The Telangana High Court (Hyderabad Bench) has ruled that income earned by the biotechnology company from the sale of tissue-cultured plants would constitute ‘agricultural income’, exempt from tax under Section 10(1) of the Income Tax Act.
The ruling came after finding that the cultivation of mother plants on land involved all basic agricultural operations contemplated under Section 2(1A) of the Income Tax Act, and the tissue culture process was merely an advanced method of propagating and multiplying plant material derived from those mother plants.
The Court noted that the essence of the appellant’s activity remains rooted in agriculture, and the mere fact that sophisticated scientific methods are employed to enhance efficiency and productivity does not alter the agricultural character of the underlying operation.
Just as the use of modern machinery, hybrid seeds, or advanced irrigation systems does not convert traditional farming into a non-agricultural activity, the Court clarified that the application of tissue culture technology, which is merely an advanced form of plant propagation, cannot be said to denature the agricultural foundation of the enterprise.
The Division Bench comprising Justice P. Sam Koshy and Justice Narsing Rao Nandikonda observed that the fundamental question is whether the employment of advanced scientific techniques and laboratory-based processes necessarily transforms what is essentially an agricultural activity into a commercial or business operation.
The Bench pointed out that the legislature, in defining agricultural income, did not intend to freeze the concept of agriculture in a time warp or restrict it to primitive methods of cultivation. Hence, to deny the agricultural character of operations merely because they employ modern scientific techniques would be ignoring the reality of contemporary agricultural practices and would create an arbitrary distinction that finds no support in the statutory language or legislative intent.
Therefore, the Bench concluded that the mere fact that the multiplication occurs in a controlled laboratory environment rather than in open fields does not sever the essential connection to agriculture or transform the character of the income.
Briefly, the appellant company, engaged in the business of micro-propagation of plants through tissue culture technology, had claimed that income earned from the sale of tissue-cultured plants should be treated as agricultural income exempt from tax under section 10(1). The AO, however, rejected this claim and treated the income as business income subject to taxation.
When the matter reached the ITAT, it was held that the major part of the activities was performed in a laboratory under sterile conditions using sophisticated scientific technology and research, while land was used only incidentally to grow mother plants from which tissues were extracted and, thus, the plants were not a direct result of basic agricultural operation on land but rather the outcome of advance scientific methods.
Cases Relied On:
CIT v. Soundarya Nursery [2000] 241 ITR 530 (Madras)
CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC)
Puransingh M. Verma v. CIT 230 Taxman 470 (Gujarat)
CIT v. Prabhat Agri-Biotech Ltd. [ITT Appeal No. 88 of 2014]
Pr. CIT v. Nuziveedu Seeds Ltd. [2025] 178 taxmann.com 486 (Telangana)
Appearances:
Senior Advocate A.V. Krishna Koundinya and Advocate A.V.A. Siva Kartikeya, for the Appellant/ Taxpayer
Senior Advocates Bokaro Sapna Reddy and J.V. Prasad, for the Respondent/ Revenue
