Income Tax Appellate Tribunal - Bangalore
Advanta India Ltd.,, Bangalore vs Assessee on 10 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH 'B'
BEFORE SHRI N BARATHVAJA SANKAR, VICE RESIDENT
AND
SMT. P MADHAVI DEVI, JUDICIAL MEMBER
ITA No.819 & 820/Bang/2010
(Asst. Year - 2003-04 & 2004-05)
M/s Advanta India Ltd.,
405, 4th Floor, 'A' Wing, Carlton,
Towers, No.1, Airport Road,
Bangalore. . Appellant
PAN - AACCA 7700L.
Vs.
The Asst. Commissioner of Income-tax,
Circle-11(4),
Bangalore. . Respondent
Assessee by : Shri P.J Pardiwalla, Sr. Counsel
Respondent by : Shri S.K Ambastha, CIT
Date of Hearing : 10-05-2012
Date of Pronouncement : 29-06-2012
ORDER
PER P MADHAVI DEVI, JUDICIAL MEMBER
Both these appeals are filed by the assessee. The relevant assessment years are 2003-04 and 2004-05. The appeals are directed 2 ITA Nos.819 & 820/B/10 against the order of the Commissioner of Income-tax (Appeals)- IV at Bangalore dated 31.03.2010. The appeals arise out of the assessment completed u/s 143(3) of the Income-tax Act, 1961
2. The brief facts of the case are that the assessee company which is engaged in development and production of basic and hybrid seeds filed its return of income for the assessment year 2003-04 on 27.11.2003 declaring a loss of Rs.3,59,00,900/-. The return was processed u/s 143(1) on 23.1.2004. Subsequently a revised return was filed on 21.10.2004 declaring a loss of Rs.2,83,38,977/-. The assessment was taken up for scrutiny u/s 143(3) of the Income-tax Act. During the assessment proceedings, the AO observed that there is no change in the business activity of the assessee company compared to the immediately preceding year i.e assessment year 2002-03. He observed that the assessee which is engaged in the research, development, processing and marketing of hybrid seeds is carrying out activities from the first stage i.e research and development into the genetic composition which is best suited for local environment and agronomic practices in varying climatic zones in India. He observed that the research and development starts at the germplasm stage, which is multiplied into nucleus and then into pre- 3 ITA Nos.819 & 820/B/10 basic seeds and then into basic seed. He observed that up to the basic seed activity, all the primary operations are performed by the assessee company on its own lands or lands leased by it under its own direct supervision and guidance with the help of casual labour engaged by it and then the 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 hybrid seeds i.e removes the mud, stones and non-standard 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 consignees agents located all over the country for sale to the distributors. From the records of the assessee, the AO observed that the assessee has claimed an amount of Rs.3,62,21,263/- as exempt u/s 10 being income from agriculture. He observed that the assessee has taken different stands, relying heavily on the decisions of the various appellate authorities and, therefore, he held that the assessee is totally confused as to the heads of the income under which the profits from operations are to be declared. For coming to this conclusion, he placed reliance upon the decision of the Hon'ble ITAT, Hyderabad Bench in assessee's own case for the 4 ITA Nos.819 & 820/B/10 earlier years. He also considered the assessee's claim that there is substantial change in the activities carried on by the assessee from the assessment year 2002-03 but according to him, the records reveal no change in the activity carried on by the assessee as the entire agricultural operations for production of hybrid seeds were carried on by the respective holders of the lands which have been taken on lease under the supervision of the assessee. He, therefore, held that the supervision carried on by the assessee cannot be termed as that of a cultivator. He placed reliance upon the assessee's own case for the immediately preceding year and has held that the entire income of the assessee is income from business . The claim of exemption u/s 10 was rejected and entire income was subjected to the tax under the head 'business'. Further he observed that the basic seeds production emanates from germplasm and the variations and genetic manipulations achieved by the assessee are by Scientific Research Activity and, therefore, the expenditure incurred on extensive research has not been considered by the assessee while computing the claim of agricultural income. Further he also observed that the assessee is carrying on the production of basic seeds in the assessee's own lands and for the production of hybrid seeds, these basic seeds are given to the farmers for cultivation under contract farming. According to him, 5 ITA Nos.819 & 820/B/10 cultivation of hybrid seeds under contract forming cannot be termed as cultivation done by the assessee. He, therefore, rejected the assessee's claim of exemption u/s 10 of the Income-tax Act and treated the entire income as business income.
3. Aggrieved, the assessee preferred an appeal before the CIT(A) and reiterated the submissions made before the AO. The CIT(A) after considering the assessee's contentions at length, observed that in the assessment year 2003-04, the assessee has claimed to have changed its system of accounting and that the assessee has also raised additional grounds of appeal before the CIT(A). Considering the same, the CIT(A) called for a remand report from the Assessing Officer. Vide letter dated 15.9.2009, the AO filed the remand report according to which the company had produced pahani extract of its own lands and not of the farmers. According to the AO, the company has changed/re-drafted the lease agreement to suit to its advantage for claiming exemption as agricultural income but has never produced the details of expenses for growing hybrid seeds on farmers' lands and that the assesseee's name is also not mentioned as cultivator in the pahanis. Therefore, the AO concluded that the claim of lease transaction with the farmers by the assessee is nothing but sham 6 ITA Nos.819 & 820/B/10 transaction and all the documents are prepared to suit the company's advantage. It was also concluded that the assessee has not shown sale of basic seeds, hence no income accrues by selling the basic seeds and sales declared in the financial statement are from the sale of hybrid seeds which are grown by the farmers and purchased by the company from them and, therefore, companies activities are not an integrated one and Rule 7 of IT Rules does not apply.
4. The CIT(A) after considering remand report of the AO and the assessee's submissions, held that the claim of the assessee that as many as 3946 agriculturists have leased their lands to the assessee creates a doubt about the genuineness of the claim and also that State Government has not recognized the assessee as an agriculturists in their records. Therefore, according to the CIT(A), it cannot be accepted that the assessee is an agriculturist. He, therefore, rejected the assessee's claim. Further he also held that the assessee is utilizing the Scientific Research Activity for producing the basic seeds and, therefore, the production of hybrid seeds from the basic seeds cannot be said to be an agricultural activity. He, therefore, treated the entire income as non-agricultural and, therefore, taxable. On the issue as to whether the expenditure claimed by the assessee in the additional 7 ITA Nos.819 & 820/B/10 ground is allowable or not, he held that the leasing agreements are sham and not genuine and, therefore, the said expenditure claimed to have been incurred for carrying out agricultural operations on leased lands is not allowable.
5. Aggrieved, the assessee preferred an appeal before us.
6. The learned Sr. counsel for the assessee Shri P.J Pardiwalla, while reiterating the assessee's submission made before the authorities below, drew our attention to the findings of the AO that the activities of the assessee have not changed from the earlier year ie. from the assessment year 2002-03. He submitted that the issue as to whether the production of hybrid seeds by the farmers on the lands leased by them to the assessee is to be treated as agricultural income or not has arisen in the assessee's own case for the assessment year 2002-03 and that the 'B' Bench of Tribunal vide its order dated 29.6.2010 has decided the issue in its favour. He has filed a copy of the said order before us. As regards the findings of the AO and the CIT(A) that up to the basic seeds, the activities of the assessee are based on scientific research and are non agricultural activity, the learned counsel for the assessee submitted that the assessee purchases the germplasm and 8 ITA Nos.819 & 820/B/10 cultivates the basic seeds in its own lands and, therefore, this activity is also to be considered as agricultural activity. He drew our attention to page 2 of the ITAT order for the assessment year 2002-03, wherein this fact has been recorded i.e that the assessee procures germplasm prototype of the hybrid seeds from the laboratories for employing the same in its subsequent operations and the germplasm is sown in the fields which grows into what is called basic seed.
7. The learned DR on the other hand supported the orders of the authorities below and submitted that this issue of contract farming had arisen in the case of M/s Namdhari Seeds Pvt. Ltd. and the Hon'ble Karnataka High Court vide its order dated 24.10.2011 has held the issue against the assessee. He has filed copy of the said order before us and submitted that the assessee's case has to be dismissed. The learned DR has also filed before us a copy of the material collected by him from the internet on germplasm and the copy of the same is taken on record.
8. In the rejoinder, the learned counsel for the assessee has drawn our attention to the peculiar facts of the case of M/s Namdhari seeds Pvt. Ltd and submitted that in the said case, the facts are different 9 ITA Nos.819 & 820/B/10 from the assessee's case. He submitted that as per the terms of agreement between the M/s Namdhari Seeds Pvt. Ltd and the farmers, though the farmers have leased out their lands to the assessee therein, the cultivation is done under the direct supervision of the company. Thereafter M/s Namdhari Seeds Pvt. Ltd., procures the hybrid seeds from the farmers and after segregating the seeds which can be used as hybrid seeds, the residue is sold in the open market and the compensation received for residue seeds is paid to the farmers and as per the agreement, the company had further agreed to pay the farmers the compensation per kg of the hybrid seeds which meet the specification set by the company. He submitted that in these peculiar circumstances, the Hon'ble High Court of Karnataka has held that the company, M/s Namdhari Seeds Pvt. Ltd. is not an agriculturist as none of the normal activities of the agriculturist have undertaken by the assessee company and the input given by the assessee is only the technical supervision of the company and it is the duty of the farmers to ensure fertility of the land, suitability of the land for cultivation, watering of the land, use of the seeds supplied by the assessee and also sell the hybrid seeds at a price fixed by the assessee company. He submitted that the Hon'ble High Court has held that the assessee is not paying any rent per acre and is not giving anything in kind but 10 ITA Nos.819 & 820/B/10 only pays fixed price per quintal depending upon the terms of the agreement. He further submitted that the foundation seeds are grown by the farmers as per the specifications set out by the company and, therefore, agricultural operations are carried out by the farmers and only the produce which meet the standards set by the company are purchased from the farmers. Thus, according to him, the Hon'ble High Court of Karnataka has considered these factors before holding that the assessee therein M/s Namdhari Seeds Pvt. Ltd., is not a farmer and the operations carried on by it on are not agricultural operations. He submitted that in the assessee's case, the assessee is not only paying the rent for the land but is also reimbursing the entire cost of cultivation to the farmer and the farmer is cultivating the seeds on its behalf under direct supervision. Thus according to him, the farmer is discharging his duties as an agent of the assessee company in producing the hybrid seeds and the company being inanimate person, it has to cultivate through its agents only. He submitted that unlike the case of M/s Namdhari Seeds, the assessee takes the entire produce and sell the produce after segregating seeds and the compensation received is its own income, while the farmers get only the rent for the lands and the reimbursement of cost and nothing else. He submitted that the assessee alone is the beneficiary or loser of the higher or 11 ITA Nos.819 & 820/B/10 lower yield respectively and, therefore, it cannot be said that the assessee is purchasing the seeds cultivated by the farmers. Thus, according to him, the decision of the Tribunal in the assessee's own case for the assessment year 2002-03 is applicable and not the decision of the Hon'ble High Court of Karnataka in the case of M/s Namdhari Seeds Pvt. Ltd.
9. Having heard both the parties and having considered the rival contentions, we find that according to the AO, the assessee is undertaking the activity of producing the basic seeds in its own lands and hybrid seeds on the lands leased by it. According to the AO, the foremost objection is that the germplasm is generated out of scientific research and, therefore, it is not agricultural activity and further that the expenditure incurred for such scientific research has not been considered by the assessee while computing the agricultural income. As regards the production of basic seeds is concerned, the second objection of the AO is that the basis seeds are not fit for human consumption, and, therefore, it cannot be agricultural produce and further that they are not only grown on own lands but also on leased lands and, therefore, lease rentals should also be considered for computing the agricultural income As regards the production of 12 ITA Nos.819 & 820/B/10 hybrid seeds, the only objection of the AO is that the hybrid seeds are cultivated by the farmers on a contract basis and, therefore, the assessee cannot be said to have cultivated the hybrid seeds and, therefore, the entire operation cannot be considered as agricultural operations. As regards the objection of the AO and the CIT(A) that the germplasm generated is out of scientific research activity, we find that the AO has already held that there is no change in the activities of the assessee as compared to the earlier assessment year i.e 2002-03. For the assessment year 2002-03, the Tribunal in its order has observed that the assessee procures germplasm from laboratories and does not generate the said germplasm in its own laboratories. Therefore, the contention of the AO and the CIT(A) that some scientific activity is carried on by the assessee and the expenditure incurred by the assessee on such scientific activity should be considered while computing the agricultural income does not hold good. Now, whether the conversion of germplasm into basic seeds also involves any scientific activity is the question before us. From the material filed by the learned DR, which is procured from the internet, we find that germplasm is living tissue from which new plants can be grown and that it can be a seed or part of another plant, a leaf, a piece of stem, pollen or even just a few cells that can be turned 13 ITA Nos.819 & 820/B/10 into a whole plant. It is the case of the assessee that this germplasm is sown into land which grows into plants for production of basic seeds. From this simple operation, it can be seen that no scientific research activity is involved and all the activities are carried on by the assessee in its own lands or on the lands taken on lease by it. Therefore, this activity also cannot be considered as non-agricultural activity. Simply because the basic seeds are not fit for human consumption, it cannot be said that the produce is not agricultural produce. The definition of 'agriculture' given in sec. 2(1A) of the Income-tax Act does not specify that the produce should be fit for human consumption. Only requirement is that the produce should be out of cultivation by usage of land. Hence this finding of the AO is also not correct. Coming to the last stage i.e production of hybrid seeds, the bone of contention between the Revenue and the assessee is that the assessee is not carrying on the agricultural activity but it is the farmers who are carrying the agricultural activity and, therefore, the assessee cannot be termed as an agriculturist. As rightly pointed out by the learned counsel for the assessee, company is an inanimate person and cannot be expected to do the cultivation by itself. The cultivation can be done by its agents or by labourers, to whom the assessee pays the wages. In the case before us, the assessee has taken the lands on lease 14 ITA Nos.819 & 820/B/10 from the farmers and in turn the farmers are employed by the assessee company to cultivate and produce the seeds. Therefore, the farmers can be said to be the agents of the assessee company and the production of hybrid seeds by the farmers cannot be said to be not on behalf of the assessee company. This issue had arisen in the assessee's own case for the assessment year 2002-03 and the Tribunal after considering the issue at length has held as under :-
3. The assessee is a company engaged in the business of production and sale of Hybrid Seeds. The company is engaged in the research, development, processing and marketing of Hybrid Seeds. The assessee company carried out studies and researches to find out the most suitable genetic composition of seeds in the respective local environment. The assessee procures germplasm prototype of the Hybrid Seeds from the laboratories for employing the same in its subsequent operations. The germplasm is sown in fields which grows into what is called the Basic Seed.
The Basic Seeds are again replanted to grow the Hybrid Seeds. The Hybrid Seeds are sold by the assessee company, to farmers at large. This is the frame of operation carried on by the assessee during the previous year relevant to the assessment year in appeal. In the past, the assessee had carried out the business in different formulations like distributing Basic Seeds to farmers to grow into Hybrid Seeds and buying it back from the farmers, etc., But those 15 ITA Nos.819 & 820/B/10 business dynamics are not relevant for the impugned assessment year. As far as the impugned assessment year is concerned, assessee itself is growing Basic Seeds as well as Hybrid Seeds.
4. Up to Basic Seed activity, all the primary operations are performed by the assessee in its own lands or lands leased by it, under its own direct supervision and guidance by engaging casual labour. The Hybrid Seeds are grows by the farmers in their own lands but leased out to the assessee company. The entire cost of production was to be reimbursed by the assessee to the farmers. Therefore, defacto speaking the Hybrid Seed operations was carried on by the assessee in its leasehold lands.
5. In the computation of total income, the assessee claimed deduction of Rs.1,88,38,838/- under Rule 7 of the IT Rules. The deduction has been claimed by the assessee on the ground that the income is partly agricultural and partly from business. But in the note enclosed to the computation of income, the assessee has further stated that the company reserves the right to contend at the time of hearing that the entire income of the company is fully exempt since it is agricultural income as per the Income-tax Act.
6. The Assessing Officer relying on the decision of the ITAT, Delhi in the case of Proagro Seeds Company Ltd., v. JCIT in ITA No.90/Del/2000, dated11.11.2002, noticed the 16 ITA Nos.819 & 820/B/10 assessee why the claim for partial deduction should not be denied. The assessee replied that the entire income was in the nature of agricultural income and relied on the judgement of the Hon'ble Supreme Court rendered in the case of Raja Benoy Kumar Sahas Roy (32 ITR 466) and other cases.
7. But anyhow the Assessing Officer did not accept any of the contention of the assessee and treated the entire income as business income mainly on the following premises :
i) The profit derived by the assessee arose mainly on account of international technology, marketing expertise assisted by the agricultural operations carried on by the growers mainly on their own lands.
ii) The assessee does not undertake any agricultural activity by relying on the decision of the ITAT, Delhi in Proagro Seeds Company Ltd., v. JCIT in ITA No.90/Del/2000, dated11.11.2002.
8. On the issue of agricultural character of income, the CIT(A) confirmed the order of the assessing authority. The Commissioner of Income-tax(A) held that the income of the assessee is neither wholly nor partially agricultural income. It is against the above, the assessee has come in second appeal before us.
17 ITA Nos.819 & 820/B/10
9. Even though the assessee has raised twenty two grounds of appeal, the issue in short is whether the entire income earned by the assessee out of production of Hybrid Seeds is agricultural in character or not. The alternative contention of the assessee is that at least income attributable to the production of Basic Seeds is agricultural in nature.
10. We heard Shri. P. J. Pardiwala, the Senior Counsel appearing for the Assessee and Smt. Swathi S. Patil, the learned counsel appearing for the Revenue.
11. An exactly similar issue was considered by ITAT, 'B' Bench of Bangalore in the case of Indo American Exports and M/s. Namdhari Seeds Pvt. Ltd., in their common order dated 14.7.2006, passed in ITA No.1040/Bang/2002 and ITA No.3102/Bang/2004. After considering the facts and rival contentions in detail, the Tribunal held as follows :
"5.4. After hearing both the sides, we are of the view that the only question to be decided by the Tribunal is as to whether the seeds produced by the assessee and sold in market generates agricultural income or is it a business income. The provision of section 2(1A) of the I. T Act is quoted below :
(1A) "agricultural income" means :-
(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes ;18 ITA Nos.819 & 820/B/10
(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 process of the nature described in paragraph (ii) of this sub-clause ;
(c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator of the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on :
Provided that -
(i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the
(ii) land requires as a dwelling house, or as a store-house, or other out-building, and 19 ITA Nos.819 & 820/B/10
(iii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated --
It may be appreciated that agricultural income includes any rent or revenue derived from the land which is used for agricultural purposes. The issue is whether the revenue derived from such land by the assessee is agricultural income or not. For the purpose of deriving income from agricultural land there is no necessity that such land should be owned by the assessee. If the assessee has derivative interest in the land for the purpose of conducting agricultural operations on the said land, then the revenue generated from such land would be agricultural income. This has been so held by the Hon'ble Madras High Court in 20 ITR 151 (Commissioner of Income-tax v.
Maddi Venkatasubbayya). Here it may be appreciated that the assessee entered into lease agreement with various agriculture land owners for the purpose of obtaining lands for doing the process of agricultural operations. The Government of Karnataka has also granted registration to the assessee thereby permitting 20 ITA Nos.819 & 820/B/10 the assessee to take up production and distribution of various seeds and crops. The assessee's representatives are there on the land to supervise the manual labour operations and to protect the assessee's interest and it may be appreciated that the sowing, growing and protecting the crop and the produce is also taken by the assessee and the assessee alone.
Here the kind attention of the Hon'ble Tribunal is drawn to the decision of the Allahabad High Court reported in 177 ITR 428 (Commissioner of Income-tax v. Associated Metals Co.) (All) wherein it has been held that the assessee company therein had entered into agreement with bhumidhars of land for sowing and growing and protecting crops and thereafter the major share of the profit was to be of the company therein. In that case it was held the income of the company was agricultural income. The assessee's case herein stands on a much better footing. It may also be appreciated by the Hon'ble Tribunal the assessing authority himself does not dispute the fact that the assessee is undertaking the agricultural operations. In fact the assessing authority himself has accepted the agricultural income declared by the assessee on the contract production done outside the State of Karnataka. 21 ITA Nos.819 & 820/B/10
It is only in regard to the State of Karnataka that the assessing authority has held that as per the Land Reforms Act the assessee is not entitled to the benefit of exemption u/s.2(1A) of the Act. The bar levied by the Karnataka Land Reforms Act would be more hold good in so far as the Government of Karnataka has granted certificate to the assessee for production and distribution of the specified hybrid seeds and plants. Here it may also be appreciated that the nexus between the income claimed by the assessee as not includible in the total income and the agricultural operations conducted by the assessee and the lands from which the income as so generated have not been disputed by the Revenue. The immediate source of the income is the agricultural operations conducted by the assessee on the land and land alone and consequently the same is liable to be treated only as agricultural income."
12. Finally the Tribunal in the said order has concluded as follows :
"In view of such discussion, foundation seeds or Hybrid Seeds produced in own land or lands taken on lease i.e., on contract farming will be the result of agricultural operations and the 22 ITA Nos.819 & 820/B/10 profit arising out of such activities shall be treated as agricultural income."
13. Therefore, it is to be seen that the issue raised in the present appeal is squarely covered by the above mentioned decision of the Bangalore 'B' Bench in the case of Indo American Exports and M/s. Namdhari Seeds P. Ltd.,
14. The Hon'ble Supreme Court in the case of Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy (32 ITR 466) has considered comprehensively the concept of agricultural income for the purpose of Income- tax Act. The Court held that agriculture in its primary sense denotes the cultivation of the field and is restricted to cultivation of the land in the strict sense of the term meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land. These are basic operations and require the expenditure of human skill and labour upon the land itself. The court further held that the performance of subsequent operations like tending, pruning, cutting, harvesting etc., would not be enough t o characterize them as agricultural operations. In order to invest them with the character of agricultural operations, subsequent operations must necessarily taken in conjunction with and in continuation of the basic operations which are the effective cost of the produce being raised from the land.
23 ITA Nos.819 & 820/B/10
15. If we examine the operations carried out by the assessee in the previous year relevant to the assessment year in appeal, we find that the production of Basic Seeds as well as Hybrid Seeds are the results of basic of agricultural operations carried on by the assessee company in its own land as well as in leasehold land. The method of contract farming does not take away the character of the basic operations carried out by the assessee company which are agricultural in nature. The assessee company procures germplasm and sows in its own field, and carries on all agricultural operations and produces the Basic Seeds. The Basic Seeds so harvested are again put through agricultural operations intimately connected with leasehold land for finally bringing out the Hybrid Seeds. Only for the reason that the Basic Seeds are sown in leasehold land and the manpower required are arranged through contract farming, it does not mean that the operations carried out by the assessee company are not agricultural operations. As a matter of fact, it is to be seen that the assessee company has carried out basic as well as secondary agricultural operations. Therefore, without any fear of contradiction, it is possible for us to hold that entire such income of the assessee is agricultural in nature which is to be excluded from the nature of total income.
16, The assessee is successful in its appeal.
24 ITA Nos.819 & 820/B/10
17. As the main ground of the assessee itself is decided in its favour, we have not considered the alternative contention regarding application of Rule 7 and proportionate exemption of income.
18. The reasons pointed out by the assessing authority to deny the claim of exemption made by the assessee company are that the assessee is following international technology, marketing expertise, integrated scientific and commercial activity etc., These are all matters strange to the strict code of Income-tax. Those premises do not have any role in deciding the nature of income within the framework of Income-tax Act, 1961. The reasons pointed out by the Assessing Officer are by and large issues to be decided by the policy makers in the Government.
10. However, now we have to see whether the case of the assessee is covered by the decision of the Tribunal in the assessee's own case or by the decision of the Hon'ble Karnataka High Court in the case of M/s Namdhari Seeds Pvt. Ltd.. A judgment of the Hon'ble High Court is applicable only if the facts and circumstances are similar. The following differences in the facts and circumstances of the assessee's own case and the case of M/s Namdhari Seeds are worth noting.
25 ITA Nos.819 & 820/B/10M/s Namdhari Seeds Pvt. Ltd. M/s Advante India Ltd.
1. It does not take land on lease It takes lands on lease from from farmers farmers
2. It engages the farmers for It engages services of the farmers production of hybrid seeds for production of hybrid seeds.
3. It purchases the hybrid seeds It takes entire produce from the which cater to its specifications farmers.
at fixed prices
4. It is not concerned with It reimburses the entire expenditure incurred by the expenditure of cultivation to the farmers farmers.
5. The seeds which do not meet The farmers are not given price the specification set out by M/s for the produce except Namdhari Seeds are sold by the reimbursement of the entire company in the open market and charges and repayment the labour the consideration received is charges.
given to the farmers.
11. Taking the above differences into consideration, it can be seen that the decision of the Hon'ble High Court of Karnataka in the case 26 ITA Nos.819 & 820/B/10 of M/s Namdhari Seeds Pvt. Ltd., is based on the peculiar facts and circumstances of its case. The Hon'ble High Court has held that the assessee therein, i.e M/s Namdhari Seeds Pvt. Ltd., is in fact purchasing the hybrid seeds produced by the farmers and the contract is to produce hybrid seeds as per the specifications. In the case on hand, we find that the farmers though are employed to cultivate the lands are acting on behalf of the assessee company under its supervision and the entire produce is taken by the assessee only.
12. In view of the same, we are of the opinion that the decision of the Hon'ble Karnataka High Court in the case of M/s Namdhari Seeds is not applicable in its entirety to the facts of the case before us. The issue is covered in favour of the assessee by the decision of this tribunal in the assessee's own case for the assessment year 2002-03. Respectfully following the decision of the Co-ordinate Bench to which one of us i.e J.M is a signatory, the grounds of appeal relating to the claim of exemption u/s 10 of the Income-tax Act are allowed.
13. As regards ground No.6 relating to the non admission of ground of appeal in respect of non-granting of depreciation on technical know-how fees treated as capital expenditure in an earlier year, the 27 ITA Nos.819 & 820/B/10 learned counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of the Tribunal in the assessee's own case for the assessment year 1995-96. The learned counsel for the assessee has enclosed copy of the said order before us along with the paper book.
14. The learned DR however supported the orders of the authorities below.
15. Having heard both the parties and having considered the rival contentions, we find that the Tribunal for the assessment year 1995-96 has directed the AO to consider the alternate plea of the assessee for allowance of depreciation on technical know-how fees, if claim is in accordance with law.
16. Before us, the learned counsel for the assessee has also filed a copy of the letter of DCIT dated 24.8.2009, wherein it is mentioned that the depreciation on technical-know-how fees treated as capital expenditure has been allowed. In view of the same, we remand this issue also to the file of the Assessing Officer to allow depreciation on technical-know-how fees as it is treated as capital expenditure. 28 ITA Nos.819 & 820/B/10
17. As regards, the last ground relating to non exclusion of profit on sale of assets while computing the total income, we find that the CIT(A) has failed to adjudicate the same and give any finding. In view of the same, we deem it fit and proper to remand the issue back to the file of the CIT(A) with a direction to consider the ground raised by the assessee in accordance with law but needless to mention that the assessee shall be given a fair opportunity of hearing.
18. In the result, the grounds No.1 to 5 are allowed and ground No.6 is allowed for statistical purposes.
19. For the assessment year 2004-05, the assessee has raised grounds No.1 to 4 relating to the disallowance of claim of exemption u/s 10(1) of the Income-tax Act in respect of agricultural income. In view of our detailed findings in the assessee's own case for the assessment year 2003-04 in the above paragraphs, these grounds of appeal are allowed.
20. Ground No. 5 is similar to ground No. 6 in the assessee's appeal for the assessment year 2003-04. For the reasons given 29 ITA Nos.819 & 820/B/10 therein, this issue is also set aside to the file of the AO for reconsideration in accordance with law.
21. This ground is allowed for statistical purposes.
22. In the result, grounds No.1 to 4 are allowed and Ground Nos. 5 & 6 are allowed for statistical purposes.
The appeals for the assessment years 2003-04 and 2004-05 are allowed.
Order pronounced in the open court on 29th June, 2012.
Sd/- Sd/-
(N BARATHVAJA SANKAR) (P MADHAVI DEVI)
VICE PRESIDENT JUDICIAL MEMBER
Vms.f
Bangalore
Dated : 29/06/2012
Copy to :
1. The Assessee
2. The Revenue
3.The CIT concerned.
4.The CIT(A) concerned.
5.DR
6.GF
By order
Senior Private Secretary , ITAT, Bangalore.