ITAT Rajkot: Seed Company Farming on Leased Land Can Claim Exempt Agricultural Income

The useful part

The question becomes even more interesting when the company does not own the agricultural land but takes it on lease and undertakes cultivation through farmers. At first glance, one may be tempted to say that a seed company is carrying on a commercial business and therefore everything it earns must necessarily be business income. This distinction recently came up before the Rajkot Bench of the Income Tax Appellate Tribunal in Bombay Super Hybrid Seeds Ltd.

How it works

• The Tribunal's approach shows that ownership of the land is not the only consideration.
• Where the assessee itself undertakes agricultural operations, through persons working under its supervision and direction, the character of the activity requires a different examination.
• The farmers were working under the direction of the assessee.
• The Tribunal held that agricultural income of approximately ₹ 13.69 crore could not simply be treated as business income.

What to take from it

Another important factor was that the assessee bore the agricultural expenses and risks. Company B It takes agricultural land on lease, undertakes cultivation, bears agricultural expenditure and risks, supervises farmers, produces seed under its own control and owns the resulting produce. Documentation Becomes Critical The ruling is particularly relevant for seed and agro companies because the documentation surrounding the agricultural arrangement can become extremely important.

Example or evidence

• On the facts of the case, the income qualified as agricultural income eligible for exemption under Section 10(1) read with Section 2(1A).
• It had taken agricultural land on lease and carried out agricultural operations for production of seed.
• The mere involvement of farmers, the use of modern technology or the fact that the assessee was a seed company could not, by themselves, change agricultural income into business income.

Details worth keeping

The assessee was engaged in the seed industry. The Revenue's approach effectively questioned whether income earned through such activity could retain the character of agricultural income when the assessee itself was a commercial seed company and farmers were involved in the actual cultivation. The answer of the Tribunal was fact-dependent.

Related coverage

• Thetaxtalk: Interest on Land Acquisition Compensation: Can It Be Taxed Separately?
• Accountingtoday: The proposed regs apply to taxpayers who sell or exchange farmland to qualified farmers and elect to pay the tax on the gain in four equal annual installments.
• Thetaxtalk: Section 54GB Exemption on Start-up Investment: ITAT Allows ₹1.48 Crore Deduction Proportionate investment qualifies, extended deadline applies and there is no ₹50 lakh cap, says Mumbai ITAT What if a...
• Thetaxtalk: Section 54F Exemption Cannot Be Denied Merely Because Construction or Registration Is Delayed Mumbai ITAT Says Genuine Allotment and Investment Cannot Be Ignored Merely Because the Registered Sale Agreement...