to non-agricultural activities allowed, as deduction in computing the taxable income. In the decisions cited by the learned counsel for the assessee viz., in Maharashtra Sugar Mills Ltd. s case ( supra ) and K.C.P. Ltd. s case ( supra ) the fact were different. In those cases, the assessee was not growing sugarcanes as a distinct activity and independent source of income. Growing of sugarcane and manufacture of sugar constituted single and indivisible business. Therefore, those decisions are not applicable to the present case. The decision of the learned CIT(A) is in contravention of the provisions contained in section 35(1)( i ) and section 43(4)( i ) of the Income-tax Act in view of these provisions that the CIT(A) should have allowed the propor- tionate expenditure as a deduction in computing the taxable income. Revenue insisted nothing to be deducted whereas assessee company canvassed for the deduction of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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