TMI Blog2017 (12) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... n the land is done by the farmer like tilling, sowing, etc. The mere supervision by the assessee without the carrying of the basic operations would leave no manner of doubt that no agricultural income arose in the hands of the assessee. The argument of the assessee that the company is an artificial person and could not have conducted the agricultural operations by itself and, therefore, required such kind of an arrangement with the farmers for earning agricultural income does not have any merit. The farmers are not the employees of the assessee company. Had it been the case where the actual agricultural operations were carried out by the employees of the assessee company, it would have been a different case altogether. - Decided against assessee. - ITA No. 1988/DEL/2006, ITA No. 4383/DEL/2006, ITA No. 443/DEL/2010, ITA No. 5285/DEL/2012, ITA No. 3670/DEL/2013, ITA No. 1903/DEL/2014 And ITA No. 4269/DEL/2014 - - - Dated:- 18-12-2017 - SHRI S.K. YADAV, JUDICIAL MEMBER AND SHRI B.P. JAIN, ACCOUNTANT MEMBER For The Assessee : Shri Ajay Vohra, Sr. Adv Smt. Kavita Jha, Adv Shri Aditya Vohra, Adv. For The Revenue : Smt. Paramita Tripathy, CIT-DR ORDER PER BENCH: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee also pays advance to farmer who approaches the company with its crop. In view of the above, the claim of exemption under section 10 (1) of the Act was denied to be assessee. The total income of the assessee was assessed at ₹ 3,27,75,246/-. 3. Aggrieved by the assessment order dated 22.03.2005, the assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) vide impugned order dated 09.03.2006 dismissed the appeal of the assessee. The CIT(A) observed that the assessee company is not engaged in the performance of agricultural operations because the basic operations like tilling, sowing etc. are being performed by the farmer. 4. Aggrieved by the order passed by the ld. CIT(A), the assessee is in appeal before us. Grounds No. 1 to 12 pertain to the addition on account of denial of claim under section 10 (1) of the Act. The Ld. AR referred to the submissions made during the course of assessment and explained the transaction entered into with the farmer as under:- (i) Parent seed sown, which is the most expensive and vital input continues to be owned by the company and loss on this account resulting from low production by the job workers is borne by the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the farmers in implementing the agricultural protocol prescribed by the company. (xi) The company itself gets the crops harvested and transports the produce of raw seeds from field to Depot, account and expense. Without prejudice, for the sake of argument even if it be held that farmer shares some risk, a greater risk is shared by the assessee and thus the assessee carries the risk in the cultivation activity. Even on this basis the assessee s activities are agricultural activities and its income there from is agricultural income. Reliance is placed upon the decision of the case of Associated Metals Co. (117 ITR 428 and ITAT No. 3137/Del/1985)(copies of the reported decision and ITAT order are attached). It is submitted that these decisions have been accepted by the Department and favourably considered in the appeal proceedings of seed companies similar to the assessee. 5. The Ld. AR invited our attention to the lease agreement and the service provider agreement. It is submitted that the lease and license agreement clearly shows that the farmer had allowed the assessee the exclusive right to use his property for undertaking agricultural production in lieu of license fee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges for carrying out agri-operations have been fully allowed. The accounts have been accepted in toto in all the years (excepting accounting treatment Opening Closing Stock). ii) The assessee, being in lawful possession of the impugned lands taken on lease for the cropping season for raising crops has derivative interest in the land. There is no contrary finding by AO/CIT)(A). iii) The lease rent per acre, agreed to between the assessee and the owner of land is always payable by the assessee company regardless whether the production of seed is higher or below than the standard production of seed per acre, which forms the agreed basis or measure of payment or consideration for labour. iv) The agreement with the same farmers for providing labour is a sound business policy. Almost all of them are small or marginal farmers owing 1-5 acres; in order to supplementary income these farmers want to put in labour in addition to lease rent. This is sound business strategy for getting willing labour and avoiding friction if any outsides are engaged. v) The attachment of a farmer to his land is well known. vi) The payment of compensation on the basis of the quantity of seed p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pratap Singh Vs. Rameshwar Prasad (1998) 7 SCC 602 to counter the argument raised by the revenue that lease deeds relied upon were defective and some of them were not signed by the farmers. It was submitted that in view of Section 107 r.w.s 117 of the Transfer of Property Act merely because the document shows only the signature of one of the parties it is not enough to conclude that the non signing party has not joined in the execution of the instrument. The Ld. AR argued that the possession of the agricultural land by the assessee company for a cultivation season creates a derivative and beneficial interest in the land. It is further submitted that it is the derivative interest that matters in the claim u/s 10 (1) of the Act and it is immaterial if such a person carries out cultivation on the land itself or by others contracted by him. 10. On the averment that the agreement is a device, it is submitted by the Ld. AR that the aforesaid allegation is unsubstantiated and baseless as the rent and labour charges paid in accordance with the agreement were fully allowed by the AO. 11. The ld. AR relied upon the case of M/s Monsanto India Limited Vs. ACIT, ITAT Mumbai, ITA No.1209 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eatures of the agreement are as under: (a) The farmer is the sole and absolute owner of the agricultural land. (b) The company having the technical know how necessary for the production of hybrid seeds enters into an agreement with the farmers for utilizing the agricultural land belonging to the farmer. (c) The farmer agrees that the land would be allowed to be used exclusively for the production of the company s hybrid seeds. In other words, the agreement gives beneficial ownership of lands to the company to carry out its agricultural activities. (d) The farmer shall provide manpower in carrying out its agricultural operations such as land preparation, planting, irrigation, fungicide, pesticide and harvesting on the land under the supervision of the company. (e) The company shall be entitled to carry out or direct the farmer to carry out all such activities, such as use of fertilizer, pesticides etc., which are considered necessary by it for the better production of the produce. (f) Further, the farmer shall at all times be ready and willing to carry out specific tasks assigned by the company from time to time should be called to do. The failure of the farmer to carry out the tas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in both the AYs i.e. AY 96-97 and 97- 98 are identical to the facts of earlier year when the Assessing Officer allowed the claim of the assessee himself. Further reliance was placed on the decision of Allahabad High Court in 197 ITR 428 (supra) wherein identical facts were involved as involved in the case of the assessee. The CIT (A) has also observed that the appeals of the assessee have been allowed by his predecessor for AY 93-94 to 95-96. Accordingly, the claim of the assessee was allowed by the CIT (A) for these two years also. 12 We further noted that Bangalore B Bench in the case of Indo American Exports in ITA No. 1040/Bang/2002 for AY 98-99 and in the case of Namdhari Seeds Pvt Ltd in ITA No. 3102/Bang/2004 for AY 2001-02 has decided identical issues in favour of the assessee. In these cases also the assesses have entered into identical contract with agriculturists and provide them with hybrid vegetable seeds. The land holdings of the agriculturist extend from 0.75 acres to a maximum of 2 acres. The agriculturists are required to undertake cultivation of the seeds in their land in order to multiply them. The contract period was also mentioned. The assessee company supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as created value based additions in its capital, therefore, should not be treated as agricultural income in the hands of the assessee, in our view, these contention of the ld DR cannot be accepted because there is no dispute that the assessee entered into agreement with various farmers, who cultivated the land as per the terms and conditions of agreement. The seeds supplied by the assessee company were used for cultivating the land and whatever the product produced, the same was shown as sold in the market by the assessee as per terms and conditions of agreement. Whatever the share of the farmer was there that was given to them as per the clauses of agreement. Therefore, we hold that whatever the receipts were there they were on account of agricultural activities and have to be treated as agricultural receipts. 13 The Allahabad High Court in the case of Associated Metal (supra) has decided identical issue in favour of the assessee. In that case also the land was cultivated by the farmers as per agreement clauses and whatever the produces were there that were treated in the hands of the lessor. 14 All other cases relied upon by the ld AR have already taken into consideration by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing agricultural operations, in the absence of any material to the contrary, the decision of the ITAT cannot be faulted. 13. Lastly it is submitted by the Ld. AR that the case of CIT Vs Namdhari Seeds Pvt. Ltd. ITA No. 75/2007 passed by the Hon ble Bombay High Court relied upon by the revenue is not applicable to the facts of the present case as the Court held that the leasing of the land is prohibited under the Karnataka Land Reforms Act and, therefore, the income from such lands is not agricultural. 14. The ld. DR, on the other hand, rebutted the submissions made by the ld. AR by relying upon the orders passed by the AO and the CIT(A). It was submitted that the assessee did not carry out actual agricultural operations and the assessee also did not bear risks pertaining to the agricultural produce. It was submitted that the method of payment followed by the assessee clearly shows that the agreement was a device to claim exemption. The ld. DR further submitted that the assessee is not shown as a cultivator in the revenue records. 15. We have heard the rival submissions and perused the relevant material on record. The principles regarding the scope of agricultural activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the seeds, planting, and similar work done on the land but also includes the subsequent operations set out above all of which operations, basic as well as subsequent, from one integrated activity of the agriculturist and the term agriculture has got to be understood as connoting this integrated activity of the agriculturist. One cannot dissociate the basic operations from the subsequent operations and say that the subsequent operations, even though they are divorced from the basic operations can constitute agricultural operations by themselves. If this integrated activity which constitutes agriculture is undertaken and performed in regard to any land that land can be said to have been used for agricultural purposes and the income derived there from can be said to be agricultural income derived from the land by agriculture. If the term agriculture is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and the raising on the land of products which have some utility either for consumption or for trade and commerce, it will be seen that the term agriculture receives a wider interpretation both in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required in terms of tests laid in the judgment of the Hon ble Supreme Court in the case of CIT Vs Raja Benoy Kumar Sahas Roy (supra). The actual cultivation on the land is done by the farmer like tilling, sowing, etc. The mere supervision by the assessee without the carrying of the basic operations would leave no manner of doubt that no agricultural income arose in the hands of the assessee. The argument of the assessee that the company is an artificial person and could not have conducted the agricultural operations by itself and, therefore, required such kind of an arrangement with the farmers for earning agricultural income does not have any merit. The farmers are not the employees of the assessee company. Had it been the case where the actual agricultural operations were carried out by the employees of the assessee company, it would have been a different case altogether. 19. The features of the agreement relied upon by the assessee like composite payment, giving parent seeds free of cost to the farmer, not carrying out any agricultural operations by itself clearly shows that the assessee company is only earning business income from the activity and not agricultural income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Except sowing the foundation seeds belonging to the assessee, farmer is not entitled to grow any other seeds in the land earmarked for the purpose of growing hybrid seeds and is not allowed to part with the seeds supplied to him to anyone else and so far as unused seeds, he had to give back the same to the company. Farmer conducts the cultivation and assessee-company only allots machinery and personnel for the purpose of achievement of better results in producing the quality hybrid seeds. Preparation of bed, sowing of the seeds, cultivation and harvesting of hybrid seeds is done by the farmer. He is entitled for the price fixed by the assessee per quintal for all such seeds which would qualify the specification indicated by the assessee. The seeds which do not qualify the specification are also not sold by the farmer, but by the company and the sale consideration, if any is given to the farmer. The farmer while multiplying foundation seeds, uses his land and labour. The input given by the assessee is only technical supervision of the company. Whatever seeds grown by the farmer whether qualifies the specification indicated by the assessee or not has to be given to the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company was interested only to have healthy foundation seeds grown for the process of converting the same as certified seeds. 58. Therefore the view of first appellate authority that 100 per cent of the operations upto conversion of the foundation seeds as agricultural activity conducted by the assessee company and therefore income deserves to be exempted from tax under s. 10(1) of the Act is erroneous. Similarly exemption given by the Tribunal for 90 per cent of the income is also erroneous. We opine that the Tribunal was justified in treating 10 per cent of the income as business income which involved processing of foundation seeds to certified seeds. In that view of the matter, we hold that the entire income amounts to business income. As a matter of fact for some of the assessment years based on the opinion of one of the senior counsel on taxation Mr. K.R. Prasad, the assessee company offered its income as business income and even claimed deduction under s. 80HHC of the Act. 22. In view of the aforesaid, we affirm the reasoning given by the AO and the CIT(A) and dismiss grounds No. 1 to 12 raised by the assessee. Rest of the grounds raised by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/DEL/2013 [AY 2008-09] and ITA No. 4269/2014 [AY 2010-11]. 32. These appeals of the assessee pertain to AYs 2007-08, 2008-09 and 2010-11. Since the issues involved are common, the appeals are taken up together. Grounds Nos. 1 to 4 in ITA NO. 5285/DEL/2012 pertain to claim of agricultural income under section 10 (1) of the Act. Since the facts are identical to the case of the assessee for AY 2002-03, we follow our own decision in ITA No. 1988/DEL /2006 and dismiss the aforesaid grounds. 33. Rest of the grounds raised are not pressed. Hence the same are dismissed as not pressed. 34. As a result, the appeals are dismissed. ITA No. 1903 of 2014 AY 2009-10 [Department appeal ] 35. This is an appeal of the department for AY 2009-10. The grounds raised pertain to disallowance of provision for bad debts. It has been submitted by both the parties that the said appeal has become infructuous. 36. We have considered the rival arguments made by both the sides and the material available on record. It was stated by Shri Ajay Vohra, the ld. counsel for the assessee that the grievance of the assessee was rectified by Assessing Officer u/s 154 of the Act and in fact, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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