Telangana High Court
M/S.A.G.Biotech Laboratories India ... vs Income Tax Officer on 21 November, 2025
Author: P.Sam Koshy
Bench: P.Sam Koshy
IN THE HIGH COURT FOR THE STATE OF TELANGANA ::
HYDERABAD
***
INCOME TAX TRIBUNAL APPEAL Nos.91 and 92 of 2008
Between:
M/s. A.G. Biotech Laboratories (India) Ltd.
Bachupalli Village, Qutbullapur Mandal,
Ranga Reddy District.
Appellant
VERSUS
Income Tax Officer,
Ward-1(1), Hyderabad.
Respondent
COMMON JUDGMENT PRONOUNCED ON: 21.11.2025
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? : Yes
2. Whether the copies of judgment may be
marked to Law Reporters/Journals? : Yes
3. Whether His Lordship wishes to
see the fair copy of the Judgment? : Yes
_______________
P.SAM KOSHY, J
Page 2 of 32
* THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
+INCOME TAX TRIBUNAL APPEAL Nos.91 and 92 of 2008
% 21.11.2025
# Between:
M/s. A.G. Biotech Laboratories (India) Ltd.
Bachupalli Village, Qutbullapur Mandal,
Ranga Reddy District.
Appellant
VERSUS
Income Tax Officer,
Ward-1(1), Hyderabad.
Respondent
! Counsel for appellant : Mr. A.V.A. Siva Kartikeya, learned
counsel appearing on behalf of
Mr. A.V. Krishna Koundinya.
^Counsel for respondent : Ms. Bokaro Sapna Reddy, learned
Senior Counsel for Income Tax
Department appearing on behalf of
Mr. J.V. Prasad, learned Senior
Standing Counsel for Income Tax
Department.
<GIST:
> HEAD NOTE:
? Cases referred
1) 2014 SCC OnLine Guj 13112
2) 241 ITR 530
3) (1957) 32 ITR 466 : 1957 SCC OnLine SC 34
4) ITTA No.88 of 2014, decided on 21.02.2014
5) [2025] taxmann.com 486 (Telangana)
Page 3 of 32
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
INCOME TAX TRIBUNAL APPEAL Nos.91 and 92 of 2008
COMMON JUDGMENT:
(per the Hon'ble Sri Justice P.Sam Koshy)
Heard Mr. A.V.A. Siva Kartikeya, learned counsel appearing
on behalf of Mr. A.V. Krishna Koundinya, learned counsel for the
appellant; and Ms. Bokaro Sapna Reddy, learned Senior Standing
Counsel for the Income Tax Department appearing for Mr. J.V.
Prasad, learned Senior Standing Counsel for the Income Tax
Department, for the respondent.
2. Income Tax Tribunal Appeal No.91 of 2008 is filed by the
appellant / assessee under Section 260A of the Income Tax Act,
1961 (for short the 'Act') assailing the order passed by the Income
Tax Appellate Tribunal, Hyderabad Bench 'B' Hyderabad (for short
the 'ITAT') in I.T.A.No.1172/Hyd/2006, for the assessment year
2002-03, decided on 28.09.2007. Similarly, Income Tax Tribunal
Appeal No.92 of 2008 is filed by the same assessee under Section
260A of the Act assailing the order passed by the ITAT, in
I.T.A.No.1173/Hyd/2006, for the assessment year 2003-04, which
also stands decided on 28.09.2007.
3. Since the issue involved in both the Appeals is one and the
same, the parties to be dispute being the same, and the
contentions raised on either side also being the same, we proceed
to decided the two Appeals by this common judgment.
4. For convenience, the facts in Income Tax Tribunal Appeal
No.91 of 2008 are discussed hereunder.
5. The appellant M/s.A.G. Biotech Laboratories (P) Ltd. is
engaged in the business of micro-propagation of plants through
tissue culture technology. The primary dispute in the instant case is
classification of income earned by the assessee from the sale of
tissue-cultured plants for the assessment year 2002-03. The
assessee claimed that this income should be treated as agricultural
income exempt from tax under Section 10(1) of the Act. The
Income-tax Officer rejected this claim and treated the income as
business income subject to taxation. The tissue culture process
adopted by the assessee involves taking tissue samples from
mother plants grown on land, culturing these tissues in a clinical
laboratory under sterile conditions, multiplying the plant material
through micro-propagation techniques, and subjecting the cultured
plants to various processes to make them suitable for withstanding
normal atmospheric conditions before finally selling these plants in
the market. However, the ITAT examined the entire process
undertaken by the assessee and noted that through micro-
propagation, a single explant can be multiplied into several
thousand plants in less than one year, representing a significant
technological advancement over traditional agricultural methods.
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.
6. Thus, the ITAT held that plant were not a direct result of
basic agricultural operation on land but rather the outcome of
advance scientific methods.
7. Now the question that arise for consideration by this Bench is
"whether the resultant product sold in the market was a direct
result of basic agricultural operations carried out on land involving
human skill and labour, or whether it was primarily the outcome of
scientific and technological processes conducted in clinical
laboratories, thereby constituting business or professional income
rather than agricultural income?"
8. The primary contention of the learned counsel for the
appellant was that their operations were rooted in agriculture
activities, as they cultivated mother plants on leased agriculture
land. These mother plants served as the source material from
which tissues were extracted for micro-propagation process.
Further, mother plants required the performance of all basic
agricultural operations like preparing and tilling the soil, planting
seeds or saplings, regular watering and irrigation, application of
manures and fertilizers, weeding, and ongoing maintenance and
care. Without these foundational agricultural activities carried out
on land involving human skill and labor, their business would simply
not exist.
9. Learned counsel for the appellant further contended that the
tissue extracted from these mother plants was not an independent
creation but a direct derivative of the agricultural produce grown on
the land. Therefore, he argued that the resultant income from
selling plants propagated from this agricultural source material
should be treated as agricultural income, as the entire chain of
production originated from and depended upon basic agricultural
operations performed on land.
10. Learned counsel for the appellant relying upon the decision of
the Gujarat High Court in Shri Puransingh M. Verma vs. CIT 1
drew the attentions of this Bench in comparing with the nursery
operations that were held to constitute agriculture income. He
argued that just as nursery businesses involve basic agricultural
operations like tilling, sowing, planting, watering, and manuring,
which qualify the resulting income as agricultural despite involving
pots and controlled environments, tissue culture operations
similarly require fundamental agricultural activities after the
laboratory phase. He further submitted that once the plantlets are
micro-propagated through scientific methods under sterile
conditions, they must still be hardened and grown in actual land
where all the same basic agricultural operations become necessary
to achieve better yields. This process involves human skill and
labour on the land itself transforming the scientifically developed
material into marketable produce through traditional cultivation
2014 SCC OnLine Guj 13112
methods. He therefore contended that since the income ultimately
derives from plants that undergo complete agricultural operations
on land, just as nursery plants do, the income from tissue culture
should logically be treated as agricultural income rather than
business income, especially given that the Gujarat High Court
recognized nursery income as agricultural despite its commercial
and scientific elements.
11. Similarly, the learned counsel for the appellant relied on the
decision of the Madras High Court in the case of CIT vs.
Soundarya Nursery 2 wherein it was held that income from the
sale of plants grown in pots constituted agricultural income because
the plants were the result of basic agricultural operations carried
out on land, even though they were ultimately sold in pots rather
than directly from the ground. Similarly, they too were engaged in
growing mother plants through agricultural operations from which
they derived tissue that was then used to propagate more plants
through scientific methods. Therefore, the intermediate steps of
tissue extraction and laboratory propagation should not change the
essential agricultural character of the income, just as transferring
241 ITR 530
plants to pots did not change the agricultural nature of income in
the Soundarya Nursery (supra). Therefore, he argued that the
use of modern scientific techniques in their process was merely an
enhancement of agricultural methodology rather than a
fundamental departure from agriculture itself.
12. Learned counsel for the appellant further contended that
modern agriculture is no longer limited to traditional methods of
sowing seeds and harvesting crops, but now encompasses a wide
range of scientific applications including hybrid seed development,
genetic selection, controlled environment cultivation, precision
farming, and biotechnology. Moreover, he argued that tissue culture
technology is fundamentally an agricultural technique which is
more efficient, reliable, and productive method of plant propagation
that serves the ultimate purpose as traditional agricultural
methods, namely the production of plants for cultivation and
consumption. Therefore, adopting a narrow or archaic definition of
agriculture that excluded modern scientific methods would be
contrary to the legislative intent behind Section 2(1A) of the Act.
13. Lastly, the learned counsel for the appellant contended that
tissue culture technology provided substantial and critical support
to Indian farmers and the agricultural sector as a whole by
enabling the production of high-quality, disease-free, and
genetically uniform planting material for fruits, spices, plantation
crops, and other agricultural products. This technology has helped
farmers significantly increase their productivity, reduce crop losses
due to disease, ensure consistency in crop quality, and ultimately
improve their per capita income and standard of living. Thus,
treating their income other than agriculture income is illogical and
unjust and that their activities had been officially recognized and
classified as agricultural by multiple authorities, including the
Government of Andhra Pradesh and various banking and financial
institutions. These governmental and financial bodies provided
them with agricultural incentives, subsidies, and loans specifically
on the basis that their tissue culture operations constituted
agricultural activity. Therefore, the classification by competent
authorities who had examined their operations in detail should be
given substantial weight in determining the true nature of their
business for income tax purposes.
14. The learned counsel for the appellant also placed reliance on
the following table which shows the difference between nursery and
tissue culture activities, which for ready reference is reproduced
hereunder:
Sl. Nursery / traditional plants Tissue culture / micro-
No. production propagation plants production
1. Traditional production of plants Tissue culture is the cultivation of
through grafting, budding, plant tissue or organs on specially
layering, cutting and seedlings formulated soil nutrient media. In
and which requires large land this way, thousands of coples of a
area and will take longer period plant can be produced in a short
for propagation. time.
2. The primary source of the plants The primary source of the plants in
in the nursery production was the tissue culture activities was the
the large number of mother mother plant, which is reared on
plants which are growing in earth / land and for which certainly
blockson the land and requires contribution of human labour and
human labour and manures and energy was essential, The no. of
fertilizers. The mother plants mother plants are less compared to
also growing on land in raised nursery production
beds under Green House or
shade house.
3. Requires large parts of the Requires small tissues or organs of
mother plant and sometimes the mother plant for propagation
whole plant used for propagation
4. Propagation of plants slow and Rapid propagation of superior plant
genetic variation may occur while maintaining its genetic make
during propagation. up.
5. Nursery activity requires, Tissue culture application only
mother plants, nursery, green requires a sterile workplace
houses, shade and houses /containers based on land, mother
skilled manpower and regular plants growing farm, nursery and
manures and fertilisers, green house/shade house and skilled
pesticides and watering. manpower and regular manures and
fertilisers and watering
6. Production of the plants in The Production of the plants in
containers/pots/poly bags in sterile containers that allows them to
open area in polybags and be moved with greatly reduced
containers with more soll, chances of transmitting diseases,
sometimes carry the pest and pests and pathogens.
diseases.
7. In the nursery production also, In the tissue culture, the mother
the mother plants are the result plants are the result of the basic
of the basic operations on the operations on the land on expending
land on expending human skill human skill and labour thereon and
and labour thereon and it is only itis only after the performance of the
after the performance the basic basic operations on the land, the
operations on the land, the resultant product grown or such part
resultant product grown or such thereof as was suitable for being
part thereof as was suitable for nurtured in a sterile containers for
being nurtured in a pots/poly mass propagation, was separated
bags for propagation, was and placed in a pots/poly bags and
separated and placed in a nurtured with water and by placing
pots/poly bags and nurtured them in the green house or in shade
with water and by placing them and after performing several
in the green house or in shade operations, such as weeding,
and after performing several watering, manuring, etc., they are
operations, such as weeding, made ready for sale as plants, all
watering, manuring, etc., they these agricultural operations
are made ready for sale as involves human skill and effort.
plants, all these agricultural Thus, the plants sold by through
operations Involves human skill tissue culture propagation in
and effort. Thus, the plants sold pots/poly bags were the result of
by through nursery propagation primary as well as subsequent
in pots/poly bags were the result operations comprehended within the
of primary as well as subsequent terms "agriculture" and they are
operations comprehended within clearly the products of agriculture.
the terms "agriculture and they
are clearly the products of
agriculture.
8. Basic operations of agriculture Basic operations of agriculture akin
were carried out on land in to nursery production were carried
greenhouse / shade house which out on land in greenhouse which
require human skill and labour, require human skill and labour, and
and subsequent operations, no subsequent operations, no matter
matter how sophisticated, were how sophisticated, were only to
only to foster the growth and to foster the growth and to protect the
protect the produce, therefore, produce, therefore, Income from
Income from these operations these operations can only be said to
can only be said to be be agricultural Income. Therefore,
agricultural Income. Therefore, merely because a greenhouse was
merely because a greenhouse Involved, the nature of operations
was Involved, the nature of would not change.
operations would not change.
9. To maintain mother stock under To maintain mother stock plants
openly condition and sometimes under controlled condition,
diseases escaped and elimination of diseases escaped from
transmitted through nursery plant propagative material.
propagation.
10 Nursery activities are to prepare Tissue culture activities are to
seedlings on scientific lines: that prepare seedlings on scientific lines:
the mother plants are grown that the mother plants are grown
onprepared beds on lands and onprepared beds on lands owned by
the plants are then grafted or It and the plants are then micro-
budded; that the resulting grafts propagated that the resulting
are transplanted in suitable seedlings are transplanted in
containers and are reared in suitable containers and are reared in
green houses or in shade and green houses or in shade and after
after they take root, they are they take root, they are transmitted
transmitted to large containers to large containers filed with top soil
filed with top soil and manure, and manure, etc, till they establish
etc, till they establish themselves; and there after those
themselves; and there after plants are sold.
those plants are sold.
15. Per contra, the learned Senior Standing Counsel for the
Income Tax Department contended that the income derived from
the sale of tissue culture plants constitutes as business income.
The statutory definition of the agricultural income under Section
2(1A) of the Act requires that income must be derived from the
land through the basic agricultural operations involving human skill
and labour and that the appellant's activities failed to satisfy this
fundamental requirement. Further, she argued that while the
appellant did maintain some mother plants on leased agricultural
land, this represented only an incidental and preliminary step in
their overall business process, rather than the substantive activity
from which income was generated. However, the significant portion
of the appellant's operations took place not on agricultural land but
rather in sophisticated clinical laboratories under sterile conditions
where tissues extracted from mother plants were subjected to
complex scientific processes of micro-propagation, multiplication,
and hardening. These laboratory operations were fundamentally
scientific, technological and industrial in character rather than
agricultural, involving specialized technical knowledge, expensive
equipment, controlled environmental conditions and scientific
research rather than the traditional agricultural activities of tilling,
sowing, watering and harvesting that the legislature contemplated
when defining agricultural income for tax exemption purposes.
16. Furthermore, the learned Senior Standing Counsel argued
that judicial precedents cited by the learned counsel for the
appellant were factually distinguishable and legally inapplicable to
the present case, and that the appellant had mischaracterized the
true nature of the holdings in those cases to support their position.
With respect to the Madras High Court's decision in Soundarya
Nursery (supra) and the Gujarat High Court's decision in Shri
Puransingh M. Verma (supra), she contended that the case
involved a fundamentally different fact pattern where plants were
actually grown on land through traditional agricultural operations
and were merely transferred to pots for convenience of sale and
transportation. Whereas in the appellant's case, the plants sold
were not the direct product of agricultural operations on land but
rather were created through laboratory multiplication of tissue
samples in a scientific process that bore little resemblance to
conventional farming. Moreover, in the nursery case the basic
agricultural operations performed on land were the primary and
essential activities that produced the plants that were sold,
whereas in the appellant's tissue culture business, the agricultural
operations on land were merely preliminary steps to obtain source
material, and the actual commercial product, and thousands of
micro-propagated plantlets, was manufactured in the laboratory
through scientific technology.
17. Learned Senior Standing Counsel rejected the appellant's
reliance on classifications made by the State Government and
various banking institutions that had treated the appellant's
activities as agricultural for purposes of providing incentives,
subsidies, and financial assistance. Therefore, these classification
by other governmental departments and financial institutions while
perhaps appropriate for the limited purposes for which they were
made, such as determining eligibility for agricultural development
schemes or agricultural credit facilities, had no bearing whatsoever
on the proper classification of income under the Act which is
governed by specific statutory definitions and judicial
interpretations that must be applied uniformly across all taxpayers.
18. Thereafter, the learned Senior Standing Counsel argued that
the definition of agricultural income in Section 2(1A) of the Act is a
matter of central legislation that cannot be varied or modified by
state government policies or banking practices and that permitting
such external classifications to influence income tax assessments
would create uncertainty, inconsistency, and opportunities for
manipulation in tax administration. Therefore, different statutes
and different administrative schemes may legitimately adopt
different definitions and classifications appropriate to their
respective purposes, but for income tax purposes, only the
statutory definition in the Act is interpreted. Furthermore, she
argued that the motivations behind the state government
classifications, such as promoting biotechnology industries,
encouraging rural employment, or supporting agricultural
development, while laudable from a policy perspective, could not
override or supplant the clear legal requirements established by the
parliament in the tax legislation.
19. Lastly, the learned Senior Standing Counsel contended that
the social utility and beneficial impact of tissue culture technology
on Indian agriculture and farmers' welfare are of economic policy
and social benefit which could not justify treating income as
agricultural when it did not meet the statutory definition and legal
requirements established by the Act. Further, the learned Senior
Standing Counsel argued that the tax system must be administered
according to law rather than according to sympathy or policy
preferences, and that while tissue culture technology may indeed
provide valuable support to farmers and contribute to agricultural
productivity, this fact alone cannot transform what is essentially
business income from a scientific and technological enterprise into
a tax-exempt agricultural income. Moreover, if the legislature
wished to provide tax incentives or exemptions for bio-technology
businesses that support agriculture, it could do so explicitly through
appropriate amendments to the tax law, but such specific
legislative provisions are absent. Therefore, the Revenue was
bound to apply the existing statutory definitions and could not
create de-facto exemptions based on the perceived social utility of
particular businesses. Thus, the income from the sale of tissue
cultured plants must properly be assessed as business income
subject to tax, and accordingly confirm the assessment orders
treating the appellant's income as taxable business income for the
assessment year 2002-03.
20. Having heard the contentions put forth on either side and on
perusal of records, it would be relevant at this juncture to take note
of the definition of agriculture as per the Provisions of the Finance
Act, 2008, which reads thus:
"4. Widening the scope of "agricultural income" 4.1 "Agricultural
income" is defined in sub-section (1A) of section 2 of the Act to
mean, inter-alia, income derived from land which is situated in
India and is used for agricultural purposes. Such agricultural income
is exempt from tax under sub-section (1) of section 10 of the
Income-tax Act, 1961. It has been held by judicial authorities that
whether income from nursery operations constitutes agricultural
income or not. will depend on the facts of each case. If the nursery
is maintained by carrying out basic operations on land and
subsequent operations are carried out in continuation of the basic
operations, then income from such nursery would be agricultural
income not liable to tax under section 10. However, if the nursery is
maintained independently without resorting to basic operations on
land, then income from such nursery would not be agricultural
income and would be liable to be included in the total income.
4.2 With a view to giving finality to the issue, an Explanation in
section 2 of the Income-tax Act, has been inserted providing that
any income derived from saplings or seedlings grown in a nursery
shall be deemed to be agricultural income. Accordingly, irrespective
of whether the basic operations have been carried out on land, such
income will be treated as agricultural income, thus qualifying for
exemption under sub-section (1) of section 10 of the Act.
4.3 Applicability: This amendment has been made applicable with
effect from 1" April, 2009 and shall accordingly apply for
assessment year 2009-10 and subsequent assessment years."
21. It would also be relevant to take note of a few judgments on
the subject matter. Firstly, the Madras High Court in the case of
Soundarya Nursery (supra) held in paragraph Nos.6, 8, 9 and 10
as under:
"6. The Tribunal, after considering all the relevant facts, as also the
applicable law, concluded that the assessee's activities are to
prepare seedlings on scientific lines; that the other plants are
grown on prepared beds on lands owned by it and the plants are
then grafted or budded; that the resulting grafts are transplanted in
suitable containers and are reared in green houses or in shade and
after they take root, they are transmitted to large containers filled
with top soil and manure, etc., till they establish themselves; and
thereafter those plants are sold and that the primary source of the
plant is the mother plant, which is reared on earth and for which
activities, certainly contribution of human labour and energy are
essential.
8. Our attention was then invited by learned counsel to the decision
of the Supreme Court in the case of CIT v. Raja Benoy Kumar
Sahas Roy, [1957] 32 ITR 466, which is the leading case of
"agriculture". It was held therein 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 and these are basic operations, which
require the expenditure of human skill and labour upon the land
itself. The apex court further held that besides the basic operations,
the subsequent operations would also be comprehended within the
terms of agriculture, and such subsequent operations are illustrated
as weeding, digging the soil around the growth, removal of
undesirable undergrowth and all operations which foster the growth
and preservation of the same not only from insects and pests, but
also from depradation, from outside, tending, pruning, cutting,
harvesting and rendering the produce fit for the market, which
would all be agricultural operations, when taken in conjunction with
the basic operations.
9. All the products of the land, which have some utility either for
consumption or for trade or commerce, if they are based on land,
would be agricultural products. Here, it is not the case of the
Revenue that without performing the basic operations, only the
subsequent operations, as described in the decision of the apex
court have been performed by the assessee. If the plants sold by
the assessee in pots were the result of the basic operations on the
land on expending human skill and labour thereon and it is only
after the performance of the basic operations on the land, the
resultant product grown or such part thereof as was suitable for
being nurtured in a pot, was separated and placed in a pot and
nurtured with water and by placing them in the green house or in
shade and after performing several operations, such as weeding,
watering, manuring, etc., they are made ready for sale as plants all
these questions would be agricultural operations all this involves
human skill and effort. Thus, the plants sold by the assessee in pots
were the result of primary as well as subsequent operations
comprehended within the term "agriculture" and they are clearly
the products of agriculture.
10. So far as the seeds are concerned, we are surprised that, that
question should have been raised at all by the Revenue, as it is not
possible for the seeds to exist without the mother plants, and the
mother plant, it is nobody's case, was not grown on land. It is also
not the case of the Revenue that the seeds were the result of the
wild growth and not on account of cultivation by the assessee. The
seeds were clearly a product of agriculture and the income derived
from the sale of seeds, was agricultural income."
22. The Hon'ble Supreme Court in CIT v. Benoy Kumar Sahas
Roy 3 held in paragraph Nos.89 and 91 as under:
"89. We have, therefore, to consider when it can be said that the
land is used for agricultural purposes or agricultural operations are
performed on it. Agriculture is the basic idea underlying the
expressions "agricultural purposes" and "agricultural operations"
and it is pertinent therefore to enquire what is the connotation of
the term "agriculture". As we have noted above, the primary sense
in which the term agriculture is understood is agar -- field and
cultra -- cultivation i.e. the cultivation of the field and if the term is
understood only in that sense, agriculture would be restricted only
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. They would be the basic operations and
would require the expenditure of human skill and labour upon the
land itself. There are however other operations which have got to
be resorted to by the agriculturist and which are absolutely
necessary for the purpose of effectively raising the produce from
(1957) 32 ITR 466 : 1957 SCC OnLine SC 34
the land. They are operations to be performed after the produce
sprouts from the land e.g. weeding, digging the soil around the
growth, removal of undesirable under-growths and all operations
which foster the growth and preserve the same not only from
insects and pests but also from depradation from outside, tending,
pruning, cutting, harvesting, and rendering the produce fit for the
market. The latter would all be agricultural operations when taken
in conjunction with the basic operations above described, and it
would be futile to urge that they are not agricultural operations at
all. But even though these subsequent operations may be
assimilated to agricultural operations, when they are in conjunction
with these basic operations, could it be said that even though they
are divorced from these basic operations they would nevertheless
enjoy the characteristic of agricultural operations? Can one
eliminate these basic operations altogether and say that even if
these basic operations are not performed in a given case the mere
performance of these subsequent operations would be tantamount
to the performance of agricultural operations on the land so as to
constitute the income derived by the assessee therefrom
agricultural income within the definition of that term?
91. In considering the connotation of the term "agriculture" we
have so far thought of cultivation of land in the wider sense as
comprising within its scope the basic as well as the subsequent
operations described above, regardless of the nature of the
products raised on the land. These products may be grain or
vegetables or fruits which are necessary for the sustenance of
human beings including plantations and groves, or grass or pasture
for consumption of beasts or articles of luxury such as, betel,
coffee, tea, spices, tobacco etc., or commercial crops like, cotton,
flax, jute, hemp, indigo etc. All these are products raised from the
land and the term "agriculture" cannot be confined merely to the
production of grain and food products for human beings and beasts
as was sought to be done by BhashyamAyyangar, J., in Murugessa
Chetti v. Chinnathambi Goundun [(1901) ILR 24 Mad 421, 423] or
Sadashiva Ayyar, J., in Rajah of Venkatigiri v. Ayyappa
Reddi [(1913) ILR 38 Mad 738] but must be understood as
comprising all the products of the land which have some utility
either for consumption or for trade and commerce and would also
include forest products such as timber, sal and piyasal trees,
casuarina plantations, tendu leaves, horranuts etc."
23. The Gujarat High Court in the case of Shri Puransingh M.
Verma (supra) held as under:
"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 regard to its operations as well as the results
of the same'. Nevertheless there is present all throughout the basic
idea that there must be at the bottom of it cultivation of land in the
sense of tilling of the land, sowing of the seeds, planting, and
similar work done on the land itself This basic conception is the
essential sine qua non of any operation performed on the land
constituting agricultural operation. If the basic operations are there,
the rest of the operations found themselves upon the same. But if
these basic operations are wanting the subsequent operations do
not acquire the characteristic of agricultural operations. All these
operations no doubt require the expenditure of human labour and
skill but the human labour and skill spent in the performance of the
basic operations only can be said to have been spent upon the land.
The human labour and skill spent in the performance of subsequent
operations cannot be said to have been spent on the land itself,
though it may have the effect of preserving, fostering and
regenerating the products of the land.
This distinction is not so important in cases where the agriculturist
performs these operations as a part of his integrated activity in
cultivation of the land. Where, however, the products of the land
are of spontaneous growth, unassisted by human skill and labour,
and human skill and labour are spent merely in fostering the
growth, preservation and regeneration of such products of land, the
question falls to be considered whether these subsequent
operations performed by the agriculturist are agricultural operations
and enjoy the characteristic of agricultural operations."
[Emphasis Supplied]
6.2 In the case of Green Gold Tree Farmers P. Ltd. (supra), similar
case wherein the assessee also used to carry on nursery business
came up for consideration before the Uttarakhand High Court. The
Uttarakhand High Court relying upon the decision of the Apex Court
in the case of Raja Benoy Kumar Sahas Roy (supra) held that sale
proceeds of the land belonging to the assessee constituted income
from agriculture and hence should be exempted from tax under the
Act. The relevant paragraphs are quoted as under:
The terms "agriculture" and "agricultural purposes" not having been
defined in the Indian Income-tax Act, but necessarily fall back upon
the general sense in which they have been understood in common
parlance. "Agriculture" in its root sense, means a gear, a field and
cultivate, cultivation of field which of course implies expenditure of
human skill and labour upon land. Turning to the dictionary
meaning of "agriculture", Webster's New International Dictionary
describing it as the art or science of cultivating the ground,
including rearing and management of livestock husbandry farming,
etc., and also including in its good sense farming, horticulture,
forestry, butter and cheese making, etc. Murray's Oxford Dictionary
describes it as the science and art of cultivating the soil, including
the allied pursuits of gathering in the crop and rearing livestock,
tillage, husbandly, farming in the widest sense. In Bouviers' Law
Dictionary quoting the Standard Dictionary agriculture is defined as
the cultivation of soil for food products or any other useful or
valuable growths of the field of garden, tillage, husbandry, also by
extension, farming, including any industry practised by cultivator of
the soil in connection with such cultivation as breeding and rearing
of stock, dairying, etc. The science that treats of the cultivation of
the soil. In Corpus juris Secundum the term "agriculture" has been
understood to mean, art or science of cultivating the ground,
especially in fields of large quantities, including the preparation of
soil, the planting of seeds, the raising and harvesting of crops, and
the rearing, feeding and management of livestock tillage,
husbandry and farming. In its general sense, the word also includes
gardening or horticulture. Century Dictionary and Anderson's
Dictionary of Law: The primary meaning of 'agriculture' is the
cultivation of the ground, and in its general sense, it is the
cultivation of the ground for the purpose of procuring vegetables
and fruits for the use of man and beast including gardening or
horticulture and the raising or feeding of cattle and other stock.
Wharton's Law Lexicon adopts the definition of agriculture, in 8
Edn. VII, C. 36. As including horticulture, forestry and the use of
land for any purpose of husbandry, etc. In 10 Edn. VII, C8, Section
41, it was defined so as to include the use of land as meadow or
pasture land or orchard or osier or woodland or for market gardens,
nursery grounds, or allotments, etc. In 57 and 58 Vict C 30 Section
22, the term "agricultural property" was" defined so as to include
agricultural land, pasture, and woodland, etc."
24. This High Court also in the case of The Commissioner of
Income Tax, Hyderabad vs. M/s. Prabhat Agri-Biotech Ltd. 4
had an occasion of dealing with a similar issue which arose for
consideration and while considering the said issue, it was held as
under:
"In this case, we find that the assessee claimed for exemption
under Section 10 (1) of the Income Tax Act, 1961 treating the
income generated from the sale of basic/foundation seeds as
agricultural income. Therefore, the question is whether the income
arising from out of the sale of seeds can be treated to be income
otherwise than the agricultural income. No one can dispute that the
seed is the product of agricultural activity and the seeds cannot be
sold commercially, unless it is produced by agricultural activity.
We are unable to accept this farfetched idea that artificial
production of seeds can be sold or used for commercial purpose.
May be a few hybrid seeds could be produced by artificial method in
a laboratory. The seeds so produced with non-agricultural activity
again will have to be sown in the agriculture field to have a larger
quantity for sale in the market. Accordingly, we hold that the seed
is a product of agricultural activity. Therefore, the sale of the same
cannot be brought under the provisions of the Income Tax Act. We,
therefore, upheld the decision of the learned Tribunal in this
matter."
25. The fundamental question before us is whether the
employment of advanced scientific techniques and laboratory-
ITTA No.88 of 2014, decided on 21.02.2014
based processes necessarily transforms what is essentially an
agricultural activity into a commercial or business operation. In our
view, the essence of the assessee's activity remains rooted in
agriculture, the cultivation of mother plants on land through basic
agricultural operations, followed by the multiplication and
propagation of plant material through tissue culture technology.
The 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 and 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.
26. This Bench finds considerable merit in the learned counsel for
the appellant's contention that tissue culture operations represents
a natural evolution and modernization of traditional agricultural
practices. The cultivation of mother plants on land involves all the
basic agricultural operations contemplated under Section 2(1A) of
the Act i.e. tilling, planting, nurturing, and harvesting. The
subsequent laboratory based multiplication process is essentially
an extension and intensification of the propagation that would
otherwise occur naturally or through conventional vegetative
methods such as grafting, layering, or cutting. 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. Agriculture, like all human endeavors, evolves with
technological advancement and the introduction of tissue culture
technology serves the same purpose as traditional agricultural
methods, the production of plant material for cultivation, but
achieves this objective with greater efficiency, uniformity, and
disease-free quality. To deny the agricultural character of such
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.
27. Interestingly, this very Bench recently in The Principal
Commissioner of Income Tax vs. M/s. Nuziveedu Seeds
Ltd. 5 regarding hybrid seeds has taken a remarkably progressive
view on agricultural income classification and this perspective
holds significant relevance for tissue culture operations. In the said
case, this Bench recognized that even though the assessee
company was not directly involved in agricultural operations but
worked through farmers using scientific research, hybridization
techniques, and extensive supervision and the income still qualified
as agricultural income. The Bench specifically noted that while the
production involved scientific study, research and development of
parent seeds, and elaborate technical processes, the crucial factor
was that the cultivation occurred under the company's supervision
and control on agricultural land. This reasoning suggests that
where agricultural operations forms the foundational basis of the
enterprise even when sophisticated scientific technology is
employed to enhance or multiply plant material, the income may
still retain its agricultural character. The Bench also emphasized on
the indirect involvement through contracted farmers who
performed agricultural operations under the company's technical
guidance which mirrors the situation in tissue culture where
[2025] taxmann.com 486 (Telangana)
mother plants are grown on leased land and laboratory processes
serve to multiply and enhance the basic agricultural output. Thus,
the same logic also apply to tissue culture operations that begin
with basic agricultural operations and use laboratory techniques
merely as an advanced method of plant propagation rather than a
complete departure from agriculture.
28. In light of the foregoing analysis and following the precedent
established by various Courts earlier in similar cases involving the
production of agricultural products through modern scientific
methods, we hold that the income earned by the assessee from
the sale of tissue cultured plants constitutes agricultural income
within the meaning of Section 2(1A) of the Act and is therefore
exempted from tax under Section 10(1) of the Act holding that
mother plants are grown on land owned or leased by the assessee
through basic agricultural operations and the tissue culture process
that follows is merely an advanced method of propagating and
multiplying the plant material derived from those mother plants.
The 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.
29. Taking into consideration the definition and also the
precedents cited above, this Bench is of the considered opinion
that the income derived from tissue culture operations by the
assessee qualifies as agricultural income which is exempted under
Section 10(1) of the Act. Accordingly, the instant Appeal viz.,
Income Tax Tribunal Appeal No.92 of 2008 filed by the assessee
stands allowed and the question of law stands decided in favour of
the assessee and against the Revenue.
30. Consequently, Income Tax Tribunal Appeal No.92 of 2008
also stands allowed.
31. As a sequel, miscellaneous petitions pending if any, shall
stand closed. However, there shall be no order as to costs.
_____________
P.SAM KOSHY, J
_________________________
NARSING RAO NANDIKONDA, J
Date: 21.11.2025
Note: LR Copy to be marked.
(B/o)GSD
